Xcel Energy 2015 Annual Report Download - page 79
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Xcel Energy’s operations are subject to federal and state laws and regulations related to air emissions, water discharges and waste
management from various sources. Such laws and regulations impose monitoring and reporting requirements and may require Xcel
Energy to obtain pre-approval for the construction or modification of projects that increase air emissions, water discharges or land
disposal of wastes, obtain and comply with permits that contain emission, discharge and operational limitations, or install or operate
pollution control equipment at facilities. Xcel Energy will likely be required to incur capital expenditures in the future to comply with
these requirements for remediation of MGP and other legacy sites and various regulations for air emissions, water intake and discharge
and waste disposal. Actual expenditures could vary from the estimates presented. The scope and timing of these expenditures cannot
be determined until any new or revised regulations become final or until more information is learned about the need for remediation at
the legacy sites.
Pollution control equipment can be required by federal and state regulations, such as those requiring mercury emission reductions, and
by state or federal implementation plans, such as those to address visibility impairment, interstate air pollution impacts or attainment
of NAAQS. Xcel Energy has installed and is operating control equipment needed to comply with the requirements of the federal
Mercury and Air Toxic Standards Rule. Most recently, the EPA has adopted a federal visibility plan for Texas which imposes SO2
emission limitations that reflect installation of dry scrubbers on Tolk Units 1 and 2, with compliance required by early 2021.
See Note 13 to the consolidated financial statements for further discussion of Xcel Energy’s environmental contingencies.
Inflation
Inflation at its current level is not expected to materially affect Xcel Energy’s prices or returns to shareholders. However, potential
future inflation could result from economic conditions or the economic and monetary policies of the U.S. Government and the Federal
Reserve. This could lead to future price increases for materials and services required to deliver electric and natural gas services to
customers. These potential cost increases could in turn lead to increased prices to customers. If current low oil prices lead to
sustained deflation, that could also reduce general economic activity although it may lead to lower electric and natural gas prices to
customers.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of the consolidated financial statements and related disclosures in compliance with GAAP requires the application of
accounting rules and guidance, as well as the use of estimates. The application of these policies involves judgments regarding future
events, including the likelihood of success of particular projects, legal and regulatory challenges and anticipated recovery of costs.
These judgments could materially impact the consolidated financial statements and disclosures, based on varying assumptions. In
addition, the financial and operating environment also may have a significant effect on the operation of the business and on the results
reported. The following is a list of accounting policies and estimates that are most significant to the portrayal of Xcel Energy’s
financial condition and results, and require management’s most difficult, subjective or complex judgments. Each of these has a higher
likelihood of resulting in materially different reported amounts under different conditions or using different assumptions. Each critical
accounting policy has been reviewed and discussed with the Audit Committee of Xcel Energy Inc.’s Board of Directors on a quarterly
basis.
Regulatory Accounting
Xcel Energy Inc. is a holding company with rate-regulated subsidiaries that are subject to the accounting for Regulated Operations,
which provides that rate-regulated entities report assets and liabilities consistent with the recovery of those incurred costs in rates, if
the competitive environment makes it probable that such rates will be charged and collected. Xcel Energy’s rates are derived through
the ratemaking process, which results in the recording of regulatory assets and liabilities based on the probability of future cash flows.
Regulatory assets generally represent incurred or accrued costs that have been deferred because future recovery from customers is
probable. Regulatory liabilities generally represent amounts that are expected to be refunded to customers in future rates or amounts
collected in current rates for future costs. In other businesses or industries, regulatory assets and regulatory liabilities would generally
be charged to net income or OCI.
Each reporting period Xcel Energy assesses the probability of future recoveries and obligations associated with regulatory assets and
liabilities. Factors such as the current regulatory environment, recently issued rate orders and historical precedents are considered.
Decisions made by regulatory agencies can directly impact the amount and timing of cost recovery as well as the rate of return on
invested capital, and may materially impact Xcel Energy’s results of operations, financial condition or cash flows.