Xcel Energy 2012 Annual Report Download - page 81

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Regulation of Derivatives — In July 2010, financial reform legislation was passed, which provides for the regulation of
derivative transactions amongst other provisions. Provisions within the bill provide the CFTC and SEC with expanded regulatory
authority over derivative and swap transactions. Regulations effected under this legislation could preclude or impede some types
of over-the-counter energy commodity transactions and/or require clearing through regulated central counterparties, which could
negatively impact the market for these transactions or result in extensive margin and fee requirements.
There will be material increased reporting requirements for certain volumes of derivative and swap activity. In April 2012, the
CFTC ruled that swap dealing activity conducted by entities under a notional limit, initially set at $8 billion with further potential
reduction to $3 billion after five years, will fall under the de minimis exemption level and will not subject an entity to registering
as a swap dealer. Xcel Energy’s current and projected swap activity is below this de minimis level. The CFTC has set an $800
million de minimis volume exemption for swaps with “Utility Special Entities,” defined by the CFTC as primarily entities owning
or operating electric or natural gas facilities government entities, after which the entity would have to register as a swap dealer.
The bill also contains provisions that should exempt certain derivatives end users from much of the clearing and margin
requirements. Although the CFTC’s proposed rules would extend the end user exemption to margin requirements, a requirement
would be imposed to have credit support agreements in their place. The full implications for Xcel Energy cannot yet be
determined until all the definitions and rulemakings are completed and legal reviews are conducted by Xcel Energy. As currently
proposed, Xcel Energy will be subject to reporting requirements on April 10, 2013.
Pension Fund — Xcel Energy’s pension assets are invested in a diversified portfolio of domestic and international equity
securities, short-term to long-duration fixed income securities, and alternative investments, including, private equity, real estate,
hedge fund and commodity investments.
• In January 2013, contributions of $191.5 million were made across four of Xcel Energy’s pension plans.
• In 2012, contributions of $198.1 million were made across four of Xcel Energy’s pension plans.
• In 2011, contributions of $137.3 million were made across three of Xcel Energy’s pension plans.
• For future years, we anticipate contributions will be made as necessary.
The funded status and pension assumptions are summarized in the following tables:
(Millions of Dollars)
Dec. 31, 2012 Dec. 31, 2011
Fair value of pension assets...................................................... $ 2,944 $
2,670
Projected pension obligation (a) .................................................. 3,640
3,226
Funded status ................................................................ $ (696) $
(556
)
(a) Excludes nonqualified plan of $39 million and $55 million at Dec. 31, 2012 and 2011, respectively.
Pension Assumptions
2013 2012
Discount rate ..................................................................
4.00
%
5.00
%
Expected long-term rate of return ............................................... 6.88 7.10
Long-Term Contracts — In August 2012, PSCo entered into a 10-year physical gas supply contract for the period between
November 2013 and October 2023; this contract will help meet a portion of the annual natural gas supply requirements for both
PSCo’s electric utility and natural gas utility. The purchase price for natural gas under the contract is indexed-based. Given
current input assumptions, the notional value of the transaction over the duration of the contract is approximately $1.0 billion.
Capital Sources
Short-Term Funding Sources — Xcel Energy uses a number of sources to fulfill short-term funding needs, including operating
cash flow, notes payable, commercial paper and bank lines of credit. The amount and timing of short-term funding needs depend
in large part on financing needs for construction expenditures, working capital and dividend payments.
Short-Term Investments — Xcel Energy Inc., NSP-Minnesota, NSP-Wisconsin, PSCo and SPS maintain cash operating and
short-term investment accounts. At Dec. 31, 2012, approximately $5.7 million of cash was held in these accounts.