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U.S. Securities and Exchange Commission


(Release No. 35-27734; 70-10072)

Xcel Energy Inc.

Order Authorizing Sale of Interests in Gas Utility Company

October 3, 2003

Xcel Energy Inc., Minneapolis, Minnesota, a registered holding company ("Declarant" or "Xcel Energy"), has filed with the Securities and Exchange Commission ("Commission") a declaration, as amended ("Declaration"), under section 12(d) of the Public Utility Holding Company Act of 1935, as amended ("Act") and rules 44 and 54 under the Act. The Commission issued a notice of the filing of the Declaration on August 22, 2003 (Holding Co. Act Release No. 27716).

Declarant requests authority to sell its ownership interest in Black Mountain Gas Company, a Minnesota corporation and gas utility company ("Black Mountain") to a non-affiliated third party, Southwest Gas Corporation ("Southwest").

Xcel Energy directly owns six utility subsidiaries (the "Utility Subsidiaries") that serve electric and/or natural gas customers in twelve states. These six utility subsidiaries are Black Mountain; Northern States Power Company (a Minnesota corporation); Northern States Power Company (a Wisconsin corporation); Public Service Company of Colorado; Southwestern Public Service Co.; and Cheyenne Light, Fuel and Power Company. Their service territories include portions of Arizona, Colorado, Kansas, Michigan, Minnesota, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, Wisconsin and Wyoming. Xcel Energy also owns or has an interest in a number of nonregulated businesses, the largest of which is NRG Energy Inc. ("NRG"), an independent power producer.1

Black Mountain operates in Arizona and is certified by the Arizona Corporation Commission ("ACC") to provide natural gas and propane service within the State of Arizona. Black Mountain currently provides service to approximately 8,500 gas customers and about 2,500 propane customers and had revenues of approximately $9.5 million in 2002.

Southwest is a natural gas service company serving over 1.4 million households, businesses and industries in Arizona, Nevada and portions of California. Southwest is certified to provide natural gas service in Arizona.

On May 24, 2002, Xcel and Southwest entered into a Stock Purchase Agreement under which Xcel Energy agreed to sell and transfer to Southwest, and Southwest agreed to purchase from Xcel Energy, all of the issued and outstanding common stock of Black Mountain (the "Stock"). In consideration for the sale and transfer of the Stock, Southwest agreed to pay to Xcel Energy $18,700,000 in cash plus an additional amount of up to $6,500,000 necessary to redeem, retire or defease certain long-term debt of Black Mountain at or prior to closing ("Consideration"). Declarant maintains that the Consideration was determined through arms-length negotiations between representatives of Xcel Energy and Southwest and that the Consideration constitutes fair and adequate compensation for the Stock. Declarant states that in order to verify the fairness and adequacy of Consideration, Xcel Energy considered, among other factors, the discounted cash flow of Black Mountain and examined comparable transactions, including Xcel Energy's acquisition of Black Mountain. The Consideration to be received by Xcel Energy will be contributed to Xcel Energy's general funds and used for general corporate purposes.

Xcel Energy states that, for the purposes of rule 54, that it is in compliance with all requirements of rule 53(a), except clause (1). In an order issued on March 7, 2002, the Commission authorized Xcel Energy to invest up to 100% of its consolidated retained earnings, as defined in rule 53(a)(1), in exempt wholesale generators ("EWGs") and ("FUCOs"), as defined in sections 32 and 33 of the Act, respectively, and found that such an investment would not have either of the adverse effects set forth in rule 53(c). As of June 30 2002, Xcel Energy's "aggregate investment," as defined in rule 53(a)(1) was $2,406 million.2 Xcel Energy's consolidated retained earnings, as defined in rule 53, at June 30, 2002, was $2,521.0 million.3 As a result of significant impairment charges recorded by NRG in 2002 and during the first six months of 2003, the consolidated retained earnings of Xcel Energy have been reduced by more than $2.7 billion.

Xcel Energy states that it has complied and will comply with, the record-keeping requirements of rule 53(a)(2), the limitation under rule 53(a)(3) on the use of the Xcel Energy system's domestic public-utility company personnel to render services to EWGs and FUCOs, and the requirements of rule 53(a)(4) concerning the submission of copies of certain filings under the Act to retail regulatory commissions.

The circumstances described in rule 53(b)(1) have occurred. NRG filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code on May 14, 2003. The book value of NRG's assets exceeds 10 percent of the consolidated retained earnings of Xcel Energy. The circumstances described in rule 53(b)(2) have also occurred. Xcel Energy's retained earnings declined by more than $2.6 billion as of December 31, 2002, from impairment charges recorded at NRG and declined an additional $143.6 million during the six months ending June 30, 2003, from additional impairment charges and other losses at NRG. The average consolidated retained earnings of Xcel Energy for the four quarterly periods ending June 30, 2003, was approximately $537,000, or a decrease of 99.9% from the average of Xcel Energy's consolidated retained earnings for the four quarterly periods ending June 30, 2002, of $2.5 billion. In addition, Xcel Energy's "aggregate investment" in EWGs and FUCOs as of June 30, 2003 was approximately $2.366 billion and exceeded 2% of the total capital invested in utility operations.

The circumstances described in rule 53(b)(3) have also occurred. For calendar year 2002 Xcel Energy reported operating losses attributable to its investment in NRG, which in turn has investments in EWGs and FUCOs, which exceed an amount equal to 5% of consolidated retained earnings. NRG reported an operating loss (after tax) of approximately $3.5 billion for 2002. This amount is over 250% of the consolidated retained earnings (as defined in Rule 53(a)(1)) of Xcel Energy for the four quarters ended December 31, 2002 of $1,297.5 million.

Xcel Energy states that the requested authorization will not have a substantial adverse impact upon the financial integrity of Xcel Energy and its remaining Utility Subsidiaries. Black Mountain is neither an EWG nor a FUCO and the proceeds from the sale of Black Mountain will not be used by Xcel Energy for investments in EWGs or FUCOs. Furthermore, the sale of Black Mountain has no effect on the capitalization and earnings of Xcel Energy's EWGs and FUCOs and any effect on the capitalization and earnings of Xcel Energy is insignificant.

Declarant further states that other Utility Subsidiaries and their customers will not be adversely impacted by the requested relief. The ratio of common equity to total capitalization of each of the public utility subsidiaries will continue to be maintained at not less than 30%. Furthermore, the common equity ratios of the remaining Utility Subsidiaries will not be effected by the proposed transaction. In addition, each of the public utilities is subject to regulation by state commissions that are able to protect utility customers within their respective states.

Declarant further states that the action requested in this Declaration would not, by itself, or even considered in conjunction with the effect of the capitalization and earnings of Xcel Energy's EWGs and FUCOs, have a material adverse effect on the financial integrity of the Xcel Energy system, or an adverse impact on Xcel Energy's public utility subsidiaries, their customers, or the ability of State commissions to protect such public-utility customers.

Fees and expenses to be incurred in connection with the proposed transaction are expected not to exceed $75,000. On July 25, 2003, the ACC approved the proposed transaction. Declarant maintains that no other state or federal commission, other than this Commission, has jurisdiction over the proposed transactions.

Due notice of the filing of the Declaration has been given in the manner prescribed by rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that the applicable standards of the Act are satisfied and that no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and rules under the Act, that the Declaration be permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Margaret H. McFarland
Deputy Secretary


Modified: 10/07/2003