Xcel Energy 2012 Annual Report Download - page 74

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Effective Dec. 31, 2012, the initial medical trend assumption was increased from 6.3 percent to 7.5 percent. The ultimate trend
assumption was reduced from 5.0 percent to 4.5 percent. The period until the ultimate rate is reached is seven 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 $47.1 million and $49.0 million during 2012 and 2011, respectively, to the postretirement
health care plans.
• Xcel Energy expects to contribute approximately $21.8 million during 2013.
Xcel Energy recovers employee benefits costs in its regulated utility operations consistent with accounting guidance with the
exception of the areas noted below.
• NSP-Minnesota recognizes pension expense in all regulatory jurisdictions based on expense as calculated using the
aggregate normal cost actuarial method. Differences between aggregate normal cost and expense as calculated by
pension accounting standards are deferred as a regulatory liability.
• Colorado, Texas, New Mexico and FERC jurisdictions allow the recovery of other post retirement benefit costs only to
the extent that recognized expense is matched by cash contributions to an irrevocable trust. Xcel Energy has consistently
funded at a level to allow full recovery of costs in these jurisdictions.
See Note 9 to the consolidated financial statements for further discussion.
Nuclear Decommissioning
Xcel Energy recognizes liabilities for the expected cost of retiring tangible long-lived assets for which a legal obligation exists.
These AROs are recognized at fair value as incurred and are capitalized as part of the cost of the related long-lived assets. In the
absence of quoted market prices, Xcel Energy estimates the fair value of its AROs using present value techniques, in which it
makes various assumptions including estimates of the amounts and timing of future cash flows associated with retirement
activities, credit-adjusted risk free rates and cost escalation rates. When Xcel Energy revises any assumptions used to estimate
AROs, it adjusts the carrying amount of both the ARO liability and the related long-lived asset. Xcel Energy accretes ARO
liabilities to reflect the passage of time using the interest method.
A significant portion of Xcel Energy’s AROs relates to the future decommissioning of NSP-Minnesota’s nuclear facilities. The
total obligation for nuclear decommissioning currently is expected to be funded 100 percent by the external decommissioning
trust fund. The difference between regulatory funding (including depreciation expense less returns from the external trust fund)
and amounts recorded under current accounting guidance are deferred as a regulatory asset. The amounts recorded for AROs
related to future nuclear decommissioning were $1,546.4 million and $1,482.7 million as of Dec. 31, 2012 and 2011, respectively.
Based on their significance, the following discussion relates specifically to the AROs associated with nuclear decommissioning.
NSP-Minnesota obtains periodic cost studies in order to estimate the cost and timing of planned nuclear decommissioning
activities. These independent cost studies are based on relevant information available at the time performed. Estimates of future
cash flows for extended periods of time are by nature highly uncertain and may vary significantly from actual results.
In December 2011, NSP-Minnesota submitted to the MPUC its triennial nuclear decommissioning filing. The filing included a
decommissioning study, which covered all expenses over the decommissioning period of the nuclear plants, including
decontamination and removal of radioactive material. The estimated future costs were initially determined in nominal amounts
(2011 dollars) prior to escalation adjustments, then future periods’ costs were escalated using decommissioning-specific cost
escalators and finally discounted using risk-free, credit adjusted interest rates.
In November 2012, the MPUC approved NSP-Minnesota’s most recent nuclear decommissioning study which used 2011 cost
data. The MPUC approved the use of a 60-year decommissioning scenario. This resulted in an approved annual accrual for 2013
of $14.2 million for Minnesota retail customers to be offset by funds received in 2012 of $15.3 million from the DOE settlement,
which was deposited into the external decommissioning trust fund in December 2012.