Xcel Energy 2005 Annual Report Download

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  • Page 18
    ... pany; NRG Energy, Inc. (NRG), an independent pow er producer; Xcel Energy International, Inc., an international independent pow er producer; and e prim e inc. (e prim e), a natural gas m arketing and trading com pany. Discontinued operations classifications are the result of sales or plans to sell...

  • Page 19
    ... in the electric and natural gas segm ents; and - Several nonregulated subsidiaries and the holding com pany, w here corporate fi nancing activity occurs. Discontinued operations consist of the follow ing: - Quixx Corp., w hich was classifi ed as held for sale in the third quarter of 2005 based on...

  • Page 20
    ... sharing, if applicable. Com m odity trading revenues are reported net of related costs (i.e., on a m argin basis) in the Consolidated Statem ents of Operations. Com m odity trading costs include purchased pow er, transm ission, broker fees and other related costs. 18 XCEL ENERGY 2005 ANNUAL REPORT

  • Page 21
    ... and tim ing of recovery of fuel costs (other jurisdictions) Firm w holesale Pricing and other Total base electric utility m argin increase (decrease) 2005 vs. 2004 2004 vs. 2003 $ 75 42 16 21 7 (15) (14) 23 8 $163 $(56) 55 (6) (25) (12) (10) (20) 27 (16) $(63) XCEL ENERGY 2005 ANNUAL REPORT 19

  • Page 22
    ... Base electric utility m argin decreased due to the im pact of w eather, higher fuel and purchased energy costs not recovered through direct pass-through recovery m echanism s and regulatory accruals associated w ith potential custom er refunds related to service-quality obligations in Colorado and...

  • Page 23
    ... plant outage costs Higher uncollectible receivable costs Higher donations to energy assistance program s Higher m utual aid assistance costs Higher electric service reliability costs Higher (low er) inform ation technology costs Higher (low er) plant-related costs Higher costs related to custom...

  • Page 24
    ... savings from refi nancing higher coupon debt during 2003 and low er credit line fees, partially offset by interest expense related to prior-period IRS audits. In co m e Tax Ex p en se The effective incom e tax rate for continuing operations w as 25.8 percent for 2005, com pared w ith 23.7 percent...

  • Page 25
    ... discontinued operations Income (loss) per share Viking Gas Transm ission Co. Black M ountain Gas Cheyenne Light, Fuel and Pow er Co. Regulated utility segm ents - incom e per share NRG segm ent - loss per share NRG-related tax benefi ts (expense) Xcel Energy International e prim e Seren Utility...

  • Page 26
    ... w ith 2003. Projections indicate that w eathernorm alized sales grow th in 2006 com pared w ith 2005 w ill range betw een 1.3 percent and 1.7 percent for retail electric utility custom ers and 0.0 percent to 1.0 percent for fi rm natural gas utility custom ers. 24 XCEL ENERGY 2005 ANNUAL REPORT

  • Page 27
    ...during the second half of 2005 and has continued in 2006, to date. In response to this reduced coal dispatch, Xcel Energy has increased purchases from third parties and has increased the use of natural gas for electric generation. In addition, Xcel Energy negotiated for the acquisition of additional...

  • Page 28
    ... levels and other calculations prescribed by the funding requirem ents of incom e tax and other pension-related regulations. These regulations did not require cash funding in recent years for Xcel Energy's pension plans, and do not require funding in 2006. Assum ing that future asset return levels...

  • Page 29
    ... econom ic conditions. The electric and natural gas rates charged to custom ers of Xcel Energy's utility subsidiaries are approved by the FERC and the regulatory com m issions in the states in w hich they operate. The rates are generally designed to recover plant investm ent, operating costs and...

  • Page 30
    ... illion. In 2004, Xcel Energy received form al notifi cation that the IRS w ill seek penalties. If penalties (plus associated interest) are also included, the total exposure through Dec. 31, 2005, is approxim ately $428 m illion. Xcel Energy estim ates its annual earnings for 2006 w ould be reduced...

  • Page 31
    ... a higher potential likelihood of resulting in m aterially different reported am ounts under different conditions or using different assum ptions. Each critical accounting policy has been discussed w ith the audit com m ittee of the Xcel Energy board of directors. XCEL ENERGY 2005 ANNUAL REPORT 29

  • Page 32
    ...Operations Analysis Discontinued Operations Factors Affecting Results of Continuing Operations Im pact of Nonregulated Investm ents Notes to Consolidated Financial Statem ents Note 2 Xcel Energy continually m akes inform ed judgm ents and estim ates related to these critical accounting policy areas...

  • Page 33
    ... pensation expense for perform ance share plans that expire unexercised due to the com pany's failure to reach a certain target stock price cannot be reversed. Any accruals m ade for Xcel Energy's restricted stock unit plan that w ere granted in 2004 and based on a total shareholder return could not...

  • Page 34
    ... m odel em ploys a 95-percent confi dence interval level based on historical price m ovem ent, lognorm al price distribution assum ption, delta half-gam m a approach for non-linear instrum ents and a three-day holding period for both electricity and natural gas. 32 XCEL ENERGY 2005 ANNUAL REPORT

  • Page 35
    ... and equity price risk. As of Dec. 31, 2005 and 2004, these funds w ere invested prim arily in dom estic and international equity securities and fi xed-rate fi xed-incom e securities. Per NRC m andates, these funds m ay be used only for activities related to nuclear decommissioning. The accounting...

  • Page 36
    ...and liquidity under Capital Sources. CA PI TA L REQU I REM EN T S Utility Capital Expenditures, Nonregulated Investm ents and Long-Term Debt Obligations The estim ated cost of the capital expenditure program s of Xcel Energy and its subsidiaries, excluding discontinued operations, and other capital...

  • Page 37
    ... be rated investm ent grade by at least one nationally recognized rating agency. On Feb. 10, 2006, Xcel Energy's senior unsecured debt was considered investm ent grade by Standard & Poor 's Ratings Services (Standard & Poor 's), M oody's and Fitch Ratings (Fitch). XCEL ENERGY 2005 ANNUAL REPORT 35

  • Page 38
    ...ficant short-term funding need is the dividend payment. As of Feb. 14, 2006, Xcel Energy and its utility subsidiaries had the follow ing com m itted credit facilities available to m eet its liquidity needs: (M illions of dollars) NSP-M innesota NSP-Wisconsin PSCo PSCo SPS Xcel Energy - holding com...

  • Page 39
    ... FI N A N CI N G PL A N S Xcel Energy generally expects to fund its operations and capital investm ents prim arily through internally generated funds. Xcel Energy plans to refinance existing long-term debt or scheduled long-term debt m aturities at each of the regulated operating utilities based on...

  • Page 40
    ...The m anagem ent of Xcel Energy is responsible for establishing and m aintaining adequate internal control over financial reporting. Xcel Energy's internal control system w as designed to provide reasonable assurance to the com pany's m anagem ent and board of directors regarding the preparation and...

  • Page 41
    ... of the Com pany's internal control over fi nancial reporting based on our audit. We conducted our audit in accordance w ith the standards of the Public Com pany Accounting Oversight Board (United States). Those standards require that w e plan and perform the audit to obtain reasonable assurance...

  • Page 42
    ...accounting principles generally accepted in the United States of Am erica. We have also audited, in accordance w ith the standards of the Public Com pany Accounting Oversight Board (United States), the effectiveness of the Com pany's internal control over financial reporting as of Decem ber 31, 2005...

  • Page 43
    ... of dollars, except per share data) Operating revenues Electric utility Natural gas utility Nonregulated and other Total operating revenues Operating expenses Electric fuel and purchased pow er - utility Cost of natural gas sold and transported - utility Cost of sales - nonregulated and other Other...

  • Page 44
    ...sale of assets Equity investm ents, loans, deposits and sales of nonregulated projects Restricted cash Other investm ents Investing cash ï¬, ow s provided by discontinued operations Net cash used in investing activities Financing activities Short-term borrow ings - net Proceeds from issuance of long...

  • Page 45
    ...purchased natural gas and electric energy costs Derivative instrum ents valuation - at m arket Prepaym ents and other Current assets held for sale and related to discontinued operations Total current assets Property, plant and equipm ent, at cost: Electric utility plant Natural gas utility plant Com...

  • Page 46
    ..., 2004 Net incom e M inim um pension liability Net derivative instrum ent fair value changes during the period (see Note 12) Unrealized gain - m arketable securities Com prehensive incom e for 2005 Dividends declared: Cum ulative preferred stock Com m on stock Issuances of com m on stock Balance at...

  • Page 47
    ... discount Total Less current m aturities Total PSCo long-term debt SPS Unsecured Senior B Notes, due Nov. 1, 2006, 5.125% Unsecured Senior A Notes, due M arch 1, 2009, 6.2% Unsecured Senior C and D Notes, due Oct. 1, 2033, 6% Pollution control obligations, securing pollution control revenue bonds...

  • Page 48
    ... - Cheyenne: Due Jan. 1, 2024, 7.5% Industrial Developm ent Revenue Bonds, due Sept. 1, 2021-M arch 1, 2027, variable rate, 2.12% at Dec. 31, 2004 Total long-term debt from discontinued operations Cumulative Preferred Stock - authorized 7,000,000 shares of $100 par value; outstanding shares: 2005...

  • Page 49
    ... electric and natural gas utility that was sold in January 2005. See Note 2 to the Consolidated Financial Statements for more information on the discontinued operations of Viking, BM G and Cheyenne. During 2005, Xcel Energy's board of directors approved m anagem ent's plan to pursue the sale of UE...

  • Page 50
    ...er cost-recovery factor. - In Colorado, PSCo operates under an electric performance-based regulatory plan, which provides for an annual earnings test in which earnings above the authorized return on equity are refunded to custom ers. NSP-M innesota and PSCo operate under various service standards in...

  • Page 51
    ...designated responsible parties exist, only Xcel Energy's expected share of the cost is estim ated and recorded. Any future costs of restoring sites w here operation m ay extend indefi nitely are treated as a capitalized cost of plant retirem ent. The depreciation expense levels recoverable in rates...

  • Page 52
    ...million, or 6 cents per share, were recorded for the natural gas utility segment, primarily related to the sale of Viking. N RG S EG M EN T Ch an g e i n A cco u n t i n g f o r N RG i n 2003 Prior to NRG's bankruptcy fi ling in M ay 2003, Xcel Energy accounted for NRG as a consolidated subsidiary...

  • Page 53
    ... in 2003. In 2004, the NRG basis study was updated and previously recognized tax benefits were reduced by $13 million. In 2005, a $17 million tax benefit was recorded to reï¬,ect the final federal income tax resolution of Xcel Energy's divested interest in NRG. XCEL ENERGY 2005 ANNUAL REPORT 51

  • Page 54
    ... assets Current assets Property, plant and equipm ent - net Deferred incom e tax benefi ts Other noncurrent assets Noncurrent assets Accounts payable - trade Other current liabilities Current liabilities Long-term debt Other noncurrent liabilities Noncurrent liabilities 2005 $ 12,658 - 6,101 157...

  • Page 55
    ... good-until-canceled uncom m itted credit line w ith KBC Bank to provide additional short-term seasonal liquidity as a result of higher natural gas prices. As of Dec. 31, 2005, PSCo had not utilized this credit line. 4. LON G-TERM DEBT Cr ed i t Faci l i t i es At Dec. 31, 2005, Xcel Energy and its...

  • Page 56
    ..., 2005, Xcel Energy had six series of preferred stock outstanding, redeem able at its option at prices ranging from $102.00 to $103.75 per share plus accrued dividends. Under the PUHCA, unless there was an order from the SEC, a holding com pany or any subsidiary could declare and pay dividends only...

  • Page 57
    ... insurance and decom m issioning costs. The Wisconsin Public Service Corporation is no longer participating in NM C after the sale of its Kewaunee nuclear power plant in July 2005. In January 2006, Florida Power & Light purchased the majority interest in the Duane Arnold plant from Alliant Energy...

  • Page 58
    ... shares outstanding used to calculate Xcel Energy's earnings per share include the dilutive effect of stock options and other stock awards based on the treasury stock method. The options normally have a term of 10 years and generally becom e exercisable from three to fi ve years after grant date...

  • Page 59
    ... m ittee of Xcel Energy's board of directors approved restricted stock units and perform ance shares under the Xcel Energy Inc. Om nibus Incentive Plan. On Jan. 2, 2004, Xcel Energy granted 836,186 restricted stock units and perform ance shares. The grant-date m arket price used to calculate the TSR...

  • Page 60
    ... dividends w ill be subject to the FERC's jurisdiction under the Federal Pow er Act, w hich prohibits the paym ent of utility dividends out of capital accounts. The Articles of Incorporation of Xcel Energy place restrictions on the am ount of com m on stock dividends it can pay w hen preferred stock...

  • Page 61
    ..., tim ber ventures, private equity and a diversifi ed com m odities index. The actual com position of pension plan assets at Dec. 31 was: 2005 Equity securities Debt securities Real estate Cash Nontraditional investm ents 65% 20 4 1 10 100% 2004 69% 19 4 1 7 100% XCEL ENERGY 2005 ANNUAL REPORT 59

  • Page 62
    ... s Cash funding requirem ents can be im pacted by changes to actuarial assum ptions, actual asset levels and other pertinent calculations prescribed by the funding requirem ents of incom e tax and other pension-related regulations. These regulations did not require 60 XCEL ENERGY 2005 ANNUAL REPORT

  • Page 63
    ... in equity funds. Also, a portion of the assets contributed on behalf of nonbargaining retirees has been funded into a sub-account of the Xcel Energy pension plans. These assets are invested in a m anner consistent w ith the investm ent strategy for the pension plan. XCEL ENERGY 2005 ANNUAL REPORT...

  • Page 64
    ...: 2005 Equity and equity m utual fund securities Fixed incom e/debt securities Cash equivalents Nontraditional Investm ents 61% 17 21 1 100% 2004 54% 21 25 - 100% Xcel Energy bases its investm ent-return assum ption for the postretirem ent health care fund assets on expected long-term perform ance...

  • Page 65
    ...cost under SFAS No. 106 (a) Additional cost recognized due to effects of regulation Net cost recognized for fi nancial reporting Significant assumptions used to measure costs (income) Discount rate Expected average long-term rate of return on assets (pretax) 2005 $ 6,684 55,060 (25,700) - - 14,578...

  • Page 66
    ... Xcel Energy's utility subsidiaries are exposed to com m odity price risk in their electric and natural gas operations. Com m odity price risk is m anaged by entering into both long- and short-term physical purchase and sales contracts for electric capacity, energy and other energy-related products...

  • Page 67
    ...and forward starting swaps, that effectively fix the yield or price on a specified treasury security for a specific period. These derivative instrum ents are designated as cash ï¬, ow hedges for accounting purposes. As of Dec. 31, 2005, Xcel Energy had net gains related to settled interest rate lock...

  • Page 68
    ...The fair values of Xcel Energy's long-term debt is estim ated based on the quoted m arket prices for the sam e or sim ilar issues, or the current rates for debt of the sam e rem aining m aturities and credit quality. The fair value estim ates presented are based on inform ation available to m anagem...

  • Page 69
    ...On Dec. 31, 2005, Xcel Energy had the follow ing am ount of guarantees and exposure under these guarantees, including those related to Seren and Xcel Energy Argentina, w hich are com ponents of discontinued operations: Triggering Event Requiring Perform ance (e) (e) (M illions of dollars) Nature of...

  • Page 70
    ... are expected to be recoverable in M innesota retail custom er rates, m ainly through existing costrecovery m echanism s. Funding com m itm ents to the Renewable Developm ent Fund w ould term inate after the Prairie Island plant discontinues operation unless the M PUC determ ines that NSP-M innesota...

  • Page 71
    ... Dec. 31, 2005, the estim ated future paym ents for capacity that the utility subsidiaries of Xcel Energy are obligated to purchase, subject to availability, are as follow s: (Thousands of dollars) 2006 2007 2008 2009 2010 2011 and thereafter Total EN V I RO N M EN TA L CO N T I N G EN CI ES $ 564...

  • Page 72
    .... In M ay 2005, PSCo fi led a natural gas rate case w ith the CPUC requesting recovery of cleanup costs at the Fort Collins M GP plant spent through M arch 2005, w hich am ounted to $6.2 m illion to be am ortized over four years. Xcel Energy reached a settlem ent agreem ent w ith the parties in the...

  • Page 73
    ... to nearby residents is relatively low . The EPA referred the m atter to its RCRA program . On Nov. 24, 2004, the EPA sent a letter to the COGCC requesting that the COGCC contact Xcel Energy and request certain inform ation concerning the closure. To date no form al request has been received by PSCo...

  • Page 74
    ... actively involved in the stakeholder process in Colorado and w ill also be involved as other states begin their process. Due to the uncertainties of the m any decisions involved in this process, Xcel Energy is not able to estim ate the cost im pact at this tim e. 72 XCEL ENERGY 2005 ANNUAL REPORT

  • Page 75
    ...life of the related long-lived assets. The recording of the obligation for regulated operations has no incom e statem ent im pact due to the deferral of the adjustm ents through the establishm ent of a regulatory asset pursuant to SFAS No. 71. In M arch 2005, the Financial Accounting Standards Board...

  • Page 76
    ... that have special closure requirem ents for w hich the fi nal rem oval date cannot be determ ined. Rem ov al Co st s Xcel Energy accrues an obligation for plant rem oval costs for other generation, transm ission and distribution facilities of its utility subsidiaries. Generally, the accrual...

  • Page 77
    ... and options and/or the price of natural gas underlying those contracts in violation of the Com m odities Exchange Act. In February 2004, the plaintiff requested that this action be consolidated w ith a sim ilar suit involving Reliant Energy Services. In February XCEL ENERGY 2005 ANNUAL REPORT 75

  • Page 78
    ... Eastern District of California by Utility Savings and Refund Services LLP and subsequently served on Xcel Energy. The law suit, filed on behalf of a purported class of natural gas purchasers, alleges that Xcel Energy falsely reported natural gas trades to m arket trade publications in an effort to...

  • Page 79
    ...by an estim ated $361 m illion. In 2004, Xcel Energy received form al notifi cation that the IRS w ill seek penalties. If penalties (plus associated interest) also are included, the total exposure through Dec. 31, 2005, is approxim ately $428 m illion. Xcel Energy annual earnings for 2006 w ould be...

  • Page 80
    ...storage. On Aug. 25, 2004, the Xcel Energy board of directors authorized the pursuit of renewal of the operating licenses for the M onticello and Prairie Island nuclear plants. NSP-M innesota fi led its application for M onticello w ith the M PUC in January 2005, seeking a certifi cate of need for...

  • Page 81
    ...funding of future costs. The 2005 nuclear decom m issioning fi ling has not been used for the regulatory presentation because it is effective for 2006. How ever, the fi ling and all the updated param eters w ere used for a new ARO layer for SFAS No. 143 recognition. XCEL ENERGY 2005 ANNUAL REPORT...

  • Page 82
    ...ay require to be paid back to custom ers in future electric and natural gas rates. Any portion of Xcel Energy's business that is not regulated cannot use SFAS No. 71 accounting. If changes in the utility industry or the business of Xcel Energy no longer allow for the application of SFAS No. 71 under...

  • Page 83
    ...ent. Xcel Energy evaluates perform ance by each legal entity based on profi t or loss generated from the product or service provided. Regulated Natural Gas Utility $ 2,307,385 17,732 $ 2,325,117 $ 89,174 47,145 32,923 $ 71,213 (Thousands of dollars) 2005 Operating revenues from external custom ers...

  • Page 84
    ...am ount previously reported in the Annual Report on Form 10-K for 2004. These adjustm ents are a result of fees collected from custom ers on behalf of governm ental agencies that w ere reclassified to be presented net of the related paym ents m ade to the agencies. 82 XCEL ENERGY 2005 ANNUAL REPORT

  • Page 85
    ... New York Stock Exchange lists som e of Xcel Energy's preferred stock. In new spaper listings, it appears as XcelEngy. I N V ESTO R REL AT I O N S 1-877-914-9235 STO CK T RA N S FER A G EN T Internet address: w w w.xcelenergy.com or contact Richard Kolkm ann, M anaging Director, Investor Relations...

  • Page 86
    ...Public Service Com pany Cynt hia L. Lesher President and CEO - Northern States Pow er Com pany-M innesota M ichael L. Sw enson President and CEO - Northern States Pow er Com pany-Wisconsin Pat ricia K. Vincent President and CEO - Public Service Com pany of Colorado 84 XCEL ENERGY 2005 ANNUAL REPORT

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    U.S. Bancorp Center 414 Nicollet Mall Minneapolis, MN 55401 Xcel Energy investors hotline: 1-877-914-9235 www.xcelenergy.com © 2006 Xcel Energy Inc. Xcel Energy is a trademark of Xcel Energy Inc. Printed on recycled paper, using soy-based inks CSS#0208