Xcel Energy 2012 Annual Report Download - page 50

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Our natural gas transmission and distribution operations involve numerous risks that may result in accidents and other
operating risks and costs.
Our natural gas transmission and distribution activities include a variety of inherent hazards and operating risks, such as leaks,
explosions and mechanical problems, which could cause substantial financial losses. In addition, these risks could result in loss of
human life, significant damage to property, environmental pollution, impairment of our operations and substantial losses to us. In
accordance with customary industry practice, we maintain insurance against some, but not all, of these risks and losses.
The occurrence of any of these events not fully covered by insurance could have a material effect on our financial position and
results of operations. For our natural gas transmission or distribution lines located near populated areas, including residential
areas, commercial business centers, industrial sites and other public gathering areas, the level of potential damages resulting from
these risks is greater.
Additionally, the cost of potential regulations related to pipeline safety could be significant.
Public Policy Risks
We may be subject to legislative and regulatory responses to climate change and emissions, with which compliance could be
difficult and costly.
Increased public awareness and concern regarding climate change may result in more regional and/or federal requirements to
reduce or mitigate the effects of GHGs. Numerous states have announced or adopted programs to stabilize and reduce GHGs, and
federal legislation has been introduced in both houses of Congress. The U.S. continues to participate in international negotiations
related to the United Nations Framework Convention on Climate Change. Such legislative and regulatory responses related to
climate change and new interpretations of existing laws through climate change litigation create financial risk as our electric
generating facilities are likely to be subject to regulation under climate change laws introduced at either the state or federal level
within the next few years.
The EPA has taken steps to regulate GHGs under the CAA. In December 2009, the EPA issued a finding that GHG emissions
endanger public health and welfare, and that motor vehicle emissions contribute to the GHGs in the atmosphere. This
endangerment finding created a mandatory duty for the EPA to regulate GHGs from light duty motor vehicles. In January 2011,
new EPA permitting requirements became effective for GHG emissions of new and modified large stationary sources, which are
applicable to construction of new power plants or power plant modifications that increase emissions above a certain threshold.
The EPA has also announced that it will propose GHG regulations applicable to emissions from existing power plants, although it
is not known when the EPA will initiate this rulemaking.
We are also currently a party to climate change lawsuits and may be subject to additional climate change lawsuits, including
lawsuits similar to those described in Note 13 to the consolidated financial statements. An adverse outcome in any of these cases
could require substantial capital expenditures that cannot be determined at this time and could possibly require payment of
substantial penalties or damages. Defense costs associated with such litigation can also be significant. Such payments or
expenditures could affect results of operations, cash flows, and financial condition if such costs are not recovered through
regulated rates.
There are many uncertainties regarding when and in what form climate change legislation or regulations will be enacted. The
impact of legislation and regulations, on us and our customers will depend on a number of factors, including whether GHG
sources in multiple sectors of the economy are regulated, the overall GHG emissions cap level, the degree to which GHG offsets
are recognized as compliance options, the allocation of emission allowances to specific sources and the indirect impact of carbon
regulation on natural gas and coal prices. While we do not have operations outside of the U.S., any international treaties or
accords could have an impact to the extent they lead to future federal or state regulations. Another important factor is our ability
to recover the costs incurred to comply with any regulatory requirements that are ultimately imposed. We may not be able to
timely recover all costs related to complying with regulatory requirements imposed on us. If our regulators do not allow us to
recover all or a part of the cost of capital investment or the O&M costs incurred to comply with the mandates, it could have a
material effect on our results of operations.
We are also subject to a significant number of proposed and potential rules that will impact our coal-fired and other generation
facilities. These include, but are not limited to, rules associated with emissions of SO2 and NOx, mercury, regional haze, ozone,
ash management and cooling water intake systems. The costs of investment to comply with these rules could be substantial. We
may not be able to timely recover all costs related to complying with regulatory requirements imposed on us.