Xcel Energy 2006 Annual Report Download

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2 0 0 6 A N N U A L R E P O R T
Results that really matter

Table of contents

  • Page 1
    Results that really matter 2006 A N N UA L R E P O RT

  • Page 2
    ... to include in this year's annual report What really matters, a DVD illustrating Xcel Energy's most important commitments. They include the efforts we are making to deliver safe, reliable energy, protect the environment, support our communities and build value for you. By viewing the DVD, you can...

  • Page 3
    ... electric and natural gas company, with annual revenues of $10 billion. Based in Minneapolis, Minn., Xcel Energy operates in eight states. The company provides a comprehensive portfolio of energy-related products and services to 3.3 million electricity customers and 1.8 million natural gas customers...

  • Page 4
    ... leadership is a top priority for Xcel Energy Chairman, President and CEO Dick Kelly (below), which is clear in the company's ranking as the No. 1 utility wind provider in the nation, among other environmental achievements. M E G A W AT T S M E G A W AT T S XCEL ENERGY 2006 ANNUAL REPORT...

  • Page 5
    ...in our core electric and natural gas businesses to meet the growing energy needs of our customers and then earn a fair return on those investments. Progress continued in 2006 on a number of large investments, including a $1 billion project to replace two Minnesota coal-fired plants with natural gas...

  • Page 6
    A RECORD YEAR FOR TRANSMISSION INVESTMENTS E X C E L L E N C E Xcel Energy employees strive for excellence in all aspects of their work, whether they are operating power plants, maintaining transmission lines or managing construction projects. XCEL ENERGY 2006 ANNUAL REPORT 4

  • Page 7
    ... earn a fair return on major investments. In the regulatory arena in 2006, we reached constructive conclusions in electric rate cases in Colorado and Minnesota, and in an electric and natural gas case in Wisconsin. We also requested natural gas rate increases in Minnesota, Colorado and North Dakota...

  • Page 8
    ...R AT E C I T I Z E N S H I P Xcel Energy supports the communities in its service territory with corporate contributions, United Way donations, grants to nonprofit organizations and a program to match employee gifts. Employees and retirees also volunteer their time in many ways. 40% C O R P O R AT...

  • Page 9
    ... Utility Innovations, we are able company also were outstanding in 2006. Our Energy Supply business area, for example, ended the year with excellent safety results and major capital projects on schedule. Employees kept power plants operating despite difficulties such as hot weather, low water...

  • Page 10
    ...cost structure and energy delivery, and to improve customer satisfaction. EEI also honored us for our environmental achievements. In addition, Xcel Energy was named to the 2006-2007 Dow Jones Sustainability Index (DJSI) for North America. The companies listed on the DJSI are considered best in class...

  • Page 11
    ...OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-3034 Xcel Energy Inc. (Exact name of registrant as specified in its charter) Minnesota (State or Other Jurisdiction of Incorporation or Organization) 414 Nicollet Mall, Minneapolis, Minnesota (Address of Principal Executive Offices) 41...

  • Page 12
    ... ...COMPANY OVERVIEW ...ELECTRIC UTILITY OPERATIONS ...Electric Utility Trends...NSP-Minnesota ...NSP-Wisconsin ...PSCo...SPS ...Electric Operating Statistics ...NATURAL GAS UTILITY OPERATIONS ...Natural Gas Utility Trends ...NSP-Minnesota ...NSP-Wisconsin ...PSCo...Natural Gas Operating Statistics...

  • Page 13
    ... life insurance policies Southwestern Public Service Co., a New Mexico corporation Utility Engineering Corporation, an engineering, construction and design company NSP-Minnesota, NSP-Wisconsin, PSCo, SPS WestGas Interstate, Inc., a Colorado corporation operating an interstate natural gas pipeline...

  • Page 14
    ... SPS electric utility expired in 2006. A new QSP for the PSCo electric utility provides for bill credit to customers based upon operational performance standards through December 31, 2010. The QSP for the PSCo natural gas utility expires December 2007. Renewable cost recovery adjustment. Allows NSP...

  • Page 15
    ...from net settlement The system of lines, transformers, switches and mains that connect electric and natural gas transmission systems to customers. Earnings per share of common stock outstanding Employee Retirement Income Security Act Financial Accounting Standards Board Financial Transmission Rights...

  • Page 16
    ... Southwest Power Pool, Inc. Standard & Poor's Ratings Services Transmission and Energy Markets Tariff Texas Commission of Environmental Quality Amount of service rendered but not billed at the end of an accounting period. Cycle meter-reading practices result in unbilled consumption between the date...

  • Page 17
    .... In 2006, Xcel Energy's continuing operations included the activity of four wholly-owned utility subsidiaries that serve electric and natural gas customers in 8 states. These utility subsidiaries are NSP-Minnesota, NSP-Wisconsin, PSCo and SPS. These utilities serve customers in portions of Colorado...

  • Page 18
    ...million was recognized. SPS now provides wholesale service to Tri-County Electric Cooperative. Other Subsidiaries WGI was incorporated in 1990 under the laws of Colorado. WGI is a small interstate natural gas pipeline company engaged in transporting natural gas from the PSCo system near Chalk Bluffs...

  • Page 19
    ...Developments The FERC has jurisdiction over rates for electric transmission service in interstate commerce and electricity sold at wholesale, hydro facility licensing, natural gas transportation, accounting practices and certain other activities of Xcel Energy's utility subsidiaries. State and local...

  • Page 20
    ... allow NSP-Minnesota to bill customers for the cost of fuel and fuel related costs used to generate electricity at its plants and energy purchased from other suppliers. With NSP-Minnesota's participation in the MISO Day 2 market, questions were raised regarding the inclusion of certain MISO charges...

  • Page 21
    ...and energy management program expenditures. NSP-Minnesota is required to request a new cost recovery level annually. MERP Rider Regulation - In December 2003, the MPUC approved NSP-Minnesota's MERP proposal to convert two coal-fueled electric generating plants to natural gas, and to install advanced...

  • Page 22
    ... Purchased Transmission Services - NSP-Minnesota and NSP-Wisconsin have contractual arrangements with MISO to deliver power and energy to the NSP System for native load customers. Nuclear Power Operations and Waste Disposal - NSP-Minnesota owns two nuclear generating plants: the Monticello plant and...

  • Page 23
    ... if off-site low-level disposal facilities were not available to NSP-Minnesota. High-Level Radioactive Waste Disposal - The federal government has the responsibility to dispose of, or permanently store, domestic spent nuclear fuel and other high-level radioactive wastes. The Nuclear Waste Policy Act...

  • Page 24
    ... inventory at each plant site. Coal supply inventories at Dec. 31, 2006 were approximately 30 days usage, based on the maximum burn rate for all of NSP-Minnesota's coal-fired plants. Estimated coal requirements at NSP-Minnesota and NSPWisconsin's major coal-fired generating plants are approximately...

  • Page 25
    ... of the state commissions certifies the need for new generating plants and electric transmission lines before the facilities may be sited and built. NSP-Wisconsin is subject to the jurisdiction of the FERC with respect to its wholesale electric operations, accounting practices, wholesale sales for...

  • Page 26
    ... accepted for filing by the FERC. Performance-Based Regulation and Quality of Service Requirements - PSCo currently operates under an electric and natural gas PBRP. The major components of this regulatory plan include: • an electric QSP that provides for bill credits to customers if PSCo does not...

  • Page 27
    ..., 2006. Energy Sources and Related Transmission Initiatives PSCo expects to meet its system capacity requirements through existing electric generating stations, purchases from other utilities, independent power producers and power marketers, new generation facilities, demand-side management options...

  • Page 28
    ... plant site. Coal supply inventories at Dec. 31, 2006, were approximately 30 days usage, based on the maximum burn rate for all of PSCo's coal-fired plants. PSCo's generation stations use low-sulfur western coal purchased primarily under longterm contracts with suppliers operating in Colorado and...

  • Page 29
    ... 2006. Energy Sources and Related Transmission Initiatives SPS expects to use existing electric generating stations, purchases from other utilities, independent power producers and power marketers, and demand-side management options to meet its net dependable system capacity requirements. Purchased...

  • Page 30
    ... discussion of fuel supply and costs under Factors Affecting Results of Continuing Operations in Management's Discussion and Analysis under Item 7. Fuel Sources - SPS purchases all of its coal requirements for its two coal facilities, Harrington and Tolk electric generating stations, from TUCO...

  • Page 31
    Xcel Energy Electric Operating Statistics 2006 Year Ended Dec. 31, 2005 2004 Electric Sales (Millions of Kwh) Residential...Commercial and Industrial...Public Authorities and Other ...Total Retail ...Sales for Resale...Total Energy Sold ...Number of Customers at End of Period Residential......

  • Page 32
    .... NSP-Minnesota is required to file for a change in natural gas supply contract levels to meet peak demand, to redistribute demand costs among classes, or to exchange one form of demand for another. The 2006-2007 entitlement levels are pending MPUC action. Natural Gas Supply and Costs NSP-Minnesota...

  • Page 33
    ... charges to meet the peaks caused by firm space heating demand on extremely cold winter days. NSP-Wisconsin is required to file a natural gas supply plan with the PSCW annually to change natural gas supply contract levels to meet peak demand. NSP-Wisconsin's winter 2006-2007 supply plan...

  • Page 34
    ...and natural gas quality of service plan. See further discussion under Item 1, Electric Utility Operations. Capability and Demand PSCo projects peak day natural gas supply requirements for firm sales and backup transportation, which include transportation customers contracting for firm supply backup...

  • Page 35
    ... discussion under Item 1, Environmental Matters. PSCo is required by CPUC regulations to file a natural gas purchase plan by June of each year projecting and describing the quantities of natural gas supplies, upstream services and the costs of those supplies and services for the period beginning...

  • Page 36
    ...Energy's subsidiary facilities are regulated by federal and state environmental agencies. These agencies have jurisdiction over air emissions, water quality, wastewater discharges, solid wastes and hazardous substances. Various company activities require registrations, permits, licenses, inspections...

  • Page 37
    ...number of full-time Xcel Energy employees in continuing operations at Dec. 31, 2006, is presented in the table below. Of the fulltime employees listed below, 5,411 or 56 percent, are covered under collective bargaining agreements. NSP-Minnesota* ...NSP-Wisconsin...PSCo ...SPS ...Xcel Energy Services...

  • Page 38
    ... of our utility operations, including siting and construction of facilities, customer service and the rates that we can charge customers. The FERC has jurisdiction, among other things, over wholesale rates for electric transmission service and the sale of electric energy in interstate commerce...

  • Page 39
    ... of operations and cash flows. Should the IRS ultimately prevail on this issue, tax and interest payable through Dec. 31, 2006, would reduce earnings by an estimated $421 million. Xcel Energy has received formal notification that the IRS will seek penalties. If penalties (plus associated interest...

  • Page 40
    ... of fuel supplies and markets, particularly with respect to natural gas and purchased energy. War and the possibility of further war may have an adverse impact on the economy in general. Our generation plants, fuel storage facilities, transmission and distribution facilities and information systems...

  • Page 41
    ...may experience additional capital and operating costs to implement security for our plants, including our nuclear power plants under the NRC's design basis threat requirements, such as additional physical plant security and additional security personnel. The insurance industry has also been affected...

  • Page 42
    ... cover substantially all of our employees. Assumptions related to future costs, return on investments, interest rates and other actuarial assumptions have a significant impact on our funding requirements related to these plans. These estimates and assumptions may change based on actual stock market...

  • Page 43
    ...Virtually all of the electric utility plant of PSCo is subject to the lien of its first mortgage bond indenture. Electric utility generating stations: NSP-Minnesota Station, City and Unit Fuel Installed Summer 2006 Net Dependable Capability (MW) Steam: Sherburne-Becker, MN Unit 1 ...Unit 2 ...Unit...

  • Page 44
    ...Based on PSCo's ownership interest of 75.5 percent of unit 1 and 37.4 percent of unit 2. SPS Station, City and Unit Fuel Installed Summer 2006 Net Dependable Capability (MW) Steam: Harrington-Amarillo, TX 3 Units...Tolk-Muleshoe, TX 2 Units ...Jones-Lubbock, TX 2 Units ...Plant X-Earth, TX 4 Units...

  • Page 45
    ... government has designated the site as Yucca Mountain in Nevada. The nuclear waste disposal program has resulted in extensive litigation. On June 8, 1998, NSP-Minnesota filed a complaint in the U.S. Court of Federal Claims against the United States requesting breach of contract damages, past and...

  • Page 46
    ...SPS' service to the disputed customers. Manufactured Gas Plant Insurance Coverage Litigation - In October 2003, NSP-Wisconsin initiated discussions with its insurers regarding the availability of insurance coverage for costs associated with the remediation of four former MGP sites located in Ashland...

  • Page 47
    ... 5 - Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Quarterly Stock Data Xcel Energy's common stock is listed on the New York Stock Exchange (NYSE). The trading symbol is XEL. The following are the reported high and low sales prices based...

  • Page 48
    ...Book value per share at Dec. 31, 2006, was $14.28. The number of common shareholders of record as of Dec. 31, 2006 was 98,881. Xcel Energy's Restated Articles of Incorporation provide for certain restrictions on the payment of cash dividends on common stock. At Dec. 31, 2006 and 2005, the payment of...

  • Page 49
    ... 2002 average number of common and potentially dilutive shares has been restated to include the effect of dilutive securities, which were excluded in 2002 due to Xcel Energy's loss from continuing operations. Including these securities would have been antidilutive, or would have reduced the reported...

  • Page 50
    ... Continuing Operations Xcel Energy is a public utility holding company. In 2006, Xcel Energy continuing operations included the activity of four utility subsidiaries that serve electric and natural gas customers in 8 states. These utility subsidiaries are NSP-Minnesota; NSP-Wisconsin; PSCo; and SPS...

  • Page 51
    ... natural gas cases, which increased revenue in 2006. • A constructive decision was received in the Colorado electric rate case, which will increase 2007 revenue. (see Factors Affecting Results of Continuing Operations for the further discussion) • An electric rate case was filed in Texas and gas...

  • Page 52
    ... attributable to tax benefits recorded in 2004 related to the successful resolution of various income tax audit issues. Income from discontinued operations in 2005 includes the positive impact of a $17 million tax benefit recorded to reflect the final resolution of Xcel Energy's divested interest in...

  • Page 53
    ... sales requirements and unit cost changes in fuel and purchased power. Due to fuel and purchased energy cost-recovery mechanisms for customers in most states, the fluctuations in these costs do not materially affect electric utility margin. Xcel Energy has two distinct forms of wholesale sales...

  • Page 54
    ... Electric Utility Revenue 2006 vs. 2005 (Millions of Dollars) NSP-Minnesota electric rate changes ...Fuel and purchased power cost recovery...Sales growth (excluding weather impact) ...NSP-Wisconsin rate case ...MERP rider ...Conservation and non-fuel riders ...Quality of service obligations...SPS...

  • Page 55
    ... wholesale customers and lower regulatory accruals related to the Texas fuel reconciliation settlement. Base Electric Utility Margin 2006 vs. 2005 (Millions of Dollars) NSP-Minnesota electric rate changes ...NSP-Wisconsin rate changes, including fuel and purchased power cost recovery Sales growth...

  • Page 56
    ......Estimated impact of weather ...Other ...Total natural gas margin increase ... $ 32 8 (7) (4) (2) $ 27 $ 6 6 1 (2) 3 $ 14 2006 Comparison to 2005 - Natural gas margins increased in 2006 due to rate increases in Colorado, Wisconsin and Minnesota. Base rate changes include a full year of new rates...

  • Page 57
    ...Other Items Other Utility Operating and Maintenance Expenses 2006 vs. 2005 (Millions of Dollars) Transmission fees classification change ...Private Fuel Storage regulatory asset...Gains on sale or disposal of assets, net ...Lower nuclear plant outage costs...Higher employee benefit costs, primarily...

  • Page 58
    ... are incurred at the Xcel Energy and intermediate holding company levels, and are not directly assigned to individual subsidiaries. The earnings-per-share impact of financing costs and preferred dividends for 2006, 2005 and 2004 included above reflects dilutive securities, as discussed further in...

  • Page 59
    ... - Discontinued Operations (Net of Tax) A summary of the various components of discontinued operations is as follows for the years ended Dec. 31: 2006 2005 2004 Income (loss) in millions Viking Gas Transmission Co...Cheyenne ...Regulated utility segments - income (loss) ...NRG ...Xcel Energy...

  • Page 60
    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 ...

  • Page 61
    ... on changing energy market and general economic conditions. The electric and natural gas rates charged to customers of Xcel Energy's utility subsidiaries are approved by the FERC and the regulatory commissions in the states in which they operate. The rates are generally designed to recover plant...

  • Page 62
    ... of operations and cash flows. Should the IRS ultimately prevail on this issue, tax and interest payable through Dec. 31, 2006, would reduce earnings by an estimated $421 million. Xcel Energy has received formal notification that the IRS will seek penalties. If penalties (plus associated interest...

  • Page 63
    ... and spent nuclear fuel disposal expenses, costs charged to operating expenses for environmental monitoring and disposal of hazardous materials and waste were approximately: • $152 million in 2006; • $147 million in 2005; and • $133 million in 2004. Xcel Energy expects to expense an average of...

  • Page 64
    ... continues to develop and expand its customer conservation and demand side management programs. • Xcel Energy is working with public policy makers to support the development of a national climate policy to require the deployment of electric generation technology that emits little or no carbon...

  • Page 65
    ... 14 Management's Discussion and Analysis: Factors Affecting Results of Continuing Operations • Pension Plan Costs and Assumptions Notes to Consolidated Financial Statements • Notes 1 and 9 Xcel Energy continually makes judgments and estimates related to these critical accounting policy areas...

  • Page 66
    ... to commodity price risk in their electric and natural gas operations. Commodity price risk is managed by entering into both long- and short-term physical purchase and sales contracts for electric capacity, energy and energy-related products, and for various fuels used in generation and distribution...

  • Page 67
    ...Source of Fair Value NSP-Minnesota ...PSCo ...NSP-Wisconsin ...Total Options Fair Value ...1 - Prices actively quoted or based on actively quoted prices. 2 - Prices based on models and other valuation methods. These represent the fair value of positions calculated using internal models when directly...

  • Page 68
    ... these policies to reflect changes and scope of operations. Xcel Energy and its subsidiaries conduct standard credit reviews for all counterparties. Xcel Energy employs additional credit risk control mechanisms, such as letters of credit, parental guarantees, standardized master netting agreements...

  • Page 69
    ... of the states in which Xcel Energy has operations are considering renewable portfolio standards, which would require significant increases in investment in renewable generation and transmission. Xcel Energy would generally be able to meet these standards by either purchasing renewable power from an...

  • Page 70
    ...its current coal, nuclear fuel and natural gas requirements. Additionally, 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...

  • Page 71
    ... dividend payment. As of Feb. 20, 2007, Xcel Energy and its utility subsidiaries had the following committed credit facilities available to meet its liquidity needs: Facility Drawn* Available Cash Liquidity (Millions of Dollars) Maturity NSP-Minnesota ...PSCo ...SPS ...Xcel Energy - holding company...

  • Page 72
    ... Per Share Range Utility operations ...COLI tax benefit ...Holding company financing costs and other...Xcel Energy Continuing Operations ...Key Assumptions for 2007: • Normal weather patterns are experienced during the year; • Reasonable rate recovery is approved in the SPS Texas electric rate...

  • Page 73
    • The effective tax rate for continuing operations is approximately 28 percent to 31 percent; and • Average common stock and equivalents total approximately 433 million shares. Item 7A - Quantitative and Qualitative Disclosures About Market Risk See Management's Discussion and Analysis under ...

  • Page 74
    ... those criteria. Xcel Energy's independent auditors have issued an audit report on our assessment of the company's internal control over financial reporting. Their report appears on the following page. /S/ RICHARD C. KELLY Richard C. Kelly Chairman, President and Chief Executive Officer February 22...

  • Page 75
    ...on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan...

  • Page 76
    ...Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," as of December 31, 2006. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control...

  • Page 77
    ... operations before income taxes ...Income taxes ...Income from continuing operations ...Income (loss) from discontinued operations - net of tax (see Note 2) ...Net income ...Dividend requirements on preferred stock ...Earnings available to common shareholders...Weighted average common shares...

  • Page 78
    ...paid for income taxes (net of refunds received) ...Supplemental disclosure of non-cash investing transactions: Property, plant and equipment additions in accounts payable ...Supplemental disclosure of non-cash financing transactions: Issuance of common stock for reinvested dividends and 401(k) plans...

  • Page 79
    ...at average cost ...Recoverable purchased natural gas and electric energy costs ...Derivative instruments valuation ...Prepayments and other ...Current assets held for sale and related to discontinued operations ...Total current assets ...Property, plant and equipment, at cost: Electric utility plant...

  • Page 80
    ... net of tax of $(5,414) (see Note 9) ...Net derivative instrument fair value changes during the period, net of tax of $(5,549) (see Note 11)...Unrealized gain - marketable securities, net of tax of $77 ...Comprehensive income for 2004 ...Dividends declared: Cumulative preferred stock ...Common stock...

  • Page 81
    ... 2009, 6.875% ...Borrowings under credit facility, due April 2010, 5.05% ...Retail Notes, due July 1, 2042, 8% ...Other ...Unamortized discount-net ...Total ...Less current maturities ...Total NSP-Minnesota long-term debt ...PSCo First Mortgage Bonds, Series due: June 1, 2006, 7.125% ...Oct. 1, 2008...

  • Page 82
    ..., 7.5% ...Fair value hedge, carrying value adjustment ...Unamortized discount...Total ...Less current maturities ...Total Xcel Energy Inc. debt ...Total long-term debt ...Preferred Stockholders' Equity Preferred Stock - authorized 7,000,000 shares of $100 par value; outstanding shares: 2006: 1,049...

  • Page 83
    ...Xcel Energy continuing operations included the activity of four utility subsidiaries that serve electric and natural gas customers in 8 states. These utility subsidiaries are NSP-Minnesota, NSP-Wisconsin, PSCo and SPS. These utilities serve customers in portions of Colorado, Michigan, Minnesota, New...

  • Page 84
    .... In New Mexico, SPS has a monthly fuel and purchased power cost-recovery factor. • In Colorado, PSCo operates under an annual earnings test in which earnings above the authorized return on equity are refunded to customers. NSP-Minnesota and PSCo operate under various service quality standards in...

  • Page 85
    material, and extends over the estimated lives of the plants. The calculation assumes that NSP-Minnesota and NSP-Wisconsin will recover those costs through rates. The fair value of external nuclear decommissioning fund investments are estimated based on quoted market prices for those or similar ...

  • Page 86
    .... 2. Discontinued Operations Xcel Energy classified and accounted for certain assets as held for sale at Dec. 31, 2006 and 2005. Assets held for sale are valued on an asset-by-asset basis at the lower of carrying amount or fair value less costs to sell. In applying those provisions, management...

  • Page 87
    ... ...Net income from discontinued operations...2004 Operating revenue...Operating and other expenses ...Special charges and impairments...Pretax loss from operations of discontinued components ...Income tax expense (benefit) ...Loss from operations of discontinued components ...Estimated pretax...

  • Page 88
    ...major classes of assets and liabilities held for sale and related to discontinued operations as of Dec. 31 are as follows: 2006 2005 (Thousands of Dollars) Cash ...Trade receivables - net...Deferred income tax benefits ...Other current assets ...Current assets ...Property, plant and equipment - net...

  • Page 89
    ... owner of Sherco 3, an 860-MW, coal-fueled electric generating unit. NSP-Minnesota is the operating agent under the joint ownership agreement. NSP-Minnesota's share of operating expenses and construction expenditures are included in the applicable utility accounts. Each of the respective owners is...

  • Page 90
    ...date and going forward. Nuclear Plant Operation - The NMC is an operating company that manages the operations, maintenance and physical security of several nuclear generating units, including three units/two sites owned by NSP-Minnesota. NSP-Minnesota continues to own the plants, controls all energy...

  • Page 91
    ... weighted average number of common and potentially dilutive 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 become...

  • Page 92
    ... through dividend reinvestment. Restricted stock has a value equal to the market-trading price of Xcel Energy's stock at the grant date. Xcel Energy granted 10,481 shares of restricted stock in 2006 when the grant-date market price was $19.10. Xcel Energy granted 28,626 shares of restricted stock in...

  • Page 93
    ... options, net of related tax effects ...Pro forma net income ...Earnings per share: Basic - as reported ...Basic - pro forma ...Diluted - as reported ...Diluted - pro forma... Common Stock Dividends Per Share - Historically, Xcel Energy has paid quarterly dividends to its shareholders. Dividends on...

  • Page 94
    ... cash dividends on common stock at Dec. 31, 2006. The issuance of securities by Xcel Energy generally is not subject to regulatory approval. However, utility financings and certain intra-system financings are subject to the jurisdiction of the applicable state regulatory commissions and/or the FERC...

  • Page 95
    ... pension costs recognized for ratemaking and financial reporting purposes, subject to the limitations of applicable employee benefit and tax laws. Pension Plan Assets - Plan assets principally consist of the common stock of public companies, corporate bonds and U.S. government securities. The...

  • Page 96
    ... of 2001 sunset provisions. These changes are reflected as a plan amendment for purposes of SFAS No. 87. Benefit Costs - The components of net periodic pension cost (credit) are: 2006 2005 (Thousands of Dollars) 2004 Service cost ...Interest cost ...Expected return on plan assets...Curtailment gain...

  • Page 97
    ...1997. Plan Assets - Certain state agencies that regulate Xcel Energy's utility subsidiaries also have issued guidelines related to the funding of SFAS No. 106 costs. SPS is required to fund SFAS No. 106 costs for Texas and New Mexico jurisdictional amounts collected in rates, and PSCo is required to...

  • Page 98
    ...service and interest components of the net periodic cost ... $ 101,014 $ (84,398) $ 7,985 $ (6,533) Cash Flows - The postretirement health care plans have no funding requirements under income tax and other retirement-related regulations other than fulfilling benefit payment obligations, when claims...

  • Page 99
    ...natural gas operations. Commodity price risk is managed by entering into both long- and short-term physical purchase and sales contracts for electric capacity, energy and other energy-related products, and for various fuels used for generation of electricity and in the natural gas utility operations...

  • Page 100
    ... in these accounts are recorded in earnings as the hedged purchase or sales transaction is settled. This could include the purchase or sale of energy or energy-related products, the use of natural gas to generate electric energy or gas purchased for resale. As of Dec. 31, 2006, Xcel Energy had no...

  • Page 101
    ... fix the yield or price on a specified treasury security for a specific period. These derivative instruments are designated as cash flow hedges for accounting purposes. As of Dec. 31, 2006, Xcel Energy had net gains related to settled interest rate lock agreements of approximately $1.4 million...

  • Page 102
    ... accounts payable are not materially different from their carrying amounts. The fair values of Xcel Energy's debt securities in an external nuclear decommissioning fund and other investments are estimated based on quoted market prices for those or similar investments. The fair values of Xcel Energy...

  • Page 103
    ... The MISO is a FERC-regulated RTO that provides regional transmission tariff administration services for electric transmission systems, including those of NSP-Minnesota and NSP-Wisconsin. MISO also operates a regional wholesale energy market using Locational Marginal Pricing and financial congestion...

  • Page 104
    ..., 2006. The date FERC will take initial action is not known. Transmission service rates in the MISO region presently use a rate design, in which the transmission cost depends on the location of the load being served. Costs of existing transmission facilities are not regionalized. MISO is required to...

  • Page 105
    ... a monthly fuel cost adjustment clause (FCAC). NSP-Wisconsin proposes to unbundle transmission service and revise the FCAC to reflect current FERC regulatory policies, the advent of MISO operations and the MISO Day 2 energy market. In August 2006, ten customers filed a joint protest of the rate case...

  • Page 106
    ... if PSCo does not achieve certain operational performance targets. During the second quarter of 2006, PSCo filed its calendar year 2005 operating performance results for electric service unavailability, phone response time, customer complaints, accurate meter reading and natural gas leak repair time...

  • Page 107
    .... As a result, PSCo will not be required to pay any bill credits that may be owed for 2006 performance results for electric service unavailability. The maximum potential bill credit obligation for 2006 related to permanent natural gas leak repair and natural gas meter reading errors is approximately...

  • Page 108
    ...energy costs, which are recovered in Texas through a fixed-fuel and purchased energy recovery factor as a part of SPS' retail electric rates, will be reviewed. Various parties have filed testimony on base rate and fuel issues, including the Office of Public Utility Counsel; the state of Texas; Texas...

  • Page 109
    ... recovery in Minnesota. The project requires approval by the MPUC. The capital expenditure programs of Xcel Energy are subject to continuing review and modification. Actual utility construction expenditures may vary from the estimates due to changes in electric and natural gas projected load growth...

  • Page 110
    ...form of increased costs from market price changes in fuel, is mitigated through the use of natural gas and energy cost rate adjustment mechanisms, which provide for pass-through of most fuel, storage and transportation costs to customers. Purchased Power Agreements - The utility subsidiaries of Xcel...

  • Page 111
    ... 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...

  • Page 112
    ...a portion of the remediation costs from its insurance carriers. Any insurance proceeds received by NSP-Wisconsin will operate as a credit to ratepayers. Fort Collins Manufactured Gas Plant Site - Prior to 1926, Poudre Valley Gas Co., a predecessor of PSCo, operated an MGP in Fort Collins, Colo., not...

  • Page 113
    ... 2012, for phase I, based on allowance costs and fuel quality as of December 2006. In addition, Minnesota and Wisconsin will be included in CAIR, and Xcel Energy has generating facilities in these states that will be impacted. Preliminary estimates of capital expenditures associated with compliance...

  • Page 114
    ..., and the CAPCD. The rule requires controls to be installed at Pawnee Station in 2012 and all other Colorado units by 2014. Xcel Energy is evaluating the emission controls required to meet the new rule and is currently unable to provide a capital cost estimate. SPS continues to evaluate the strategy...

  • Page 115
    ... date of various facilities. Xcel Energy recognized an ARO for the retirement costs of natural gas mains at NSP-Minnesota, NSP- Wisconsin and PSCo. In addition, an ARO was recognized for the removal of electric transmission and distribution equipment at NSP-Minnesota, NSPWisconsin, PSCo and SPS...

  • Page 116
    ...natural gas storage facilities that have special closure requirements for which the final removal date cannot be determined. Removal Costs - Xcel Energy accrues an obligation for plant removal costs for other generation, transmission and distribution facilities of its utility subsidiaries. Generally...

  • Page 117
    ... Power Company vs. Encana Corporation et al. - On Sept. 14, 2004, a class action complaint was filed in the U.S. District Court for the Eastern District of California by Fairhaven Power Co. and subsequently served on Xcel Energy. The lawsuit, filed on behalf of a purported class of natural gas...

  • Page 118
    ...Colorado corporation, filed a complaint in Colorado State District Court for the City and County of Denver alleging that the defendants, including e prime and Xcel Energy, unlawfully prevented full and free competition in the trading and sale of natural gas, or controlled the market price of natural...

  • Page 119
    ...value of plaintiffs' loss is $6.8 million. Trial is scheduled to commence in January 2008. NSP-Minnesota denies these allegations and will vigorously defend itself in this matter. Hoffman vs. Northern States Power Company - On March 15, 2006, a purported class action complaint was filed in Minnesota...

  • Page 120
    ... Energy received notice of a purported class action lawsuit filed in U.S. District Court for the Southern District of Mississippi. The lawsuit names more than 45 oil, chemical and utility companies, including Xcel Energy, as defendants and alleges that defendants' CO2 "were a proximate and direct...

  • Page 121
    ...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 the DOE fuel disposal assessments of approximately $13 million in 2006, $12 million in 2005 and $13 million in 2004. In total, NSP-Minnesota...

  • Page 122
    ... 20 years, and common stock of public companies. NSP-Minnesota plans to reinvest matured securities until decommissioning begins. Consistent with cost recovery in utility customer rates, NSP-Minnesota records annual decommissioning accruals based on periodic site-specific cost studies and a presumed...

  • Page 123
    ... recovery in rates. These costs do not relate to NSP-Minnesota's nuclear plants. They relate to the DOE assessments, as discussed previously in Note 15. Excludes current portion expected to be returned to customers within 12 months of $17.7 million and $16.3 million for 2006 and 2005, respectively...

  • Page 124
    ...: Regulated Electric Utility, Regulated Natural Gas Utility and All Other. • Xcel Energy's Regulated Natural Gas Utility segment transports, stores and distributes natural gas primarily in portions of Minnesota, Wisconsin, North Dakota, Michigan and Colorado. Revenues from operating segments not...

  • Page 125
    ... 31, 2006 June 30, 2006 Sept. 30, 2006 Dec. 31, 2006 (Thousands of Dollars, except per share amounts) Revenue ...Operating income ...Income from continuing operations ...Discontinued operations - income...Net income ...Earnings available for common shareholders ...Earnings per share from continuing...

  • Page 126
    ... standards and rules issued by the Public Company Accounting Oversight Board (PCAOB) and as approved by the SEC and as indicated in Management Report on Internal Controls herein. Xcel Energy has concluded that the internal control over financial reporting was effective. Item 9B - Other Information...

  • Page 127
    ...set forth in Xcel Energy's Proxy Statement for its 2007 Annual Meeting of Shareholders, which is incorporated by reference. Information with respect to Executive Officers is included in Item 1 to this report. Item 11 - Executive Compensation Information required under this Item is set forth in Xcel...

  • Page 128
    ... Compensation Arrangements and Benefit Plans Covering Executive Officers and Directors 2. 3. * + 64 66 67 68 69 124 128 Xcel Energy 2.01* 2.02* 2.03* 2.04* 2.05* 2.06* 2.07* Agreement and Plan of Merger, dated as of March 24, 1999, by and between Northern States Power Co. and New Century Energies...

  • Page 129
    ...,000 Credit Agreement dated Dec. 14, 2006 between Xcel Energy Inc. and various lenders (Exhibit 99.01 to Form 8-K (file no. 001-03034) dated Dec. 14, 2006). NSP-Minnesota 4.15* Supplemental and Restated Trust Indenture, dated May 1, 1988, from Northern States Power Co. (a Minnesota corporation) to...

  • Page 130
    ...,000 Adams County, Colorado Pollution Control Refunding Revenue Bonds, 2005 Series A. (Exhibit 4.01 to PSCo Current Report on Form 8-K, dated Aug. 18, 2005, file number 001-3280). Registration Rights Agreement dated March 14, 2003 among Public Service Co. of Colorado , Bank One Capital Markets, Inc...

  • Page 131
    ...Plan (Exhibit A to Form DEF-14A (file no. 001-03034) filed Aug. 29, 2000). Xcel Energy Executive Annual Incentive Award Plan (Exhibit B to Form DEF-14A (file no. 001-03034) filed Aug. 29, 2000). Employment Agreement dated March 24, 1999, among Northern States Power Co. (a Minnesota corporation), New...

  • Page 132
    ... to the Xcel Energy Senior Executive Severance and Change-In-Control Policy dated Oct. 25, 2006. NSP-Minnesota 10.39* 10.40* 10.41* 10.42* Facilities Agreement, dated July 21, 1976, between Northern States Power Co. (a Minnesota corporation) and the Manitoba Hydro-Electric Board relating to the...

  • Page 133
    ... Public Service Co. of Colorado and Concerned Environmental and Community Parties, dated Dec. 3, 2004 (Exhibit 99.03 to Form 8-K (file no. 001-03034) dated Dec. 3, 2004). SPS 10.56* 10.57* 10.58* 10.59* 10.60* 10.61* Coal Supply Agreement (Harrington Station) between Southwestern Public Service...

  • Page 134
    ...Other income ...Interest charges and financing costs ...Total expenses and other deductions ...Income from continuing operations before taxes ...Income tax benefit ...Income from continuing operations...Income from discontinued operations, net of tax ...Net income ...Preferred dividend requirements...

  • Page 135
    ...XCEL ENERGY INC. Statements of Cash Flows (thousands of Dollars) 2006 Years Ended Dec. 31 2005 2004 Operating Activities: Net cash provided by (used in) operating... of common stock ...Common stock repurchase ...Dividends paid ...Net cash used in financing activities ...Net increase (decrease...

  • Page 136
    ... OF XCEL ENERGY INC. Balance Sheets (thousands of dollars) 2006 2005 Assets Cash and cash equivalents ...Accounts receivable from subsidiaries ...Other current assets ...Total Current Assets ...Investment in subsidiaries ...Other assets ...Noncurrent assets related to discontinued operations...

  • Page 137
    ... Income in Part II, Item 8. Basis of Presentation - The condensed financial information the holding company of Xcel Energy is presented to comply with Rule 12-04 of Regulation S-X. Xcel Energy's investments in subsidiaries are presented under the equity method of accounting. Under this method...

  • Page 138
    SCHEDULE II XCEL ENERGY INC. And Subsidiaries Valuation and Qualifying Accounts Years Ended Dec. 31, 2006, 2005 and 2004 (thousands of dollars) Balance at beginning of period Additions Charged to Charged to costs & other expenses accounts(1) Deductions from reserves(2) Balance at end of period...

  • Page 139
    ... Vice President and Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ RICHARD C. KELLY...

  • Page 140
    * A. PATRICIA SAMPSON * RICHARD K. DAVIS * TIMOTHY V. WOLF * /s/ TERESA S. MADDEN TERESA S. MADDEN Attorney-in-Fact Director Director Director 130

  • Page 141
    ... level of achievement in 2007 of the applicable goals . Corporate goals for 2007 include targeted earnings per share, an environmental measurement, and safety. Target annual incentive awards, as a percent of base salary, were set for all Xcel Energy officers, ranging from 100 percent of salary for...

  • Page 142
    ...primarily designed to attract and retain executives. Among the perquisites and benefits provided by the Company in 2006 to its executives are Company-paid life insurance in an amount equal to four times base pay, reduced to two times base salary post retirement (which, in general, the executives can...

  • Page 143
    ... have received under the Company's savings plans if the executive officer's employment had continued for one additional year; and (iv) for a period of one year following termination, continued medical, dental and life insurance benefits, and perquisite cash allowance. This change will be effective...

  • Page 144
    ... Non-Employee Directors to more closely align directors' interests with those of our shareholders. Under this Stock Equivalent Plan, which is filed as Exhibit 10.16 to this Form 10-K, directors may receive an annual award of stock equivalent units with each unit having a value equal to one share of...

  • Page 145
    ... the Code or (ii) promoting, marketing or recommending to any party any transaction or matter addressed herein. 3. Savings Clause. Except as hereinabove set forth, the Xcel Energy Senior Executive Severance and Change-In-Control Policy shall continue in full force and effect. 2. IN WITNESS WHEREOF...

  • Page 146
    Exhibit 12.01 XCEL ENERGY INC. STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (thousands of dollars) 2006 2005 Year ended Dec. 31, 2004 2003 2002 Earnings as defined: Pretax income from continuing operations ...Add: Fixed charges ...Deduct: Undistributed equity in earnings (...

  • Page 147
    ...Minnesota corporation) Northern States Power Co. (a Wisconsin corporation) Public Service Co. of Colorado Southwestern Public Service Co. WestGas InterState Inc. Xcel Energy Wholesale Group Inc. Utility Engineering Corp.(b) Xcel Energy Markets Holdings Inc. Xcel Energy International Inc. Xcel Energy...

  • Page 148
    ... the Northern States Power Company Executive Long-Term Incentive Award Stock Plan) • No. 333-48610 (relating to New Century Energies, Inc. Omnibus Incentive Plan; Public Service Company of Colorado Omnibus Incentive Plan; Southwestern Public Service Company 1989 Stock Incentive Plan; Southwestern...

  • Page 149
    ... ADOPTING POWER OF ATTORNEY WHEREAS, Xcel Energy Inc., a Minnesota corporation (the "Company"), is required to file with the Securities and Exchange Commission pursuant to Section 13 or 15(d) under the provisions of the Securities Act of 1934 a Form 10-K for the fiscal year ended December 31, 2006...

  • Page 150
    ...Richard H. Truly Director /s/ TIMOTHY V. WOLF Timothy V. Wolf Director On this 21st day of February, 2007, before me, Patrice D. Blaeser, a Notary Public in and for said County and State, personally appeared each of the above-named directors and officers of Xcel Energy Inc., a Minnesota corporation...

  • Page 151
    ...data; and any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ RICHARD C. KELLY Richard C. Kelly Chairman, President and Chief Executive Officer b) Date: February 22, 2007 141

  • Page 152
    ... any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ BENJAMIN G.S. FOWKE III Benjamin G.S. Fowke III Vice President and Chief Financial Officer b) Date: February 22, 2007 142

  • Page 153
    ...-OXLEY ACT OF 2002 In connection with the Annual Report of Xcel Energy Inc. (Xcel Energy) on Form 10-K for the year ended Dec. 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (Form 10-K), each of the undersigned officers of Xcel Energy Inc. certifies, pursuant to 18...

  • Page 154
    ... damage; unscheduled generation outages, maintenance or repairs; unanticipated changes to fossil fuel, nuclear fuel or natural gas supply costs or availability due to higher demand, shortages, transportation problems or other developments; nuclear or environmental incidents; or electric transmission...

  • Page 155
    ... Securities and Exchange Commission. It has also filed with the New York Stock Exchange the CEO certification for 2006 required by section 303A.12(a) of the New York Stock Exchange's rules relating to compliance with the New York Stock Exchange's corporate governance listing standards. President...

  • Page 156
    414 Nicollet Mall Minneapolis, MN 55401 xcelenergy.com © 2007 Xcel Energy Inc. Xcel Energy is a registered trademark of Xcel Energy Inc. Northern States Power Company; Northern States Power Company - Wisconsin; Public Service Company of Colorado; and Southwestern Public Service Company d/b/a Xcel ...