Xcel Energy 2003 Annual Report Download - page 55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XCEL ENERGY 2003 ANNUAL REPORT 71
Triggering
Term or Event Assets
(Millions of dollars) Guarantee Current Expiration Requiring Held as
Nature of Guarantee Guarantor Amount Exposure Date Performance Collateral
Guarantee performance and payment of surety bonds 2004, 2005, 2007, 2012,
for itself and its subsidiaries(d)(f)(i) Xcel Energy $ 32.3 $ 4.1 2014, 2015 and 2022 (e) N/A
Guarantee performance and payment of surety
bonds for those subsidiaries Various subsidiaries(a)(i) $550.8 $47.3 2004 and 2005 (e) $20.0
Guarantees made to facilitate e prime’s natural
gas acquisition, marketing and trading operations Xcel Energy $ 47.0 $ 5.0 Continuing (b) N/A
Two guarantees benefiting Cheyenne to guarantee
the payment obligations under gas and power
purchase agreements Xcel Energy $ 26.5 – 2011 and 2013 (b) N/A
Guarantee the indemnification obligations of Xcel
Energy Markets Holdings Inc. under a purchase
agreement with Border Viking Co. Xcel Energy $ 30.7 – Continuing (c) N/A
Guarantees for e prime Energy Marketing Inc. and
e prime Florida Inc.’s guaranteeing payments of
energy, capacity and financial transactions Xcel Energy $ 13.0 $ 0.1 Continuing (b) N/A
Guarantee for payments related to energy or
financial transactions for XERS Inc., a
nonregulated subsidiary of Xcel Energy Xcel Energy $ 10.0 $ 0.5 Continuing (b) N/A
Guarantee of customer loans to encourage
business growth and expansion NSP-Wisconsin $ 0.7 $ 0.2 Latest expiration in 2006 (g) N/A
Guarantee of collection of receivables sold to
a third party NSP-Minnesota $ 2.1 $ 2.1 Latest expiration in 2007 (b) (h)
Combination of guarantees benefiting various
Xcel Energy subsidiaries Xcel Energy $ 5.9 – Continuing (b) N/A
(a) The $47.3 million exposure is related to $550.1 million of performance bonds associated with six construction projects in which Utility Engineering is participating. An estimate
of exposure for the remaining bonds cannot be determined as these are largely bonds posted for the benefit of various municipalities relating to the normal course of business
activities. Xcel Energy is not obligated under these agreements.
(b) Nonperformance and/or nonpayment.
(c) Losses caused by default in performance of covenants or breach of any warranty or representation in the purchase agreement.
(d) Includes two performance bonds with a notional amount of $13.3 million that guarantee the performance of Planergy Housing Inc., a subsidiary of Xcel Energy that was sold to
Ameresco Inc. on Dec. 12, 2003. Ameresco Inc. has agreed to indemnify Xcel Energy for any liability arising out of any surety bond.
(e) Failure of Xcel Energy or one of its subsidiaries to perform under the agreement that is the subject of the relevant bond. In addition, per the indemnity agreement between Xcel
Energy and the various surety companies, the surety companies have the discretion to demand that collateral be posted.
(f) Xcel Energy provides indemnity protection for bonds issued for itself and its subsidiaries. There were approximately $32.3 million of bonds with this indemnity outstanding on
Dec. 31, 2003, including $4.2 million related to NRG. However, under the NRG bankruptcy settlement, NRG deposited cash with Xcel Energy that, on Feb. 6, 2004, was
replaced with a letter of credit such that Xcel Energy has no further exposure under these indemnities.
(g) Non-timely payment of the obligations or at the time the Debtor becomes the subject of bankruptcy or other insolvency proceedings.
(h) Security interest in underlying receivable agreements.
(i) On Jan. 19, 2004, Xcel Energy entered into an agreement with an insurance company for the purpose of indemnifying that insurance company in connection with surety bonds
they may issue or have issued for Utility Engineering up to an amount of $80 million. The Xcel Energy indemnification will only be triggered in the event that Utility Engineering
has failed to meet its obligations to the surety company.
Fair Value of Derivative Instruments
The following discussion briefly describes the derivatives of Xcel Energy and its subsidiaries and discloses the respective fair values at Dec. 31, 2003 and
2002. For more detailed information regarding derivative financial instruments and the related risks, see Note 16 to the Consolidated Financial Statements.
Interest Rate Swaps Subsidiaries of Xcel Energy had interest rate swaps outstanding with a notional amount of approximately $256 million, and a
fair value that was a liability of approximately $18 million, at Dec. 31, 2003. On Dec. 31, 2002, subsidiaries of Xcel Energy had interest rate swaps
outstanding with a notional amount of approximately $100 million, and a fair value that was a liability of approximately $12 million.
Electric Trading Operations Xcel Energy participates in the trading of electricity as a commodity. This trading includes forward contracts, futures
and options. Xcel Energy makes purchases and sales at existing market points or combines purchases with available transmission to make sales at other
market points. Options and hedges are used to either minimize the risks associated with market prices, or to profit from price volatility related to our
purchase and sale commitments.
Beginning with the third quarter of 2002, Xcel Energy has presented the results of its electric trading activity using the net accounting method. The
Consolidated Statement of Operations for 2001 has been reclassified to be consistent. In earlier presentations, the gross accounting method was used.
All financial derivative contracts are recorded at the amount of the gain or loss received from the contract. The mark-to-market adjustments for these
transactions are reported in the Consolidated Statements of Operations in Electric and Gas Trading Margin.