Xcel Energy 2015 Annual Report Download - page 53
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In addition, existing environmental laws or regulations may be revised, and new laws or regulations may be adopted or become
applicable to us, including but not limited to, regulation of mercury, NOx, SO2, CO2 and other GHGs, particulates, cooling water
intakes, water discharges and ash management. We may also incur additional unanticipated obligations or liabilities under existing
environmental laws and regulations.
We are subject to physical and financial risks associated with climate change.
Climate change can create physical and financial risk. Physical risks from climate change can include changes in weather conditions,
changes in precipitation and extreme weather events.
Our customers’ energy needs vary with weather conditions, primarily temperature and humidity. For residential customers, heating
and cooling represent their largest energy use. To the extent weather conditions are affected by climate change, customers’ energy use
could increase or decrease. Increased energy use due to weather changes may require us to invest in additional generating assets,
transmission and other infrastructure to serve increased load. Decreased energy use due to weather changes may result in decreased
revenues. Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system
stress, including service interruptions. Weather conditions outside of our service territory could also have an impact on our revenues.
We buy and sell electricity depending upon system needs and market opportunities. Extreme weather conditions creating high energy
demand may raise electricity prices, which would increase the cost of energy we provide to our customers.
Severe weather impacts our service territories, primarily when thunderstorms, tornadoes and snow or ice storms occur. To the extent
the frequency of extreme weather events increases, this could increase our cost of providing service. Changes in precipitation
resulting in droughts or water shortages, whether caused by climate change or otherwise, could adversely affect our operations,
principally our fossil generating units. A negative impact to water supplies due to long-term drought conditions could adversely
impact our ability to provide electricity to customers, as well as increase the price they pay for energy. We may not recover all costs
related to mitigating these physical and financial risks.
Climate change may impact a region’s economic health, which could impact our revenues. Our financial performance is tied to the
health of the regional economies we serve. The price of energy has an impact on the economic health of our communities. The cost
of additional regulatory requirements, such as regulation of CO2 emissions under section 111(d) of the CAA, or additional
environmental regulation could impact the availability of goods and prices charged by our suppliers which would normally be borne
by consumers through higher prices for energy and purchased goods. To the extent financial markets view climate change and
emissions of GHGs as a financial risk, this could negatively affect our ability to access capital markets or cause us to receive less than
ideal terms and conditions.
Financial Risks
Our profitability depends in part on the ability of our utility subsidiaries to recover their costs from their customers and there may
be changes in circumstances or in the regulatory environment that impair the ability of our utility subsidiaries to recover costs
from their customers.
We are subject to comprehensive regulation by federal and state utility regulatory agencies. The utility commissions in the states
where we operate regulate many aspects of our utility operations, including siting and construction of facilities, customer service and
the rates that we can charge customers. The FERC has jurisdiction, among other things, over wholesale rates for electric transmission
service, the sale of electric energy in interstate commerce and certain natural gas transactions in interstate commerce.
The profitability of our utility operations is dependent on our ability to recover the costs of providing energy and utility services to our
customers and earn a return on our capital investment. Our utility subsidiaries provide service at rates approved by one or more
regulatory commissions. These rates are generally regulated and based on an analysis of the utility’s costs incurred in a test year. Our
utility subsidiaries are subject to both future and historical test years depending upon the regulatory mechanisms approved in each
jurisdiction. Thus, the rates a utility is allowed to charge may or may not match its costs at any given time. While rate regulation is
premised on providing an opportunity to earn a reasonable rate of return on invested capital, in a continued low interest rate
environment there has been pressure pushing down ROE. There can also be no assurance that the applicable regulatory commission
will judge all the costs of our utility subsidiaries to have been prudent, which could result in cost disallowances, or that the regulatory
process in which rates are determined will always result in rates that will produce full recovery of such costs. Changes in the long-
term cost-effectiveness or changes to the operating conditions of our assets may result in early retirements and there is no assurance
that regulators would allow full recovery of all remaining costs. Rising fuel costs could increase the risk that our utility subsidiaries
will not be able to fully recover their fuel costs from their customers. Furthermore, there could be changes in the regulatory
environment that would impair the ability of our utility subsidiaries to recover costs historically collected from their customers.