Xcel Energy 2010 Annual Report Download - page 34

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Natural gas — SPS uses both firm and interruptible natural gas and standby oil in combustion turbines and certain boilers.
Natural gas for SPS’ power plants is procured under contracts to provide an adequate supply of fuel; which typically is purchased
with terms of one year or less. The transportation and storage contracts expire in various years from 2011 to 2033. All of the
natural gas supply contracts have pricing that is tied to various natural gas indices. Most transportation contract pricing is based
on FERC and Railroad Commission of Texas approved transportation tariff rates. These transportation rates are subject to
revision based upon FERC or Railroad Commission of Texas approval of changes in the timing or amount of allowable cost
recovery by providers. Certain natural gas supply and transportation agreements include obligations for the purchase and/or
delivery of specified volumes of natural gas or to make payments in lieu of delivery. At Dec. 31, 2010, SPS’ commitments related
to supply contracts were approximately $28 million and transportation and storage contracts were approximately $233 million.
Wholesale Commodity Marketing Operations
SPS conducts various wholesale marketing operations, including the purchase and sale of electric capacity, energy and energy
related products. SPS uses physical and financial instruments to minimize commodity price and credit risk and hedge supplies and
purchases. See Item 7A for further discussion.
Summary of Recent Federal Regulatory Developments
The FERC has jurisdiction over rates for electric transmission service in interstate commerce and electricity sold at wholesale,
hydro facility licensing, natural gas transportation, accounting practices and certain other activities of Xcel Energy’s utility
subsidiaries, and enforcement of NERC mandatory electric reliability standards. State and local agencies have jurisdiction over
many of Xcel Energy’s utility activities, including regulation of retail rates and environmental matters. In addition to the matters
discussed below, see Note 13 to the consolidated financial statements for further discussion of other regulatory matters.
FERC Penalty Guidelines Issued — The Energy Act required the FERC to adopt new regulations to implement various aspects
of the Energy Act. Violations of FERC rules are potentially subject to enforcement action by the FERC including financial
penalties up to $1 million per day per violation.
In September 2010, the FERC issued a policy statement establishing guidelines to determine the financial penalties that would be
applied for violations of FERC statutes, rules and orders, including violations of NERC mandatory reliability standard violations
investigated by the FERC. The guidelines establish a base violation level for various types of violations, plus mitigating or
aggravating factor adders and multipliers, depending on the nature and severity of the violation. Penalties range between a
minimal amount and $72.5 million based on an application of a multiplier. The guidelines indicate that the FERC can deviate
from the guidelines in its discretion. The guidelines can apply to any investigation where the FERC staff has not begun settlement
negotiations regarding an alleged violation.
While Xcel Energy cannot predict the ultimate impact new FERC regulations will have on its operations or financial results, Xcel
Energy is taking actions that are intended to comply with and implement new FERC rules and regulations as they become
effective.
NERC Electric Reliability Standards Compliance
Compliance Audits and Self Reports
In October 2008, the WECC auditors issued their final audit report on PSCo’s compliance with certain NERC mandatory electric
reliability standards. The report found a possible violation of one reliability standard related to relay maintenance.
In 2008, the NSP System, PSCo and SPS filed self-reports with the MRO, WECC and SPP regional entities, respectively, relating
to failure to complete certain generation station battery tests, relay maintenance intervals and record keeping associated with
certain CIPS. In 2009, the NSP System, PSCo, and SPS each reached agreement with the relevant regional entity that would
resolve the PSCo open 2008 audit finding and the 2008 self reports by payment of a non-material penalty. These settlement
agreements have been approved by the NERC and were filed for FERC approval in December 2010. In January 2011, the FERC
issued an order accepting the NERC approval with no further action.
In March 2010, the MRO, SPP and WECC conducted a joint compliance spot check to evaluate compliance with the NERC CIPS.
The regional entity issued a non-public final report in August 2010 alleging violations of certain CIPS requirements, including
certain violations common to all Xcel Energy utility subsidiaries. Xcel Energy disputes the alleged violations and is working to
resolve the issues. To what extent the regional entities or NERC may seek to impose penalties for violations of CIPS is unknown
at this time.