Xcel Energy 2013 Annual Report Download - page 107

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Xcel Energy’s commodity trading operations are conducted by NSP-Minnesota, PSCo and SPS. Commodity trading activities are not
associated with energy produced from Xcel Energy’s generation assets or energy and capacity purchased to serve native load.
Commodity trading contracts are recorded at fair market value and commodity trading results include the impact of all margin-sharing
mechanisms. See Note 11 for further discussion.
Fair Value Measurements — Xcel Energy presents cash equivalents, interest rate derivatives, commodity derivatives and nuclear
decommissioning fund assets at estimated fair values in its consolidated financial statements. Cash equivalents are recorded at cost
plus accrued interest; money market funds are measured using quoted net asset values. For interest rate derivatives, quoted prices
based primarily on observable market interest rate curves are used as a primary input to establish fair value. For commodity
derivatives, the most observable inputs available are generally used to determine the fair value of each contract. In the absence of a
quoted price for an identical contract in an active market, Xcel Energy may use quoted prices for similar contracts or internally
prepared valuation models to determine fair value. For the nuclear decommissioning fund, published trading data and pricing models,
generally using the most observable inputs available, are utilized to estimate fair value for each class of security. See Note 11 for
further discussion.
Cash and Cash Equivalents — Xcel Energy considers investments in certain instruments, including commercial paper and money
market funds, with a remaining maturity of 3 months or less at the time of purchase, to be cash equivalents.
Accounts Receivable and Allowance for Bad Debts — Accounts receivable are stated at the actual billed amount net of an allowance
for bad debts. Xcel Energy establishes an allowance for uncollectible receivables based on a policy that reflects its expected exposure
to the credit risk of customers.
Inventory — All inventory is recorded at average cost.
RECs — RECs are marketable environmental instruments that represent proof that energy was generated from eligible renewable
energy sources. RECs are awarded upon delivery of the associated energy and can be bought and sold. RECs are typically used as a
form of measurement of compliance to RPS enacted by those states that are encouraging construction and consumption from
renewable energy sources, but can also be sold separately from the energy produced. Utility subsidiaries acquire RECs from the
generation or purchase of renewable power.
When RECs are purchased or acquired in the course of generation they are recorded as inventory at cost. The cost of RECs that are
utilized for compliance purposes is recorded as electric fuel and purchased power expense. As a result of state regulatory orders, Xcel
Energy reduces recoverable fuel costs for the cost of certain RECs and records that cost as a regulatory asset when the amount is
recoverable in future rates.
Sales of RECs that are purchased or acquired in the course of generation are recorded in electric utility operating revenues on a gross
basis. The cost of these RECs, related transaction costs, and amounts credited to customers under margin-sharing mechanisms are
recorded in electric fuel and purchased power expense. The sales of RECs for trading purposes are recorded in electric utility
operating revenues, net of the cost of the RECs, transaction costs, and amounts credited to customers under margin-sharing
mechanisms.
Emission Allowances — Emission allowances, including the annual SO2 and NOx emission allowance entitlement received from the
EPA, are recorded at cost plus associated broker commission fees. Xcel Energy follows the inventory accounting model for all
emission allowances. Sales of emission allowances are included in electric utility operating revenues and the operating activities
section of the consolidated statements of cash flows.
Environmental Costs — Environmental costs are recorded when it is probable Xcel Energy is liable for remediation costs and the
liability can be reasonably estimated. Costs are deferred as a regulatory asset if it is probable that the costs will be recovered from
customers in future rates. Otherwise, the costs are expensed. If an environmental expense is related to facilities currently in use, such
as emission-control equipment, the cost is capitalized and depreciated over the life of the plant.
Estimated remediation costs, excluding inflationary increases, are recorded. The estimates are based on experience, an assessment of
the current situation and the technology currently available for use in the remediation. The recorded costs are regularly adjusted as
estimates are revised and remediation proceeds. If other participating PRPs exist and acknowledge their potential involvement with a
site, costs are estimated and recorded only for Xcel Energy’s expected share of the cost. Any future costs of restoring sites where
operation may extend indefinitely are treated as a capitalized cost of plant retirement. The depreciation expense levels recoverable in
rates include a provision for removal expenses, which may include final remediation costs. Removal costs recovered in rates are
classified as a regulatory liability.
See Note 13 for further discussion of environmental costs.