Xcel Energy 2012 Annual Report Download - page 97

87
Depreciation expense, expressed as a percentage of average depreciable property, was approximately 2.8, 2.9, and 3.0 percent for
the years ended Dec. 31, 2012, 2011 and 2010, respectively.
Leases — Xcel Energy evaluates a variety of contracts for lease classification at inception, including PPAs and rental
arrangements for office space, vehicles and equipment. Contracts determined to contain a lease because of per unit pricing that is
other than fixed or market price, terms regarding the use of a particular asset, and other factors are evaluated further to determine
if the arrangement is a capital lease. See Note 13 for further discussion of leases.
AFUDC — AFUDC represents the cost of capital used to finance utility construction activity. AFUDC is computed by applying a
composite pretax rate to qualified CWIP. The amount of AFUDC capitalized as a utility construction cost is credited to other
nonoperating income (for equity capital) and interest charges (for debt capital). AFUDC amounts capitalized are included in Xcel
Energy’s rate base for establishing utility service rates. In addition to construction-related amounts, cost of capital also is recorded
to reflect returns on capital used to finance conservation programs in Minnesota.
Generally, AFUDC costs are recovered from customers as the related property is depreciated. However, in some cases
commissions have approved a more current recovery of the cost of capital associated with large capital projects, resulting in a
lower recognition of AFUDC. In other cases, some commissions have allowed an AFUDC calculation greater than the FERC-
defined AFUDC rate, resulting in higher recognition of AFUDC.
Asset Retirement Obligations — Xcel Energy Inc.’s utility subsidiaries account for AROs under accounting guidance that
requires a liability for the fair value of an ARO to be recognized in the period in which it is incurred if it can be reasonably
estimated, with the offsetting associated asset retirement costs capitalized as a long-lived asset. The liability is generally increased
over time by applying the interest method of accretion, and the capitalized costs are depreciated over the useful life of the long-
lived asset. Changes resulting from revisions to the timing or amount of expected asset retirement cash flows are recognized as an
increase or a decrease in the ARO. Xcel Energy Inc.’s utility subsidiaries also recover through rates certain future plant removal
costs in addition to AROs. The accumulated removal costs for these obligations are reflected in the balance sheets as a regulatory
liability. See Note 13 for further discussion of AROs.
Nuclear Decommissioning — Nuclear decommissioning studies estimate NSP-Minnesota’s ultimate costs of decommissioning
its nuclear power plants and are performed at least every three years and submitted to the MPUC and other state commissions for
approval. NSP-Minnesota filed its most recent triennial nuclear decommissioning studies with the MPUC in December 2011 and
received approval in December 2012. These studies reflect NSP-Minnesota’s plans, under the current operating licenses, for
prompt dismantlement of the Monticello and Prairie Island facilities. These studies assume that NSP-Minnesota will be storing
spent fuel on site pending removal to a U.S. government facility.
For rate making purposes, NSP-Minnesota recovers the total decommissioning costs related to its nuclear power plants, including
operating costs associated with spent fuel, over each facility’s expected service life based on the triennial decommissioning
studies filed with the MPUC. The studies consider estimated future costs of decommissioning and the market value of
investments in trust funds, and recommend annual funding amounts. Amounts collected in rates are deposited in the trust funds.
See Note 14 for further discussion of the approved nuclear decommissioning studies and funded amounts. For financial reporting
purposes, NSP-Minnesota accounts for nuclear decommissioning as an ARO as described above.
Restricted funds for the payment of future decommissioning expenditures for NSP-Minnesota’s nuclear facilities are included in
the nuclear decommissioning fund on the consolidated balance sheets. See Note 11 for further discussion of the nuclear
decommissioning fund.
Nuclear Fuel Expense — Nuclear fuel expense, which is recorded as NSP-Minnesota’s nuclear generating plants use fuel,
includes the cost of fuel used in the current period (including AFUDC), as well as future disposal costs of spent nuclear fuel and
costs associated with the end-of-life fuel segments.
Nuclear Refueling Outage Costs — Xcel Energy uses a deferral and amortization method for nuclear refueling O&M costs. This
method amortizes refueling outage costs over the period between refueling outages consistent with how the costs are recovered
ratably in electric rates.