Xcel Energy 2015 Annual Report Download - page 81
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Based on current assumptions and the recognition of past investment gains and losses, Xcel Energy currently projects the pension
costs recognized for financial reporting purposes will be $120.7 million in 2016 and $117.0 million in 2017, while the actual pension
costs were $127.7 million in 2015 and $126.5 million in 2014. The expected decrease in 2016 costs is due primarily to the reduction
in historic loss amortization amounts including the 2008 market loss and an increase in the discount rate, which were offset by current
year asset losses and a lowering of the expected return on asset assumption. Further, future year costs are expected to decrease
primarily as a result of reductions in loss amortizations and an increase in expected return on assets due to planned future
contributions and expected return of current assets.
In 2014, the Society of Actuaries published a new mortality table and projection scale that increased the overall life expectancy of
males and females. Xcel Energy has reviewed its own population through a credibility analysis and adopted the RP 2014 table, with
modifications, based on our population and specific experience. Further, at year-end 2015, Xcel Energy evaluated the updated
projection table, MP 2015, and concluded that the methodology adopted at the end of 2014 is consistent with the new projection table
and continues to be representative of Xcel Energy’s population. Therefore, no changes are required.
At Dec. 31, 2015, Xcel Energy set the rate of return on assets used to measure pension costs at 6.87 percent, which is a 22 basis point
decrease from Dec. 31, 2014. The rate of return used to measure postretirement health care costs is 5.80 percent at Dec. 31, 2015 and
this is consistent with Dec. 31, 2014. Xcel Energy’s ongoing investment strategy is based on plan-specific investment
recommendations that seek to minimize potential investment and interest rate risk as a plan’s funded status increases over time. The
investment recommendations result in a greater percentage of long-duration fixed income securities being allocated to specific plans
having relatively higher funded status ratios and a greater percentage of growth assets being allocated to plans having relatively lower
funded status ratios.
Xcel Energy set the discount rates used to value the Dec. 31, 2015 pension and postretirement health care obligations at 4.66 percent
and 4.65 percent, which represent a 55 basis point and 57 basis point increase from Dec. 31, 2014, respectively. Xcel Energy uses a
bond matching study as its primary basis for determining the discount rate used to value pension and postretirement health care
obligations. The bond matching study utilizes a portfolio of high grade (Aa or higher) bonds that matches the expected cash flows of
Xcel Energy’s benefit plans in amount and duration. The effective yield on this cash flow matched bond portfolio determines the
discount rate for the individual plans. The bond matching study is validated for reasonableness against the Citigroup Pension Liability
Discount Curve and the Citigroup Above Median Curve. At Dec. 31, 2015, these reference points supported the selected rate. In
addition to these reference points, Xcel Energy also reviews general actuarial survey data to assess the reasonableness of the discount
rate selected.
The following are the pension funding contributions across all four of Xcel Energy’s pension plans, both voluntary and required, for
2013 through 2016:
• $125.0 million in January 2016;
• $90.1 million in 2015;
• $130.6 million in 2014; and
• $192.4 million in 2013.
For future years, we anticipate contributions will be made as necessary. These contributions are summarized in Note 9 to the
consolidated financial statements. Future year amounts are estimates and may change based on actual market performance, changes in
interest rates and any changes in governmental regulations. Therefore, additional contributions could be required in the future.
If Xcel Energy were to use alternative assumptions at Dec. 31, 2015, a one-percent change would result in the following impact on
2016 pension costs:
Pension Costs
(Millions of Dollars) +1% -1%
Rate of return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (20.5) $ 20.9
Discount rate (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.6) 10.9
(a) These costs include the effects of regulation.