Xcel Energy 2009 Annual Report Download - page 77

Effective Dec. 31, 2009, Xcel Energy reduced its initial medical trend assumption from 7.4 percent to 6.8 percent. The
ultimate trend assumption remained unchanged at 5.0 percent. The period until the ultimate rate is reached is three
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 medical plan.
Xcel Energy contributed $62.2 million during 2009 and $55.6 million during 2008 to the postretirement health care
plans. Xcel Energy expects to contribute approximately $45.4 million during 2010.
See Note 11 to the consolidated financial statements for additional discussion of Xcel Energy’s benefit plans.
Nuclear Decommissioning
NSP-Minnesota 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 the interest method of accretion to the liability. Due
to regulation, depreciation expense is recorded to match the recovery of future cost of decommissioning, or retirement,
of its nuclear generating plants. This recovery is calculated using an annuity approach designed to provide for full rate
recovery of the future decommissioning costs.
Amounts recorded for nuclear AROs, in excess of decommissioning expense and investment returns, both realized and
unrealized, cumulatively are deferred through the establishment of a regulatory asset for future recovery pursuant to
ASC 980 Regulated Operations.
A portion of the rates charged to customers is deposited into an external trust fund, during the facilities’ operating lives,
in order to provide for this obligation. The fair value of external nuclear decommissioning trust fund investments are
estimated based on quoted market prices for those or similar investments. Realized investment returns from these
investments and recovery to date is used by regulators when determining future decommissioning recovery.
NSP-Minnesota conducts periodic decommissioning cost studies to estimate the costs that will be incurred to
decommission the facilities. The costs are initially presented in amounts prior to inflation adjustments and then inflated
to future periods using decommissioning specific cost inflators. Decommissioning of NSP-Minnesota’s nuclear facilities
is planned for the period from cessation of operations through 2067 assuming the prompt dismantlement method. The
following key assumptions have a significant effect on these estimates:
• Escalation Rate — The MPUC determines the escalation rate based on various presumptions surrounded by the
fact that associated costs will escalate at a certain rate over time. The most recent decommissioning study set the
escalation rate at 2.89 percent. An escalation rate for the cost of disposing of nuclear fuel waste was set at
6.0 percent. Over the short-term, these rates can differ from the set rates and accrual estimates can be
significantly affected by small changes in assumed escalation rates.
• Life Extension — Currently, decommissioning recovery periods end in 2030 for Monticello and in 2023 and
2024 for Prairie Island’s two facilities. Changes made to decommissioning cost estimates, the escalation rate and
the earnings rate can be affected by changes to these life periods. With the recent re-licensing of Monticello and
the application for the re-licensing of Prairie Island, any change in license life could have a material effect on the
accrual. Current decommissioning cost calculations for Monticello have assumed full life extension, which brings
the regulatory recovery period up to 2030. An application to extend the operating licenses for both reactors at
Prairie Island by 20 years was submitted to the NRC in 2008. The NRC is expected to decide on the
application in late 2010 or early in 2011. In the interim, the MPUC has extended the recovery period for Prairie
Island Unit 1 to 2023 and Unit 2 to 2024. These changes were effective Jan. 1, 2009.
As a result of the studies for Monticello and Prairie Island nuclear plants, the nuclear production decommissioning
ARO and related regulatory asset decreased by $128.5 million and $139.3 million, respectively, in the fourth quarter of
2008. It was further reduced by $315.9 million in the fourth quarter of 2009 for the Prairie Island nuclear plant
relating to the approved change in recovery period.
67