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The following is an excerpt from a S-1/A SEC Filing, filed by XCEL ENERGY INC on 5/14/2003.
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XCEL ENERGY INC - S-1/A - 20030514 - MANAGEMENT

      The NRC is engaged in various ongoing studies and rulemaking activities that may impose additional requirements upon commercial nuclear power plants. Management is unable to predict any new requirements or their impact on NSP-Minnesota’s facilities and operations.

Nuclear Management Company

      During 1999, NSP-Minnesota, Wisconsin Electric Power Co., Wisconsin Public Service Corp. and Alliant Energy established the Nuclear Management Company (“NMC”). Consumers Power joined the NMC during 2000, and transferred operating authority for the Palisades nuclear plant to the NMC in 2001. The five affiliated companies own eight nuclear units on six sites, with total generation capacity exceeding 4,500 megawatts. We are currently a 20 percent owner of the NMC.

      The NRC has approved requests by the NMC’s affiliated utilities to transfer operating authority for their nuclear plants to the NMC, formally establishing the NMC as an operating company. The NMC manages the operations and maintenance at the plants, and is responsible for physical security. NMC responsibilities also include oversight of on-site dry storage facilities for used nuclear fuel at the Prairie Island nuclear plant. Utility plant owners, including us, continue to own the plants, control all energy produced by the plants and retain responsibility for nuclear liability insurance and decommissioning costs. Existing personnel continue to provide day-to-day plant operations, with the additional benefit of sharing ideas and operating experience from all NMC-operated plants for improved safety, reliability and operational performance.

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      For further discussion of nuclear issues, see Note 18 and Note 19 to the audited consolidated financial statements.

Electric Operating Statistics (Xcel Energy)

                             
Year Ended Dec. 31

2002 2001 2000



Electric sales (millions of Kwh):
                       
 
Residential
    23,302       22,113       22,101  
 
Commercial and industrial
    57,815       57,755       57,409  
 
Public authorities and other
    1,143       1,103       1,184  
   
   
   
 
   
Total retail
    82,260       80,971       80,694  
 
Sales for resale
    23,256       26,104       26,284  
   
   
   
 
   
Total energy sold
    105,516       107,075       106,978  
   
   
   
 
Number of customers at end of period:
                       
 
Residential
    2,756,565       2,722,832       2,691,505  
 
Commercial and industrial
    394,620       387,579       380,784  
 
Public authorities and other
    81,341       100,819       98,715  
   
   
   
 
   
Total retail
    3,232,526       3,211,230       3,171,004  
 
Wholesale
    309       305       220  
   
   
   
 
   
Total customers
    3,232,835       3,211,535       3,171,224  
   
   
   
 

Gas Utility Operations

      Competition and Industry Restructuring

      In the early 1990’s, the FERC issued Order No. 636, which mandated the unbundling of interstate natural gas pipeline services — sales, transportation, storage and ancillary services. The implementation of Order No. 636 has resulted in additional competitive pressure on all local distribution companies (“LDC”) to keep gas supply and transmission prices for their large customers competitive. Customers have greater ability to buy gas directly from suppliers and arrange their own pipeline and LDC transportation service. Changes in regulatory policies and market forces have shifted the industry from traditional bundled gas sales service to an unbundled transportation and market based commodity service.

      The natural gas delivery or transportation business has remained competitive as industrial and large commercial customers have the ability to bypass the local gas utility through the construction of interconnections directly with, and the purchase of gas directly from, interstate pipelines, thereby avoiding the delivery charges added by the local gas utility.

      As LDCs NSP-Minnesota, NSP-Wisconsin and PSCo provide unbundled transportation service to large customers. Transportation service does not have an adverse effect on earnings because the sales and transportation rates have been designed to make them economically indifferent to whether gas has been sold and transported or merely transported. However, some transportation customers may have greater opportunities or incentives to physically bypass the LDC distribution system.

      The Colorado Legislature passed legislation in 1999 that provides the CPUC the authority and responsibility to approve voluntary unbundling plans submitted by Colorado gas utilities in the future. PSCo has not filed a plan to further unbundle its gas service to all residential and commercial customers and continues to evaluate its business opportunities for doing so.

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Capability and Demand

 
      NSP-Minnesota and NSP-Wisconsin

      We categorize our gas supply requirements as firm or interruptible (customers with an alternate energy supply). The maximum daily sendout (firm and interruptible) for the combined system of NSP-Minnesota and NSP-Wisconsin was 722,992 MMBtu for 2001, which occurred on February 1, 2001 and 650,641 MMBtu for 2002, which occurred on January 2, 2002.

      NSP-Minnesota and NSP-Wisconsin purchase gas from independent suppliers. The gas is delivered under gas transportation agreements with interstate pipelines. These agreements provide for firm deliverable pipeline capacity of approximately 604,000 MMBtu/day. In addition, NSP-Minnesota and NSP-Wisconsin have contracted with providers of underground natural gas storage services. These storage agreements provide storage for approximately 15 percent of winter season and 23 percent of peak daily, firm requirements of NSP-Minnesota and NSP-Wisconsin.

      NSP-Minnesota and NSP-Wisconsin also own and operate two liquefied natural gas (“LNG”) plants with a storage capacity of 2.5 Billion cubic feet (“Bcf”) equivalent and four 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 246,000 MMBtu of natural gas per day, or approximately 32 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 and can be used to minimize daily imbalance fees on interstate pipelines.

      NSP-Minnesota and NSP-Wisconsin are required to file for a change in gas supply contract levels to meet peak demand, to redistribute demand costs among classes, or exchange one form of demand for another. In October 2001, the MPUC approved NSP’s 2000-2001 entitlement levels, NSP-Minnesota’s 2001-2002 entitlement levels were approved on April 3, 2002, which allow NSP-Minnesota to recover the demand entitlement costs associated with the increase in transportation and storage levels in its monthly PGA. NSP-Minnesota’s filing for approval of its 2001-2002 entitlement levels is pending MPUC action. NSP-Wisconsin’s winter 2002-2003 supply plan was approved by the PSCW in October 2002.

 
      PSCo and Cheyenne

      PSCo and Cheyenne project peak day gas supply requirements for firm sales and backup transportation (transportation customers contracting for firm supply backup) to be approximately 1,756,000 MMBtu. In addition, firm transportation customers hold 451,000 MMBtu of capacity without supply backup. Total firm delivery obligations for PSCo and Cheyenne are 2,206,870 MMBtu per day. The maximum daily deliveries for both companies for 2002 (firm and interruptible services) were 1,652,459 MMBtu on February 25, 2002.

      PSCo and Cheyenne purchase gas from independent suppliers. The gas supplies are delivered to the respective delivery systems through a combination of transportation agreements with interstate pipelines and deliveries by suppliers directly to each company. These agreements provide for firm deliverable pipeline capacity of approximately 1,220,000 MMBtu/day, which includes 797,000 MMBtu of supplies held under third-party underground storage agreements. In addition, PSCo operates three company-owned underground storage facilities, which provide about 38,000 MMBtu of gas supplies on a peak day. The balance of the quantities required to meet firm peak day sales obligations are primarily purchased at the companies’ city gate meter stations and a small amount received directly from wellhead sources.

      PSCo has received approval to close one if its three storage facilities, Leyden Storage Field. The field’s 110,000 MMBtu peak day capacity was replaced with additional third-party storage and transportation capacity.

      PSCo is required by CPUC regulations to file a gas purchase plan by June of each year projecting and describing the quantities of gas supplies, upstream services and the costs of those supplies and services for the period beginning July 1 through June 30 of the following year. PSCo is also required to file a gas purchase

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report by October of each year reporting actual quantities and costs incurred for gas supplies and upstream services for the 12-month period ending the previous June 30.

Gas Supply and Costs

      Our gas utilities actively seek gas supply, transportation and storage alternatives to yield a diversified portfolio that provides increased flexibility, decreased interruption and financial risk, and economical rates. This diversification involves numerous domestic and Canadian supply sources, with varied contract lengths.

      The following table summarizes the average cost per MMBtu of gas purchased for resale by our regulated retail gas distribution business.

                                 
NSP-Minnesota NSP-Wisconsin PSCo Cheyenne




2002
  $ 3.98     $ 4.63     $ 3.17     $ 2.77  
2001
  $ 5.83     $ 5.11     $ 4.99     $ 5.03  
2000
  $ 4.56     $ 4.71     $ 4.48     $ 4.03  

      The cost of natural gas supply, transportation service and storage service is recovered through various cost recovery adjustment mechanisms.

      NSP-Minnesota and NSP-Wisconsin

      NSP-Minnesota and NSP-Wisconsin have firm gas transportation contracts with several pipelines, which expire in various years from 2003 through 2014. Approximately 80 percent of NSP-Minnesota and NSP-Wisconsin’s retail gas customers are served from the Northern Natural pipeline system.

      NSP-Minnesota and NSP-Wisconsin have certain gas supply and transportation agreements that include obligations for the purchase and/or delivery of specified volumes of gas or to make payments in lieu of delivery. At December 31, 2002, NSP-Minnesota and NSP-Wisconsin were committed to approximately $267.7 million in such obligations under these contracts, which expire in various years from 2003 through 2014.

      NSP-Minnesota and NSP-Wisconsin purchase firm gas supply utilizing long-term and short-term agreements from approximately 37 domestic and Canadian suppliers under contracts. This diversity of suppliers and contract lengths allows NSP-Minnesota and NSP-Wisconsin to maintain competition from suppliers and minimize supply costs.

      PSCo and Cheyenne

      PSCo and Cheyenne have certain gas supply and transportation agreements that include obligations for the purchase and/or delivery of specified volumes of gas or to make payments in lieu of delivery. At December 31, 2002, PSCo and Cheyenne were committed to approximately $906.3 million in such obligations under these contracts, which expire in various years from 2003 through 2025.

      PSCo and Cheyenne have attempted to maintain low-cost, reliable natural gas supplies by optimizing a balance of long-term and short-term gas purchases, firm transportation and gas storage contracts. PSCo and Cheyenne also utilize a mixture of fixed-price purchases and index-related purchases to provide a less volatile, yet market sensitive, price to their customers. During 2002, PSCo and Cheyenne purchased natural gas from approximately 44 suppliers.

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      Viking

      On November 7, 2002, we reached an agreement to sell our wholly owned subsidiary, Viking and Viking’s share of Guardian Pipeline to Border Viking Company (Border) whose ultimate parent is Northern Border Partners L.P. The sale closed on January 17, 2003, and we received net proceeds of $124 million.

Gas Operating Statistics (Xcel Energy)

                             
Year Ended Dec. 31,

2002 2001 2000



Gas deliveries (thousands of Dth):
                       
 
Residential
    144,038       136,568       137,989  
 
Commercial and industrial
    95,959       97,303       96,370  
   
   
   
 
   
Total retail
    239,997       233,871       234,359  
 
Transportation and other
    294,640       284,301       297,041  
   
   
   
 
   
Total deliveries
    534,637       518,172       531,400  
   
   
   
 
Number of customers at end of period:
                       
 
Residential
    1,574,489       1,531,589       1,483,114  
 
Commercial and industrial
    148,383       146,266       143,568  
   
   
   
 
   
Total retail
    1,722,872       1,677,855       1,626,682  
 
Transportation and other
    3,189       3,054       3,233  
   
   
   
 
   
Total customers
    1,726,061       1,680,909       1,629,915  
   
   
   
 
Gas Revenues (thousands of dollars):
                       
 
Residential
  $ 842,786     $ 1,233,205     $ 878,638  
 
Commercial and Industrial
    455,152       711,282       506,040  
   
   
   
 
   
Total Retail
    1,297,938       1,944,487       1,384,678  
 
Transportation and other
    99,862       108,164       84,202  
   
   
   
 
   
Total Gas Revenues
  $ 1,397,800     $ 2,052,651     $ 1,468,880  
   
   
   
 

Nonregulated Subsidiaries

      Through our non-utility subsidiaries, we invest and operate several nonregulated businesses in a variety of industries. The following is an overview of the significant nonregulated businesses.

      NRG Energy, Inc.

      NRG is a global energy company primarily engaged in the ownership and operation of power generation facilities and the sale of energy, capacity and related products.

      At December 31, 2001, we indirectly owned approximately 74 percent of NRG. We owned 100 percent of NRG until the second quarter of 2000, when NRG completed its initial public offering and 82 percent until a secondary offering was completed in March 2001.

      In response to tightening credit standards experienced by NRG and the independent power production sector, on February 15, 2002 we announced a financial improvement and restructuring plan for NRG. The announced plan included an initial step of acquiring 100 percent ownership of NRG through a tender offer

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and merger to exchange all outstanding shares of NRG common stock with our common shares. In addition, the plan included:

  •  financial support to NRG from us;
 
  •  marketing certain NRG generating assets for possible sale;
 
  •  canceling and deferring capital spending for NRG projects; and
 
  •  combining certain NRG functions with our system and organization in order to realize greater synergies and to reduce expenses.

      In June 2002, we acquired 100 percent ownership of NRG through the acquisition of NRG minority common shares.

      NRG has experienced significant growth in the past, especially the year 2001, expanding from 15,007 megawatts of net ownership interest in power generation facilities (including those under construction) as of December 31, 2000 to 24,357 megawatts of net ownership interests as of December 31, 2001. NRG has a well diversified portfolio in terms of location, fuel and dispatch mode. See a listing of NRG power generation facilities below.

      On Nov. 22, 2002, five former NRG executives filed an involuntary Chapter 11 petition against NRG in the United States Bankruptcy Court for the District of Minnesota (Minnesota Bankruptcy Court). Under provisions of federal law, NRG has the full authority to continue to operate its business as if the involuntary petition had not been filed unless and until a court hearing on the validity of the involuntary petition is resolved adversely to NRG. NRG responded to the involuntary petition, contesting the petitioners’ claims and filing a motion to dismiss the case. A hearing has been set for April 10, 2003 to consider the motion to dismiss. In their petition, the petitioners sought recover of severance and other benefits of approximately $28 million.

      NRG and its counsel have been involved in negotiations with the petitioners and their counsel. As a result of these negotiations, NRG and the petitioners reached an agreement and compromise regarding their respective claims against each other (Settlement Agreement). In February 2003, the Settlement Agreement was executed, pursuant to which NRG agreed to pay the petitioners an aggregate settlement in the amount of $12 million.

      On February 28, 2003, Stone & Webster, Inc. and Shaw Constructors, Inc. filed a petition alleging that they hold unsecured, non-contingent claims against NRG in a joint amount of $100 million. The Minnesota Bankruptcy Court has discretion in reviewing and ruling on the motion to dismiss and the review and approval of the Settlement Agreement. There is a risk that the Minnesota Bankruptcy Court may, among other things, reject the Settlement Agreement or enter an order for relief under Chapter 11 of Title 11 of the Bankruptcy Code.

      On March 26, 2003, our board of directors approved a tentative settlement with holders of most of NRG’s long-term notes and the steering committee representing NRG’s bank lenders regarding alleged claims of such creditors against us, including claims related to the support and capital subscription agreement between us and NRG dated May 29, 2002 (the “Support Agreement”). The settlement is subject to a variety of conditions as set forth below, including definitive documentation. The principal terms of the settlement as of the date of this prospecturs were as follows:

      We would pay up to $752 million to NRG to settle all claims of NRG, and the claims of NRG against us, including all claims under the Support Agreement.

      $350 million would be paid at or shortly following the consummation of a restructuring of NRG’s debt through a bankruptcy proceeding. It is expected that this payment would be made prior to year-end 2003. $50 million would be paid on January 1, 2004, and all or any part of such payment could be made, at our election, in our common stock. Up to $352 million would be paid on April 30, 2004, except to the extent that we had not received at such time tax refunds equal to $352 million associated with the loss on our investment

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in NRG. To the extent we had not received such refunds, the April 30 payment would be due on May 30, 2004.

      $390 million of our payments are contingent on receiving releases from NRG creditors. To the extent we do not receive a release from an NRG creditor, our obligation to make $390 million of the payments would be reduced based on the amount of the creditor’s claim against NRG. As noted below, however, the entire settlement is contingent upon us receiving releases from at least 85 percent of the claims in various NRG creditor groups. As a result, it is not expected that our payment obligations would be reduced by more than approximately $60 million. Any reduction would come from our payment due on April 30, 2004.

      Upon the consummation of NRG’s debt restructuring through a bankruptcy proceeding, our exposure on any guaranties or other credit support obligations incurred by us for the benefit of NRG or any subsidiary would be terminated and any cash collateral posted by us would be returned to us. The current amount of such cash collateral is approximately $11.5 million.

      As part of the settlement with us, any intercompany claims of us against NRG or any subsidiary arising from the provision of intercompany goods or services or the honoring of any guaranty will be paid in full in cash in the ordinary course except that the agreed amount of such intercompany claims arising or accrued as of January 31, 2003 will be reduced from approximately $55 million as asserted by us to $13 million. The $13 million agreed amount is to be paid upon the consummation of NRG’s debt restructuring with $3 million in cash and an unsecured promissory note of NRG on market terms in the principal amount of $10 million.

      NRG and its direct and indirect subsidiaries would not be reconsolidated with us or any of our other affiliates for tax purposes at any time after their June 2002 re-affiliation or treated as a party to or otherwise entitled to the benefits of any tax sharing agreement with us. Likewise, NRG would not be entitled to any tax benefits associated with the tax loss we expect to incur in connection with the write down of our investment in NRG.

      Our obligations under the tentative settlement, including our obligations to make the payments set forth above, are contingent upon, among other things, the following:

  •  Definitive documentation, in form and substance satisfactory to the parties;
 
  •  Between 50 percent and 100 percent of the claims represented by various NRG facilities or creditor groups (the “NRG Credit Facilities”) having executed an agreement, in form and substance satisfactory to us, to support the settlement;
 
  •  Various stages of the implementation of the settlement occurring by dates currently being negotiated, with the consummation of the settlement to occur by September 30, 2003;
 
  •  The receipt of releases in our favor by at least 85 percent of the claims represented by the NRG Credit Facilities;
 
  •  The receipt by us of all necessary regulatory approvals; and
 
  •  No downgrade prior to consummation of the settlement of any of our credit ratings from the level of such ratings as of March 25, 2003.

      On May 12, 2003, the Minnesota Bankruptcy Court granted NRG’s motion to dismiss the involuntary chapter 11 petition against NRG.

      On May 14, 2003, NRG and certain of NRG’s U.S. affiliates filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code to restructure their debt. Neither we nor any of our other subsidiaries were included in the filing. NRG’s plan of reorganization filed with the U.S. Bankruptcy Court for the Southern District of New York incorporates the terms of an overall settlement among NRG, us and NRG’s major creditor constituencies that provides for payments by us to NRG, and that NRG will pay in turn to its creditors, of up to $752 million.

      A plan support agreement reflecting the settlement has been signed by us, holders of approximately 40% of NRG’s long-term notes and bonds along with two NRG banks who serve as co-chairs of the global steering committee for the NRG bank lenders. This agreement will become fully effective upon execution by holders

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of approximately an additional ten percent in principal amount of NRG’s long-term notes and bonds and by a majority of NRG bank lenders representing at least two-thirds in principal amount of NRG’s bank debt. We expect the requisite signatures will be obtained promptly. The term of the settlement with NRG’s major creditors are basically the same as previously reported. See our discussion in Recent Developments above.

      Since many of these conditions are not within our control, we cannot state with certainty that the settlement will be effectuated. Nevertheless, our management is optimistic at this time that the settlement will be implemented.

      NRG is organized into four regionally-based divisions: NRG North America based in Minneapolis, Minnesota; NRG Europe, based in London, England; NRG Asia-Pacific based in Brisbane, Australia and NRG Latin America, based in Miami, Florida. Most of NRG’s North American projects are grouped under regional holding companies corresponding to their domestic core market. NRG operates its United States generation facilities within each region as a separate operating unit within its power generation business. This regional portfolio structure allows NRG to coordinate the operations of its assets to take advantage of regional opportunities, reduce risks related to outages, whether planned or unplanned, and pursue expansion plans on a regional basis.

      NRG’s international power generation projects are managed as three distinct markets, Asia-Pacific, Europe and Other Americas.

      At December 31, 2002, NRG had interests in power generation facilities with a total generating capacity of 46,346 megawatts. Of this amount, NRG has a net ownership of 28,770 megawatts. NRG also has interests in district heating and cooling systems and steam transmission operations. As of December 31, 2002, these thermal businesses had a steam and chilled water capacity equivalent to approximately 1,641 megawatts, of which NRG’s net ownership interest is 1,514 megawatts.

      Through January 31, 2003, NRG completed a number of transactions, which resulted in net cash proceeds to NRG after debt pay downs and after financial advisor fees of approximately $350 million.

      In the second-quarter 2002, NRG announced the sale of its ownership interest in an Australian energy company, Energy Development Limited (EDL) and its 50 percent interest in Collinsville Power Station in Australia. These transactions reached financial close during the third-quarter of 2002 and the company received proceeds of approximately $45 million in exchange for its ownership interest in these two assets.

      In the third-quarter, 2002, NRG announced the sale of its Csepel power generating facilities, its 44.5 percent interest in the ECKG power station and its interest in Entrade, an electricity trading business. These transactions reached financial close in the fourth quarter 2002 and the first quarter of 2003 and the company realized net cash proceeds of approximately $200 million.

      In the fourth-quarter 2002 NRG closed several transactions resulting in net proceeds of approximately $105 Million. The transactions included the sale of 60 percent interest in Compania Electrica Central Bulo Bulo S.A. (Bulo Bulo), a Bolivian corporation; NRG’s transfer of its indirect 50% interest in SRW Cogeneration LP (SRW), which owns a cogeneration facility in Orange County, Texas; and NRG’s sale of its 57.7 percent interest in the Crockett Cogeneration Project and the sale of its 39.5 percent indirect partnership interest in the Mt. Poso Cogeneration Company, a California limited partnership (Mt. Poso), in California.

 
      NRG Divestitures and Project Terminations

      Conectiv  — In April 2002, NRG terminated its purchase agreement with a subsidiary of Conectiv to acquire 794 megawatts of generating capacity and other assets, including an additional 66 megawatts of the Conemaugh Generating Station and an additional 42 megawatts of the Keystone Generating Station. Canceling the acquisition will result in a $230 million reduction in NRG’s capital spending for 2002. No incremental costs were incurred by NRG related to the termination of this agreement.

      FirstEnergy Assets  — In 2001, NRG had signed purchase agreements to acquire or lease a portfolio of generating assets from FirstEnergy Corporation. Under the terms of the agreements, NRG had agreed to finance approximately $1.6 billion for four primarily coal-fueled generating stations.

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      On August 8, 2002, FirstEnergy notified NRG that the purchase agreements related to FirstEnergy generating assets had been cancelled. FirstEnergy cited the reason for canceling the agreements as an alleged anticipatory breach of certain obligations in the agreements by NRG. FirstEnergy also notified NRG that it is reserving the right to pursue legal action against NRG and us for damages, based on the alleged anticipatory breach. On February 5, 2003, FirstEnergy submitted filings with the U.S. Bankruptcy Court in Minnesota seeking permission to file a demand for arbitration against NRG. On February 27, 2003, FirstEnergy gave NRG notice that it was commencing arbitration against NRG to determine whether NRG is liable to FirstEnergy for failure to close the transaction. NRG believes it has meritorious defenses against FirstEnergy’s claim and intends to vigorously defend its position. No amount has been accrued for this contingency. Management is unable to predict the ultimate outcome of this matter, however, an adverse decision could be material to NRG’s financial position and results of operations.

      LSP Pike Energy, LLC  — In August 2002, The Shaw Group (“Shaw”) and NRG tentatively entered into an agreement to transfer NRG’s interest in the assets in LSP Pike Energy, LLC (“Pike”), a 1,200-megawatt combined cycle gas turbine plant currently under construction in Mississippi, which is approximately one-third completed. The agreement was subject to approval by the NRG board of directors and lenders. To date, Pike, NRG and its lenders have not approved the agreement and are not expected to in the near future.

      On October 17, 2002 Shaw filed an involuntary petition for liquidation of Pike under Chapter 7 of the U.S. Bankruptcy Code. Shaw also filed suit against us and NRG. The suit seeks recovery of approximately $130 million as a result of multiple breaches of contract. Pike and NRG expect to challenge the allegations vigorously and believe Shaw’s claims regarding the Pike project do not give Shaw any recourse against NRG or us. The carrying value of Pike’s assets has been reduced to zero as a result of the impairments reflected as Special Charges. See discussion in Note 2 to the consolidated financial statements. See also Note 3 to the consolidated financial statements for discussion of other NRG divestitures that are reported as discontinued operations or assets held for sale as of December 31, 2002.

 
      NRG 2001 Business Developments

      During 2001, NRG completed numerous acquisitions. NRG has generally financed the acquisition and development of projects under financing arrangements to be repaid solely from each of its project’s cash flows, which are typically secured by the plant’s physical assets and equity interests in the project company. These acquisitions were recorded using the purchase method of accounting. Accordingly, the purchase prices were allocated to assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Operations of the acquired companies have been included in the operations of NRG since the date of the respective acquisitions.

      In January 2001, NRG purchased from LS Power, LLC a 5,339 MW portfolio of operating projects and projects in construction and advanced development that are located primarily in the north central and south central United States. Each facility employs natural gas-fired, combined-cycle technology. Through December 31, 2005, NRG also has the opportunity to acquire ownership interests in an additional 3,000 MW of generation projects developed and offered for sale by LS Power and its partners.

      In March 2001, NRG purchased from Cogentrix the remaining 430 MW, or 51.37% interest, in an 837 MW natural gas-fired combined-cycle plant in Batesville, Mississippi. NRG acquired a 48.63% interest in the plant in January 2001 from LS Power.

      In June 2001, NRG purchased a 640 MW natural gas-fired power plant in Audrain County, Missouri from Duke Energy North America LLC.

      In June 2001, NRG closed on the construction financing for the Brazos Valley generating facility, a 633 MW gas-fired power plant in Fort Bend County, Texas that NRG will build, operate and manage. At the time of the closing, NRG also became the 100% owner of the project by purchasing STEAG Power LLC’s 50% interest in the project. During January 2003, NRG transferred its interest in the Brazos Valley project to its creditors.

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      In June 2001, NRG purchased 1,081 MW of interests in power generation plants from a subsidiary of Conectiv. NRG acquired a 100% interest in the 784 MW coal-fired Indian River Generating Station located near Millsboro, Delaware, and in the 170 MW oil-fired Vienna Generating Station located in Vienna, Maryland. In addition, NRG acquired 64 MW of the 1,711 MW coal-fired Conemaugh Generating Station located approximately 60 miles east of Pittsburgh, Pennsylvania and 63 MW of the 1,711 MW coal-fired Keystone Generating Station located approximately 50 miles east of Pittsburgh, Pennsylvania.

      In June 2001, NRG purchased a 389 MW gas-fired power plant and a 116 MW thermal power plant, both of which are located on Csepel Island in Budapest, Hungary, from PowerGen. In April 2001, NRG also purchased from PowerGen its interest in Saale Energie GmbH and its 33.3% interest in MIBRAG BV. By acquiring PowerGen’s interest in Saale Energie, NRG increased its ownership interest in the 960 MW coal-fired Schkopau power station located near Halle, Germany from 200 MW to 400 MW.

      By acquiring PowerGen’s interest in MIBRAG, an integrated energy business in eastern Germany consisting primarily of two lignite mines and three power stations, and following MIBRAG’s buy back of the shares NRG acquired from PowerGen, NRG increased its ownership of MIBRAG from 33.3% to 50%. The Washington Group International, Inc., owns the remaining 50% of MIBRAG.

      In August 2001, NRG acquired from Indeck Energy Services, Inc. an approximately 2,255 MW portfolio of operating projects and projects in advanced development, that are located in Illinois and upstate New York.

      In August 2001, NRG acquired Duke Energy’s 77% interest in the approximately 520 MW natural-gas fired McClain Energy Generating Facility located near Oklahoma City, Oklahoma. The Oklahoma Municipal Power Authority owns the remaining 23% interest. The McClain facility commenced operations in June 2001.

      In September 2001, NRG acquired a 50% interest in TermoRio SA, a 1,040 MW gas-fired cogeneration facility currently under construction in Rio de Janeiro State, Brazil, from Petroleos Brasileiros SA (Petrobras). Commercial operation of the facility is expected to begin in March 2004. NRG has the option to put its interest in the project back to Petrobras after March 2002 if by that time certain milestones have not been met, including final agreement on the terms of all project documents.

      During fiscal year 2001, NRG also acquired other minor interests in projects in Taiwan, India, Peru and the State of Nevada.

      The respective purchase prices have been allocated to the net assets of the acquired entities as follows:

         
Year Ended Dec. 31, 2002

Current assets:
  $ 307,654  
Property plant and equipment
    4,173,509  
Non-current portion of notes receivable
    736,041  
Current portion of long term debt assumed
    (61,268 )
Other current liabilities
    (99,666 )
Long term debt assumed
    (1,586,501 )
Deferred income taxes
    (149,988 )
Other long term liabilities
    (202,411 )
Other non-current assets and liabilities
    (181,473 )
 
Total purchase price
    2,935,897  
Less — Cash balances acquired (excluding restricted cash)
    (122,780 )
Net purchase price
  $ 2,813,117  
   
 

      In July 2001, NRG signed agreements to acquire from Edison Mission Energy a 50% interest in the 375 MW Commonwealth Atlantic gas and oil-fired generating station located near Chesapeake, Virginia, and

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a 50% interest in the 110 MW James River coal-fired generating facility in Hopewell, Virginia. NRG closed the acquisition of the Commonwealth Atlantic and James River generating facilities in January 2002, for $11.2 million and $6.5 million, respectively.
 
Terminated Asset Acquisitions

      Conectiv  — In April 2002, NRG terminated its purchase agreement with a subsidiary of Conectiv to acquire 794 MW of generating capacity and other assets, including an additional 66 MW of the Conemaugh Generating Station and an additional 42 MW of the Keystone Generating Station. The purchase price for these assets was approximately $230 million. No incremental costs were incurred by NRG related to the termination of this agreement.

      FirstEnergy  — In November 2001, NRG signed purchase agreements to acquire or lease a portfolio of generating assets from FirstEnergy Corporation. Under the terms of the agreements, NRG agreed to pay approximately $1.6 billion for four primarily coal-fueled generating stations.

      On July 2, 2002, the Federal Energy Regulatory Commission (FERC) issued an order approving the transfer of FirstEnergy generating assets to NRG; however, the FERC conditioned the approval on NRG’s assumption of FirstEnergy’s obligations under a separate agreement between FirstEnergy and the City of Cleveland. These conditions required FirstEnergy to protect the City of Cleveland in the event the generating assets are taken out of service. On July 16, 2002, FERC clarified that the condition would require NRG to provide notice to the City of Cleveland and FirstEnergy if the generating assets were taken out of service and that other obligations remain with FirstEnergy.

      On August 8, 2002, FirstEnergy notified NRG that the agreements regarding the transfer of generating assets from FirstEnergy to NRG had been cancelled. FirstEnergy cited the reason for canceling the agreements as an alleged anticipatory breach of certain obligations in the agreements by NRG. On February 27, 2003, FirstEnergy gave NRG notice that it was commencing arbitration against NRG to determine whether NRG is liable to FirstEnergy for failure to close the transaction. NRG believes it has meritorious defenses against FirstEnergy’s claim and intends to vigorously defend its position. No amount has been accrued for this contingency. Management is unable to predict the ultimate outcome of this matter, however, an adverse decision could be material to NRG’s financial position and results of operations.

 
      e prime, inc.

      e prime was incorporated in 1995 under the laws of Colorado. e prime provides energy related products and services, which include natural gas marketing and trading and energy consulting. In 1996, e prime received authorization from the FERC to act as a power marketer. Additionally, e prime owns Young Gas Storage Company, which owns a 47.5 percent general partnership interest in an underground gas storage facility in northeastern Colorado.

      e prime’s gas trading operations acquire assets and commodities and subsequently trade around those assets or commodity positions. e prime captures trading opportunities through price volatility driven by factors such as asset utilization, locational price differentials, weather, available supplies, credit, and customer actions. Trading margins are captured through the utilization of transmission, transportation, and storage assets, capitalization on regional price differences, and other factors.

Other Subsidiaries

      Although not individually reportable segments, we also have a number of nonregulated subsidiaries in various lines of business. The most significant are discussed below.

 
      Xcel Energy International

      XEI was formed in 1997 to manage our international operations, outside of NRG. At December 31, 2002, XEI’s primary investments included Yorkshire Power and Xcel Energy Argentina.

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      In April 1997, XEI purchased a 50 percent interest in Yorkshire Power, a U.K. regional electricity company, for approximately $362 million. Yorkshire Electricity’s main business is the supply and distribution and supply of electricity and the supply of gas to approximately 2 million customers. During April 2001, XEI sold the majority of its investment in Yorkshire Power to Innogy Holdings plc. We received approximately $366 million for the sale, which approximated the book value of our investment.

      Yorkshire Power Group Sale  — In August 2002, we announced that we had sold our 5.25-percent interest in Yorkshire Power Group Limited for $33 million to CE Electric UK. Xcel Energy and American Electric Power Co. each held a 50-percent interest in Yorkshire, a UK retail electricity and gas supplier and electricity distributor, before selling 94.75 percent of Yorkshire to Innogy Holdings plc in April 2001. The sale of the 5.25-percent interest resulted in an after-tax loss of $8.3 million, or 2 cents per share, in the third quarter of 2002. The loss is included in write-downs and disposal losses from investments on the Statement of Income.

      As of December 31, 2002, XEI’s investment in Argentina was $112 million. In December 2002, a subsidiary of Xcel Energy decided it would no longer fund one of its power projects in Argentina. This decision resulted in the shutdown of the Argentina plant facility, pending financing of a necessary maintenance outage. Updated cash flow projections for the plant were insufficient to provide recovery of XEI’s investment. An impairment write-down of approximately $13 million, or 3 cents per share, was recorded in the fourth quarter of 2002.

 
      Utility Engineering

      UE was incorporated in 1985 under the laws of Texas. UE is engaged in engineering, design, construction management and other miscellaneous services. UE currently has five wholly-owned subsidiaries — Universal Utility Services LLC, Precision Resource Co., Quixx, Proto-Power and Applied Power Associates Inc. Universal Utility Services Co. provides cooling tower maintenance and repair, certain other industrial plant improvement services, and engineered maintenance of high-voltage plant electric equipment. Precision Resource Co. provides contract professional and technical resources for customers in the energy industrial sectors. Quixx was incorporated in 1985 under the laws of Texas. Quixx’s primary business is investing in and developing cogeneration and energy-related projects. Quixx also holds water rights and certain other non-utility assets. Quixx financed the sale of heat pumps until December 1999.

 
      Planergy International Inc.

      Planergy was acquired in 1998. Planergy provides energy management, consulting, on-site generation, load curtailment, demand-side management, energy conservation and optimization, distributed generation and power quality services, as well as information management solutions to industrial, commercial and utility customers.

      EMI began operations in 1993. EMI primarily offers retrofitting and upgrading facilities for greater energy efficiency on a national basis. In 1995, EMI acquired Energy Masters Corporation, a company that specializes in energy efficiency improvement services for commercial, industrial and institutional customers. In 1997, EMI acquired 100 percent of Energy Solutions International Inc., an energy management firm.

      During 2000, Planergy and EMI, both wholly-owned subsidiaries of ours, were combined to form Planergy.

 
      Seren Innovations, Inc.

      Seren was formed in 1996 to pursue communications and data services businesses. Currently, Seren is constructing a combination cable television, telephone and high-speed internet access system in two locations: St. Cloud, Minnesota and Contra Costa County in the East Bay area of northern California. As of December 31, 2002, Xcel Energy’s investment in Seren was approximately $255 million. Seren projects improvement in its operating results with positive cash flow anticipated in 2005 and earnings contribution in 2008.

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      Eloigne Company

      Eloigne was established in 1993 and its principal business is the acquisition of rental housing projects that qualify for low-income housing tax credits under current federal tax law. As of December 31, 2002, approximately $83 million had been invested in Eloigne projects, including approximately $23 million in wholly owned properties and approximately $60 million in equity interests in jointly owned projects.

      Completed and committed Eloigne projects as of December 31, 2002, are expected to generate tax credits of $76 million over the time period of 2003 through 2011.

Environmental Matters

      Certain of our subsidiary facilities are regulated by federal and state environmental agencies. These agencies have jurisdiction over air emissions, water quality, wastewater discharges, solid wastes and hazardous substances. Various company activities require registrations, permits, licenses, inspections and approvals from these agencies. We have received all necessary authorizations for the construction and continued operation of its generation, transmission and distribution systems. Company facilities have been designed and constructed to operate in compliance with applicable environmental standards.

      We and our subsidiaries strive to comply with all environmental regulations applicable to its operations. However, it is not possible at this time to determine when or to what extent additional facilities or modifications of existing or planned facilities will be required as a result of changes to environmental regulations, interpretations or enforcement policies or, generally, what effect future laws or regulations may have upon our operations. For more information on Environmental Contingencies, see Note 18 and Note 19 to the consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Environmental Matters.”

Capital Spending and Financing

      For a discussion of expected capital expenditures and funding sources, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

Properties

      For a discussion and information concerning nonregulated properties, see “Nonregulated Subsidiaries” above.

      Virtually all of the utility plant of NSP-Minnesota, NSP-Wisconsin and PSCo is subject to the lien of their first mortgage bond indentures.

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Electric utility generating stations:

      NSP-Minnesota

                           
Summer 2002
Net Dependable
Station and Unit Fuel Installed Capability (Mw)




Sherburne — Becker, Minnesota
                       
 
Unit 1
    Coal       1976       706  
 
Unit 2
    Coal       1977       689  
 
Unit 3(a)
    Coal       1987       507  
Prairie Island — Welch, Minnesota
                       
 
Unit 1
    Nuclear       1973       522  
 
Unit 2
    Nuclear       1974       522  
Monticello — Monticello, Minnesota
    Nuclear       1971       578  
King — Bayport, Minnesota
    Coal       1968       529  
Black Dog — Burnsville, Minnesota
                       
 
2 Units
    Coal       1955-1960       278  
 
2 Units
    Natural Gas       2002       260  
High Bridge — St. Paul, Minnesota
                       
 
2 Units
    Coal       1956-1959       267  
Riverside — Minneapolis, Minnesota
                       
 
2 Units
    Coal       1964-1987       374  
Angus Anson — Sioux Falls, S.D.
                       
 
2 Units
    Natural Gas       1994       217  
Inver Hills — Inver Grove Heights, Minn.
                       
 
6 Units
    Natural Gas       1972       306  
Blue Lake — Shakopee, Minn.
                       
 
4 Units
    Natural Gas       1974       160  
Other
    Various       Various       323  
               
 
              Total       6,238  
               
 


(a)  Based on NSP-Minnesota’s ownership interest of 59 percent.

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      NSP-Wisconsin

                     
Summer 2002
Net Dependable
Station and Unit Fuel Installed Capability (Mw)




Combustion Turbine:
               
 
Flambeau Station — Park Falls, Wisconsin
  Natural Gas/Oil   1969     12  
 
Wheaton — Eau Claire, Wisconsin
               
   
6 Units
  Natural Gas/Oil   1973     345  
 
French Island — La Crosse, Wisconsin
               
   
2 Units
  Oil   1974     142  
Steam:
               
 
Bay Front — Ashland, Wisconsin
               
   
3 Units
  Coal/Wood/Natural Gas   1945-1960     76  
 
French Island — La Crosse, Wisconsin
               
   
2 Units
  Wood/RDF*   1940-1948     27  
Hydro:
               
 
19 Plants
      Various     249  
           
 
        Total     851  
           
 


RDF is refuse derived fuel, made from municipal solid waste.

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      PSCo

                         
Summer 2002
Net Dependable
Station and Unit Fuel Installed Capability (Mw)




Steam:
                   
 
Arapahoe — Denver, Colorado
                   
   
2 Units
  Coal     1950-1955       156  
 
Cameo — Grand Junction, Colorado
                   
   
2 Units
  Coal     1957-1960       73  
 
Cherokee — Denver, Colorado
                   
   
4 Units
  Coal     1957-1968       717  
 
Comanche — Pueblo, Colorado
                   
   
2 Units
  Coal     1973-1975       660  
 
Craig — Craig, Colorado
                   
   
2 Units(a)
  Coal     1979-1980 (a)     83  
 
Hayden — Hayden, Colorado
                   
   
2 Units(b)
  Coal     1965-1976 (b)     237  
 
Pawnee — Brush, Colorado
  Coal     1981       505  
 
Valmont — Boulder, Colorado
  Coal     1964       186  
 
Zuni — Denver, Colorado
                   
   
3 Units
  Natural Gas/Oil     1948-1954       107  
Combustion Turbines:
                   
 
Fort St. Vrain — Platteville, Colorado
                   
   
4 Units
  Natural Gas     1972-2001       690  
 
Various Locations
                   
   
6 Units
  Natural Gas     Various       171  
Hydro:
                   
 
Various Locations
        Various       32  
   
14 Units
        1967       210  
 
Cabin Creek — Georgetown, Colorado
                   
Pumped Storage Wind:
                   
 
Ponnequin — Weld County, Colorado
        1999-2001        
Diesel Generators:
                   
 
Cherokee — Denver, Colorado
                   
   
2 Units
        1967       6  
             
 
          Total       3,833  
             
 


(a)  Based on PSCo ownership interest of 9.72 percent
 
(b)  Based on PSCo ownership interest of 75.5 percent of unit 1 and 37.4 percent of unit 2.

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      SPS

                     
Summer 2002
Net Dependable
Station and Unit Fuel Installed Capability (Mw)




Steam:
               
 
Harrington — Amarillo, Texas
               
   
3 Units
  Coal   1976-1980     1,066  
 
Tolk — Muleshoe, Texas
               
   
2 Units
  Coal   1982-1985     1,080  
 
Jones — Lubbock, Texas
               
   
2 Units
  Natural Gas   1971-1974     486  
 
Plant X — Earth, Texas
               
   
4 Units
  Natural Gas   1952-1964     442  
 
Nichols — Amarillo, Texas
               
   
3 Units
  Natural Gas   1960-1968     457  
 
Cunningham — Hobbs, New Mexico
               
   
2 Units
  Natural Gas   1957-1965     267  
 
Maddox — Hobbs, New Mexico
  Natural Gas   1983     118  
 
CZ-2 — Pampa, Texas
  Purchased Steam   1979     26  
 
Moore County — Amarillo, Texas
  Natural Gas   1954     48  
Gas Turbine:
               
 
Carlsbad — Carlsbad, Texas
  Natural Gas   1977     13  
 
CZ-1 — Pampa, Texas
  Hot Nitrogen   1965     13  
 
Maddox — Hobbs, New Mexico
  Natural Gas   1983     65  
 
Riverview — Electric City, Texas
  Natural Gas   1973     23  
 
Cunningham — Hobbs, New Mexico
  Natural Gas   1998     220  
Diesel:
               
 
Tucumcari — Tucumcari, New Mexico
               
   
6 Units
      1941-1968      
           
 
        Total     4,324  
           
 

      Electric utility overhead and underground transmission and distribution lines (measured in conductor miles) at December 31, 2002:

                                         
Structure Miles Cheyenne NSP-Minnesota NSP-Wisconsin PSCo SPS






500 kilovolt (kv)
          2,919                    
345 kv
          5,653       1,312       529       2,735  
230 kv
          1,440             10,005       8,998  
161 kv
          298       1,331              
138 kv
                      92        
115 kv
    113       6,162       1,528       4,789       8,837  
less than 115 kv
    2,781       78,316       31,063       57,346       15,477  

      Electric utility transmission and distribution substations at December 31, 2002:

                                         
Quantity of
Substations Cheyenne NSP-Minnesota NSP-Wisconsin PSCo SPS






      5       360       205       209       492  

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      Gas utility mains at December 31, 2002:

                                                         
Miles BMG Cheyenne NSP-Minnesota NSP-Wisconsin PSCo Viking WGI








Transmission
                115             2,263       623       12  
Distribution
    415       673       8,608       1,929       18,114              

      Listed below are descriptions of NRG’s interests in facilities, operations and/or projects as of December 31, 2002.

Independent Power Production and Cogeneration Facilities

                         
NRG’s
Net Owned Percentage
Capacity Ownership
Name and Location of Facility Purchaser/ Power Market (megawatts) Interest Fuel Type





East Region:
                       
Oswego, New York
  Niagara Mohawk/ NYISO     1,700       100 %   Oil/Gas
Huntley, New York
  Niagara Mohawk/ NYISO     760       100 %   Coal
Dunkirk, New York
  Niagara Mohawk/ NYISO     600       100 %   Coal
Arthur Kill, New York
  NYISO     842       100 %   Gas/Oil
Astoria Gas Turbines, New York
  NYISO     614       100 %   Gas/Oil
Ilion, New York
  NYISO     60       100 %   Gas/Oil
Somerset, Massachusetts
  Eastern Utilities Associates     229       100 %   Coal/Oil/Jet
Middletown, Connecticut
  Connecticut Light & Power     856       100 %   Oil/Gas/Jet
Montville, Connecticut
  Connecticut Light & Power     498       100 %   Oil/Gas
Devon, Connecticut
  Connecticut Light & Power     401       100 %   Gas/Oil/Jet
Norwalk Harbor
  Connecticut Light & Power     353       100 %   Oil
Connecticut Jet Power, Connecticut
  Connecticut Light & Power     127       100 %   Jet
Other — 6 Projects
  Various     68       Various     Various
Indian River, Delaware
  Delmarva/PJM     784       100 %   Coal/Oil
Dover, Delaware
  PJM     106       100 %   Gas/Coal
Vienna, Maryland
  Delmarva/PJM     170       100 %   Oil
Conemaugh, Pennsylvania
  PJM     64       3.72 %   Coal/Oil
Keystone, Pennsylvania
  PJM     63       3.70 %   Coal/Oil
Paxton Creek Cogeneration, Pennsylvania
  Virginia Electric & Power     12       100 %   Gas
Commonwealth Atlantic
  PJM     188       50 %   Coal/Oil
James River
  PJM     55       50 %   Coal/Oil
Central Region:
                       
Big Cajun II, Louisiana
  Cooperative/SERC — Entergy     1,498       86.04 %   Coal
Big Cajun I, Louisiana
  Cooperative/SERC — Entergy     458       100 %   Gas
Bayou Cove, Louisiana
  SERC — Entergy     320       100 %   Gas
Sterlington, Louisiana
  Louisiana Generating     202       100 %   Gas
Batesville, Mississippi
  SERC-TVA     837       100 %   Gas
McClain, Oklahoma
  SPP-Southern     400       77 %   Gas
Mustang, Texas
  Golden Spread Electric Coop     122       25 %   Gas
Other — 3 Projects
  Various     45       Various     Various
Kendall, Illinois
  MAIN     1,168       100 %   Gas
Rockford I, Illinois
  ComEd     342       100 %   Gas

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NRG’s
Net Owned Percentage
Capacity Ownership
Name and Location of Facility Purchaser/ Power Market (megawatts) Interest Fuel Type





Rockford II, Illinois
  MAIN     171       100 %   Gas
Rocky Road Power, Illinois
  MAIN     175       50 %   Gas
Audrain, Missouri
  MAIN/SERC-Entergy     640       100 %   Gas
Other — 2 projects
  Various     42       Various     Various
West Coast Region:
                       
El Segundo Power, California
  California DWR     510       50 %   Gas
Encina, California
  California DWR     483       50 %   Gas/Oil
Long Beach Generating, California
  California DWR     265       50 %   Gas
San Diego Combustion Turbines, California
  Cal ISO     127       50 %   Gas/Oil
Saguaro Power Co., Nevada
  Nevada Power     53       50 %   Gas/Oil
Other North America:
                       
NEO Corporation, Various
  Various     197       71.49 %   Various
Energy Investors Funds, Various
  Various     11       0.73 %   Various
International Projects:
                       
Asia-Pacific:
                       
Lanco Kondapalli Power, India
  APTRANSCO.     107       30 %   Gas/Oil
Hsinchu, Taiwan
  Industrials     102       60 %   Gas
Australia:
                       
Flinders, South Australia
  South Australian Pool     760       100 %   Coal
Gladstone Power Station, Queensland
  Enertrade/Boyne Smelters     630       37.50 %   Coal
Loy Yang Power A, Victoria
  Victorian Pool     507       25.37 %   Coal
Europe:
                       
Killingholme Power A.UK
  UK Electricity Grid     680       100 %   Gas
Enfield Energy Centre, UK
  UK Electricity Grid     99       25 %   Gas/Oil
Schkopau Power Station, Germany
  VEAG/Industrials     400       41.67 %   Coal
MIBRAG mbH, Germany
  ENVIA/ MIBRAG Mines     119       50 %   Coal
ECK Generating, Czech Republic
  STE/ Industrials     166       44.50 %   Coal/Gas/Oil
CEEP Fund, Poland(3)
  Industrials     5       7.56 %   Gas/Coal
Other Americas:
                       
TermoRio, Brazil
  Petrobras     520       50 %   Gas/Oil
Itiquira Energetica, Brazil
  COPEL/ Tradener     154       100 %   Hydro
COBEE, Bolivia
  Electropaz/ELF     217       98.90 %   Hydro/Gas
Energia Pacasmayo, Peru
  Electroperu/ Peruvian Grid     66       100 %   Hydro/Oil
Cahua, Peru
  Quimpac/ Industrials     45       100 %   Hydro
Latin Power, Various
  Various     52       6.75 %   Various

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Thermal Energy Production and Transmission Facilities And Resource Recovery Facilities

                         
NRG’s
Percentage Thermal Energy
Date of Ownership Purchaser /
Name and Location of Facility Acquisition Net Owned Capacity(1) Interest MSW Supplier





NRG Energy Center Minneapolis, Minnesota     1993     Steam: 1,403 mmBtu/hr. (411 MWt)
Chilled water: 42,450 tons (149 MWt)
    100 %   Approximately 100 steam customers 40 chilled water customers
NRG Energy Center San Francisco, California     1999     Steam: 490 mmBtu/hr
(144 MWt)
    100 %   Approximately 185 steam customers
NRG Energy Center Harrisburg, Pennsylvania     2000     Steam: 490 mmBtu/hr. (144 MWt)
Chilled water: 1,800 tons (6 MWt)
    100 %   Approximately 295 steam customers and 2 chilled water customers
NRG Energy Center Pittsburgh, Pennsylvania     1999     Steam: 260 mmBtu/hr. (76 MWt)
Chilled water: 12,580 tons (44 MWt)
    100 %   Approximately 30 steam and 30 chilled water customers
NRG Energy Center San Diego, California     1997     Chilled water: 8,000 tons (28 MWt)     100 %   Approximately 20 chilled water customers
NRG Energy Center Rock-Tenn, Minnesota     1992     Steam: 430 mmBtu/hr (126 Mwt)     100 %   Rock-Tenn Company
Camas Power Boiler, Washington     1997     Steam: 200 mmBtu/hr. (59 MWt)     100 %   Georgia-Pacific Corp.
NRG Energy Center Dover, Delaware     2000     Steam: 190 mmBtu/hr. (56 MWt)     100 %   Kraft Foods Inc
NRG Energy Center Washco, Minnesota     1992     Steam: 160 mmBtu/hr. (47 MWt)     100 %   Anderson Corporation, Minnesota Correctional Facility
Energy Center Kladno, Czech Republic(2),(3)     1994     227 mmBtu/hr. (67 MWt)     44.40 %   City of Kladno
Resource Recovery Facilities Newport, Minnesota     1993     MSW 1,500 tons/day     100 %   Ramsey and Washington Counties
Elk River, Minnesota     2001     MSW: 1,275 tons/day     85 %   Anoka, Hennepin, and Sherburne Counties; Tri-County Solid Waste Management Commission
Penobscot Energy Recovery, Maine     1997     MSW: 590 tons/day     85 %   Bangor Hydroelectric Company


(1)  Thermal production and transmission capacity is based on 1,000 Btu’s per pound of steam production or transmission capacity. The unit mmbtu is equal to one million Btu’s.
 
(2)  Kaldno also is included in the Independent Power Production and Cogeneration Facilities table on the preceding page, under the name ECK Generating.
 
(3)  Facilities held for sale.

      In addition, NRG leases its corporate offices at 901 Marquette, Suite 2300, Minneapolis, Minnesota and various other office spaces.

      The debt associated with many of the NRG facilities listed above is in default and could be subject to foreclosures by the lenders to such facilities. See Notes 2, 3, 4 and 7 to the consolidated financial statements.

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Employees

      The number of our employees at December 31, 2002, is presented in the table below. Of the employees listed below, 7,449, or 50.9 percent, are covered under collective bargaining agreements.

         
NSP-Minnesota
    2,963  
NSP-Wisconsin
    550  
PSCo.
    2,625  
SPS
    1,071  
Xcel Energy Services Inc.
    2,965  
NRG
    3,173  
Other subsidiaries
    1,295  
   
 
Total
    14,642  
   
 

Legal Proceedings

      In the normal course of business, various lawsuits and claims have arisen against us. Management, after consultation with legal counsel, has recorded an estimate of the probable cost of settlement or other disposition for such matters.

      Department of Energy Complaint  — On June 8, 1998, NSP-Minnesota filed a complaint in the Court of Federal Claims against the DOE requesting damages in excess of $1 billion for the DOE’s partial breach of the Standard Contract. NSP-Minnesota requested damages consisting of the costs of storage of spent nuclear fuel at the Prairie Island nuclear generating plant, anticipated costs related to the Private Fuel Storage, LLC and costs relating to the 1994 state legislation limiting the number of casks that can be used to store spent nuclear fuel at Prairie Island. On April 6, 1999, the Court of Federal Claims dismissed NSP-Minnesota’s complaint. On May 20, 1999, NSP-Minnesota appealed to the Court of Appeals for the Federal Circuit. On August 31, 2000, the Court of Appeals for the Federal Circuit reversed and remanded to the Court of Federal Claims. On December 26, 2000, NSP-Minnesota filed a motion with the Court of Federal Claims to amend its complaint and renew its motion for summary judgment on the DOE’s liability. On July 31, 2001, the Court of Federal Claims granted NSP’s motion for summary judgment on DOE’s liability. On November 28, 2001, the DOE brought a motion of partial summary judgment on the schedule for acceptance of spent nuclear fuel and on November 27, 2001 the DOE’s obligation to accept greater than Class C waste. These motions are pending. Limited discovery with respect to the schedule to the schedule issues has been conducted. A trial in NSP-Minnesota’s suit against the DOE is not likely to occur before the second quarter of 2003.

      Fortistar Litigation  — In July 1999, Fortistar Capital, Inc., a Delaware corporation, filed a complaint in District Court (Fourth Judicial District, Hennepin County) in Minnesota against NRG asserting claims for injunctive relief and for damages as a result of NRG’s alleged breach of a confidentiality letter agreement with Fortistar relating to the Oswego facility in New York. NRG disputed Fortistar’s allegations and asserted numerous counterclaims. In October 1999, NRG, through a wholly owned subsidiary, closed on the acquisition of the Oswego facility. In April and December 2000, NRG filed summary judgment motions to dispose of the litigation. A hearing on these motions was held in February 2001 and certain of Fortistar’s claims were dismissed. On May 8, 2002, the parties resolved the litigation, pending final agreement on the terms of settlement. The settlement encompassed litigation with respect to the Oswego facility as well as litigation between the parties with respect to Minnesota Methane LLC. Because the conditions for settlement were not satisfied, the parties have renewed negotiations to explore alternative terms for reaching a settlement and are currently engaged in negotiation of a memorandum of understanding respecting the resolution of all disputes.

      Stray Voltage  — On September 25, 2000, NSP-Wisconsin was served with a complaint in Eau Claire County Circuit Court on behalf of Claron and Janice Stubrud. The complaint alleged that stray voltage from NSP-Wisconsin’s system harmed their dairy herd resulting in lost milk production, lost profits and income,

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property damage, and injury to their dairy herd. The complaint also alleged that NSP-Wisconsin acted willfully and wantonly, entitling plaintiffs to treble damages. The plaintiffs allege farm damages of approximately $3.8 million, $2.7 million of which represents prejudgement interest. On March 28, 2003, the trial court granted partial summary judgment to NSP-Wisconsin and dismissed plaintiffs’ claims for strict products liability, trespass, treble damages and prejudgment interest. Plaintiffs’ negligence and nuisance claims will proceed to trial in Eau Claire County in November 2003.

      On November 13, 2001, Ralph Schmidt, Karline Schmidt, August C. Heeg Jr., and Joanne Heeg filed a complaint in Clark County, Wisconsin against Xcel Energy Services Inc. (“XES”), a wholly-owned subsidiary of ours. The complaint alleged that stray voltage harmed their dairy herd resulting in decreased milk production, lost profits and income, property damage and injury to their dairy herd. The plaintiffs also allege entitlement to treble damages. The Heeg plaintiffs allege compensatory damages of $1.9 million and pre-verdict interest of $6.1 million, for total damages of $8 million. The Schmidt plaintiffs allege compensatory damages of $1 million and pre-verdict interest of $1.2 million, for total damages of $2.2 million. No trial date has been set. At all relevant times, NSP-Wisconsin provided utility service to plaintiffs; therefore XES is seeking dismissal of XES and substitution of NSP-Wisconsin as the proper party defendant.

      On March 1, 2002, NSP-Wisconsin was served with a lawsuit commenced by James and Grace Gumz and Michael and Susan Gumz in Marathon County Circuit Court, Wisconsin, alleging that electricity supplied by NSP-Wisconsin harmed their dairy herd and caused them personal injury. The Gumz’s complaint alleges negligence, strict liability, nuisance, trespass, and statutory violations and seeks compensatory, punitive and treble damages. Plaintiffs allege compensatory damages of $1.7 million and pre-verdict interest of $1.8 million for total damages of $3.5 million. Trial has been set for March 2004.

      French Island — NSP-Wisconsin’s French Island plant generates electricity by burning a mixture of wood waste and refuse derived fuel. The fuel is derived from municipal solid waste furnished under a contract with La Crosse County, Wisconsin. In October 2000, the EPA reversed a prior decision and found that the plant was subject to the federal large combustor regulations. Those regulations became effective on December 19, 2000. NSP-Wisconsin did not have adequate time to install the emission controls necessary to come into compliance with the large combustor regulations by the compliance date. As a result, on March 29, 2001, the EPA issued a finding of violation to NSP-Wisconsin. On April 2, 2001, a conservation group sent NSP-Wisconsin a notice of intent to sue under the citizen suit provisions of the Clean Air Act. NSP-Wisconsin could be fined up to $27,500 per day for each violation.

      On July 27, 2001, the state of Wisconsin filed a lawsuit against NSP-Wisconsin in the Wisconsin Circuit Court for La Crosse County, contending that NSP-Wisconsin exceeded dioxin emission limits on numerous occasions between July 1995 and December 2000 at French Island. On September 3, 2002, the Wisconsin Circuit Court approved a settlement between NSP-Wisconsin and the state of Wisconsin. Under terms of that settlement, NSP-Wisconsin paid a penalty of approximately $168,000 and agreed to contribute $300,000 in installments through 2005 to help fund a household hazardous waste project in the LaCrosse area.

      On August 15, 2001, NSP-Wisconsin received a Certificate of Authority to install control equipment necessary to bring the French Island plant into compliance with the large combustor regulations. NSP-Wisconsin began construction of the new air quality equipment on October 1, 2001. NSP-Wisconsin has reached an agreement in principle with La Crosse County through which La Crosse County will pay for the extra emissions equipment required to comply with the EPA regulation. Installation of the control equipment has been completed and source tests on one unit confirm that the unit is now in compliance with the state and federal dioxin standards. NSP-Wisconsin will test the remaining unit during the fourth quarter of 2002.

      New York Department of Environmental Control Opacity Notice of Violation — NRG became part of an opacity consent order as a result of acquiring the Niagara Mohawk assets. At the time of financial close, the consent order was being negotiated between Niagara Mohawk and the New York Department of Environmental Control (“NYDEC”). The consent order required Niagara Mohawk to pay a stipulated penalty for each opacity event. An opacity event is an event in time, usually six minutes or 20 minutes, when a plant’s emissions do not meet minimum levels of air transparency. On January 14, 2002, the NYDEC issued NRG NOVs for opacity events, which had occurred since the time NRG assumed ownership of the Huntley,

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Dunkirk and Oswego Generating Stations. The NOVs alleged that a total of 7,231 events had occurred where the average opacity during the six-minute block of time had exceeded 20 percent. The NYDEC currently proposes a penalty associated with the NOVs at $900,000. Subsequently, the NYDEC has indicated that a consent order, not yet received by NRG, will seek a penalty in excess of that previously proposed. NRG expects to continue negotiations with NYDEC regarding the proposed consent orders, but cannot predict the outcome of those negotiations.

      Light Rail Transit (“LRT”) — On February 16, 2001, NSP-Minnesota filed a suit in the United States District Court in Minneapolis against the Minnesota Metropolitan Council, Minnesota Department of Transportation, State of Minnesota and the Federal Transit Administration (“FTA”) to prevent pave-over of NSP-Minnesota’s underground facilities during construction of the LRT system. NSP-Minnesota also is seeking recovery of relocation expenses. State defendants countersued, seeking delay damages and a $330 million surety bond. On May 24, 2001, the District Court issued a preliminary injunction requiring NSP-Minnesota to commence the relocation project and to cooperate with defendants. NSP-Minnesota has complied with the preliminary injunction and utility line relocation has commenced. NSP-Minnesota is capitalizing its costs incurred as construction work in progress. In April 2002, Defendants brought motions for summary judgment before the federal district court. In September, 2002 the District Court granted the defendants’ motion for summary judgement. NSP is preparing its appeal to the Federal Court of Appeals for the Eighth District. In collateral matters regarding LRT construction, NSP-Minnesota has commenced a mandamus action in state court seeking an order requiring Defendants to commence condemnation proceedings concerning an underground substation, access to which is blocked by LRT. The state court denied the action for mandamus and NSP appealed to the Minnesota Court of Appeals.

      California Ancillary Services  — On March 11, 2002, the Attorney General of California filed in federal court, United States District Court for the Northern District of California, a civil complaint against NRG, certain NRG affiliates, us, Dynegy, Inc. and Dynegy Power Marketing, Inc., alleging antitrust violations in the ancillary services market. The complaint alleges that the defendants repeatedly sold electricity generating capacity to the California Independent System Operator for use as a reserve and subsequently, and impermissibly, sold the same capacity into the “spot” market for wholesale power, unlawfully collecting millions of dollars. Similar complaints were filed against other power generators. The plaintiff seeks an injunction against further similar acts by the defendants, and also seeks restitution, disgorgement of all proceeds, including profits, gained from these sales, and certain civil penalties. On April 17, 2002, the defendants in these various cases removed all of them to the federal district court, which denied the Attorney General’s motion to remand the cases to state court. That decision is on appeal to the Ninth Circuit Court. Meanwhile, the defendants’ motion to dismiss all the cases based on federal preemption and the filed rate doctrine is pending in the district court. A notice of bankruptcy filing regarding NRG has also been filed in this action, providing notice of the involuntary petition. On March 25, 2003, the federal district court dismissed the Attorney General’s actions against NRG, certain NRG affiliates, Dynegy, Inc. and Dynegy Power Marketing, Inc. without prejudice.

      Connecticut Light & Power Company — Connecticut Light & Power Company (CL&P) filed a claim in United States District Court for the District of Connecticut for recovery of amounts it claims is owing for congestion charges under the terms of a contract with a subsidiary of NRG. CL&P has served and filed its motion for summary judgment and NRG has yet to respond. CL&P has offset approximately $30 million from amounts owed to NRG, claiming that it has the right to offset those amounts under the contract. NRG has counterclaimed seeking to recover those amounts, arguing that CL&P has no rights under the contract to offset them. NRG cannot estimate at this time the likelihood of an unfavorable outcome in this matter, or the overall exposure for congestion charges for the full term of the contract. CL&P has also sought joinder in the involuntary bankruptcy of NRG in Minnesota.

      NRG Litigation — In February 2002, individual stockholders of NRG filed nine separate, but similar, class action complaints in the Delaware Court of Chancery against us, NRG and the nine members of NRG’s board of directors. A similar class action lawsuit filed in a Minnesota state court. Each of the actions challenged the offer and merger and contained various allegations of wrongdoing on the part of the defendants in connection with the offer and the merger. In April 2002 counsel for the parties to the consolidated action

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in the Delaware Court of Chancery and the Minnesota action entered into a memorandum of understanding setting forth an agreement in principle to settle the actions based on the increase by us of the exchange ratio in the offer and merger to 0.5000, but subject to confirmatory discovery, definitive documentation, and court approval. The Minnesota action has subsequently been dismissed without prejudice. As to the Delaware actions, the settlement has not been documented, approved or consummated, and in light of developments in the litigation that is described under the heading “Securities Class Action Litigation” below, it is uncertain whether the settlement will ever proceed.

      NRG Involuntary Bankruptcy — On November 22, 2002, five former NRG executives filed an involuntary Chapter 11 petition against NRG in the United States Bankruptcy Court for the District of Minnesota (Minnesota bankruptcy Court). Under provisions of federal law, NRG has the full authority to continue to operate its business as if the involuntary petition had not been filed unless and until a court hearing on the validity of the involuntary petition is resolved adversely to NRG. NRG responded to the involuntary petition, contesting the petitioners’ claims and filing a motion to dismiss the case. A hearing has been set for April 10, 2003 to consider the motion to dismiss. In their petition, the petitioners sought recover of severance and other benefits of approximately $28 million.

      NRG and its counsel have been involved in negotiations with the petitioners and their counsel. As a result of these negotiations, NRG and the petitioners reached an agreement and compromise regarding their respective claims against each other (Settlement Agreement). In February 2003, the Settlement Agreement was executed, pursuant to which NRG agreed to pay the petitioners an aggregate settlement in the amount of $12 million.

      On February 28, 2003, Stone & Webster, Inc. and Shaw Constructors, Inc. filed a petition alleging that they hold unsecured, non-contingent claims against NRG in a joint amount of $100 million. The Minnesota Bankruptcy Court has discretion in reviewing and ruling on the motion to dismiss and the review and approval of the Settlement Agreement. There is a risk that the Minnesota Bankruptcy Court may, among other things, reject the Settlement Agreement or enter an order for relief under Chapter 11 of Title 11 of the Bankruptcy Code.

      PSCo Notice of Violation — On November 3, 1999, the United States Department of Justice filed suit against a number of electric utilities for alleged violations of the Clean Air Act’s NSR requirements related to the alleged modifications of electric generating stations located in the South and Midwest. Subsequently, the EPA also issued requests for information pursuant to the Clean Air Act to numerous other electric utilities, including us, seeking to determine whether these utilities engaged in activities that may have been in violation of the NSR requirements. In 2001, we responded to the EPA’s initial information requests related to our plants in Colorado.

      On July 1, 2002, we received an NOV from the EPA alleging violations of the NSR requirements of the Clear Air Act at PSCo’s Comanche and Pawnee Stations in Colorado. The NOV specifically alleges that various maintenance, repair and replacement projects undertaken at the plants in the mid-to-late 1990s should have required a permit under the NSR process. We believe we acted in full compliance with the Clean Air Act and NSR process. We believe that the projects identified in the NOV fit within the routine maintenance, repair and replacement exemption contained within the NSR regulations or are otherwise not subject to the NSR requirements. We also believe that the projects would be expressly authorized under the EPA’s NSR policy announced by the EPA administrator on June 22, 2002. We disagree with the assertions contained in the NOV and intend to vigorously defend our position.

      If the EPA is successful in any subsequent litigation regarding the issues set forth in the NOV or any matter arising as a result of its information requests, it could require us to install additional emission control equipment at the facilities and pay civil penalties. Civil penalties are limited to not more than $25,000 to $27,500 per day for each violation. The ultimate financial impact to us is not determinable at this time.

      Securities Class Action Litigation — On July 31, 2002, a lawsuit purporting to be a class action on behalf of purchasers of our common stock between January 31, 2001 and July 26, 2002, was filed in the United States District Court in Minnesota. The complaint named us; Wayne H. Brunetti, chairman, president and

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chief executive officer; Edward J. McIntyre, vice president and chief financial officer; and former chairman, James J. Howard as defendants. Among other things, the complaint alleged violations of Section 10b of the Securities Exchange Act and Rule 10b-5 related to allegedly false and misleading disclosures concerning various issues including “round trip” energy trades and the existence of cross-default provisions in our and our subsidiary, NRG’s, credit agreements with lenders. After the filing of the lawsuit on July 31, 2002, several additional lawsuits were filed with similar allegations, one of which added claims on behalf of a purported class of purchasers of two series of NRG Senior Notes raised by NRG in January 2001. The cases have all been consolidated, and a consolidated amended complaint has been filed. The amended complaint charges false and misleading disclosures concerning “round trip” energy trades and the existence of provisions in our credit agreements with lenders for cross-defaults in the event of a default by NRG; it adds as additional defendants Gary R. Johnson, General Counsel, Richard C. Kelly, president of Xcel Energy Enterprises, two former executive officers of NRG (David H. Peterson, Leonard A. Bluhm) and one current executive officer of NRG (William T. Pieper) and a former independent director of NRG (Luella G. Goldberg); and it adds claims of false and misleading disclosures (also regarding “round trip” trades and the cross-default provisions) under Section 11 of the Securities Act. The defendants have not yet responded formally to the amended complaint, but deny any liability and maintain they have made disclosures fully compliant with applicable laws and reporting requirements.

      Shareholder Derivative Litigation — On August 15, 2002, a shareholder derivative action was filed in the United States District Court for the District of Minnesota, purportedly on behalf of the Xcel Energy, against the directors and certain present and former officers citing essentially the same circumstances as the class actions and asserting breach of fiduciary duty. This action has been consolidated for pre-trial purposes with the securities class actions. After its filing of this action, two additional derivative actions were filed in the state trial court for Hennepin County, Minnesota, against essentially the same defendants, focusing on allegedly wrongful energy trading activities and asserting breach of fiduciary duty for failure to establish adequate accounting controls, abuse of control, and gross mismanagement. In each of the derivative cases, the defendants have filed motions to dismiss the complaint for failure to make a proper pre-suit demand (or, in the federal court case, to make any pre-suit demand at all) upon our board of directors. The motion has not yet been ruled upon.

      ERISA Class Litigation — On September 23, 2002 and October 9, 2002, actions were filed in the United States District Court for the District of Colorado, purportedly on behalf of classes of employee participants in our (and our predecessors’) 401(k)/ESOP plans from as early as September 23, 1999. The complaints in the actions, which name as defendants Xcel Energy, our directors, certain former directors, and certain of our present and former officers, allege violations of the Employee Retirement Income Security Act in the form of breach of fiduciary duty in allowing or encouraging the purchase, contribution and/or retention of our common stock in the plans and making misleading statements and omissions in that regard. The defendants have filed motions to dismiss the complaints, and separately have requested the Judicial Panel on Multidistrict Litigation to transfer the cases to the Minnesota federal court for purposes of coordination with the securities class actions and shareholder derivative action pending there. The motions have not yet been ruled upon.

      Stone/Shaw Litigation — On October 17, 2002, Stone & Webster, Inc. and Shaw Constructors, Inc. filed an action in the United States District Court for the Southern District of Mississippi against Xcel Energy; Wayne H. Brunetti, chairman, president and chief executive officer; Richard C. Kelly, president of Xcel Energy Enterprises; NRG and certain NRG subsidiaries. Stone/Show allege they had a contract with a single purpose NRG subsidiary for construction of a power generation facility, which was abandoned before completion, but after substantial sums had been spent by Stone/Shaw. They allege breach of contract, breach of an NRG guarantee, breach of fiduciary duty, tortious interference with contract, detrimental reliance, misrepresentation, conspiracy, aiding and abetting, and seek to impose alter ego liability on defendants other than the contracting NRG subsidiary through piercing the corporate veil. The defendants have filed motions to dismiss the complaint, which have not yet been ruled upon.

      Threatened FirstEnergy Litigation  — As discussed in Note 18 to the consolidated financial statements, FirstEnergy terminated the purchase agreements pursuant to which NRG had agreed to purchase four

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generating stations for approximately $1.6 billion. FirstEnergy’s cited rationale for terminating the agreements was an alleged anticipatory breach by NRG. FirstEnergy notified NRG that it is reserving the right to pursue legal action against NRG and us for damages. On February 5, 2003, FirstEnergy submitted filings with the U.S. Bankruptcy Court in Minnesota seeking permission to file a demand for arbitration against NRG. On February 27, 2003, FirstEnergy gave NRG notice that it was commencing arbitration against NRG to determine whether NRG is liable to FirstEnergy for failure to close the transaction. NRG believes it has meritorious defenses against FirstEnergy’s claim and intends to vigorously defend its position. No amount has been accrued for this contingency. Management is unable to predict the ultimate outcome of this matter, however, an adverse decision could be material to NRG’s financial position and results of operations.

      Ashland Manufactured Gas Plant Site — NSP-Wisconsin was named as one of three potentially responsible parties (PRP) for creosote and coal tar contamination at a site in Ashland, Wisconsin. The Ashland site includes property owned by NSP-Wisconsin and two other properties: an adjacent city lakeshore park area and a small area of Lake Superior’s Chequemegon Bay adjoining the park.

      Estimates of the ultimate cost to remediate the Ashland site vary from $4 million to $93 million, because different methods of remediation and different results are assumed in each. In the interim, NSP-Wisconsin has recorded a liability in the amount of $19 million for an estimate of its share of the cost of remediating the portion of the Ashland site that it owns, using information available to date and reasonably effective remedial methods.

      The EPA and Wisconsin Department of Natural Resources have not yet selected the method of remediation to use at the site. On September 5, 2002, the Ashland site was placed on the National Priorities List (NPL). The NPL is intended primarily to guide the EPA in determining which sites require further investigation.

      California Litigation — Public Utility District No. 1 of Snohomish County, Washington, has filed a suit against Xcel Energy contending that various of its trading strategies, as reported to the FERC in response to that agency’s investigation of trading strategies discussed above, violated the California Business and Professions Code. Public Utility District No. 1 of Snohomish County contends that the effect of those strategies was to increase amounts that it paid for wholesale power in the spot market in the Pacific Northwest. Xcel Energy and other defendants requested the case be dismissed in its entirety. In an order dated January 6, 2003, the District Court dismissed the County’s claim. The plaintiff subsequently filed a notice of appeal on January 27, 2003.

      In addition, the California Attorney General’s Office has informed PSCo that it may raise claims against PSCo under the California Business and Professions Code with respect to the rates that PSCo has charged for wholesale sales and PSCo’s reporting of those charges to the FERC. PSCo has had preliminary discussions with the California Attorney General’s Office, and has expressed the view that FERC is the appropriate forum for the concerns that it has raised.

      Home Builders Association of Metropolitan Denver (“HBA”) — On February 23, 2001, HBA filed a formal complaint with the CPUC, requesting an award of reparations for excessive charges related to construction payments under PSCo’s gas extension tariff as a result of PSCo’s alleged failure to file revisions to its published construction allowances since 1996. HBA seeks an award of reparations on behalf of all of PSCo’s gas extension applicants since October 1, 1996, in the amount of $13.6 million, including interest. HBA also seeks recovery of its attorneys’ fees.

      Hearings were held before an administrative law judge (“ALJ”) on August 29 and September 24, 2001. On January 15, 2002, the ALJ issued his Recommended Decision dismissing HBA’s complaint. The ALJ found that HBA failed to show that there have been any “excessive charges,” as required under the reparations statute, resulting from PSCo’s failure to comply with its tariff. The ALJ held that HBA’s claim for reparations (i) was barred by the filed rate doctrine (since PSCo at all times applied the approved construction allowances set forth in its tariff), (ii) would require the Commission to violate the prohibition against retroactive ratemaking, and (iii) was based on speculation as to what the Commission would do had PSCo made the filings in prior years to change its construction allowances. The ALJ also denied HBA’s

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request for costs and attorneys’ fees. HBA filed exceptions to the ALJ’s decision. On June 19, 2002, the CPUC issued an order granting in part HBA’s exceptions to the ALJ’s recommended decision and remanding the case back to the ALJ for further proceedings. The CPUC reversed the ALJ’s legal conclusion that the filed rate doctrine and prohibition against retroactive ratemaking bars HBA’s claim for reparations under the circumstances of this case. The CPUC remanded the case back to the ALJ for a determination of whether and to what extent due reparations should be awarded, considering certain enumerated issues.

      A full-day hearing on remand was held on January 10, 2003. Simultaneous briefs were filed on February 5, 2003. Reply briefs are due February 12, 2003. The ALJ decision on remand is pending.

      SchlumbergerSema, Inc. — Under a 1996 Data Services Agreement (DSA), SchlumbergerSema, Inc. (SLB) provides automated meter reading, distribution automation, and other data services to NSP-Minnesota. In September 2002 NSP-Minnesota issued written notice that SLB has committed Events of Default under the DSA, including SLB’s nonpayment of approximately $7.4 million for distribution automation assets. In November 2002 SLB demanded arbitration before the American Arbitration Association and asserted various claims against NSP-Minnesota totaling $24 million for NSP-Minnesota’s alleged breach of an expansion contract and a meter purchasing contract. In the arbitration, NSP-Minnesota asserts counterclaims against SLB for SLB’s failure to meet performance criteria, improper billing, failure to pay for use of NSP-owned property, and failure to pay $7.4 million for NSP-Minnesota distribution automation assets. NSP-Minnesota also seeks a declaratory judgment from the arbitrator that will terminate SLB’s rights under the DSA. No arbitration date is set, but written discovery has commenced. The parties are scheduled to mediate their disputes on April 9, 2003.

      Lamb County Electric Cooperative — On July 24, 1995, Lamb County Electric Cooperative, Inc. (LCEC) petitioned the PUCT for a cease and desist order against SPS. LCEC alleged that SPS had been unlawfully providing service to oil field customers and their facilities in LCEC’s singly-certificated area. SPS responded that it was lawfully entitled to serve oil field customers under “grandfather rights” granted it in the same order that granted LCEC its certificated area. Ultimately, the PUCT issued an order granting SPS’ motion for summary disposition, thus denying LCEC’s petition. LCEC appealed the PUCT’s order to the District Court, which upheld the order. LCEC then appealed to the Third Court of Appeals, which reversed the District Court judgment and remanded the case to the PUCT for an evidentiary hearing. The LCEC complaint was transferred to the State Office of Administrative Hearings (SOAH) for processing. On March 6, 2003, an ALJ issued a proposal for decision recommending that the cooperative’s petition for a cease and desist order be denied on the basis that SPS is duly certificated to provide the service in the disputed oil fields. On April 17, 2003, the PUCT approved the SOAH ALJ’s recommended proposal for decision and denied LCEC’s petition for a cease and desist order. In related litigation, on Oct. 18, 1996, LCEC filed an action for damages based on its claim that SPS had been unlawfully providing service to oil field customers in its certified area. This case has remained dormant pending a final determination by the PUCT of the lawfulness of the service. Damages resulting from a decision adverse to us could be material.

      For a discussion of other legal claims and environmental proceedings, see Note 18 to the consolidated financial statements. For a discussion of proceedings involving utility rates, see “Business — Pending Regulatory Matters.”

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MANAGEMENT

      The following table sets forth certain information about our directors and executive officers as of January 31, 2003.

             
Name Age Position



Wayne H. Brunetti
    60     Chairman of the Board, President, Chief Executive Officer and Director
Richard C. Kelly
    56     Vice President and Chief Financial Officer
Paul J. Bonavia
    51     President — Energy Markets
Cathy J. Hart
    53     Vice President and Corporate Secretary
Gary R. Johnson
    56     Vice President and General Counsel
Cynthia L. Lesher
    54     Chief Administrative Officer
Raymond E. Gogel
    52     Vice President and Chief Information Officer
Benjamin G.S. Fowke, III
    44     Vice President and Treasurer
David E. Ripka
    54     Vice President and Controller
James T. Petillo
    58     President — Energy Delivery
Patricia K. Vincent
    44     President — Retail Services
David M. Wilks
    56     President — Energy Supply
C. Coney Burgess
    65     Director
David A. Christensen
    67     Director
Roger R. Hemminghaus
    66     Director
A. Barry Hirschfeld
    60     Director
Douglas W. Leatherdale
    66     Director
Albert F. Moreno
    59     Director
A. Patricia Sampson
    54     Director
Allan L. Schuman
    68     Director
Rodney E. Slifer
    68     Director
W. Thomas Stephens
    60     Director
Dr. Margaret R. Preska
    64     Director

Directors and Executive Officers

      Wayne H. Brunetti is Chairman, President and Chief Executive Officer of Xcel Energy Inc. He has served as such since August 18, 2001 and as President and Chief Executive Officer upon the completion of our Merger on August 18, 2000. Mr. Brunetti has been a Director of Xcel Energy Inc. since 2000. From March 1, 2000 until the completion of the Merger, he served as Chairman, President and Chief Executive Officer of NCE and as a director and officer of several of NCE’s subsidiaries. From August 1997 until March 1, 2000, Mr. Brunetti was Vice Chairman, President and Chief Operating Officer of NCE. Before the merger of PSCo and SPS to form NCE, Mr. Brunetti was President and CEO of PSCo. He joined PSCo in July 1994 as President and Chief Operating Officer. In January 1996, he added the title of CEO. Mr. Brunetti is the former President and CEO of Management Systems International, a Florida management consulting firm that he founded in 1991. Prior to that, he was Executive Vice President of Florida Power & Light Company. Mr. Brunetti has been active in various professional and civic groups. He currently serves on the executive committee and board of the Edison Electric Institute, the Medic Alert Foundation, Mountain States Employers Council, the board of advisors of the University of Colorado at Denver, the labor relations committee of the Chamber of Commerce of the United States of America, the Capital City Partnership and the Minnesota Orchestra. He is past chairman of the 2000 Mile High United Way campaign, past chairman of the board of the Colorado Association of Commerce and Industry and served on the Colorado Renewable

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Energy Task Force, an appointment made by Governor Roy Romer. He is the author of Achieving Total Quality in Integrated Business Strategy & Customer Needs. Mr. Brunetti holds a bachelor of science degree in business administration from the University of Florida. He is a graduate of the Harvard Business School’s Program for Management Development.

      Richard C. Kelly has been our Vice President and Chief Financial Officer since August 2002. Mr. Kelly has also been the acting President and Chief Operating Officer, NRG Energy since June 2002. Previously, Mr. Kelly was our President — Enterprises since August 2000. Mr. Kelly also served as Executive Vice President and Chief Financial Officer for NCE from 1997 to August 2000 and Senior Vice President of PSCo from 1990 to 1997.

      Paul J. Bonavia has been our President — Energy Markets since August 2000. Previously, Mr. Bonavia served as Senior Vice President and General Counsel of NCE from 1997.

      Cathy J. Hart has been our Vice President and Corporate Secretary since August 2000. Previously, Ms. Hart served as Secretary of NCE from 1998 and as Manager of Corporate Communications of PSCo from 1993 to 1996. For family reasons, Ms. Hart resigned as Manager of Corporate Communications at PSCo in June 1996 to move to Australia. From June 1996 to June 1998, Ms. Hart was not employed. She was re-employed by NCE as Corporate Secretary in June 1998.

      Gary R. Johnson has been our Vice President and General Counsel since August 2000. Previously, Mr. Johnson served as Vice President and General Counsel of NSP from 1991.

      Cynthia L. Lesher has been our Chief Administrative Officer since August 2000. She has also been our Chief Human Resources Officer since July 2001. Previously, Ms. Lesher served as President of NSP-Gas from July 1997 and previously Vice President-Human Resources of NSP.

      Raymond E. Gogel has been our Vice President and Chief Information Officer since April 2002. Previously, Mr. Gogel was Vice President and Senior Client Services Principal for IBM Global Services since June 2001 and Senior Project Executive for IBM’s Global Services since January 1998.

      Benjamin G.S. Fowke, III has been our Vice President and Treasurer since November 2002. Previously, Mr. Fowke served as Vice President and Chief Financial Officer of our commodity trading and marketing business unit from 2000. He was Vice President of Retail Services and Energy Markets at NCE from January 1999 to July 2000 and Vice President-Finance/Accounting at e prime from May 1997 to December 1998.

      David E. Ripka has been our Vice President and Controller since August 2000. Previously, Mr. Ripka served as Vice President and Controller of NRG from June 1999 to August 2000, Controller of NRG from March 1997 to June 1999 and Assistant Controller for NSP from June 1992 to March 1997.

      James T. Petillo has been our President — Energy Delivery since March 2001. Previously, Mr. Petillo served as our President — Retail Services from August 2000 to March 2001, Executive Vice President of New Century Services from 1998 to August 2000 and President and Director of New Century International from 1997 to 1998.

      Patricia K. Vincent has been our President — Retail Services since March 2001. Previously, Ms. Vincent served as our Vice President of Marketing and Sales from August 2000 to March 2001, Vice President of Marketing & Sales of NCE from January 1999 to August 2000 and Manager, Director and Vice President of Marketing and Sales at Arizona Public Service Company from 1992 to January 1999.

      David M. Wilks has been our President — Energy Supply since August 2000. Previously, Mr. Wilks served as Executive Vice President and Director of PSCo and New Century Services from 1997 to August 2000 and President, Chief Operating Officer and Director of SPS from 1995 to August 2000.

      C. Coney Burgess has been a Director of Xcel Energy Inc. since 2000. He is Chairman of the board of directors of Herring Bancorp, a national bank holding company based in Vernon, Texas. He is also Chairman of the board of Herring Bancshares, Inc., a holding company in Oklahoma. He has served as Chairman of Herring Bancorp and Herring Bancshares since 1992. Mr. Burgess is Chairman/ President of Burgess-Herring Ranch Company, a position he has held since 1974, and Chain-C, Inc., an agricultural firm with operations in

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the Texas Panhandle. He is President of Monarch Trust Company in Amarillo, Texas, and a director of the Herring National Bank. He served on the board of directors of NCE from 1997 until the completion of the Merger. Upon the completion of the Merger, the surviving corporation was renamed Xcel Energy Inc. Mr. Burgess also served on the board of directors of SPS from 1994 to 1997. Mr. Burgess is past President of Texas and Southwestern Cattle Raisers Association in Forth Worth, Texas, and is a director of the American Quarter Horse Association, Cattlemans Beef Board, National Cattlemans Beef Association and Panhandle Livestock Association. He is on the board of overseers and the board of endowment of the Ranching Heritage Association at Texas Tech University in Lubbock, Texas. Mr. Burgess is past Chairman of the Board of Cal Farley’s Boys Ranch and Affiliates; a board member of the Boys Ranch Foundation; past President of the Amarillo Symphony; past President of the Amarillo Downtown Rotary; a trustee of Marine Military Academy; and an advisory Board member for Texas Tech University, College of Agricultural Sciences, Lubbock, Texas. Mr. Burgess received his B.S. and B.A. from Mississippi State University and attended law school at the University of Mississippi.

      David A. Christensen has been a Director of Xcel Energy Inc. since 1976. He served as President and Chief Executive Officer of Raven Industries, Inc., a diversified manufacturer of plastics, electronics and special-fabric products in Sioux Falls, South Dakota, from 1971 until his retirement in August 2000 and continues as a director. He has been associated with Raven Industries since 1962, and also worked at John Morrell & Co. and served in the U.S. Army Corps of Engineers. He received his bachelors degree in industrial engineering from South Dakota State University, which later honored him with its distinguished engineer, distinguished service, and distinguished alumni awards. In 2000, Mr. Christensen received the Sioux Falls Development Foundation’s Spirit of Sioux Falls award. Inducted into the South Dakota Hall of Fame in 1998, Mr. Christensen was presented with the Executive of the Year Award by Sales and Marketing Executives, Inc. of Sioux Falls, South Dakota in 1993, and was USD’s South Dakotan of the Year in 1985. Mr. Christensen also serves as a director of Wells Fargo & Co., San Francisco, California and Medcomp Software, Inc., Colorado Springs, Colorado. A strong advocate for his community and state, he has served in many volunteer activities. He is a past director of the South Dakota Symphony and Sioux Falls Downtown Development Corp., as well as a past chairman of the Sioux Empire United Way.

      Roger R. Hemminghaus has been a Director of Xcel Energy Inc. since 2000. He retired as Chairman of the Board of Ultramar Diamond Shamrock Corp. in January 2000 and as Chief Executive Officer in January 1999. Mr. Hemminghaus had become Chairman and CEO of Ultramar Diamond Shamrock Corporation following the merger of Diamond Shamrock, Inc. and Ultramar Corporation in 1996. Prior to the merger, Mr. Hemminghaus was Chairman, CEO and President of Diamond Shamrock, Inc. He started his career in the energy industry in 1962 as an engineer for Exxon, USA, after serving four years as a naval officer involved in nuclear power development. Mr. Hemminghaus served as a Director of NCE from 1997 until the completion of our Merger and on the SPS board of directors from 1994 until 1997. He is on the boards of directors of Luby’s, Inc., CTS Corporation, Tandy Brands Accessories Incorporated, and billserv.com, Inc. Mr. Hemminghaus is Vice Chairman of the Southwest Research Institute. He is former Chairman of the Federal Reserve Bank of Dallas and former Chairman of the National Petrochemicals and Refiners Association. He is Chairman of the Board of Regents of Texas Lutheran University; he serves on the National Executive Board of the Boy Scouts of America and serves on various other non-profit association boards. Mr. Hemminghaus is a 1958 graduate of Auburn University, receiving a B.S. degree in chemical engineering and has done graduate work in business and nuclear engineering.

      A. Barry Hirschfeld has been a Director of Xcel Energy Inc. since 2000. He is President of A.B. Hirschfeld Press, Inc., a commercial printing company. He has held this position since 1984. He is the third generation to head this family-owned business, which was founded in 1907. He received his M.B.A. from the University of Denver and a B.S. in business administration from California State Polytechnic University. Mr. Hirschfeld served on the NCE board from 1997 until the completion of our Merger and on the board of directors of the PSCo from 1988 to 1997. He serves on the boards of directors of the Boettcher Foundation; Mountain States Employers Council; the Denver Area Council of Boy Scouts of America, where he serves on the Board Affairs Committee; the Rocky Mountain Multiple Sclerosis Center; Colorado’s Ocean Journey; the Cherry Creek Arts Festival; Up With People; and the National Jewish Center. He also serves on the

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advisory board of the Harvard University Divinity School Center for Values in Public Life. Mr. Hirschfeld is Executive Vice President of the Mile Hi Stadium Club; a member of the One Hundred Club of Denver; Colorado Concern, where he serves on the executive committee; the Colorado Forum; Denver Mayor Wellington Webb’s Advisory Committee; and National Committee Member of the Kemper Museum, Kansas City, Missouri. He is past board Chairman and lifetime board member of the Denver Metro Convention and Visitors Bureau and past Chairman of the Denver Art Museum.

      Douglas W. Leatherdale has been a Director of Xcel Energy Inc. since 1991. He is the retired Chairman and Chief Executive Officer of The St. Paul Companies, Inc., a worldwide property and liability insurance organization. Mr. Leatherdale joined The St. Paul Companies in 1972 and has held numerous executive positions with the Company, including President, Executive Vice President and Senior Vice President of Finance. He held the position of Chairman and Chief Executive Officer from 1990 until his retirement in 2001. Before joining The St. Paul Companies, Mr. Leatherdale was employed by the Lutheran Church of America in Minneapolis where he served as Associate Executive Secretary on the Board of Pensions. Prior to his four years at the Lutheran Church of America, he served as Investment Analyst Officer at Great West Life Assurance Company in Winnipeg. A native of Canada, Mr. Leatherdale attended United College in Winnipeg (now the University of Winnipeg) and later completed additional studies at Harvard Business School and The University of California-Berkeley. In 2000, he was awarded a Doctorate of Laws degree (honoris causa) from The University of Winnipeg. Mr. Leatherdale also serves as a director of The St. Paul Companies, The John Nuveen Company and United HealthCare Group. He is the Chairman of the Board of Directors of the International Insurance Society and The Minnesota Orchestral Association. He is the past Chairman of the University of Minnesota Foundation and the American Insurance Association.

      Albert F. Moreno has been a Director of Xcel Energy Inc. since 2000. He is Senior Vice President and General Counsel of Levi Strauss & Co. (“LS&CO.”), a brand name apparel manufacturer. Mr. Moreno is directly responsible for LS&CO.’s legal and brand protection affairs and oversees the company’s global security department. He has held this position since 1996. Mr. Moreno joined LS&CO. in 1978 as Assistant General Counsel. In addition to his work with LS&CO., Mr. Moreno is a member of the Rosenberg Foundation and the Levi Strauss Foundation. He serves on the board of trustees for the Tomas Rivera Policy Institute, the Mexican Museum, the National Association of Latino Elected and Appointed Officials Education Fund, and the American Corporate Counsel Association. He served on the NCE board of directors from 1999 until the completion of our merger. Mr. Moreno received a bachelor’s degree in economics from San Diego State University in 1966 and a degree in Latin American Economic Studies from the Universidad de Madrid in 1967. In 1970, he received his law degree from the University of California at Berkeley School of Law.

      Dr. Margaret R. Preska has been a Director of Xcel Energy Inc. since 1980. She is the President Emerita, Minnesota State University, Mankato and Distinguished Service Professor, Minnesota State Universities. Dr. Preska served as founding campus CEO at Zayed University, Abu Dhabi, United Arab Emirates from 1998 to 2000. She was President of Minnesota State University, Mankato, from 1979 until 1992. She had served as its Vice President for Academic Affairs and Equal Opportunity Officer from 1975 until 1979. She previously was academic dean, instructor, assistant and associate professor of history and government at LaVerne College in LaVerne, California. Dr. Preska earned a bachelor of science degree at SUNY Brockport, where she graduated summa cum laude. She earned a masters at The Pennsylvania State University, a Ph.D. at Claremont Graduate University, and further studied at Manchester College of Oxford University. Dr. Preska is a member of Women Directors and Officers in Public Utilities and is a member of the board of directors of Milkweed Editions, a literary and educational publisher. She served as national President at Camp Fire Boys and Girls, Inc. from 1985 until 1987. She is a charter member of the board of directors of Executive Sports, Inc., a division of Golden Bear International. She is affiliated with several organizations, including the Retired Presidents Association of the American Association of State Colleges and Universities, the St. Paul/Minneapolis Committee on Foreign Relations, Rotary, Minnesota Women’s Economic Roundtable, the American Historical Association and Horizon 100.

      A. Patricia Sampson has been a Director of Xcel Energy Inc. since 1985. She currently operates The Sampson Group, Inc., a management development and strategic planning consulting business. Prior to that

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she served as a consultant with Dr. Sanders and Associates, a management and diversity consulting company. Prior to her current endeavors, Ms. Sampson served as Chief Executive Officer of the Greater Minneapolis Area Chapter of the American Red Cross from July 1993 until January 1, 1995. She also previously served successively as Executive Director from October 1986 until July 1993, Assistant Executive Director-Services (April 1985), and Assistant Manager (July 1984) of the Greater Minneapolis Area Chapter. Prior to the above, she served as the Director of Service to Military Families and Veterans and Director of Disaster Services for the St. Paul Area Chapter of the American Red Cross. Ms. Sampson received a masters degree from the University of Pennsylvania and a bachelors degree from Youngstown State University. Ms. Sampson is a member of the Utility Women’s Conference. She is active in Christian education. She previously served on the David W. Preus Leadership Award Sponsoring Council as well as on the boards of the Greater Minneapolis Area United Way, Minneapolis Urban League, the Minnesota Orchestral Association, and the Minnesota Women’s Economic Roundtable.

      Allan L. Schuman has been a Director of Xcel Energy Inc. since 1976. He is Chairman of the Board, Chief Executive Officer, President and a director of Ecolab Inc. in St. Paul, Minnesota. Ecolab develops and manufactures cleaning, sanitizing, and maintenance products for the hospitality, institutional, and industrial markets. Mr. Schuman joined Ecolab in 1957, and became Vice President, Institutional Marketing and National Accounts in 1972. In 1985 he was named Executive Vice President and in 1988, President, Ecolab Services Group. He was promoted to President and Chief Operating Officer of Ecolab in August 1992 and named President and Chief Executive Officer in March 1995. Mr. Schuman serves as a director of the Soap and Detergent Association, National Association of Manufacturers, American Marketing Association Services Council, Hazelden Foundation, the Ordway Music Theatre and the Guthrie Theatre, and chairs the Capital City Partnership. He is also a Trustee of the Culinary Institute of America and of the National education foundation of the National Restaurant Association, and a member of the board of overseers of Carlson School of Management at the University of Minnesota.

      Rodney E. Slifer has been a Director of Xcel Energy Inc. since 2000. He is a Partner in Slifer, Smith & Frampton, a diversified real estate company in Vail, Colorado. He has held this position since 1989. Mr. Slifer served on the NCE Board from 1997 until the completion of our merger and on the PSCo board since 1988. In addition, he currently is a director of Alpine Banks of Colorado, a position he has held since 1983. He is Vice President and a board member of the Vail Valley Foundation and a director of Colorado Open Lands. Mr. Slifer also is a member of the Board of Governors of the University of Colorado Real Estate Center and a member of the University of Colorado Foundation Board of Directors.

      W. Thomas Stephens has been a Director of Xcel Energy Inc. since 2000. He retired in 1999 as President and CEO of MacMillan Bloedel Ltd., a forest products and building materials company with headquarters in Vancouver, British Columbia. He served as Chairman, President and CEO of Johns Manville, an international manufacturing and natural resources company located in Denver, Colorado, from 1986 until August 1996. Mr. Stephens served on the NCE board of directors from 1997 until the completion of our Merger and on the PSCo board since 1989. He is on the boards of directors of TransCanada Pipeline, Norske Canada Ltd., Qwest Communications International Inc., Mail-Well Inc., and The Putnam Funds. He received his B.S. and M.S. degrees in industrial engineering from the University of Arkansas.

Board Structure and Compensation

      Our Board currently consists of twelve directors. Our Board was comprised of fourteen directors during 2001 until August 18, 2001 when James J. Howard, former Chairman of the Board, resigned. Giannantonio Ferrari, former Director of the Company, also resigned from the Board on November 8, 2001. No persons were appointed to replace Messrs. Howard and Ferrari to the Board.

      The Board had the following four Committees during 2002: Audit, Finance, Compensation and Nominating, and Operations and Nuclear. The membership during 2002 and the function of each Committee are described below. During 2002, the Board met 21 times and various Committees of the Board met as indicated below. Each director attended at least 75% of the meetings of the Board and Committees on which such director served during 2002.

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      Audit Committee

      Members: Roger R. Hemminghaus (Chair), Albert F. Moreno, Margaret R. Preska, Allan L. Schuman, and Rodney E. Slifer.

      Number of meetings in 2002: 7.

      Function:

  •  Oversees our financial reporting process, compliance with legal and regulatory requirements, and the independence and performance of our independent and internal auditors;
 
  •  Reviews the audited financial statements with management;
 
  •  Recommends the appointment of independent auditors;
 
  •  Reviews with the independent auditors the scope and the planning of the annual audit; and
 
  •  Reviews finding and recommendations of the independent auditors and management’s response to the recommendations of the independent auditors.

      The Audit Committee operates under a written Charter adopted by our Board of Directors.

 
      Finance Committee

      Members: Douglas W. Leatherdale (Chair), C. Coney Burgess, A. Barry Hirschfeld, Margaret R. Preska, Allan L. Schuman, and W. Thomas Stephens.

      Number of meetings in 2002: 4.

  •  Function:
 
  •  Oversees corporate capital structure and budgets;
 
  •  Oversees financial plans and dividend policies;
 
  •  Recommends dividends;
 
  •  Oversees insurance coverage and banking relationships;
 
  •  Oversees investor relations;
 
  •  Oversees risk management; and
 
  •  Oversees dedicated funds, including ERISA plans and nuclear decommissioning fund.
 
      Compensation and Nominating Committee

      Members: W. Thomas Stephens (Chair), C. Coney Burgess, David A. Christensen, A. Barry Hirschfeld, Douglas W. Leatherdale, and A. Patricia Sampson.

      Number of meetings in 2002: 4.

      Function:

  •  Determines Board organization, selects director nominees and sets director compensation;
 
  •  Reviews senior management incentive structure and compensation; and
 
  •  Reviews corporate structure and policies with respect to human resource policies, corporate ethics, and long range planning and strategy.

      Any shareholder may make recommendations to the Compensation and Nominating Committee for Membership on the Board by sending a written statement of the qualifications of the recommended individual to the Secretary of the Company at 800 Nicollet Mall, Suite 3000, Minneapolis, Minnesota 55402-2023.

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      Operations and Nuclear Committee

      Members: David A Christensen (Chair), Roger R. Hemminghaus, Albert G. Moreno, A. Patricia Sampson and Rodney E. Slifer.

      Number of meetings in 2002: 3.

      Function:

  •  Oversees all generation requirements (nuclear, hydro, coal, alternative);
 
  •  Oversees bulk power supply planning;
 
  •  Oversees major power supply facility construction and budgets;
 
  •  Monitors nuclear plant safety, reliability and operation; and
 
  •  Oversees environmental policy.

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