Xcel Energy 2013 Annual Report Download - page 122

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Xcel Energy bases the investment-return assumption on expected long-term performance for each of the investment types included in
its pension asset portfolio. Xcel Energy considers the historical returns achieved by its asset portfolio over the past 20-year or longer
period, as well as the long-term return levels projected and recommended by investment experts. The pension cost determination
assumes a forecasted mix of investment types over the long-term. Investment returns were below the assumed level of 6.88 percent in
2013 and above the assumed levels of 7.10 and 7.50 percent in 2012 and 2011, respectively. Xcel Energy continually reviews its
pension assumptions. In 2014, Xcel Energy’s expected investment return assumption is 7.05 percent.
The assets are invested in a portfolio according to Xcel Energy’s return, liquidity and diversification objectives to provide a source of
funding for plan obligations and minimize the necessity of contributions to the plan, within appropriate levels of risk. The principal
mechanism for achieving these objectives is the projected allocation of assets to selected asset classes, given the long-term risk, return,
and liquidity characteristics of each particular asset class. There were no significant concentrations of risk in any particular industry,
index, or entity. Market volatility can impact even well-diversified portfolios and significantly affect the return levels achieved by
pension assets in any year.
The following table presents the target pension asset allocations for Xcel Energy:
2013 2012
Domestic and international equity securities. . . . . . . . . . . . . . . . . . . . . . . . 30% 25%
Long-duration fixed income and interest rate swap securities . . . . . . . . . . 33 40
Short-to-intermediate fixed income securities. . . . . . . . . . . . . . . . . . . . . . . 15 10
Alternative investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 23
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100%
Xcel Energy’s ongoing investment strategy is based on plan-specific investment recommendations that seek to minimize potential
investment and interest rate risk as a plan’s funded status increases over time. The investment recommendations result in a greater
percentage of long-duration fixed income securities being allocated to specific plans having relatively higher funded status ratios, and
a greater percentage of growth assets being allocated to plans having relatively lower funded status ratios. The aggregate projected
asset allocation presented in the table above for the master pension trust results from the plan-specific strategies.
Pension Plan Assets
The following tables present, for each of the fair value hierarchy levels, Xcel Energy’s pension plan assets that are measured at fair
value as of Dec. 31, 2013 and 2012:
Dec. 31, 2013
(Thousands of Dollars) Level 1 Level 2 Level 3 Total
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,700 $ — $ — $ 109,700
Derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 29,759 — 29,759
Government securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 230,212 — 230,212
Corporate bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 547,715 — 547,715
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 6,754 — 6,754
Mortgage-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 15,025 — 15,025
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,346 — — 99,346
Private equity investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 152,849 152,849
Commingled funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,769,076 — 1,769,076
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 47,553 47,553
Securities lending collateral obligation and other . . . . . . . . . . . . . . . . . . . . — 2,151 — 2,151
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 209,046 $ 2,600,692 $ 200,402 $ 3,010,140