Xcel Energy 2004 Annual Report Download - page 77

NOTES to CONSOLIDATED FINANCIAL STATEMENTS
Xcel Energy Annual Report 2004
75
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 2005 and 2025. In total, Xcel Energy is committed to the minimum
purchase of approximately $2.2 billion of coal, $133.1 million of nuclear fuel and $2.8 billion of natural gas, including $1.0 billion of natural gas storage
and transportation, or to make payments in lieu thereof, under these contracts. 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 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 and SPS 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. Certain contractual payment obligations are adjusted based on indexes. However, the effects of price adjustments are mitigated
through cost-of-energy adjustment mechanisms.
At Dec. 31, 2004, the estimated future payments for capacity that the utility subsidiaries of Xcel Energy are obligated to purchase, subject to availability,
are as follows:
(Thousands of dollars)
2005 $ 554,786
2006 588,335
2007 605,154
2008 600,309
2009 572,006
2010 and thereafter 3,584,923
Tot a l $6,505,513
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, 2004, there were three categories of sites:
– the site of a former federal uranium enrichment facility;
– sites of former manufactured gas plants (MGPs) operated by our subsidiaries or predecessors; and
– 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.
Xcel Energy records a liability when enough information is obtained to develop an estimate of the cost of environmental remediation and revises the
estimate as information is received. The estimated remediation cost may vary materially.
To estimate the cost to remediate these sites, assumptions are made when facts are not fully known. For instance, assumptions may be made about the
nature and extent of site contamination, the extent of required cleanup efforts, costs of alternative cleanup methods and pollution-control technologies,
the period over which remediation will be performed and paid for, changes in environmental remediation and pollution-control requirements, the potential
effect of technological improvements, the number and financial strength of other PRPs and the identification of new environmental cleanup sites.
Estimates are revised as facts become known. At Dec. 31, 2004, the liability for the cost of remediating these sites was estimated to be $44.0 million,
of which $19.3 million was considered to be a current liability. Some of the cost of remediation may be recovered from:
– insurance coverage;
– other parties that have contributed to the contamination; and
– customers.
Neither the total remediation cost nor the final method of cost allocation among all PRPs of the unremediated sites has been determined. Estimates have
been recorded for Xcel Energy’s future costs for these sites.
Federal Uranium Enrichment Facility
Approximately $5.4 million of the long-term liability and $4.6 million of the current liability relate to a DOE assessment to NSP-Minnesota and
PSCo for decommissioning a federal uranium enrichment facility. These environmental liabilities do not include accruals recorded and collected from
customers in rates for future nuclear fuel disposal costs or decommissioning costs related to NSP-Minnesota’s nuclear generating plants. See Note 17
to the Consolidated Financial Statements for further discussion of nuclear obligations.