Xcel Energy 2014 Annual Report Download - page 57

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Our utility operations are subject to long-term planning risks.
Our utility operations file long-term resource plans with our regulators. These plans are based on numerous assumptions over the
planning horizon such as: sales growth, customer usage, economic activity, costs, regulatory mechanisms, impact of technology, the
installation of distributed generation, customer behavioral response and continuation of the existing utility business model. Given the
uncertainty in these planning assumptions, there is a risk that the magnitude and timing of resource additions and demand may not
coincide. This is particularly true in PSCo where the addition of customer-site solar installations introduces additional downward
pressure on load growth. This could lead to under recovery of costs and excess resources to meet customer demand. Xcel Energy’s
aging infrastructure may pose a risk to system reliability and expose us to premature financial obligations. Xcel Energy is engaged in
significant and ongoing infrastructure investment programs.
In addition, large industrial customers may leave our system and invest in their own on-site distributed generation or seek law changes
to give them the authority to purchase directly from other suppliers or organized markets. The recent low natural gas price
environment has caused some customers to consider their options in this area, particularly customers with industrial processes using
steam. Wholesale customers may purchase directly from other suppliers and procure only transmission service from our utility
subsidiaries. These circumstances provide for greater long-term planning uncertainty related to future load growth. Similarly,
distributed solar generation may become an economic competitive threat to our load growth in the future. However, we believe the
economics, absent significant subsidies, do not support such a trend in the near term unless a state mandates the purchase of such
generation. Some states have considered such legislation.
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. 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 the level of potential damages
resulting from these risks is greater.
Additionally, the operating or other costs that may be required in order to comply with potential new regulations, including the
Pipeline Safety Act, could be significant. The Pipeline Safety Act requires verification of pipeline infrastructure records by intrastate
and interstate pipeline owners and operators to confirm the maximum allowable operating pressure of lines located in high
consequence areas or more-densely populated areas. We have programs in place to comply with the Pipeline Safety Act and for
systematic infrastructure monitoring and renewal over time. A significant incident could increase regulatory scrutiny and result in
penalties and higher costs of operations.
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 state, regional and/or federal requirements to
reduce or mitigate the effects of GHGs. 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 may be subject to additional
regulation under climate change laws at either the state or federal level in the future. The EPA is regulating GHGs under the CAA.
The EPA has regulated GHG emissions from motor vehicles and has proposed regulations to reduce GHG emissions from existing
power plants that are expected to become final in 2015, with state plans to achieve the EPA’s goals due by 2017. Such regulations
could impose substantial costs on our system.
The United States continues to participate in international negotiations related to the United Nations Framework Convention on Climate
Change (UNFCCC). In 2014, the United States and China jointly announced GHG emissions goals. Further, the 20th Conference of the
Parties (COP) to the UNFCCC concluded with the objective of developing an agreement among countries on emission reductions at the
2015 COP. This could result in additional GHG regulation or reduction goals in the United States.