Xcel Energy 2009 Annual Report Download - page 103

Legal Costs — Litigation accruals are recorded when it is probable Xcel Energy is liable for the costs and the liability
can be reasonably estimated. External legal fees related to settlements are expensed as incurred.
Income Taxes — Xcel Energy accounts for income taxes using the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been
included in the financial statements. Xcel Energy defers income taxes for all temporary differences between pretax
financial and taxable income, and between the book and tax bases of assets and liabilities. Xcel Energy uses the tax rates
that are scheduled to be in effect when the temporary differences are expected to reverse. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely
than not that some portion or all of the deferred tax asset will not be realized. In making such a determination, all
available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable
income, tax planning strategies and recent financial operations, is considered.
Due to the effects of past regulatory practices, when deferred taxes were not required to be recorded, the reversal of
some temporary differences are accounted for as current income tax expense. Investment tax credits are deferred and
their benefits amortized over the book depreciable lives of the related property. Utility rate regulation also has created
certain regulatory assets and liabilities related to income taxes, which are summarized in Note 19 to the consolidated
financial statements. For more information on income taxes, see Note 8 to the consolidated financial statements.
Xcel Energy follows the guidance in ASC 740 Income Taxes to measure and disclose uncertain tax positions that the
Company has taken or expects to take in its income tax returns. In accordance with this guidance, Xcel Energy
recognizes a tax position in its consolidated financial statements when it is more likely than not that the position will
be sustained upon examination based on the technical merits of the position. Recognition of changes in uncertain tax
positions are reflected as a component of income tax expense.
Xcel Energy reports interest and penalties related to income taxes within the other income and interest charges sections
in the consolidated statements of income.
Xcel Energy and its subsidiaries file consolidated federal income tax returns and combined and separate state income tax
returns.
Federal income taxes paid by Xcel Energy, as parent of the Xcel Energy consolidated group, are allocated to the Xcel
Energy subsidiaries based on separate company computations of tax. A similar allocation is made for state income taxes
paid by Xcel Energy in connection with combined state filings. The holding company also allocates its own net income
tax benefits to its direct subsidiaries based on the positive tax liability of each company.
Use of Estimates — In recording transactions and balances resulting from business operations, Xcel Energy uses
estimates based on the best information available. Estimates are used for such items as plant depreciable lives, AROs,
decommissioning, tax provisions, uncollectible amounts, environmental costs, unbilled revenues, jurisdictional fuel and
energy cost allocations and actuarially determined benefit costs. The recorded estimates are revised when better
information becomes available or when actual amounts can be determined. Those revisions can affect operating results.
The depreciable lives of certain plant assets are reviewed annually and revised, if appropriate.
Cash and Cash Equivalents — Xcel Energy considers investments in certain instruments, including commercial paper
and money market funds, with a remaining maturity of three months or less at the time of purchase, to be cash
equivalents.
Restricted Cash — At Dec. 31, 2009 and 2008, Xcel Energy had restricted cash of $1 million. The restricted cash
balances primarily represent deposits held in conjunction with short-term wholesale and commodity trading activities.
These balances are presented as a component of other assets on the consolidated balance sheets.
Inventory — All inventory is recorded at average cost.
Regulatory Accounting — Our regulated utility subsidiaries account for certain income and expense items in accordance
with ASC 980 Regulated Operations. Under this guidance:
• Certain costs, which would otherwise be charged to expense, are deferred as regulatory assets based on the
expected ability to recover them in future rates; and
• Certain credits, which would otherwise be reflected as income, are deferred as regulatory liabilities based on the
expectation they will be returned to customers in future rates.
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