XEL

Xcel Energy Inc. 2000 Annual Report (10-K) Summary

Business Context and Reporting Period

This report covers the fiscal year ended December 31, 2000. Xcel Energy Inc. was formed on August 18, 2000, through the merger of New Century Energies, Inc. (NCE) and Northern States Power Co. (NSP), accounted for as a pooling-of-interests. The company operates as a registered holding company under the Public Utility Holding Company Act (PUHCA), serving electric and natural gas customers in 12 states through six regulated utility subsidiaries. Its largest nonregulated subsidiary is NRG Energy, Inc., an independent power producer in which Xcel held an 82% interest at year-end.

Key Financial Metrics

Note: 2000 earnings were reduced by $241 million ($0.52 per share) in special charges related to the NSP/NCE merger and $19 million ($0.06 per share) in extraordinary items related to utility restructuring in Texas and New Mexico.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 48% to $11.59 billion, driven primarily by the consolidation of NCE and NSP operations and significant growth in nonregulated trading and generation activities.
• Merger Impact: The formation of Xcel Energy resulted in $241 million in one-time merger costs, including transaction fees, severance for 721 employees, and asset impairments in nonregulated businesses.
• Debt Levels: Long-term debt increased by $1.76 billion to $7.58 billion, largely to finance asset acquisitions by NRG Energy and the merger transaction.
• Nonregulated Performance: NRG Energy's contribution to earnings per share rose to $0.46 from $0.17 in 1999, fueled by new generation assets and favorable market conditions, though this included an estimated 8-cent per share benefit from volatile market dynamics not expected to recur.
• Regulatory Adjustments: NSP-Minnesota recorded a $40 million liability for potential customer refunds regarding conservation incentives, pending final regulatory implementation of a court decision.

Guidance, Outlook, and Risks

Outlook and Capital Requirements: Xcel Energy projects total capital requirements of approximately $5.0 billion for 2001, with $3.1 billion allocated to NRG for acquisitions and development. The company expects to meet financing needs through debt issuance, equity offerings, and internally generated funds.

Management Commentary: Management anticipates realizing operating synergies from the merger in 2001 and beyond. However, they caution that future earnings may be volatile due to the nonregulated nature of NRG's business and exposure to commodity price fluctuations.

Key Risks and Contingencies:

• Industry Restructuring: Retail competition is scheduled to begin in Texas and New Mexico in 2002, requiring the unbundling of generation, transmission, and distribution. This may lead to asset divestitures and stranded costs.
• California Power Market: NRG has approximately $105 million in receivables from distressed California utilities. While management expects collection, the credit risk remains significant due to the state's financial crisis.
• Cheyenne Power Costs: Following the expiration of a long-term power purchase agreement, Cheyenne Light, Fuel and Power Company faces an estimated $80 million increase in purchased power costs in 2001, though these are expected to be recoverable through rates.
• Environmental and Nuclear: The company faces ongoing costs for nuclear decommissioning and spent fuel storage. A proposed FASB accounting change could require the full accrual of decommissioning liabilities, though regulatory recovery is expected to mitigate earnings impact.
• Legal Proceedings: Significant litigation includes a lawsuit against the Department of Energy regarding spent fuel storage (seeking over $1 billion) and various class actions related to California electricity markets.

Investor Verification Checklist

• Merger Synergies: Verify the realization of cost savings and operational efficiencies from the NSP/NCE merger in 2001 financial results.
• NRG Receivables: Monitor the collection status of the $105 million in receivables from California utilities and any potential credit impairments.
• Restructuring Costs: Track the financial impact of utility restructuring in Texas and New Mexico, including asset divestitures and stranded cost recoveries.
• Cheyenne Rate Case: Confirm the approval of rate adjustments by the Wyoming Public Service Commission to recover the projected $80 million increase in power costs.
• Conservation Incentive Refund: Watch for the final regulatory order regarding the $40 million conservation incentive liability in Minnesota.
• Capital Expenditures: Assess the execution of the $5.0 billion capital plan, particularly the $3.1 billion allocated to NRG acquisitions.