Xcel Energy 2007 Annual Report Download - page 107

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‘‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB
Statements No. 87, 88, 106, and 132(R)’’ (SFAS No. 158) — In September 2006, the FASB issued SFAS No. 158,
which requires companies to fully recognize the funded status of each pension and other postretirement benefit plan as
a liability or asset on their balance sheets with all unrecognized amounts to be recorded in other comprehensive income.
Xcel Energy applied regulatory accounting treatment for unrecognized amounts of regulated utility subsidiary
employees, which allowed recognition as a regulatory asset or liability rather than as a charge to accumulated other
comprehensive income, as future costs are expected to be included in rates. The effect of adopting in 2006 for the
remaining unrecognized amounts was an increase in accumulated other comprehensive income of $72.8 million.
Pension Benefits
Xcel Energy has several noncontributory, defined benefit pension plans that cover almost all employees. Benefits are
based on a combination of years of service, the employee’s average pay and social security benefits. Xcel Energy’s policy
is to fully fund into an external trust the actuarially determined pension costs recognized for ratemaking and financial
reporting purposes, subject to the limitations of applicable employee benefit and tax laws.
Pension Plan Assets — Plan assets principally consist of the common stock of public companies, corporate bonds and
U.S. government securities. The target range for our pension asset allocation is 60 percent in equity investments,
20 percent in fixed income investments and 20 percent in nontraditional investments, such as real estate, private equity
and a diversified commodities index.
The actual composition of pension plan assets at Dec. 31 was:
2007 2006
Equity securities ............................................ 60% 63%
Debt securities ............................................. 22 22
Real estate ................................................ 4 4
Cash ................................................... 2 2
Nontraditional investments ..................................... 12 9
100% 100%
Xcel Energy bases its investment-return assumption on expected long-term performance for each of the investment types
included in its pension asset portfolio. Xcel Energy considers the actual historical returns achieved by its asset portfolio
over the past 20-year or longer period, as well as the long-term return levels projected and recommended by investment
experts. The historical weighted average annual return for the past 20 years for the Xcel Energy portfolio of pension
investments is 11.8 percent, which is greater than the current assumption level. The pension cost determination assumes
the continued current mix of investment types over the long term. The Xcel Energy portfolio is heavily weighted
toward equity securities and includes nontraditional investments. A higher weighting in equity investments can increase
the volatility in the return levels achieved by pension assets in any year. Investment returns in 2007 were below the
assumed level of 8.75 percent while returns in 2006 and 2005 exceeded the assumed level of 8.75 percent. Xcel Energy
continually reviews its pension assumptions. In 2008, Xcel Energy will continue to use an investment-return assumption
of 8.75 percent.
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