Xcel Energy 2015 Annual Report Download - page 55
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Increasing costs associated with our defined benefit retirement plans and other employee benefits may adversely affect our results
of operations, financial position or liquidity.
We have defined benefit pension and postretirement plans that cover most of our employees. Assumptions related to future costs,
return on investments, interest rates and other actuarial assumptions, including mortality tables, have a significant impact on our
funding requirements related to these plans. These estimates and assumptions may change based on economic conditions, actual stock
and bond market performance, changes in interest rates and changes in governmental regulations. In addition, the Pension Protection
Act changed the minimum funding requirements for defined benefit pension plans with modifications that allowed additional
flexibility in the timing of contributions. Therefore, our funding requirements and related contributions may change in the future.
Also, the payout of a significant percentage of pension plan liabilities in a single year due to high retirements or employees leaving the
company could trigger settlement accounting and could require the company to recognize material incremental pension expense
related to unrecognized plan losses in the year these liabilities are paid.
Increasing costs associated with health care plans may adversely affect our results of operations.
Our self-insured costs of health care benefits for eligible employees have increased in recent years. Increasing levels of large
individual health care claims and overall health care claims could have an adverse impact on our operating results, financial position
and liquidity. We believe that our employee benefit costs, including costs related to health care plans for our employees and former
employees, will continue to rise. Changes in industry standards utilized by management in key assumptions (e.g., mortality tables)
could have a significant impact on future liabilities and benefit costs. Legislation related to health care could also significantly change
our benefit programs and costs.
We must rely on cash from our subsidiaries to make dividend payments.
We are a holding company and our investments in our subsidiaries are our primary assets. Substantially all of our operations are
conducted by our subsidiaries. Consequently, our operating cash flow and our ability to service our indebtedness and pay dividends
depends upon the operating cash flows of our subsidiaries and the payment dividends to us. Our subsidiaries are separate legal entities
that have no obligation to pay any amounts due pursuant to our obligations or to make any funds available for dividends on our
common stock. In addition, each subsidiary’s ability to pay dividends to us depends on any statutory and/or contractual restrictions
which may include requirements to maintain minimum levels of equity ratios, working capital or assets. Also, our utility subsidiaries
are regulated by various state utility commissions, which possess broad powers to ensure that the needs of the utility customers are
being met.
If our utility subsidiaries were to cease making dividend payments, our ability to pay dividends on our common stock or otherwise
meet our financial obligations could be adversely affected.
Operational Risks
We are subject to commodity risks and other risks associated with energy markets and energy production.
We engage in wholesale sales and purchases of electric capacity, energy and energy-related products as well as natural gas. As a result
we are subject to market supply and commodity price risk. Commodity price changes can affect the value of our commodity trading
derivatives. We mark certain derivatives to estimated fair market value on a daily basis (mark-to-market accounting). Actual
settlements can vary significantly from estimated fair values recorded, and significant changes from the assumptions underlying our
fair value estimates could cause significant earnings variability.
If we encounter market supply shortages or our suppliers are otherwise unable to meet their contractual obligations, we may be unable
to fulfill our contractual obligations to our customers at previously anticipated costs. Therefore, a significant disruption could cause us
to seek alternative supply services at potentially higher costs or suffer increased liability for unfulfilled contractual obligations. Any
significantly higher energy or fuel costs relative to corresponding sales commitments could have a negative impact on our cash flows
and potentially result in economic losses. Potential market supply shortages may not be fully resolved through alternative supply
sources and may cause short-term disruptions in our ability to provide electric and/or natural gas services to our customers. The
impact of these cost and reliability issues vary in magnitude for each operating subsidiary depending upon unique operating conditions
such as generation fuels mix, availability of water for cooling, availability of fuel transportation including rail shipments of coal,
electric generation capacity, transmission, natural gas pipeline capacity, etc.