Xcel Energy 2005 Annual Report Download - page 19

The third phase is earning a fair return on our investments. To ensure that we earn a fair return, our regulatory strategy is to receive regulatory
approval for rate riders as well as general rate cases. A rate rider is a mechanism that allows us to recover certain costs and returns on investments
without the costs and delays of filing a rate case. These riders allow for timely revenue recovery and are good mechanisms to recover the costs
of large projects or other costs that vary over time. As an example, a rider for MERP went into effect in January 2006, allowing us to earn a
return on the project while the facility is being constructed.
We also are filing general rate cases to increase revenue recovery in most of the states in which we operate. In 2005, we filed several rate
cases as part of our regulatory strategy. These rate cases, and others that we plan to file in 2006, are some of the building blocks of our
earnings growth plan. Following is the current status of these initiatives:
– We reached constructive decisions in the Colorado natural gas case and Wisconsin electric and natural gas cases, which will increase revenue
in 2006 (see Factors Affecting Results of Continuing Operations for further discussion).
– We are on track with the Minnesota electric case, where interim rates, subject to refund, went into effect in January 2006. We expect a
decision in the third quarter of this year.
– Later in the year we plan to file electric cases in Colorado, Texas, New Mexico, and possibly North Dakota and South Dakota. If we are
successful, these cases should increase revenue and earnings in 2007.
Our regulatory strategy is based on filing reasonable rate requests designed to provide recovery of legitimate expenses and a return on our
utility investments. We believe that our commissions will provide us with reasonable recovery, and it’s important to note that our financial
plans include this assumption. Recent constructive results, along with past rulings, are evidence of reasonable regulatory treatment and give
us confidence that we are pursuing the right strategy.
With any strategic plan, there are goals and objectives. We feel the following financial objectives are both realistic and achievable:
– Annual earnings-per-share growth rate target of 5 percent to 7 percent from 2005–2009;
– Annual dividend increases of 2 percent to 4 percent; and
– Senior unsecured debt credit ratings in the BBB+ to A range.
Successful execution of our Building the Core strategic plan should allow us to achieve our financial objectives, which in turn should provide
investors with an attractive total return on a low-risk investment.
FINANCIAL REVIEW
The following discussion and analysis by management focuses on those factors that had a material effect on Xcel Energy’s financial condition,
results of operations and cash flows during the periods presented, or are expected to have a material impact in the future. It should be read
in conjunction with the accompanying Consolidated Financial Statements and Notes. All note references refer to the Notes to Consolidated
Financial Statements.
SUMMARY OF FINANCIAL RESULTS
The following table summarizes the earnings contributions of Xcel Energy’s business segments on the basis of generally accepted accounting
principles (GAAP). Continuing operations consist of the following:
– Regulated utility subsidiaries, operating in the electric and natural gas segments; and
– Several nonregulated subsidiaries and the holding company, where corporate financing activity occurs.
Discontinued operations consist of the following:
– Quixx Corp., which was classified as held for sale in the third quarter of 2005 based on a decision to divest this investment;
– Utility Engineering Corp., which was sold in April 2005;
– Seren, a portion of which was sold in November 2005, with the remainder sold in January 2006;
– Viking and BMG, which were sold in 2003;
– Cheyenne, which was sold in January 2005;
– NRG, which emerged from bankruptcy and was divested in late 2003; and
– Xcel Energy International and e prime, which were classified as held for sale in late 2003 based on the decision to divest them.
Certain items in the statements of operations have been reclassified from prior-period presentation to conform to the 2005 presentation.
See Note 2 to the Consolidated Financial Statements for a further discussion of discontinued operations.
Contribution to earnings (Millions of dollars) 2005 2004 2003
GAAP income (loss) by segment
Regulated electric utility segment income – continuing operations $440.6 $466.3 $461.3
Regulated natural gas utility segment income – continuing operations 71.2 86.1 94.1
Other utility results (a) 27.6 6.1 6.0
Total utility segment income – continuing operations 539.4 558.5 561.4
Holding company costs and other results (a) (40.3) (36.2) (38.6)
Total income – continuing operations 499.1 522.3 522.8
Regulated utility income (loss) – discontinued operations 0.2 (9.0) 26.8
NRG loss – discontinued operations (1.1) – (251.4)
Other nonregulated income (loss) – discontinued operations (b) 14.8 (157.3) 324.2
Total income (loss) – discontinued operations 13.9 (166.3) 99.6
Total GAAP net income $513.0 $356.0 $622.4
XCEL ENERGY 2005 ANNUAL REPORT 17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS