Xcel Energy 2003 Annual Report Download - page 15

MANAGEMENT’S DISCUSSION AND ANALYSIS
XCEL ENERGY 2003 ANNUAL REPORT 31
Capital expenditures on environmental improvements at regulated facilities were approximately:
–$58.5 million in 2003;
–$107.8 million in 2002; and
–$135.7 million in 2001.
The regulated utilities expect to incur approximately $83.0 million in capital expenditures for compliance with environmental regulations in 2004 and
approximately $1.1 billion for environmental improvements during the period from 2004 through 2008. Approximately $43 million and $988 million of
these expenditures, respectively, are related to modifications to reduce the emissions of NSP-Minnesota’s generating plants located in the Minneapolis-St. Paul
metropolitan area pursuant to the metropolitan emissions reduction project (MERP), which are recoverable from customers through cost recovery
mechanisms. See Notes 17 and 18 to the Consolidated Financial Statements for further discussion of our environmental contingencies.
Impact of Nonregulated Investments
Xcel Energy’s investments in nonregulated operations have had a significant impact on its results of operations. As a result of the divestiture of NRG,
Xcel Energy does not expect that its investments in nonregulated operations will continue to have such a significant impact on its results. Xcel Energy
does not expect to make any material investments in nonregulated projects. Xcel Energy’s remaining nonregulated businesses may carry a higher level of
risk than its traditional utility businesses.
Xcel Energy’s earnings from nonregulated subsidiaries include investments in broadband communications systems through Seren. Management currently
intends to hold and operate the Seren broadband communications system investments. As of Dec. 31, 2003, Xcel Energy’s investment in Seren was
approximately $265 million. Seren had capitalized $331 million for plant in service and had incurred another $10 million for construction work in
progress for these systems at Dec. 31, 2003.
Xcel Energy has also invested in international projects, primarily in Argentina, through Xcel Energy International, but has designated Xcel Energy
International as held for sale as of Dec. 31, 2003. An estimated after-tax loss from disposal of Xcel Argentina assets of $59 million has been recorded,
but may change as the final impacts of the divestiture become known in 2004.
Inflation
Inflation at its current level is not expected to materially affect Xcel Energy’s prices or returns to shareholders.
Critical Accounting Policies and Estimates
Preparation of the Consolidated Financial Statements and related disclosures in compliance with GAAP requires the application of appropriate technical
accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events,
including the likelihood of success of particular projects, legal and regulatory challenges and anticipated recovery of costs. These judgments, in and of
themselves, could materially impact the Consolidated Financial Statements and disclosures based on varying assumptions, which may be appropriate to
use. In addition, the financial and operating environment also may have a significant effect, not only on the operation of the business, but on the results
reported through the application of accounting measures used in preparing the Consolidated Financial Statements and related disclosures, even if the
nature of the accounting policies applied have not changed. The following is a list of accounting policies that are most significant to the portrayal of
Xcel Energy’s financial condition and results, and that require management’s most difficult, subjective or complex judgments. Each of these has a higher
potential likelihood of resulting in materially different reported amounts under different conditions or using different assumptions. Each critical
accounting policy has been discussed with the audit committee of the Xcel Energy board of directors. Xcel Energy no longer considers NRG’s financial
restructuring a critical accounting policy due to the divestiture resulting from NRG’s emergence from bankruptcy.
Accounting Policy Judgments/Uncertainties Affecting Application See Additional Discussion At
Regulatory Mechanisms and –External regulatory decisions, requirements and Management’s Discussion and Analysis:
Cost Recovery regulatory environment Factors Affecting Results of Continuing Operations
–Anticipated future regulatory decisions and Utility Industry Changes
their impact Regulation
–Impact of deregulation and competition on Notes to Consolidated Financial Statements
ratemaking process and ability to recover costs Notes 1, 17 and 19
Nuclear Plant –Costs of future decommissioning Notes to Consolidated Financial Statements
Decommissioning –Availability of facilities for waste disposal Notes 1, 17 and 18
and Cost Recovery –Approved methods for waste disposal
–Useful lives of nuclear power plants
–Future recovery of plant investment and
decommissioning costs