Xcel Energy 2015 Annual Report Download - page 82
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Effective Jan. 1, 2016, the initial medical trend assumption decreased from 6.50 percent to 6.00 percent. The ultimate trend
assumption remained at 4.5 percent. The period until the ultimate rate is reached is three years. Xcel Energy bases its medical trend
assumption on the long-term cost inflation expected in the health care market, considering the levels projected and recommended by
industry experts, as well as recent actual medical cost experienced by Xcel Energy’s retiree medical plan.
• Xcel Energy contributed $18.3 million, $17.1 million and $17.6 million during 2015, 2014 and 2013, respectively, to the
postretirement health care plans.
• Xcel Energy expects to contribute approximately $12.3 million during 2016.
Xcel Energy recovers employee benefits costs in its regulated utility operations consistent with accounting guidance with the
exception of the areas noted below.
• NSP-Minnesota recognizes pension expense in all regulatory jurisdictions as calculated using the aggregate normal cost
actuarial method. Differences between aggregate normal cost and expense as calculated by pension accounting standards are
deferred as a regulatory liability.
• Colorado, Texas, New Mexico and FERC jurisdictions allow the recovery of other postretirement benefit costs only to the
extent that recognized expense is matched by cash contributions to an irrevocable trust. Xcel Energy has consistently funded
at a level to allow full recovery of costs in these jurisdictions.
• PSCo and SPS recognize pension expense in all regulatory jurisdictions based on expense consistent with accounting
guidance. The Texas and Colorado electric retail jurisdictions, and commencing in 2016, the Colorado gas retail jurisdiction,
each record the difference between annual recognized pension expense and the annual amount of pension expense approved
in their last respective general rate case as a deferral to a regulatory asset.
See Note 9 to the consolidated financial statements for further discussion.
Nuclear Decommissioning
Xcel Energy recognizes liabilities for the expected cost of retiring tangible long-lived assets for which a legal obligation exists. These
AROs are recognized at fair value as incurred and are capitalized as part of the cost of the related long-lived assets. In the absence of
quoted market prices, Xcel Energy estimates the fair value of its AROs using present value techniques, in which it makes various
assumptions including estimates of the amounts and timing of future cash flows associated with retirement activities, credit-adjusted
risk free rates and cost escalation rates. When Xcel Energy revises any assumptions used to estimate AROs, it adjusts the carrying
amount of both the ARO liability and the related long-lived asset. Xcel Energy accretes ARO liabilities to reflect the passage of time
using the interest method.
A significant portion of Xcel Energy’s AROs relates to the future decommissioning of NSP-Minnesota’s nuclear facilities. The total
obligation for nuclear decommissioning is expected to be funded 100 percent by the external decommissioning trust fund. The
difference between regulatory funding (including depreciation expense less returns from the external trust fund) and expense
recognized under current accounting guidance is deferred as a regulatory asset. The amounts recorded for AROs related to future
nuclear decommissioning were $2.141 billion and $2.038 billion as of Dec. 31, 2015 and 2014, respectively. Based on their
significance, the following discussion relates specifically to the AROs associated with nuclear decommissioning.
NSP-Minnesota obtains periodic cost studies in order to estimate the cost and timing of planned nuclear decommissioning activities.
These independent cost studies are based on relevant information available at the time performed. Estimates of future cash flows for
extended periods of time are by nature highly uncertain and may vary significantly from actual results. NSP-Minnesota is required to
file a nuclear decommissioning study every three years. In December 2014, NSP-Minnesota submitted this filing to the MPUC, which
covered all expenses over the decommissioning period of the nuclear plants, including decontamination and removal of radioactive
material. The MPUC approved the study in October 2015.
The following key assumptions have a significant effect on the estimated nuclear obligation:
• Timing — Decommissioning cost estimates are impacted by each facility’s retirement date and the expected timing of the
actual decommissioning activities. Currently, the estimated retirement dates coincide with each unit’s operating license with
the NRC (i.e., 2030 for Monticello and 2033 and 2034 for PI’s Unit 1 and 2, respectively). The estimated timing of the
decommissioning activities is based upon the DECON method, which is required by the MPUC. By utilizing this method,
which assumes prompt removal and dismantlement, these activities are expected to begin at the end of the license date and be
completed for both facilities by 2091.