Xcel Energy 2008 Annual Report Download - page 78

Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements (Emerging Issues Task Force (EITF) Issue No. 06-4) — In June 2006, the EITF reached a consensus on
EITF No. 06-4, which provides guidance on the recognition of a liability and related compensation costs for
endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to postretirement
periods. Therefore, this EITF would not apply to a split-dollar life insurance arrangement that provides a specified
benefit to an employee that is limited to the employee’s active service period with an employer. EITF No. 06-4 was
effective for fiscal years beginning after Dec. 15, 2007, with earlier application permitted. Upon adoption of EITF
No. 06-4 on Jan. 1, 2008, Xcel Energy recorded a liability of $1.6 million, net of tax, as a reduction of retained
earnings. Thereafter, changes in the liability are reflected in operating results.
Amendment of FASB Interpretation No. 39 (FSP FIN 39-1) — In April 2007, the FASB issued FSP FIN 39-1, which
amends FIN 39, Offsetting of Amounts Related to Certain Contracts, to permit companies to offset fair value amounts
recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable)
against fair value amounts recognized for derivative instruments executed with the same counterparty under a master
netting arrangement. FSP FIN 39-1 was effective for fiscal years beginning after Nov. 15, 2007. Xcel Energy adopted
FSP FIN 39-1 on Jan. 1, 2008, and the adoption did not have a material impact on its consolidated financial
statements.
Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (EITF No. 06-11) — In June 2007,
the EITF reached a consensus on EITF No. 06-11, which states that an entity should recognize a realized tax benefit
associated with dividends on nonvested equity shares and nonvested equity share units charged to retained earnings as
an increase in additional paid in capital. The amount recognized in additional paid in capital should be included in the
pool of excess tax benefits available to absorb potential future tax deficiencies on share-based payment awards. EITF
No. 06-11 was to be applied prospectively to income tax benefits of dividends on equity-classified share-based payment
awards that were declared in fiscal years beginning after Dec. 15, 2007. Xcel Energy adopted EITF No. 06-11 on
Jan. 1, 2008, and the adoption did not have a material impact on its consolidated financial statements.
The Hierarchy of GAAP (SFAS No. 162) — In May 2008, the FASB issued SFAS No. 162, which establishes the
GAAP hierarchy, identifying the sources of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements. SFAS No. 162 was effective Nov. 15, 2008. Xcel Energy adopted SFAS
No. 162 on Dec. 31, 2008, and the adoption did not have a material impact on its consolidated financial statements.
Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities
(FSP FAS 140-4 and FIN 46(R)-8) — In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, which
amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to
require public entities to provide additional disclosures about transfers of financial assets. It also amends FIN 46
(revised December 2003), Consolidation of Variable Interest Entities, to require public enterprises, including sponsors that
have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with
variable interest entities. FSP FAS 140-4 and FIN 46(R)-8 was effective for the interim and annual periods ending after
Dec. 15, 2008. Xcel Energy adopted FSP FAS 140-4 and FIN 46(R)-8 on Dec. 31, 2008, and the adoption did not
have a material impact on its consolidated financial statements.
Derivatives, Risk Management and Market Risk
In the normal course of business, Xcel Energy and its subsidiaries are exposed to a variety of market risks. Market risk
is the potential loss or gain that may occur as a result of changes in the market or fair value of a particular instrument
or commodity. All financial and commodity-related instruments, including derivatives, are subject to market risk. These
risks, as applicable to Xcel Energy and its subsidiaries, are discussed in further detail in Note 13 to the consolidated
financial statements.
Xcel Energy is exposed to the impact of changes in price for energy and energy-related products, which is partially
mitigated by the company’s use of commodity derivatives. Though no material non-performance risk currently exists
with the counterparties to Xcel Energy’s commodity derivative contracts, the continued turmoil in the financial markets
may in the future impact that risk to the extent it impacts those counterparties. Continued distress in the financial
markets may also impact the fair value of the debt and equity securities in the nuclear decommissioning trust fund and
master pension trust, as well as Xcel Energy’s ability to earn a return on short-term investments of excess cash. Also, the
current state of the financial markets may negatively impact Xcel Energy’s ability to obtain debt and equity financing
under favorable terms.
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