Xcel Energy 2005 Annual Report Download - page 80

15. NUCLEAR OBLIGATIONS
Fuel Disposal NSP-Minnesota is responsible for temporarily storing used or spent nuclear fuel from its nuclear plants. The DOE is responsible
for permanently storing spent fuel from NSP-Minnesota’s nuclear plants as well as from other U.S. nuclear plants. NSP-Minnesota has funded
its portion of the DOE’s permanent disposal program since 1981. The fuel disposal fees are based on a charge of 0.1 cent per kilowatt-hour
sold to customers from nuclear generation. Fuel expense includes DOE fuel disposal assessments of approximately $12 million in 2005,
$13 million in 2004 and $13 million in 2003. In total, NSP-Minnesota had paid approximately $346 million to the DOE through Dec. 31, 2005.
However, it is not determinable whether the amount and method of the DOE’s assessments to all utilities will be sufficient to fully fund the
DOE’s permanent storage or disposal facility.
The Nuclear Waste Policy Act required the DOE to begin accepting spent nuclear fuel no later than Jan. 31, 1998. In 1996, the DOE notified
commercial spent-fuel owners of an anticipated delay in accepting spent nuclear fuel by the required date and conceded that a permanent
storage or disposal facility will not be available until at least 2010. NSP-Minnesota and other utilities have commenced lawsuits against the
DOE to recover damages caused by the DOE’s failure to meet its statutory and contractual obligations.
NSP-Minnesota has its own temporary on-site storage facilities for spent fuel at its Monticello and Prairie Island nuclear plants, which consist
of storage pools and a dry cask facility. With the dry cask storage facility licensed by the NRC, approved in 1994 and again in 2003, management
believes it has adequate storage capacity to continue operation of its Prairie Island nuclear plant until at least the end of its license terms in
2013 and 2014. The Monticello nuclear plant has storage capacity in the pool to continue operations until 2010. Storage availability to permit
operation beyond these dates is not known at this time. All of the alternatives for spent fuel storage are being investigated until a DOE facility
is available, including pursuing the establishment of a private facility for interim storage of spent nuclear fuel as part of a consortium of
electric utilities.
Nuclear fuel expense includes payments to the DOE for the decommissioning and decontamination of the DOE’s uranium-enrichment facilities.
In 1993, NSP-Minnesota recorded the DOE’s initial assessment of $46 million, which is payable in annual installments from 1993 to 2008.
NSP-Minnesota is amortizing each installment to expense on a monthly basis. The most recent installment paid in 2005 was $4.7 million;
future installments are subject to inflation adjustments under DOE rules. NSP-Minnesota is obtaining rate recovery of these DOE assessments
through the cost-of-energy adjustment clause as the assessments are amortized. Accordingly, the unamortized assessment of $8.3 million at
Dec. 31, 2005, is deferred as a regulatory asset.
Regulatory Plant Decommissioning Recovery Decommissioning of NSP-Minnesota’s nuclear facilities, as last approved by the MPUC, is
planned for the period from cessation of operations through 2040, assuming the prompt dismantlement method. NSP-Minnesota is currently
accruing the costs for decommissioning over the MPUC-approved cost-recovery period and including the accruals in Accumulated Depreciation.
Upon implementation of SFAS No. 143, the decommissioning costs in Accumulated Depreciation and ongoing accruals are reclassified to a
regulatory liability account. The total decommissioning cost obligation is recorded as an asset retirement obligation in accordance with
SFAS No. 143.
Monticello began operation in 1971 and is licensed to operate until 2010. Prairie Island units 1 and 2 began operation in 1973 and 1974,
respectively, and are licensed to operate until 2013 and 2014, respectively. In 2003, the Minnesota Legislature changed a law that had limited
expansion of on-site storage. On Aug. 25, 2004, the Xcel Energy board of directors authorized the pursuit of renewal of the operating licenses
for the Monticello and Prairie Island nuclear plants. NSP-Minnesota filed its application for Monticello with the MPUC in January 2005, seeking
a certificate of need for dry spent-fuel storage, and filed an application in March 2005 with the NRC for an operating license extension of up
to 20 years. A decision regarding Monticello relicensing is expected in 2007. Plant assessments and other work for the Prairie Island applications
are planned in the next two or three years. The Prairie Island license renewal process has not yet begun.
Consistent with cost recovery in utility customer rates, NSP-Minnesota records annual decommissioning accruals based on periodic site-specific
cost studies and a presumed level of dedicated funding. Cost studies quantify decommissioning costs in current dollars. Current authorized
funding presumes that costs will escalate in the future at a rate of 4.19 percent per year. The total estimated decommissioning costs that will
ultimately be paid, net of income earned by external trust funds, is currently being accrued using an annuity approach over the approved
plant-recovery period. This annuity approach uses an assumed rate of return on funding, which is currently 5.5 percent, net of tax, for external
funding and approximately 8 percent, net of tax, for internal funding. The net unrealized gain on nuclear decommissioning investments is
deferred as a Regulatory Liability based on the assumed offsetting against decommissioning costs in current ratemaking treatment.
The MPUC last approved NSP-Minnesota’s nuclear decommissioning study request in December 2003, using 2002 cost data. In October 2005,
NSP-Minnesota filed with the MPUC a nuclear decommissioning study using 2005 cost data. Xcel Energy’s recommendation is to reduce the
2006 funding if approved by the MPUC. Xcel Energy expects the MPUC to approve a new funding amount in 2006.
Internal funding for all retail jurisdictions was transferred to the external funds by the end of 2005. Based on the last MPUC approval requiring
the acceleration of the internal fund transfer, there is a step change in the level of the overall decommissioning expense at the expiration of
the transfer beginning Jan. 1, 2006. Expecting to operate Prairie Island through the end of each unit’s licensed life, the approved capital
recovery will allow for the plant to be fully depreciated, including the accrual and recovery of decommissioning costs, in 2014. Xcel Energy
believes future decommissioning cost accruals will continue to be recovered in customer rates.
The total obligation for decommissioning currently is expected to be funded 100 percent by external funds, as approved by the MPUC.
Contributions to the external fund started in 1990 and are expected to continue until plant decommissioning begins. The assets held in trusts
as of Dec. 31, 2005, primarily consisted of investments in fixed income securities, such as tax-exempt municipal bonds and U.S. government
securities that mature in one to 20 years, and common stock of public companies. NSP-Minnesota plans to reinvest matured securities until
decommissioning begins.
78 XCEL ENERGY 2005 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS