Xcel Energy 2007 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    This annual report is printed using soy-based inks on paper that is made from 100 percent post-consumer FSC Certified Fiber. The use of this paper saved opportunity to see and hear Xcel Energy employees in action. We Are The Energy illustrates our commitment and results. We hope you enjoy ...

  • Page 3
    2007 RESULTS Xcel Energy employee Teresa Hrdlicka COMPANY DESCRIPTION Xcel Energy is a major U.S. 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-...

  • Page 4
    Dick Kelly, Chairman, President and CEO

  • Page 5
    ... strength of Xcel Energy, but do not include the impact of a settlement we reached with the Internal Revenue Service in 2007 over our company-owned life insurance (COLI) program. When COLI and other discontinued operations are included as part of our GAAP (generally accepted accounting principles...

  • Page 6
    Xcel Energy employee Keith Legatt

  • Page 7
    ... two coal-fired plants in Minnesota to natural gas and are seeking permission to refurbish Sherco, our largest coalfired plant in the state. Each project adds generating capacity while reducing emissions, so we address reliability along with environmental protection. In Colorado, work continued on...

  • Page 8
    Xcel Energy employee Ty Ross

  • Page 9
    ... as we work to meet new standards in a variety of states in our service territory. From large projects to small, technology will play a vital role in addressing global climate change. In 2007, we explored with the U.S. Department of Energy the feasibility of using wind power to create hydrogen...

  • Page 10
    ... the Securities Trading Policy In 2007, we contributed to the community through Xcel Energy Foundation grants, in-kind donations to nonprofit organizations, matching gifts and United Way contributions. Employees also donated their time to help others. Community support was one reason Xcel Energy...

  • Page 11
    ...) Minnesota (State or Other Jurisdiction of Incorporation or Organization) 414 Nicollet Mall, Minneapolis, Minnesota (Address of Principal Executive Offices) 41-0448030 (I.R.S. Employer Identification No.) 55401 (Zip Code) Xcel Energy Inc. Registrant's Telephone Number, including Area Code (612...

  • Page 12
    ... ...PSCo ...SPS ...Electric Operating Statistics ...NATURAL GAS UTILITY OPERATIONS ...Natural Gas Utility Trends ...NSP-Minnesota ...NSP-Wisconsin ...PSCo ...Natural Gas Operating Statistics ...ENVIRONMENTAL MATTERS ...CAPITAL SPENDING AND FINANCING ...EMPLOYEES ...EXECUTIVE OFFICERS ...Risk Factors...

  • Page 13
    ... design company NSP-Minnesota, NSP-Wisconsin, PSCo, SPS WestGas Interstate, Inc., a Colorado corporation operating an interstate natural gas pipeline WYCO Development LLC Xcel Energy Inc., a Minnesota corporation Colorado Public Utilities Commission. The state agency that regulates the retail rates...

  • Page 14
    ... from retail customers for all purchased capacity payments to power suppliers. Capacity charges are not included in PSCo's base electric rates or other recovery mechanisms. Purchased gas adjustment. A clause included in NSP-Minnesota's and NSP-Wisconsin's retail natural gas rate schedules that...

  • Page 15
    ... non-discriminatory access to transmission of electricity. Statement of Financial Accounting Standards Sulfur dioxide Southwest Power Pool, Inc. Standard & Poor's Ratings Services Transmission and Energy Markets Tariff of MISO Texas Commission of Environmental Quality Amount of service rendered but...

  • Page 16
    ... the laws of Minnesota in 1909. Xcel Energy's executive offices are located at 414 Nicollet Mall, Minneapolis, Minn. 55401. Its web site address is www.xcelenergy.com. Xcel Energy makes available, free of charge through its web site, its annual report on Form 10-K, quarterly reports on Form 10-Q and...

  • Page 17
    ... and natural gas utility service to approximately 1.3 million customers. All of PSCo's retail electric operating revenues were derived from operations in Colorado during 2007. Generally, PSCo's earnings comprise approximately 40 percent to 50 percent of Xcel Energy's consolidated net income. PSCo...

  • Page 18
    ... open access. Xcel Energy is also still pursuing strengthening its transmission system internally to alleviate north and south congestion within the Texas Panhandle and other lines to increase the transfer capability between the Texas Panhandle and other electric systems. One state served by Xcel...

  • Page 19
    ... transmission and wholesale energy market functions but would not be an RTO. On Feb. 15, 2007, the FERC issued final rules (Order No. 890) adopting revisions to its open access transmission service rules. Xcel Energy submitted the required compliance revisions to its Open Access Transmission Tariff...

  • Page 20
    ...'s electric resource plans for meeting customers' future energy needs. The MPUC also certifies the need for generating plants greater than 50 MW and transmission lines greater than 100 KV. No large power plant or transmission line may be constructed in Minnesota except on a site or route designated...

  • Page 21
    ... of time. Long-term purchase power contracts typically require a periodic payment to secure the capacity from a particular generating source and a charge for the associated energy actually purchased from such generating source. NSP-Minnesota also makes short-term purchases to replace generation from...

  • Page 22
    ..., Excelsior, an independent energy developer, filed a power purchase agreement with the MPUC seeking a declaration that NSP-Minnesota be compelled to enter into an agreement to purchase the output from two integrated gas combined cycle (IGCC) plants to be located in northern Minnesota as part of the...

  • Page 23
    ... already installed provide transmission outlet capacity for up to 900 MW of renewable generation. In late 2006, NSP-Minnesota filed applications for certificates of need with the MPUC for three additional transmission lines in southwestern Minnesota and one in Chisago County, Minn. In 2007, the...

  • Page 24
    ... to the MPUC approval of a cost recovery mechanism. Nuclear Power Operations and Waste Disposal - NSP-Minnesota owns two nuclear generating plants: the Monticello plant and the Prairie Island plant. See additional discussion regarding the nuclear generating plants at Note 16 to the consolidated...

  • Page 25
    ... Replacement - Prairie Island Unit 2 steam generators received required inspections during a scheduled 2005 outage. Based on current rates of degradation and available repair processes, NSP-Minnesota plans to replace these steam generators in the 2013 refueling outage. NSP-Minnesota Nuclear Plant Re...

  • Page 26
    ... costs. NSP-Minnesota plans to submit the certificate of need for the Monticello uprate and the certificate of need for the Prairie Island uprate in the first quarter of 2008. NMC - On Sept. 28, 2007, Xcel Energy obtained 100 percent ownership in NMC as a result of Wisconsin Energy Corporation...

  • Page 27
    ... electric sales at market-based prices (see market-based rate authority discussion). The PSCW has a biennial base-rate filing requirement. By June of each odd-numbered year, NSP-Wisconsin must submit a rate filing for the test year beginning the following January. Fuel and Purchased Energy Cost...

  • Page 28
    ...system energy sources under NSP-Minnesota Fuel Supply and Costs discussed previously. PSCo Public Utility Regulation Summary of Regulatory Agencies and Areas of Jurisdiction - PSCo is regulated by the CPUC with respect to its facilities, rates, accounts, services and issuance of securities. PSCo is...

  • Page 29
    ... of time. Long-term purchase power contracts typically require a periodic payment to secure the capacity from a particular generating source and a charge for the associated energy actually purchased from such generating source. PSCo also makes short-term purchases to replace generation from company...

  • Page 30
    ... 2009 peak by purchasing short-term capacity. PSCo is requesting CPUC approval of the Fort St. Vrain application by April 2008. Construction continues on a plant approved in the last resource planning docket (2003) of a 750 MW pulverized coal-fired unit at the existing Comanche power station located...

  • Page 31
    PSCo's load center located on the front range. PSCo estimates the cost of the new line to be approximately $110 million over five years. Fuel Supply and Costs The following table shows the delivered cost per MMBtu of each significant category of fuel consumed for electric generation, the percentage...

  • Page 32
    ...electric generation and fuel management activities as it relates to fuel and purchased energy costs. The NMPRC regulations provide for a fuel and purchased power cost adjustment clause for SPS' New Mexico retail jurisdiction. SPS files monthly and annual reports of its fuel and purchased power costs...

  • Page 33
    ...generating source produces electricity. Energy is a measure of the amount of electricity produced from a particular generating source over a period of time. Long-term purchase power contracts typically require a periodic payment to secure the capacity from a particular generating source and a charge...

  • Page 34
    ... Disclosures About Market Risk. Xcel Energy Electric Operating Statistics 2007 Year Ended Dec. 31, 2006 2005 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...

  • Page 35
    ...alternative to annual fixed pipeline transportation charges to meet the peaks caused by firm space heating demand on extremely cold winter days. 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...

  • Page 36
    ...cost-effective alternative to annual fixed pipeline transportation 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...

  • Page 37
    ... assistance program. The costs of this energy conservation and weatherization program for low-income customers are recovered through the gas DSMCA. Performance-Based Regulation and Quality of Service Requirements - The CPUC established a combined electric and natural gas quality of service plan...

  • Page 38
    ... day. The balance of the quantities required to meet firm peak day sales obligations are primarily purchased at PSCo's city gate meter stations and a small amount is received directly from wellhead sources. PSCo is required by CPUC regulations to file a natural gas purchase plan by June of each year...

  • Page 39
    ... the PSCo recovery amounts. The CPUC approved the settlement agreement in June 2007. CAPITAL SPENDING AND FINANCING For a discussion of expected capital expenditures and funding sources, see Management's Discussion and Analysis under Item 7. EMPLOYEES The number of full-time Xcel Energy employees...

  • Page 40
    ..., State Vice President for North Dakota and South Dakota, August 2000 to February 2002. Tim E. Taylor, 60, President, Director and Chief Executive Officer, Public Service Company of Colorado, September 2007 to present. Previously, Vice President of Asset Management - Utilities Group, Xcel Energy...

  • Page 41
    ...'s calculates an imputed debt associated with capacity payments from purchase power contracts. An increase in the overall level of capacity payments would increase the amount of imputed debt, based on Standard and Poor's methodology. Therefore, Xcel Energy and its subsidiaries credit ratings could...

  • Page 42
    ... electric and/or natural gas services to our customers. These cost and reliability issues vary in magnitude for each operating subsidiary depending upon unique operating conditions such as generation fuels mix, availability of fuel transportation, electric generation capacity, and transmission...

  • Page 43
    ... and market opportunities. Extreme weather conditions creating high energy demand on our own and/or other systems may raise electricity prices as we buy short-term energy to serve our own system, which would increase the cost of energy we provide to our customers. Severe weather impacts Xcel Energy...

  • Page 44
    .... For further discussion see the Management's Discussion and Analysis section and Note 15 to the consolidated financial statements. Our subsidiary, NSP-Minnesota, is subject to the risks of nuclear generation. NSP-Minnesota's two nuclear stations, Prairie Island and Monticello, subject it to...

  • Page 45
    ... disruption of the regional electric transmission grid, interstate natural gas pipeline infrastructure or other fuel sources, could negatively impact our business. Because our generation, transmission systems, and local natural gas distribution companies are part of an interconnected system, we face...

  • Page 46
    ... 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 performance, changes...

  • Page 47
    ... Station, City and Unit Fuel Installed Summer 2007 Net Dependable Capability (MW) Steam: Sherburne-Becker, MN Unit 1 ...Unit 2 ...Unit 3 ...Prairie Island-Welch, MN Unit 1 ...Unit 2 ...Monticello-Monticello, MN ...King-Bayport, MN ...Black Dog-Burnsville, MN 2 Units ...2 Units ...High Bridge-St...

  • Page 48
    ...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 2007 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 49
    ... 432 Gas utility mains at Dec. 31, 2007: Miles NSP-Minnesota NSP-Wisconsin PSCo WGI Transmission ...Distribution ... 135 9,446 - 2,172 2,306 20,815 12 - Item 3 - Legal Proceedings In the normal course of business, various lawsuits and claims have arisen against Xcel Energy. Management, after...

  • Page 50
    ... 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 on the NYSE Composite Transactions for the quarters of 2007 and 2006...

  • Page 51
    ... Per-Share Data) Operating revenues ...Operating expenses ...Income from continuing operations ...Net income ...Earnings available for common stock ...Average number of common shares outstanding (000's) . Average number of common and potentially dilutive shares outstanding (000's) ...Earnings per...

  • Page 52
    ... Continuing Operations Xcel Energy is a public utility holding company. In 2007, 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 53
    ...energy standards in the states in which Xcel Energy operates. Xcel Energy has worked with state policy makers to design these standards to incorporate favorable cost recovery mechanisms and investment opportunities. • Xcel Energy is a leader in promoting new, clean energy technologies. Xcel Energy...

  • Page 54
    ..., our utility companies operating in Minnesota, Colorado, and New Mexico use a carbon proxy cost mandated by the state commissions to evaluate the impact of potential future CO2 regulation on its future resource acquisition plans. Xcel Energy publishes a Triple Bottom Line Report annually, which is...

  • Page 55
    ... provided by electric and natural gas, Xcel Energy continues to evolve the management of the portfolio of utility investments. While Xcel Energy has four separate operating companies, there are certain similarities and differences that require a new approach to more effectively manage this portfolio...

  • Page 56
    ...earnings 2007 2006 (Millions of Dollars) 2005 GAAP income by segment Regulated electric utility income - continuing operations ...Regulated natural gas utility income - continuing operations . Other regulated utility income(a) ...Total utility income - continuing operations ...Holding company costs...

  • Page 57
    ... of natural gas or electricity the average customer historically uses per degree of temperature. The following summarizes the estimated impact on the earnings of the utility subsidiaries of Xcel Energy due to temperature variations from historical averages: • Weather in 2007 increased earnings...

  • Page 58
    ... and wholesale sales requirements and 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...

  • Page 59
    ... (8) 15 $349 2006 Comparison with 2005 - Base electric utility revenues increased due to rate increases in Minnesota and Wisconsin, higher fuel and purchased power costs, largely recoverable from customers, weather-normalized retail sales growth of approximately 1.8 percent, and the implementation...

  • Page 60
    ... electric rate changes ...NSP-Wisconsin rate changes, including fuel and Sales growth (excluding weather impact) ...MERP rider ...Conservation and non-fuel rider revenues ...Firm wholesale ...Quality-of-service obligations ...Transmission fee classification change ...PSCo ECA incentive ...SPS Texas...

  • Page 61
    ... incentive programs (offset in electric margins) ...Lower gains/losses on sale or disposal of assets, net ...Higher contractor costs ...Higher donations, including low income contributions (offset in revenues) Higher material costs ...Lower employee benefit costs ...Lower nuclear plant outage costs...

  • Page 62
    ... 2007. 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 performance-based ...Higher combustion/hydro plant...

  • Page 63
    ... 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 2007, 2006 and 2005 included above reflects dilutive securities, as discussed further in Note 8 to the...

  • Page 64
    .... 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 65
    .... 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 investment, operating costs and an allowed return on...

  • Page 66
    ...through a rate rider, costs to upgrade generation plants and lower emissions, and increased transmission. These rate riders are expected to provide significant cash flows to enable recovery of costs incurred on a timely basis. For wholesale electric transmission services, Xcel Energy has, consistent...

  • Page 67
    ... owns nuclear generation facilities and regulations require NSP-Minnesota to decommission its nuclear power plants after each facility is taken out of service. Xcel Energy records future plant removal obligations as a liability at fair value. This liability will be increased over time by applying...

  • Page 68
    ... of 2007. Prairie Island anticipates filing a similar application in 2008, with final state and federal approvals expected in 2010. • Cost Estimate With Spent Fuel Disposal - Federal regulations require the DOE to provide a permanent repository for the storage of spent nuclear fuel. NSP-Minnesota...

  • Page 69
    ...taxes. Employee Benefits Xcel Energy's pension costs are based on an actuarial calculation that includes a number of key assumptions, most notably the annual return level that pension investment assets will earn in the future and the interest rate used to discount future pension benefit payments to...

  • Page 70
    ... in the health care market, considering the levels projected and recommended by industry experts, as well as recent actual medical cost increases experienced by Xcel Energy's retiree medical plan. See Note 10 for additional discussion of Xcel Energy's benefit plans. Xcel Energy continually makes...

  • Page 71
    ... to commodity price risk in their electric and natural gas operations. Commodity price risk is managed by entering into 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 72
    ... models reflect management's estimates, taking into account observable market prices, estimated market prices in the absence of quoted market prices, the risk-free market discount rate, volatility factors, estimated correlations of commodity prices and contractual volumes. Market price uncertainty...

  • Page 73
    ... of recoverable purchased natural gas and electric energy costs. Cash provided by operating activities for discontinued operations decreased $123 million during 2007, largely due to the sale of related assets. Cash provided by operating activities for continuing operations increased $598 million...

  • Page 74
    ... 2010 $1,190 80 590 140 $2,000 2011 Total ...By Project Base and other capital expenditures ...MERP ...Comanche 3 ...Minnesota wind/CapX 2020 transmission . . Sherco capacity increases ...Minnesota wind generation ...Nuclear capacity increases and life extension Nuclear fuel ...Fort St. Vrain CT...

  • Page 75
    ...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 maintenance and during outages...

  • Page 76
    ...on Xcel Energy's short-term borrowing arrangements, see Note 4 to the consolidated financial statements. Access to reasonably priced capital markets is dependent in part on credit agency reviews and ratings. The following ratings reflect the views of Moody's, Standard & Poor's, and Fitch. A security...

  • Page 77
    ...Xcel Energy plans to issue commercial paper to meet short-term working capital requirements. During 2008, Xcel Energy plans to issue debt securities at several of its operating companies. These financing plans are subject to change, depending on capital expenditures, internal cash generation, market...

  • Page 78
    ...natural gas sales grow by approximately 0.0 percent to 1.0 percent. • Short-term wholesale and commodity trading margins are within a range of $20 million to $30 million. • Capacity costs at NSP-Minnesota and SPS are projected to increase approximately $45 million to $55 million over 2007 levels...

  • Page 79
    ... 31, 2007, the company's internal control over financial reporting is effective based on those criteria. Xcel Energy's independent auditors have issued an audit report on the company's internal control over financial reporting. Their report appears on the following page. /S/ RICHARD C. KELLY Richard...

  • Page 80
    ... 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 Company's internal control over financial reporting as of December 31, 2007, based on...

  • Page 81
    ... responsibility is to express an opinion on 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 and perform the audit...

  • Page 82
    ...,676 1,707,665 767,321 287,810 8,532,758 1,092,719 857 21,627 Operating expenses Electric fuel and purchased power - utility ...Cost of natural gas sold and transported - utility Cost of sales - other ...Other operating and maintenance expenses ...Depreciation and amortization ...Taxes (other than...

  • Page 83
    ... purchased natural gas and electric energy costs ...Other current assets ...Accounts payable ...Net regulatory assets and liabilities ...Other current liabilities ...Change in other noncurrent assets ...Change in other noncurrent liabilities ...Operating cash flows provided by discontinued...

  • Page 84
    ...inventories ...Fuel inventories ...Natural gas inventories ...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...

  • Page 85
    ... of pension and retiree medical benefits, net of tax of $(1,872) ...Net derivative instrument fair value changes during the period, net of tax of $(4,704) ...Unrealized gain - marketable securities, net of tax of $(2) ...Comprehensive income for 2007 Dividends declared: Cumulative preferred stock...

  • Page 86
    ...due July 15, 2009, 6.875% ...Secured Medium-Term Notes, due March 5, 2007, 7.11% ...Capital lease obligations, 11.2% due in installments through 2028 Unamortized discount ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... $ 300,000 600,000 250...

  • Page 87
    ...) Dec. 31 2007 2006 (Thousands of Dollars) Long-Term Debt - continued NSP-Wisconsin First Mortgage Bonds, Series due: Oct. 1, 2018, 5.25% ...Dec. 1, 2026, 7.375% ...Senior Notes due, Oct. 1, 2008, 7.64% ...City of La Crosse Resource Recovery Bond, Series due Nov. 1, 2021, 6%(a) Fort McCoy System...

  • Page 88
    ... - In 2007, 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...

  • Page 89
    ...net basis in the consolidated statements of income. Xcel Energy's commodity trading operations are conducted by NSP-Minnesota, PSCo and SPS. Commodity trading activities are not associated with energy produced from Xcel Energy's generation assets or energy and capacity purchased to serve native load...

  • Page 90
    ... are included in Xcel Energy's rate base for establishing utility service rates. In addition to construction-related amounts, AFDC also is recorded to reflect returns on capital used to finance conservation programs in Minnesota. Generally, AFDC costs are recovered from customers as the related...

  • Page 91
    ... 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 determined based on quoted market prices for those or similar investments. Unrealized...

  • Page 92
    ... purposes are recorded as electric fuel and purchased power. The net margin on sales of RECs for trading purposes is recorded as electric utility operating revenues net of any margin sharing requirements. As a result of state regulatory orders, we reduce recoverable fuel costs for the value of...

  • Page 93
    ... for any potential business combinations subsequent to Jan. 1, 2009. Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51(SFAS No. 160) - In December 2007, the FASB issued SFAS No. 160, which establishes accounting and reporting standards that require the...

  • Page 94
    ... $90 million, plus a working capital adjustment finalized in 2005. The sale resulted in an after-tax loss of approximately $13 million, or 3 cents per share. Nonregulated Subsidiaries Utility Engineering - In April 2005, Zachry acquired all of the outstanding shares of UE. Xcel Energy recorded an...

  • Page 95
    ...268 $ 180 $ 63,206 68,669 (5,463) (19,217) $ 13,754 The major classes of assets and liabilities held for sale and related to discontinued operations as of Dec. 31 are as follows: 2007 2006 (Thousands of Dollars) Cash ...Account receivables, net ...Deferred income tax benefits Other current assets...

  • Page 96
    ... were supported by the Xcel Energy credit facility. Convertible Debt Xcel Energy's 2007 and 2008 series convertible senior notes include provisions for conversion into shares of Xcel Energy common stock at a conversion price of $12.33 per share. Conversion is at the option of the holder at any time...

  • Page 97
    ... payment at maturity of $100 million of 7.11 percent secured medium-term notes, which matured on March 5, 2007. On Jan. 16, 2008, Xcel Energy issued $400 million of 7.60 percent junior subordinated notes, series due 2068. Xcel Energy added the net proceeds from the sale of the notes to its general...

  • Page 98
    ... on the new unit, Comanche 3, is expected to be completed in the fall of 2009. PSCo is the operating agent under the joint ownership agreement. Nuclear Plant Operation - On Sept. 28, 2007, Xcel Energy obtained 100 percent ownership in NMC as a result of WEC exiting the partnership due to the sale of...

  • Page 99
    ...As of Dec. 31, 2007, Xcel Energy's earliest open tax years in which an audit can be initiated by state taxing authorities in its major operating jurisdictions are as follows: Colorado-2002, Minnesota-1998, Texas-2003, and Wisconsin-2002. The amount of unrecognized tax benefits reported in continuing...

  • Page 100
    ...differences for the years ending Dec. 31: 2007 2006 2005 Federal statutory rate ...Increases (decreases) in tax from: State income taxes, net of federal income tax benefit . . Life insurance policies ...Tax credits recognized, net of federal income tax expense Capital loss carry forward utilization...

  • Page 101
    ... of Xcel Energy's net deferred tax liability from continuing operations (current and noncurrent portions) at Dec. 31 were: 2007 2006 (Thousands of Dollars) Deferred tax liabilities: Differences between book and Regulatory assets ...Employee benefits ...Service contracts ...Partnership income/loss...

  • Page 102
    ... it can pay to Xcel Energy, the holder of its common stock. Even with these restrictions, NSP-Minnesota could have paid more than $946 million and $905 million in additional cash dividends on common stock at Dec. 31, 2007 and 2006, respectively. The issuance of securities by Xcel Energy generally is...

  • Page 103
    ... performance incentives are awarded to key employees. In the past, Xcel Energy issued stock options, but has not granted stock options since December 2001. The weighted average number of common and potentially dilutive shares outstanding used to calculate Xcel Energy's earnings per share include the...

  • Page 104
    ... value is calculated as market price at exercise date less the option exercise price Restricted Stock - Certain employees may elect to receive shares of common or restricted stock under the Xcel Energy Executive Annual Incentive Award Plan. Restricted stock vests in equal annual installments over...

  • Page 105
    ......Intrinsic value of restricted stock units vested(a) ...(a) $14,192 4,876 $10,561 3,844 $- - Intrinsic value is calculated as the market price at vesting date less the fair value at grant date Performance Share Plan Awards (PSP) - Xcel Energy's board of directors has granted performance share...

  • Page 106
    ... Benefits Xcel Energy offers various benefit plans to its benefit employees. Approximately 52 percent of employees that receive benefits are represented by several local labor unions under several collective-bargaining agreements. At Dec. 31, 2007: • NSP-Minnesota had 2,287 and NSP-Wisconsin...

  • Page 107
    ... comprehensive income of $72.8 million. Pension Benefits Xcel Energy has several noncontributory, defined benefit pension plans that cover almost all employees. Benefits are based on a combination of years of service, the employee's average pay and social security benefits. Xcel Energy's policy...

  • Page 108
    ... Date ...Significant Assumptions Used to Measure Benefit Obligations Discount rate for year-end valuation ...Expected average long-term increase in compensation level ... At Dec. 31, 2007, one of Xcel Energy's pension plans had projected benefit obligations of $732.7 million, which exceeded...

  • Page 109
    ... 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 110
    ... rate is reached is six years. Xcel Energy bases its medical trend assumption on the long-term cost inflation expected in the health care market, considering the levels projected and recommended by industry experts, as well as recent actual medical cost increases experienced by Xcel Energy's retiree...

  • Page 111
    ...plans. Additional cash funding requirements are prescribed by certain state and federal rate regulatory authorities, as discussed previously. Xcel Energy expects to contribute approximately $49 million during 2008. Benefit Costs - The components of net periodic postretirement benefit costs are: 2007...

  • Page 112
    ... electric and natural gas operations. Commodity price risk is managed by entering into 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...

  • Page 113
    ... of Xcel Energy's long-term debt is estimated based on the quoted market prices for the same or similar issues, or the current rates for debt of the same remaining maturities and credit quality. The fair value estimates presented are based on information available to management as of Dec. 31, 2007...

  • Page 114
    ... its obligations to the surety company. See Note 15 to the consolidated financial statements for further discussion of Fru-Con Construction Corporation vs. Utility Engineering et al. (e) (f ) (g) Letters of Credit Xcel Energy and its subsidiaries use letters of credit, generally with terms of one...

  • Page 115
    ... Day 2 energy market charges were recovered from electric customers through the FCA. In addition, approximately $590 million of purchased natural gas and transportation costs were recovered through the PGA. The 2007 annual automatic adjustment report is pending comments and MPUC action. Other MISO...

  • Page 116
    ...the timing of the next electric rate case. In addition, the lengthening of the remaining life for the Monticello nuclear plant decreased the related ARO by $121 million in the third quarter of 2007 with no impact to net income in 2007. Nuclear Refueling Outage Costs - In November 2007, NSP-Minnesota...

  • Page 117
    ... of the allocation of RSG costs among MISO market participants. Xcel Energy has intervened in each of these proceedings. In August 2007, Ameren Services Company (Ameren) and the Northern Indiana Public Service Company (NIPSCO) filed a joint complaint against MISO at the FERC, challenging...

  • Page 118
    ... its Phase II (cost allocation and rate design) on or before March 31, 2008, to spread among PSCo's customer classes the settled revenue requirement from this case. Electric, Purchased Gas and Resource Adjustment Clauses Transmission Cost Adjustment Rider - In September 2007, PSCo filed with the...

  • Page 119
    ... to only those costs associated with transmission investment made after the new legislation authorizing the rider became effective on March 26, 2007. The CPUC also will require PSCo to base its revenue requirement calculation on a thirteen month average net transmission plant balance. As a result...

  • Page 120
    ... and Xcel Energy has reached agreement with EPE that the termination will be effective Sept. 30, 2009. SPS plans to file in mid-2008, another Texas retail base rate case and application to reconcile its 2006 and 2007 fuel costs. Application to Increase Voltage-Level Line Loss Factors - In June 2007...

  • Page 121
    ...monthly factor cost recovery methodology. This filing was required by NMPRC rule. Testimony was filed in the case by staff and intervenors objecting to SPS' assignment of system average fuel costs to certain wholesale sales and the inclusion of certain purchased power capacity and energy payments in...

  • Page 122
    ... the fuel cost charges to complainants. Additionally, the Complaint alleged that the base rates being charged were too high and that the FERC should act to lower SPS' customers' rates. Cap Rock Energy Corporation (Cap Rock), a full-requirements customer of SPS, Public Service Company of New Mexico...

  • Page 123
    ...the new transmission facilities while providing an adequate rate of return on invested capital. The proposed rates would be updated annually each July 1st based on SPS' prior year actual costs and loads plus the revenue requirements associated with projected current year transmission plant additions...

  • Page 124
    ... of 2008 and the certificate of need for Prairie Island in the second quarter of 2008. MERP Project - 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 pollution control equipment at a third...

  • Page 125
    ...Xcel Energy's risk of loss, in the 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...

  • Page 126
    ... and pollution-control requirements, the potential effect of technological improvements, the number and financial strength of other PRPs and the identification of new environmental cleanup sites. Estimates are revised as facts become known. At Dec. 31, 2007, the liability for the cost of remediating...

  • Page 127
    ... of the scope and cost of the remediation of the Ashland site is not currently expected until late 2008 following the submission of the feasibility study in October 2007. NSP-Wisconsin continues to work with the Wisconsin Department of Natural Resources (WDNR) to access state and federal funds to...

  • Page 128
    ... expenditures for construction projects or removal costs for demolition projects. Cunningham and Maddox Station Groundwater - Cunningham Station is a natural gas-fired power plant constructed in the 1960s by SPS and has 28 water wells installed on its water rights. The well field provides boiler...

  • Page 129
    ... based on allowance costs and fuel quality as of March 2007. These cost estimates represent one potential scenario on complying with CAIR, if West Texas is not excluded. In addition, Minnesota and Wisconsin will be included in CAIR, and Xcel Energy has generating facilities in these states that will...

  • Page 130
    ... upgrades for the existing Comanche Station project, which are included in the capital budget. PSCo expects the cost of any required capital investment will be recoverable from customers. Emissions controls are expected to be installed between 2011 and 2014. On June 4, 2007, the CAPCD approved...

  • Page 131
    ... facilities at steam plants was the in-service 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...

  • Page 132
    ...- PSCo has underground natural gas storage facilities that have special closure requirements for which the final removal date cannot be determined, therefore an ARO has not been recorded. Removal Costs - Xcel Energy accrues an obligation for plant removal costs for other generation, transmission and...

  • Page 133
    ... restrain the trade of natural gas and manipulate natural gas prices. Xcel Energy, e prime, and NSP- Wisconsin deny these allegations and will vigorously defend against these lawsuits, including seeking dismissal and summary judgment. The initial gas trading lawsuit, a purported class action brought...

  • Page 134
    ... and Water in Pueblo and Southern Colorado and Clean Energy Action filed a complaint in Colorado state court against the CAPCD alleging that the division improperly granted permits to PSCo under Colorado's Prevention of Significant Deterioration program for the construction and operation of Comanche...

  • Page 135
    ... of damages in the amount of approximately $90 million. In January 2008, Qwest filed a notice of appeal. Hoffman vs. Northern States Power Company - In March 2006, a purported class action complaint was filed in Minnesota state court, on behalf of NSP-Minnesota's residential customers in Minnesota...

  • Page 136
    ... and 1985 sale of COLI to PSCo, a predecessor of Xcel Energy. In August 2007, Xcel Energy, PSCo and PSRI commenced a lawsuit in Colorado state court against Mallon and TransFinancial Corporation (Mallon State Action). In the Mallon State Action, Xcel Energy, PSCo and PSRI seek damages against Mallon...

  • Page 137
    ... on June 4, 2007. Installation of the horizontal storage modules began in October of 2007 with a fuel loading campaign anticipated to begin in the Spring of 2008. Plant assessments and other work for the Prairie Island applications started in 2006. The Prairie Island operating license extension...

  • Page 138
    ... 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 level of...

  • Page 139
    ...electric utility, regulated natural gas utility and all other. • Xcel Energy's regulated electric utility segment generates, transmits and distributes electricity in Minnesota, Wisconsin, Michigan, North Dakota, South Dakota, Colorado, Texas and New Mexico. In addition, this segment includes sales...

  • Page 140
    ... fuel and investments in rental housing projects that qualify for low-income housing tax credits. To report income from continuing operations for regulated electric and regulated natural gas utility segments, Xcel Energy must assign or allocate all costs and certain other income. In general, costs...

  • Page 141
    ...in process activities, in general computer activities, and on an entity-wide level. During the year and in preparation for issuing its report for the year ended Dec. 31, 2007 on internal controls under section 404 of the Sarbanes-Oxley Act of 2002, Xcel Energy conducted testing and monitoring of its...

  • Page 142
    ... of the directors and officers of Xcel Energy is contained in Xcel Energy's Proxy Statement for its 2008 Annual Meeting of Shareholders, which is incorporated by reference. Item 14 - Principal Accounting Fees and Services Information concerning fees paid to the principal accountant for each...

  • Page 143
    ... Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended Dec. 31, 2007, 2006 and 2005. Exhibits Indicates incorporation by reference Executive Compensation Arrangements and Benefit Plans Covering Executive Officers and Directors 2. 3. * + Xcel Energy 2.01* 2.02* 2.03* 2.04...

  • Page 144
    ... Aug. 18, 2000, supplemental to the Indenture dated July 1, 1999, among Xcel Energy, Northern States Power Co. (a Minnesota corporation) and Wells Fargo Bank Minnesota, National Association, as Trustee. (Exhibit 4.63 to NSP-Minnesota Form 10-12G (file no. 000-31709) dated Oct. 5, 2000). Supplemental...

  • Page 145
    ... 10.03*+ 10.04*+ 10.05*+ 10.06*+ Xcel Energy Omnibus Incentive Plan (Exhibit A 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 Century Energies, Inc. and Wayne H. Brunetti (Exhibit 10...

  • Page 146
    ...practices for Xcel Energy non-employee directors. NSP-Minnesota 10.32* 10.33* 10.34* 10.35* 10.36* 10.37* 10.38* 10.39* 10.40* Facilities Agreement, dated July 21, 1976, between Northern States Power Co. (a Minnesota corporation) and the Manitoba Hydro-Electric Board relating to the interconnection...

  • Page 147
    ... States Power Co. (a Minnesota corporation) (Exhibit 10.01 to NSP-Wisconsin Form S-4 (file no. 333-112033) dated Jan. 21, 2004). 500 megawatt System Participation Power Sale Agreement dated July 30, 2002 between Northern States Power Co. (a Minnesota corporation) and the Manitoba Hydro-Electric...

  • Page 148
    ... STATEMENTS OF XCEL ENERGY INC. Statements of Income Year ended Dec. 31, 2006 (Thousands of Dollars) 2007 2005 Income: Equity in income of subsidiaries ...Total income ...Expenses and other deductions: Operating expenses ...Other income ...Interest charges and financing costs ... $640,140...

  • Page 149
    ... STATEMENTS OF XCEL ENERGY INC. Statements of Cash Flows (thousands of dollars) Years Ended Dec. 31 2007 2006 2005 Operating activities: Net cash provided by operating activities ...Investing activities: Return of capital from subsidiaries ...Capital contributions to subsidiaries ...Net cash used...

  • Page 150
    ... OF XCEL ENERGY INC. Balance Sheets (thousands of dollars) 2007 2006 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 151
    ... of the subsidiaries is reported on a net basis as equity in income of subsidiaries. Cash dividends paid to Xcel Energy by subsidiaries were $694 million, $759 million, and $566 million in the three years ended Dec. 31, 2007, respectively. See Xcel Energy Inc. notes to the consolidated financial...

  • Page 152
    SCHEDULE II XCEL ENERGY INC. And Subsidiaries Valuation and Qualifying Accounts Years Ended Dec. 31, 2007, 2006 and 2005 (thousands of dollars) Additions Balance at beginning of period Charged to costs and expenses Charged to other accounts(1) Deductions from reserves(2) Balance at end of period ...

  • Page 153
    ... caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. XCEL ENERGY INC. February 20, 2008 By: /s/ BENJAMIN G.S. FOWKE III Benjamin G.S. Fowke III Vice President and Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the...

  • Page 154
    * RICHARD H. TRULY * DAVID A. WESTERLUND * TIMOTHY V. WOLF * /s/ TERESA S. MADDEN TERESA S. MADDEN Attorney-in-Fact Director Director Director 144

  • Page 155
    ...ADDRESS ฀ ฀ XCEL ENERGY DIRECTORS C. Coney Burgess ฀ ฀ ฀ ฀ STOCK TRANSFER AGENT ฀ Fredric W. Corrigan Richard K. Davis ฀ ฀ ฀ ฀ Roger R. Hemminghaus A. Barry Hirschfeld ฀ ฀ Richard C. Kelly * ฀ ฀ ฀ ฀ ฀ ฀ ฀ REPORTS AVAILABLE ONLINE STOCK...

  • Page 156
    414 Nicollet Mall Minneapolis, MN 55401 xcelenergy.com © 2008 Xcel Energy Inc. Xcel Energy is a registered trademark of Xcel Energy Inc. Northern States Power Company - Minnesota; Northern States Power Company - Wisconsin; Public Service Company of Colorado; and Southwestern Public Service Company ...