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72
Normal purchases and sales transactions, as defined by the accounting guidance for derivatives and hedging, hedge transactions
and certain other long-term power purchase contracts are not included in the fair values by source tables as they are not recorded
at fair value as part of commodity trading operations.
At Dec. 31, 2010, a 10 percent increase in market prices over the next 12 months for commodity trading contracts would increase
pretax income from continuing operations by approximately $0.1 million, whereas a 10 percent decrease would decrease pretax
income from continuing operations by approximately $0.1 million.
Xcel Energy’s short-term wholesale and commodity trading operations measure the outstanding risk exposure to price changes on
transactions, contracts and obligations that have been entered into, but not closed, using an industry standard methodology known
as Value at Risk (VaR). VaR expresses the potential change in fair value on the outstanding transactions, contracts and
obligations over a particular period of time under normal market conditions. The VaRs for the NSP-Minnesota and PSCo
commodity trading operations, calculated on a consolidated basis using a Monte Carlo simulation with a 95 percent confidence
level and a one-day holding period, were as follows:
(Millions of Dollars) Year Ended
Dec. 31 VaR Limit Average High Low
2010 ................................ $ 0.15 $ 3.00 $ 0.22 $ 0.64 $ 0.03
2009 ................................ 0.50 5.00 0.44 2.02 0.06
Interest Rate Risk — Xcel Energy and its subsidiaries are subject to the risk of fluctuating interest rates in the normal course of
business. Xcel Energy’s risk management policy allows interest rate risk to be managed through the use of fixed rate debt,
floating rate debt and interest rate derivatives such as swaps, caps, collars and put or call options.
At Dec. 31, 2010, a 100-basis-point change in the benchmark rate on Xcel Energy’s variable rate debt would impact pretax
interest expense by approximately $4.7 million annually. See Note 11 to the consolidated financial statements for a discussion of
Xcel Energy and its subsidiaries’ interest rate derivatives.
Xcel Energy also maintains a nuclear decommissioning fund, as required by the NRC. The nuclear decommissioning fund is
subject to interest rate risk and equity price risk. At Dec. 31, 2010, the fund was invested in a diversified portfolio of cash
equivalents, debt securities, equity securities, and other funds. These funds may be used only for activities related to nuclear
decommissioning. The accounting for nuclear decommissioning recognizes that costs are recovered through rates; therefore,
fluctuations in equity prices or interest rates do not have an impact on earnings.
Credit Risk — Xcel Energy and its subsidiaries are also exposed to credit risk. Credit risk relates to the risk of loss resulting from
counterparties’ nonperformance on their contractual obligations. Xcel Energy and its subsidiaries maintain credit policies
intended to minimize overall credit risk and actively monitor these policies to reflect changes and scope of operations.
At Dec. 31, 2010, a 10 percent increase in prices would have resulted in an increase in credit exposure of $72.4 million, while a
decrease of 10 percent in prices would have resulted in a decrease in credit exposure of $0.1 million.
Xcel Energy and its subsidiaries conduct standard credit reviews for all counterparties. Xcel Energy employs additional credit risk
control mechanisms when appropriate, such as letters of credit, parental guarantees, standardized master netting agreements and
termination provisions that allow for offsetting of positive and negative exposures. Credit exposure is monitored and, when
necessary, the activity with a specific counterparty is limited until credit enhancement is provided. Distress in the financial
markets could increase Xcel Energy’s credit risk.
Fair Value Measurements
Xcel Energy follows accounting and disclosure guidance on fair value measurements that contains a hierarchy for inputs used in
measuring fair value and generally requires that the most observable inputs available be used for fair value measurements. See
Note 11 to the consolidated financial statements for further discussion of the fair value hierarchy and the amounts of assets and
liabilities measured at fair value that have been assigned to Level 3.