Xcel Energy 2015 Annual Report Download - page 104
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Revenue Recognition — Revenues related to the sale of energy are generally recorded when service is rendered or energy is delivered
to customers. However, the determination of the energy sales to individual customers is based on the reading of their meter, which
occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers since the date
of the last meter reading are estimated and the corresponding unbilled revenue is recognized. Xcel Energy presents its revenues net of
any excise or other fiduciary-type taxes or fees.
NSP-Minnesota participates in MISO, and SPS participates in SPP. Xcel Energy’s utility subsidiaries recognize sales to both native
load and other end use customers on a gross basis. Revenues and charges for short term wholesale sales of excess energy transacted
through RTOs are recorded on a gross basis in electric revenues and cost of sales. Other revenues and charges related to participating
and transacting in RTOs are recorded on a net basis in cost of sales.
Xcel Energy Inc.’s utility subsidiaries have various rate-adjustment mechanisms in place that provide for the recovery of natural gas,
electric fuel and purchased energy costs. These cost-adjustment tariffs may increase or decrease the level of revenue collected from
customers and are revised periodically for differences between the total amount collected under the clauses and the costs incurred.
When applicable, under governing regulatory commission rate orders, fuel cost over-recoveries (the excess of fuel revenue billed to
customers over fuel costs incurred) are deferred as regulatory liabilities and under-recoveries (the excess of fuel costs incurred over
fuel revenues billed to customers) are deferred as regulatory assets.
Certain rate rider mechanisms qualify for alternative revenue recognition under generally accepted accounting principles. These
mechanisms arise from costs imposed upon the utility by action of a regulator or legislative body related to an environmental, public
safety, or other mandate. When certain criteria are met, revenue is recognized equal to the revenue requirement, including return on
rate base items, for the qualified mechanisms. The mechanisms are revised periodically for differences between the total amount
collected under the riders and the revenue recognized, which may increase or decrease the level of revenue collected from customers.
Conservation Programs — Xcel Energy Inc.’s utility subsidiaries have implemented programs in many of their retail jurisdictions to
assist customers in reducing peak demand and conserving energy on the electric and natural gas systems. These programs include
efficiency and redesign programs, as well as rebates for the purchase of items such as high efficiency lighting.
The costs incurred for DSM and CIP programs are deferred if it is probable future revenue will be provided to permit recovery of the
incurred cost. Recorded revenues for incentive programs designed for recovery of lost margins and/or conservation performance
incentives are limited to amounts expected to be collected within 24 months from the annual period in which they are earned.
For PSCo, SPS and NSP-Minnesota, DSM and CIP program costs are recovered through a combination of base rate revenue and rider
mechanisms. The revenue billed to customers recovers incurred costs for conservation programs and also incentive amounts that are
designed to encourage Xcel Energy’s achievement of energy conservation goals and compensate for related lost sales margin. For
these utility subsidiaries, regulatory assets are recognized to reflect the amount of costs or earned incentives that have not yet been
collected from customers. NSP-Wisconsin recovers approved conservation program costs in base rate revenue.
Property, Plant and Equipment and Depreciation — Property, plant and equipment is stated at original cost. The cost of plant
includes direct labor and materials, contracted work, overhead costs and AFUDC. The cost of plant retired is charged to accumulated
depreciation and amortization. Amounts recovered in rates for future removal costs are recorded as regulatory liabilities. Significant
additions or improvements extending asset lives are capitalized, while repairs and maintenance costs are charged to expense as
incurred. Maintenance and replacement of items determined to be less than a unit of property are charged to operating expenses as
incurred. Planned major maintenance activities are charged to operating expense unless the cost represents the acquisition of an
additional unit of property or the replacement of an existing unit of property. Property, plant and equipment also includes costs
associated with property held for future use. The depreciable lives of certain plant assets are reviewed annually and revised, if
appropriate. Property, plant and equipment that is required to be decommissioned early by a regulator is reclassified as plant to be
retired.
Property, plant and equipment is tested for impairment when it is determined that the carrying value of the assets may not be
recoverable. A loss is recognized in the current period if it becomes probable that part of a cost of a plant under construction or
recently completed plant will be disallowed for recovery from customers and a reasonable estimate of the disallowance can be made.
See Note 12 for a discussion of the loss recognized related to the Monticello LCM/EPU project. For investments in property, plant
and equipment that are abandoned and not expected to go into service, incurred costs and related deferred tax amounts are compared
to the discounted estimated future rate recovery, and a loss is recognized, if necessary.
Xcel Energy records depreciation expense related to its plant using the straight-line method over the plant’s useful life. Actuarial life
studies are performed and submitted to the state and federal commissions for review. Upon acceptance by the various commissions,
the resulting lives and net salvage rates are used to calculate depreciation. Depreciation expense, expressed as a percentage of average
depreciable property, was approximately 2.8, 2.7, and 2.9 percent for the years ended Dec. 31, 2015, 2014 and 2013, respectively.