Xcel Energy 2005 Annual Report Download - page 26

OTHER NONREGULATED RESULTS –DISCONTINUED OPERATIONS
In April 2005, Zachry Group, Inc. acquired all of the outstanding shares of UE, a nonregulated subsidiary. In August 2005, Xcel Energy’s
board of directors approved management’s plan to pursue the sale of Quixx Corp., a former subsidiary of UE that partners in cogeneration
projects and was not included in the sale of UE to Zachry. As a result, Xcel Energy is reporting UE and Quixx as components of discontinued
operations for all periods presented.
In September 2004, Xcel Energy’s board of directors approved management’s plan to pursue the sale of Seren. As a result of the decision,
Seren is accounted for as discontinued operations. In November 2005, Xcel Energy sold Seren’s California assets to WaveDivision Holdings,
LLC. In January 2006, Xcel Energy sold Seren’s Minnesota assets to Charter Communications.
During 2003, Xcel Energy’s board of directors approved management’s plan to exit businesses conducted by e prime and Xcel Energy
International. e prime ceased conducting business in 2004. Also during 2004, Xcel Energy completed the sales of the Argentina subsidiaries
of Xcel Energy International.
2005 Nonregulated Results Compared with 2004 Results of discontinued nonregulated operations in 2005 include the impact of a
$5 million reduction to the original asset impairment for Seren and the positive impact of a $17 million tax benefit recorded to reflect the
final resolution of Xcel Energy’s divested interest in NRG. In 2004, the NRG tax basis study was updated and previously recognized tax benefits
were reduced by $13 million.
2004 Nonregulated Results Compared with 2003 Results of discontinued nonregulated operations in 2004 include the impact of the
sales of the Argentina subsidiaries of Xcel Energy International. The sales were completed in three transactions, with a total sales price of
approximately $31 million. In addition to the sales price, Xcel Energy also received approximately $21 million at the closing of one transaction
as redemption of its capital investment. The sales resulted in a gain of approximately $8 million, including approximately $7 million of
income tax benefits realizable upon the sale of the Xcel Energy International assets.
In addition, 2004 results from discontinued operations include the impact of an after-tax impairment charge for Seren of $143 million, or
34 cents per share. The impairment charge was recorded based on operating results, market conditions and preliminary feedback from
prospective buyers.
Tax Benefits Related to Investment in NRG Xcel Energy has recognized tax benefits related to the divestiture of NRG. Since these tax
benefits are related to Xcel Energy’s investment in discontinued NRG operations, they are reported as discontinued operations.
During 2002, Xcel Energy recognized an initial estimate of the expected tax benefits of $706 million. Based on the results of a 2003 preliminary
tax basis study of NRG, Xcel Energy recorded $404 million of additional tax benefits 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 reflect the final federal
income tax resolution of Xcel Energy’s divested interest in NRG.
Based on current forecasts of taxable income and tax liabilities, Xcel Energy expects to realize approximately $1.1 billion of cash savings
from these tax benefits through a refund of taxes paid in prior years and reduced taxes payable in future years. In 2005, 2004 and 2003, Xcel
Energy used $24 million, $345 million and $116 million, respectively, of these tax benefits, and expects to use $180 million in 2006. The
remainder of the tax benefit carry forward is expected to be used over subsequent years.
FACTORS AFFECTING RESULTS OF CONTINUING OPERATIONS
Xcel Energy’s utility revenues depend on customer usage, which varies with weather conditions, general business conditions and the cost of
energy services. Various regulatory agencies approve the prices for electric and natural gas service within their respective jurisdictions and
affect Xcel Energy’s ability to recover its costs from customers.The historical and future trends of Xcel Energy’s operating results have been,
and are expected to be, affected by a number of factors, including the following:
General Economic Conditions
Economic conditions may have a material impact on Xcel Energy’s operating results. The United States economy continues to grow as
measured by projected growth in the gross domestic product. Management cannot predict the impact of a future economic slowdown,
fluctuating energy prices, terrorist activity, war or the threat of war. However, Xcel Energy could experience a material adverse impact to its
results of operations, future growth or ability to raise capital resulting from a general slowdown in future economic growth or a significant
increase in interest rates.
Sales Growth
In addition to the impact of weather, customer sales levels in Xcel Energy’s utility businesses can vary with economic conditions, energy
prices, customer usage patterns and other factors. Weather-normalized sales growth for retail electric utility customers was 1.4 percent in
2005 compared with 2004, and 1.8 percent in 2004 compared with 2003. Weather-normalized sales growth for firm natural gas utility customers
was approximately 0.2 percent in 2005 compared with 2004, and (1.9) percent in 2004 compared with 2003. Projections indicate that weather-
normalized sales growth in 2006 compared with 2005 will range between 1.3 percent and 1.7 percent for retail electric utility customers and
0.0 percent to 1.0 percent for firm natural gas utility customers.
24 XCEL ENERGY 2005 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS