Xcel Energy 2003 Annual Report Download - page 34

50 XCEL ENERGY 2003 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
–In Colorado, PSCo operates under an electric performance-based regulatory plan, which provides for an annual earnings test. NSP-Minnesota and PSCo
operate under various service standards, which could require customer refunds if certain criteria are not met. NSP-Minnesota and PSCo’s rates
include monthly adjustments for the recovery of conservation and energy-management program costs, which are reviewed annually.
–SPS’ rates in Texas provide electric fuel and purchased energy cost recovery. In New Mexico, SPS also has a monthly fuel and purchased power
cost-recovery factor.
–NSP-Minnesota, NSP-Wisconsin, PSCo and SPS sell firm power and energy in wholesale markets, which are regulated by the FERC. These rates
include monthly wholesale fuel cost-recovery mechanisms.
Trading Operations All applicable gains and losses related to energy trading activities, whether or not settled physically, are shown net in the statement
of operations. Electric trading costs, including such gains and losses, are reported as an offset to Electric Trading Revenues to present Electric Trading
Margin on a net basis.
Xcel Energy’s electric trading operations are conducted by NSP-Minnesota and PSCo. Pursuant to a joint operating agreement (JOA), approved by the
FERC, some of the electric trading activity is apportioned to the other operating utilities of Xcel Energy. Trading revenue and costs do not include
the revenue and production costs associated with energy produced from Xcel Energy’s generation assets or energy and capacity purchased to serve
native load. Trading results are recorded using mark-to-market accounting. In addition, trading results include the impacts of any margin-sharing
mechanisms. In 2003, Xcel Energy’s board of directors designated e prime as held for sale. e prime had conducted natural gas commodity trading
activities. Consequently, e prime financial results are presented as discontinued operations. For more information, see Notes 3, 15 and 16 to the
Consolidated Financial Statements.
Derivative Financial Instruments Xcel Energy and its subsidiaries utilize a variety of derivatives, including interest rate swaps and locks, foreign
currency hedges and energy contracts, to reduce exposure to corresponding risks. The energy contracts are both financial- and commodity-based.
These contracts consist mainly of commodity futures and options, index or fixed price swaps and basis swaps. For further discussion of Xcel Energy’s
risk management and derivative activities, see Notes 15 and 16 to the Consolidated Financial Statements.
Property, Plant, Equipment and Depreciation Property, plant and equipment is stated at original cost. The cost of plant includes direct labor and
materials, contracted work, overhead costs and applicable interest expense. The cost of plant retired, plus net removal cost, is charged to accumulated
depreciation and amortization. Beginning in 2003, removal costs related to asset retirement obligations that are not legal obligations are reflected in
regulatory liabilities. Significant additions or improvements extending asset lives are capitalized, while repairs and maintenance are charged to expense as
incurred. Maintenance and replacement of items determined to be less than units of property are charged to operating expenses. Property, plant and
equipment also includes costs associated with the engineering design of future generating stations and other property held for future use.
Xcel Energy determines the depreciation of its plant by using the straight-line method, which spreads the original cost equally over the plant’s useful life.
Depreciation expense, expressed as a percentage of average depreciable property, was approximately 3.0, 3.4 and 3.1 for the years ended Dec. 31, 2003,
2002 and 2001, respectively.
Allowance for Funds Used During Construction (AFDC) and Capitalized Interest AFDC, a noncash item, represents the cost of capital used
to finance utility construction activity. AFDC is computed by applying a composite pretax rate to qualified construction work in progress. The amount
of AFDC capitalized as a utility construction cost is credited to other nonoperating income (for equity capital) and interest charges (for debt capital).
AFDC amounts capitalized are included in Xcel Energy’s rate base for establishing utility service rates. In addition to construction-related amounts,
AFDC also is recorded to reflect returns on capital used to finance conservation programs in Minnesota. Interest capitalized for debt capital for all Xcel
Energy entities (as AFDC for utility companies) was approximately $20 million in 2003, $18 million in 2002 and $29 million in 2001. AFDC recorded
for equity capital for all Xcel Energy entities was $25 million in 2003, $8 million in 2002 and $7 million in 2001.
Decommissioning Xcel Energy accounts for the future cost of decommissioning, or retirement, of its nuclear generating plants through annual
depreciation accruals using an annuity approach designed to provide for full rate recovery of the future decommissioning costs. The decommissioning
calculation covers all expenses, including decontamination and removal of radioactive material, and extends over the estimated lives of the plants. The
calculation assumes that NSP-Minnesota and NSP-Wisconsin will recover those costs through rates. The fair value of external nuclear decommissioning
fund investments are estimated based on quoted market prices for those or similar investments. Unrealized gains or losses are deferred as regulatory
assets or liabilities. In 2003, NSP-Minnesota adopted Statement of Financial Accounting Standard (SFAS) No. 143, which changed the accounting
methodology for nuclear decommissioning costs. For more information on nuclear decommissioning and the impacts of adopting SFAS No. 143, see
Note 18 to the Consolidated Financial Statements.
PSCo also previously operated a nuclear generating plant, which has been decommissioned and repowered using natural gas. PSCo’s costs associated
with decommissioning were deferred and are being amortized consistent with regulatory recovery.
Nuclear Fuel Expense Nuclear fuel expense, which is recorded as our nuclear generating plants use fuel, includes the cost of fuel used in the current
period, as well as future disposal costs of spent nuclear fuel. In addition, nuclear fuel expense includes fees assessed by the U.S. Department of Energy
(DOE) for NSP-Minnesota’s portion of the cost of decommissioning the DOE’s fuel-enrichment facility.