Xcel Energy 2007 Annual Report Download - page 65

historical and future trends of Xcel Energy’s operating results have been, and are expected to be, affected by a number
of factors, including the following:
General Economic Conditions
Economic conditions may have a material impact on Xcel Energy’s operating results. Management cannot predict the
impact of a future economic slowdown, fluctuating energy prices, terrorist activity, war or the threat of war. However,
Xcel Energy could experience a material adverse impact to its results of operations, future growth or ability to raise
capital resulting from a general slowdown in future economic growth or a significant increase in interest rates.
Sales Growth
In addition to the impact of weather, customer sales levels in Xcel Energy’s utility businesses can vary with economic
conditions, energy prices, customer usage patterns and other factors. Weather-normalized sales growth for retail electric
utility customers was 1.7 percent in 2007, and 1.8 percent in 2006. Weather-normalized sales growth for firm natural
gas utility customers was approximately 0.8 percent in 2007, and (2.8) percent in 2006. Weather-normalized sales for
2008 are projected to grow between 1.8 percent and 2.2 percent for retail electric utility customers and 0.0 percent to
1.0 percent for retail natural gas utility customers.
Fuel Supply and Costs
Coal Deliverability — Xcel Energy’s operating utilities have varying dependence on coal-fired generation. Coal-fired
generation comprises between 54 percent and 80 percent of the total annual generation. Approximately 86 percent of
the annual coal requirements are supplied from the Powder River Basin in Wyoming.
Pension Plan Costs and Assumptions
Xcel Energy has significant net pension and postretirement benefit costs that are measured using actuarial valuations.
Inherent in these valuations are key assumptions including discount rates and expected return on plan assets. Xcel
Energy evaluates these key assumptions at least annually by analyzing current market conditions, which includes changes
in interest rates and market returns. Changes in the related net pension and post-retirement benefits costs may occur in
the future due to changes in assumptions. For further discussion and a sensitivity analysis on these assumptions, see
‘‘Employee Benefits’’ under Critical Accounting Policies and Estimates.
Regulation
PUHCA 2005 — The Energy Act significantly changed many federal statutes. The FERC was given authority to review
the books and records of holding companies and their nonutility subsidiaries, authority to review service company
accounting and cost allocations, and more authority over the merger and acquisition of public utilities. State
commissions have similar authority to review the books and records of holding companies and their nonutility
subsidiaries.
Customer Rate Regulation — The FERC and various state regulatory commissions regulate Xcel Energy’s utility
subsidiaries. Decisions by these regulators can significantly impact Xcel Energy’s results of operations. Xcel Energy
expects to periodically file for rate changes based 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
investment, operating costs and an allowed return on investment. Xcel Energy requests changes in rates for utility
services through filings with the governing commissions. Because comprehensive general rate changes are requested
infrequently in some states, changes in operating costs can affect Xcel Energy’s financial results. In addition to changes
in operating costs, other factors affecting rate filings are new investments, sales growth, conservation and DSM efforts
and the cost of capital. In addition, the return on equity authorized is set by regulatory commissions in rate
proceedings.
Wholesale Energy Market Regulation — In 2005, a Day 2 wholesale energy market operated by MISO was implemented
to centrally dispatch all regional electric generation and apply a regional transmission congestion management system.
MISO now centrally issues bills and payments for many costs formerly incurred directly by NSP-Minnesota and
NSP-Wisconsin. In September 2007, MISO proposed to modify the Day 2 market to establish a regional ASM effective
in June 2008. The ASM is intended to provide further efficiencies in generation dispatch by allowing for regional
regulation response and contingency reserve services through a bid-based market mechanism co-optimized with the
Day 2 energy market. NSP-Minnesota and NSP-Wisconsin expect to recover MISO charges through either base rates or
various recovery mechanisms. See Note 13 to the consolidated financial statements for further discussion.
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