Xcel Energy 2015 Annual Report Download - page 52
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Management identifies and analyzes risks to determine materiality and other attributes such as timing, probability and controllability.
Management broadly considers our business, the utility industry, the domestic and global economies and the environment when
identifying, assessing, managing and mitigating risk. Identification and analysis occurs formally through a key risk assessment
process conducted by senior management, the financial disclosure process, the hazard risk management process and internal auditing
and compliance with financial and operational controls. Management also identifies and analyzes risk through its business planning
process and development of goals and key performance indicators, which include risk identification to determine barriers to
implementing Xcel Energy’s strategy. At the same time, the business planning process identifies areas in which there is a potential for
a business area to take inappropriate risk to meet goals, and determines how to prevent inappropriate risk-taking.
At a threshold level, Xcel Energy has developed a robust compliance program and promotes a culture of compliance, including tone at
the top, which mitigates risk. The process for risk mitigation includes adherence to our code of conduct and other compliance
policies, operation of formal risk management structures and groups and overall business management to mitigate the risks inherent in
the implementation strategy. Building on this culture of compliance, Xcel Energy manages and further mitigates risks through
operation of formal risk management structures and groups, including management councils, risk committees and the services of
internal corporate areas such as internal audit, the corporate controller and legal services.
Management communicates regularly with the Board and key stakeholders regarding risk. Senior management presents a periodic
assessment of key risks to the Board. The presentation and the discussion of the key risks provides the Board with information on the
risks management believes are material, including the earnings impact, timing, likelihood and controllability. Management also
provides information to the Board in presentations and communications over the course of the year.
The Board approaches oversight, management and mitigation of risk as an integral and continuous part of its governance of the
Company. First, the Board as a whole regularly reviews management’s key risk assessment and analyzes areas of existing and future
risks and opportunities. In addition, the Board assigns oversight of certain critical risks to each of its four standing committees to
ensure these risks are well understood and given focused oversight by the committee with the most applicable expertise. The Audit
Committee is responsible for reviewing the adequacy of risk oversight and affirming that appropriate oversight occurs. New risks are
considered and assigned as appropriate during the annual Board and committee evaluation process, and committee charters and annual
work plans are updated accordingly. Committees regularly report on their oversight activities and certain risk issues may be brought
to the full Board for consideration where deemed appropriate to ensure broad Board understanding of the nature of the risk. Finally,
the Board conducts an annual strategy session where the Company’s future plans and initiatives are reviewed and confirmed.
Risks Associated with Our Business
Environmental Risks
We are subject to environmental laws and regulations, with which compliance could be difficult and costly.
We are subject to environmental laws and regulations that affect many aspects of our past, present and future operations, including air
emissions, water quality, wastewater discharges and the generation, transport and disposal of solid wastes and hazardous substances.
These laws and regulations require us to obtain and comply with a wide variety of environmental requirements including those for
protected natural and cultural resources (such as wetlands, endangered species and other protected wildlife, and archaeological and
historical resources), licenses, permits, inspections and other approvals. Environmental laws and regulations can also require us to
restrict or limit the output of certain facilities or the use of certain fuels, shift generation to lower-emitting but potentially more costly
facilities, install pollution control equipment at our facilities, clean up spills and other contamination and correct environmental
hazards. Environmental regulations may also lead to shutdown of existing facilities, either due to the difficulty in assuring compliance
or that the costs of compliance makes operation of the units no longer economical. Both public officials and private individuals may
seek to enforce the applicable environmental laws and regulations against us. We may be required to pay all or a portion of the cost to
remediate (i.e., clean-up) sites where our past activities, or the activities of certain other parties, caused environmental contamination.
At Dec. 31, 2015, these sites included:
• Sites of former MGPs operated by our subsidiaries, predecessors or other entities; and
• Third party sites, such as landfills, for which we are alleged to be a PRP that sent hazardous materials and wastes.
We are also subject to mandates to provide customers with clean energy, renewable energy and energy conservation offerings. Failure
to meet the requirements of these mandates may result in fines or penalties, which could have a material effect on our results of
operations. If our regulators do not allow us to recover all or a part of the cost of capital investment or the O&M costs incurred to
comply with the mandates, it could have a material effect on our results of operations, financial position or cash flows.