Xcel Energy 2006 Annual Report Download - page 97

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Significant Assumptions Used to Measure Costs
Discount rate ............................................................ 5.75 % 6.00% 6.25%
Expected average long-term increase in compensation level........................ 3.50 % 3.50% 3.50%
Expected average long-term rate of return on assets .............................. 8.75 % 8.75% 9.00%
Pension costs include an expected return impact for the current year that may differ from actual investment performance in the plan.
The return assumption used for 2007 pension cost calculations will be 8.75 percent. The cost calculation uses a market-related
valuation of pension assets, which reduces year-to-year volatility by recognizing the differences between assumed and actual
investment returns over a five-year period.
Xcel Energy also maintains noncontributory, defined benefit supplemental retirement income plans for certain qualifying executive
personnel. Benefits for these unfunded plans are paid out of Xcel Energy’s operating cash flows.
Defined Contribution Plans
Xcel Energy maintains 401(k) and other defined contribution plans that cover substantially all employees. Total contributions to these
plans were approximately $18.3 million in 2006, $19.6 million in 2005 and $21.9 million in 2004.
Postretirement Health Care Benefits
Xcel Energy has a contributory health and welfare benefit plan that provides health care and death benefits to most Xcel Energy
retirees. The former NSP discontinued contributing toward health care benefits for nonbargaining employees retiring after 1998 and
for bargaining employees of NSP-Minnesota and NSP-Wisconsin who retired after 1999. Xcel Energy discontinued contributing
toward health care benefits for former NCE nonbargaining employees retiring after June 30, 2003. Employees of NCE who retired in
2002 continue to receive employer-subsidized health care benefits. Nonbargaining employees of the former NSP who retired after
1998, bargaining employees of the former NSP who retired after 1999 and nonbargaining employees of NCE who retired after
June 30, 2003, are eligible to participate in the Xcel Energy health care program with no employer subsidy.
In conjunction with the 1993 adoption of SFAS No. 106 — “Employers’ Accounting for Postretirement Benefits Other Than
Pension,” Xcel Energy elected to amortize the unrecognized accumulated postretirement benefit obligation (APBO) on a straight-line
basis over 20 years.
Regulatory agencies for nearly all of Xcel Energy’s retail and wholesale utility customers have allowed rate recovery of accrued
benefit costs under SFAS No. 106. The Colorado jurisdictional SFAS No. 106 costs deferred during the transition period are being
amortized to expense on a straight-line basis over the 15-year period from 1998 to 2012. NSP-Minnesota also transitioned to full
accrual accounting for SFAS No. 106 costs, with regulatory differences fully amortized prior to 1997.
Plan Assets — Certain state agencies that regulate Xcel Energy’s utility subsidiaries also have issued guidelines related to the funding
of SFAS No. 106 costs. SPS is required to fund SFAS No. 106 costs for Texas and New Mexico jurisdictional amounts collected in
rates, and PSCo is required to fund SFAS No. 106 costs in irrevocable external trusts that are dedicated to the payment of these
postretirement benefits. In 2004, the investment strategy for the union asset fund was changed to increase the investment mix in equity
funds. Also, a portion of the assets contributed on behalf of nonbargaining retirees has been funded into a sub-account of the Xcel
Energy pension plans. These assets are invested in a manner consistent with the investment strategy for the pension plan.
The actual composition of postretirement benefit plan assets at Dec. 31 was:
2006 2005
Equity and equity mutual fund securities ........................... 67% 61%
Fixed income/debt securities..................................... 21 17
Cash equivalents.............................................. 11 21
Nontraditional Investments ...................................... 1 1
100% 100%
Xcel Energy bases its investment-return assumption for the postretirement health care fund assets on expected long-term performance
for each of the investment types included in its postretirement health care asset portfolio. Investment-return volatility is not considered
to be a material factor in postretirement health care costs.