Xcel Energy 2009 Annual Report Download - page 80

Fair Value of Liabilities — In August 2009, the FASB issued Fair Value Measurements and Disclosures (Topic 820) —
Measuring Liabilities at Fair Value (ASU No. 2009-05), which updates the Codification with clarifications for measuring
the fair value of liabilities. The liability-specific guidance includes clarifications and guidelines for using, when available,
the most observable prices in active markets for identical liabilities or similar liabilities, or the prices of identical
liabilities or similar liabilities traded as assets, rather than more complex and less observable valuation techniques and
inputs such as those used in a present value model. The updates to the Codification contained in ASU No. 2009-05
were effective for interim and annual periods beginning after its August, 2009 issuance. Xcel Energy implemented the
guidance on Sept. 1, 2009, and the implementation did not have a material impact on its consolidated financial
statements.
Recently Issued
Consolidation of Variable Interest Entities — In June 2009, the FASB issued new guidance on consolidation of variable
interest entities. The guidance will significantly affect various elements of consolidation under existing accounting
standards, including the determination of whether an entity is a variable interest entity and whether an enterprise is a
variable interest entity’s primary beneficiary. This new guidance is effective for interim and annual periods beginning
after Nov. 15, 2009. Xcel Energy does not expect the implementation of the guidance to have a material impact on its
consolidated financial statements.
Fair Value Measurement Disclosures — In January 2010, the FASB issued Fair Value Measurements and Disclosures
(Topic 820) — Improving Disclosures about Fair Value Measurements (ASU No. 2010-06), which will update the
Codification to require new disclosures for assets and liabilities measured at fair value. The requirements include
expanded disclosure of valuation methodologies for Level 2 and Level 3 fair value measurements, transfers in and out of
Levels 1 and 2, and gross rather than net presentation of certain changes in Level 3 fair value measurements. The
updates to the Codification contained in ASU No. 2010-06 are effective for interim and annual periods beginning after
Dec. 15, 2009, except for requirements related to gross presentation of certain changes in Level 3 fair value
measurements, which are effective for interim and annual periods beginning after Dec. 15, 2010. Xcel Energy does not
expect the implementation of the guidance to have a material impact on its consolidated financial statements.
Derivatives, Risk Management and Market Risk
In the normal course of business, Xcel Energy and its subsidiaries are exposed to a variety of market risks. Market risk
is the potential loss or gain that may occur as a result of changes in the market or fair value of a particular instrument
or commodity. All financial and commodity-related instruments, including derivatives, are subject to market risk.
Market risks associated with derivatives are discussed in further detail in Note 13 to the consolidated financial
statements.
Xcel Energy is exposed to the impact of changes in price for energy and energy related products, which is partially
mitigated by Xcel Energy’s use of commodity derivatives. Though no material non-performance risk currently exists
with the counterparties to Xcel Energy’s commodity derivative contracts, distress in the financial markets may in the
future impact that risk to the extent it impacts those counterparties. Distress in the financial markets may also impact
the fair value of the debt and equity securities in the nuclear decommissioning trust fund and master pension trust, as
well as Xcel Energy’s ability to earn a return on short-term investments of excess cash.
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.
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