Xcel Energy 2009 Annual Report Download - page 143

PSCo and SPS have various pay-for-performance contracts with expiration dates through the year 2033. In general,
these contracts provide for capacity payments, subject to meeting certain contract obligations, and energy payments
based on actual power taken under the contracts. Certain contractual payment obligations are adjusted based on indices.
However, the effects of price adjustments are mitigated through cost-of-energy rate adjustment mechanisms.
At Dec. 31, 2009, the estimated future payments for capacity, accounted for as executory contracts, that the utility
subsidiaries of Xcel Energy are obligated to purchase, subject to availability, are as follows:
(Millions of Dollars)
2010 ........................................................... $ 486.8
2011 ........................................................... 477.1
2012 ........................................................... 404.3
2013 ........................................................... 340.9
2014 ........................................................... 287.0
2015 and thereafter .................................................. 1,298.2
Total ......................................................... $3,294.3
Variable Interest Entities — Xcel Energy has certain long-term purchased power agreements with independent power
producing entities that contain tolling arrangements under which Xcel Energy procures the fuel required to produce the
energy purchased. Xcel Energy enters into these agreements to meet electric system capacity and energy needs. Xcel
Energy is not subject to risk of loss from the operations of these entities. Xcel Energy has evaluated such entities for
possible consolidation and has concluded that these entities are not required to be consolidated in Xcel Energy’s
consolidated financial statements. The significant qualitative factors considered evaluating purchase power agreements
under ASC 810 Consolidation include length and terms of the contract and operational, fuel price and financing risk.
When necessary, a quantitative analysis demonstrated that Xcel Energy would absorb less than 50 percent of the
expected gains or losses. Significant assumptions used in the quantitative analysis by Xcel Energy, to determine the
primary beneficiary, include an inflation rate equal to the Bureau of Labor Statistics 10 year average, estimated future
fuel and electricity prices, future operating cash flows, an incremental borrowing rate, the expected life of the plant and
a debt to equity financing ratio.
Leases — Xcel Energy and its subsidiaries lease a variety of equipment and facilities used in the normal course of
business. Three of these leases qualify as capital leases and are accounted for accordingly. The assets and liabilities
acquired under capital leases are recorded at the lower of fair market value or the present value of future lease payments
and are amortized over their actual contract term in accordance with practices allowed by regulators.
In 1999, WYCO was formed as a joint venture with CIG to develop and lease natural gas pipeline, storage, and
compression facilities. Xcel Energy has a 50 percent ownership interest in WYCO. In 2009, WYCO’s Totem gas storage
facilities were placed in service. WYCO leases the facilities to CIG, and CIG operates the facilities, providing natural
gas storage services to PSCo under a service arrangement that commenced on July 1, 2009.
PSCo accounts for its Totem natural gas storage service arrangement with CIG as a capital lease in accordance with the
authoritative guidance on lease accounting. As a result, PSCo has a $141.1 million capital lease obligation recorded for
the arrangement as of Dec. 31, 2009, 50% of which is eliminated in Xcel Energy’s consolidated balance sheet along
with an equal amount of Xcel Energy’s equity investment in WYCO. WYCO is expected to incur approximately
$14 million of additional construction costs, 50 percent of which will be paid by Xcel Energy, to finalize construction
and make Totem operational at full storage capacity.
Following is a summary of property held under capital leases:
2009 2008
(Millions of Dollars)
Storage, leaseholds and rights .................................... $183.6 $ 40.5
Gas pipeline .............................................. 20.7 20.7
Property held under capital lease .................................. 204.3 61.2
Accumulated depreciation ...................................... (21.3) (17.8)
Total property held under capital leases, net ........................... $183.0 $ 43.4
The remainder of the leases, primarily for office space, railcars, generating facilities, trucks, aircraft, cars and power-
operated equipment, are accounted for as operating leases. Total rental expense under operating lease obligations for
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