Xcel Energy 2004 Annual Report Download - page 76

NOTES to CONSOLIDATED FINANCIAL STATEMENTS
Xcel Energy Annual Report 2004
74
16. COMMITMENTS AND CONTINGENCIES
Commitments
Legislative Resource Commitments In 1994 and 2003, NSP-Minnesota received Minnesota legislative approval for additional on-site temporary
spent-fuel storage facilities at its Prairie Island nuclear power plant, provided NSP-Minnesota satisfies certain requirements. Commitments related to the
17 dry cask storage containers approved in 1994 have been fulfilled. The use of 29 dry cask storage containers has been approved. As of Dec. 31, 2004,
NSP-Minnesota had loaded 17 of the containers.
On May 29, 2003, the Minnesota Legislature enacted legislation that will enable NSP-Minnesota to store at least 12 more casks of spent fuel outside
the Prairie Island nuclear generating plant, in addition to those approved in 1994. This will allow NSP-Minnesota to continue to operate the plant and
store spent fuel in the facility until its licenses with the Nuclear Regulatory Commission (NRC) expire in 2013 and 2014. The legislation transfers
the primary authority concerning future spent-fuel storage issues from the state Legislature to the MPUC. It also allows for additional storage without
the requirement of an affirmative vote from the state Legislature, if the NRC extends the licenses of the Prairie Island and Monticello plants and the
MPUC grants a certificate of need for such additional storage. The legislation requires NSP-Minnesota to add at least 300 megawatts of additional wind
power by 2010 with an option to own 100 megawatts of this power.
The legislation also requires payments during the remaining operating life of the Prairie Island plant. These payments include: $2.25 million per year to
the Prairie Island Tribal Community beginning in 2004; 5 percent of NSP-Minnesota’s conservation program expenditures (estimated at $2 million
per year) to the University of Minnesota for renewable energy research; and an increase in funding commitments to the previously established Renewable
Development Fund from $8.5 million in 2002 to $16 million per year beginning in 2003. The legislation also designated $10 million in one-time grants
to the University of Minnesota for additional renewable energy research, which is to be funded from commitments already made to the Renewable
Development Fund. All of the cost increases to NSP-Minnesota from these required payments and funding commitments are expected to be recoverable
in Minnesota retail customer rates, mainly through existing cost-recovery mechanisms. Funding commitments to the Renewable Development Fund would
terminate after the Prairie Island plant discontinues operation unless the MPUC determines that NSP-Minnesota failed to make a good faith effort to
store or dispose of the spent fuel out of state, in which case NSP-Minnesota would have to make payments in the amount of $7.5 million per year.
Capital Commitments As discussed in Liquidity and Capital Resources under Management’s Discussion and Analysis, the estimated cost, as of
Dec. 31, 2004, of the capital expenditure programs and other capital requirements of Xcel Energy and its subsidiaries is approximately $1.5 billion
in 2005, $2.3 billion in 2006 and $1.8 billion in 2007.
The capital expenditure programs of Xcel Energy are subject to continuing review and modification. Actual utility construction expenditures may vary
from the estimates due to changes in electric and natural gas projected load growth, the desired reserve margin and the availability of purchased power,
as well as alternative plans for meeting Xcel Energy’s long-term energy needs. In addition, Xcel Energy’s ongoing evaluation of restructuring requirements,
compliance with future requirements to install emission-control equipment, and merger, acquisition and divestiture opportunities to support corporate
strategies may impact actual capital requirements.
Leases Xcel Energy and its subsidiaries lease a variety of equipment and facilities used in the normal course of business. Some of these leases qualify
as capital leases and are accounted for accordingly. The capital leases contractually expire in 2025 and 2029. The net book value of property under
capital leases was approximately $48.9 million and $47.7 million at Dec. 31, 2004 and 2003, respectively. Assets acquired under capital leases are recorded
as property at the lower of fair market value or the present value of future lease payments, and are amortized over their actual contract term in accordance
with practices allowed by regulators. The related obligation is classified as long-term debt. Executory costs are excluded from the minimum lease payments.
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 $57.5 million, $65.0 million and
$67.8 million for 2004, 2003 and 2002, respectively.
Expected operating lease expenses and future commitments under capital leases for continuing operations are:
(Millions of dollars) Operating Leases Capital Leases
2005 $55 $ 7
2006 $59 $ 6
2007 $59 $ 6
2008 $57 $ 6
2009 $58 $ 6
Thereafter $72 $ 74
Total minimum obligation $105
Interest (56)
Present value of minimum obligation $49
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 2004, Xcel Energy paid
IBM $152.5 million under the contract and $24.5 million for other project business. The contract also has a committed minimum payment each
year from 2005 through 2011.