Xcel Energy 2007 Annual Report Download - page 35

NATURAL GAS UTILITY OPERATIONS
Natural Gas Utility Trends
The most significant recent developments in the natural gas operations of the utility subsidiaries are continued volatility
in wholesale natural gas market prices and the continued trend toward declining use per customer by residential
customers as a result of improved building construction technologies and higher appliance efficiencies. From 1997 to
2007, average annual sales to the typical residential customer declined from 102 MMBtu per year to 82 MMBtu per
year on a weather-normalized basis. Although recent wholesale price increases do not directly affect earnings because of
natural gas cost recovery mechanisms, the high prices are expected to encourage further efficiency efforts by customers.
NSP-Minnesota
Public Utility Regulation
Summary of Regulatory Agencies and Areas of Jurisdiction — Retail rates, services and other aspects of NSP-Minnesota’s
operations are regulated by the MPUC and the NDPSC within their respective states. The MPUC has regulatory
authority over aspects of NSP-Minnesota’s financial activities, including security issuances, certain property transfers,
mergers with other utilities and transactions between NSP-Minnesota and its affiliates. In addition, the MPUC reviews
and approves NSP-Minnesota’s natural gas supply plans for meeting customers’ future energy needs.
Purchased Gas and Conservation Cost Recovery Mechanisms — NSP-Minnesota’s retail natural gas rates for Minnesota
and North Dakota include a PGA clause that provides for prospective monthly rate adjustments to reflect the forecasted
cost of purchased natural gas. The annual difference between the natural gas costs collected through PGA rates and the
actual natural gas costs are collected or refunded over the subsequent 12-month period. The MPUC and NDPSC have
the authority to disallow recovery of certain costs if they find the utility was not prudent in its procurement activities.
NSP-Minnesota is required by Minnesota law to spend a minimum of 0.5 percent of Minnesota natural gas revenue on
conservation improvement programs. These costs are recovered through an annual cost recovery mechanism for natural
gas conservation and energy management program expenditures. NSP-Minnesota is required to request a new cost
recovery level annually. While this law will change to a savings-based requirement beginning in 2010 pursuant to 2007
legislation, the costs of providing qualified conservation improvement programs will continue to be recoverable through
a rate adjustment mechanism.
Capability and Demand
Natural gas supply requirements are categorized as firm or interruptible (customers with an alternate energy supply).
The maximum daily send-out (firm and interruptible) for NSP-Minnesota was 643,320 MMBtu for 2007, which
occurred on Feb. 7, 2007.
NSP-Minnesota purchases natural gas from independent suppliers. These purchases are generally priced based on market
indices that reflect current prices. The natural gas is delivered under natural gas transportation agreements with
interstate pipelines. These agreements provide for firm deliverable pipeline capacity of 562,298 MMBtu/day. In
addition, NSP-Minnesota has contracted with providers of underground natural gas storage services. These storage
agreements provide storage for approximately 30 percent of winter natural gas requirements and 36 percent of peak day,
firm requirements of NSP-Minnesota.
NSP-Minnesota also owns and operates one LNG plant with a storage capacity of 2.13 Bcf equivalent and three
propane-air plants with a storage capacity of 1.4 Bcf equivalent to help meet its peak requirements. These peak-shaving
facilities have production capacity equivalent to 250,300 MMBtu of natural gas per day, or approximately 33 percent of
peak day firm requirements. LNG and propane-air plants provide a cost-effective alternative to annual fixed pipeline
transportation charges to meet the peaks caused by firm space heating demand on extremely cold winter days.
NSP-Minnesota is required to file for a change in natural gas supply contract levels to meet peak demand, to
redistribute demand costs among classes, or to exchange one form of demand for another. The 2006-2007 and
2007-2008 entitlement levels are pending MPUC action.
Natural Gas Supply and Costs
NSP-Minnesota actively seeks natural gas supply, transportation and storage alternatives to yield a diversified portfolio
that provides increased flexibility, decreased interruption and financial risk, and economical rates. In addition,
NSP-Minnesota conducts natural gas price hedging activity that has been approved by the MPUC. This diversification
involves numerous domestic and Canadian supply sources with varied contract lengths.
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