Xcel Energy 2008 Annual Report Download - page 79

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Commodity Price Risk — Xcel Energy’s utility subsidiaries are exposed 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 activities. Commodity price risk is also managed through the use of financial derivative instruments. Xcel
Energy’s risk-management policy allows it to manage commodity price risk within each rate-regulated operation to the
extent such exposure exists.
Short-Term Wholesale and Commodity Trading Risk — Xcel Energy’s utility subsidiaries conduct various short-term
wholesale and commodity trading activities, including the purchase and sale of electric capacity, energy and energy-
related instruments. Xcel Energy’s risk-management policy allows management to conduct these activities within
guidelines and limitations as approved by its risk management committee, which is made up of management personnel
not directly involved in the activities governed by this policy.
The fair value of the commodity trading contracts at Dec. 31, were as follows:
2008 2007
(Thousands of Dollars)
Fair value of commodity trading contract assets (liabilities) outstanding at Jan. 1 .... $6,315 $ (1,175)
Contracts realized or settled during the period ......................... (1,574) (14,827)
Fair value of commodity trading contract additions and changes during the period . . . (572) 22,317
Fair value of commodity trading contract assets outstanding at Dec. 31 .......... $4,169 $ 6,315
At Dec. 31, 2008, the fair values by source for the commodity trading net asset (liability) balances were as follows:
Futures/Forwards
Maturity Maturity Total Futures/
Source of Less Than Maturity Maturity Greater Than Forwards
Fair Value 1 Year 1 to 3 Years 4 to 5 Years 5 Years Fair Value
(Thousands of Dollars)
NSP-Minnesota ............... 1 $1,936 $1,133 $ — $ — $3,069
2 91 291 359 158 899
PSCo ..................... 1 (804) — — — (804)
2 1,358 — — — 1,358
Total Futures/Forwards Fair Value .... $2,581 $1,424 $359 $158 $4,522
Options
Maturity Maturity
Source of Less Than Maturity Maturity Greater Than Total Options
Fair Value 1 Year 1 to 3 Years 4 to 5 Years 5 Years Fair Value
(Thousands of Dollars)
NSP-Minnesota ............... 2 $(353) $ — $ — $ — $(353)
Total Options Fair Value ......... $(353) $ — $ — $ — $(353)
(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 and indirectly quoted
external prices or prices derived from external sources are not available. Internal models incorporate the use of options pricing and estimates of the present value of cash
flows based upon underlying contractual terms. The 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 and other risks also are factored into the model.
Normal purchases and sales transactions, as defined by SFAS No. 133, hedge transactions and certain other long-term
power purchase contracts are not included in the fair values by source tables as they are not recorded at fair value as
part of commodity trading operations.
At Dec. 31, 2008, a 10-percent increase in market prices over the next 12 months for commodity trading contracts
would decrease pretax income from continuing operations by approximately $0.1 million, whereas a 10-percent decrease
would increase pretax income from continuing operations by approximately $0.2 million.
Xcel Energy’s short-term wholesale and commodity trading operations measure the outstanding risk exposure to price
changes on transactions, contracts and obligations that have been entered into, but not closed, using an industry
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