Xcel Energy 2005 Annual Report Download - page 70

Furthermore, payments during the remaining operating life of the Prairie Island plant are required. These payments include: $2.25 million per
year to the Prairie Island Tribal Community beginning in 2004; 5 percent of NSP-Minnesota’s conservation program expenditures (estimated at
$2 million per year) to the University of Minnesota for renewable energy research; and an increase in funding commitments to the previously
established Renewable Development Fund to $16 million per year beginning in 2003. All of the cost increases to NSP-Minnesota from these
required payments and funding commitments are expected to be recoverable in Minnesota retail customer rates, mainly through existing cost-
recovery mechanisms. Funding commitments to the Renewable Development Fund would terminate after the Prairie Island plant discontinues
operation unless the MPUC determines that NSP-Minnesota failed to make a good faith effort to store or dispose of the spent fuel out of state,
in which case NSP-Minnesota would have to make payments in the amount of $7.5 million per year.
Capital Commitments The estimated cost as of Dec. 31, 2005, of the capital expenditure programs and other capital requirements of Xcel
Energy and its subsidiaries is approximately $1.6 billion in 2006, $1.6 billion in 2007 and $1.4 billion in 2008.
The capital expenditure programs of Xcel Energy are subject to continuing review and modification. Actual utility construction expenditures
may vary from the estimates due to changes in electric and natural gas projected load growth, the desired reserve margin and the availability
of purchased power, as well as alternative plans for meeting Xcel Energy’s long-term energy needs. In addition, Xcel Energy’s ongoing
evaluation of compliance with future requirements to install emission-control equipment, and merger, acquisition and divestiture opportunities
to support corporate strategies may impact actual capital requirements.
Leases Xcel Energy and its subsidiaries lease a variety of equipment and facilities used in the normal course of business. Two of these leases
qualify as capital leases and are accounted for accordingly. The capital leases contractually expire in 2025 and 2029. The assets and liabilities
acquired under capital leases are recorded at the lower of fair market value or the present value of future lease payments, and are depreciated
over their actual contract term in accordance with practices allowed by regulators. Depreciation of assets under capital leases is included in
depreciation expense for 2005 and 2004.
Following is a summary of property held under capital leases:
(Millions of dollars) 2005 2004
Storage, leaseholds and rights $40.5 $40.5
Gas pipeline 20.7 20.7
61.2 61.2
Accumulated depreciation (13.6) (12.3)
Total property held under capital leases $47.6 $48.9
The remainder of the leases, primarily for office space, railcars, trucks, cars and power-operated equipment, are accounted for as operating
leases. Rental expense under operating lease obligations for continuing operations was approximately $57.2 million, $57.5 million and
$65.0 million for 2005, 2004 and 2003, respectively.
Future commitments under operating and capital leases for continuing operations are:
(Millions of dollars) Operating Leases Capital Leases
2006 $41 $ 7
2007 $34 6
2008 $31 6
2009 $27 6
2010 $21 6
Thereafter $54 68
Total minimum obligation $99
Interest component of obligation (51)
Present value of minimum obligation $48
Technology Agreement Xcel Energy has a contract that extends through 2015 with International Business Machines Corp. (IBM) for
information technology services. The contract is cancelable at our option, although there are financial penalties for early termination. In 2005,
Xcel Energy paid IBM $137.7 million under the contract and $3.5 million for other project business. The contract also has a committed minimum
payment each year from 2006 through September 2015.
Fuel Contracts Xcel Energy and its subsidiaries have contracts providing for the purchase and delivery of a significant portion of its current
coal, nuclear fuel and natural gas requirements. These contracts expire in various years between 2006 and 2027. In total, Xcel Energy is
committed to the minimum purchase of approximately $2.8 billion of coal, $117.6 million of nuclear fuel and $2.7 billion of natural gas,
including $1.0 billion of natural gas storage and transportation, or to make payments in lieu thereof, under these contracts. In addition, Xcel
Energy is required to pay additional amounts depending on actual quantities shipped under these agreements. Xcel Energy’s risk of loss, in
the form of increased costs from market price changes in fuel, is mitigated through the use of natural gas and energy cost-rate-adjustment
mechanisms, which provide for pass-through of most fuel, storage and transportation costs to customers.
Purchased Power Agreements The utility subsidiaries of Xcel Energy have entered into agreements with utilities and other energy suppliers
for purchased power to meet system load and energy requirements, replace generation from company-owned units under maintenance and
during outages, and meet operating reserve obligations. NSP-Minnesota, PSCo and SPS have various pay-for-performance contracts with
68 XCEL ENERGY 2005 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS