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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the Fiscal Year Ended Dec. 31, 2000 Commission File Number 1-3034

OR

Xcel Energy Inc.

(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code (612) 330-5500

Northern States Power Company
414 Nicollet Mall, Minneapolis, Minnesota 55401

Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of Act:  None

   Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes /x/  No / /

   Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

   As of March 15, 2001, the aggregate market value of the voting common stock held by non-affiliates of the Registrant was $9,605,563,141 and there were 342,441,953 shares of common stock outstanding, $2.50 par value.

DOCUMENTS INCORPORATED BY REFERENCE

   The Registrant's Definitive Proxy Statement for its Annual Meeting of Shareholders, to be held April 25, 2001, are incorporated by reference into Part III of this Form 10-K.

Index

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ITEM 1—BUSINESS

COMPANY OVERVIEW

    On Aug. 18, 2000, New Century Energies, Inc. (NCE) and Northern States Power Co. (NSP) merged and formed Xcel Energy Inc. Xcel Energy, a Minnesota corporation, is a registered holding company under the Public Utility Holding Company Act (PUHCA). Each share of NCE common stock was exchanged for 1.55 shares of Xcel Energy common stock. NSP shares became Xcel Energy shares on a one-for-one basis. The merger was structured as a tax-free, stock-for-stock exchange for shareholders of both companies (except for fractional shares), and accounted for as a pooling-of-interests. As part of the merger, NSP transferred its existing utility operations that were being conducted directly by NSP at the parent company level to a newly formed subsidiary of Xcel Energy named Northern States Power Company.

    Xcel Energy directly owns six utility subsidiaries that serve electric and natural gas customers in 12 states. These six utility subsidiaries are Northern States Power Company, a Minnesota corporation (NSP-Minnesota), Northern States Power Company, a Wisconsin corporation (NSP-Wisconsin), Public Service Company of Colorado (PSCo), Southwestern Public Service Company (SPS), Black Mountain Gas Company (BMG) and Cheyenne Light, Fuel and Power Company (Cheyenne). Their service territories include portions of Arizona, Colorado, Kansas, Michigan, Minnesota, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, Wisconsin and Wyoming. Xcel Energy's regulated businesses also include Viking Gas Transmission Company and WestGas InterState Inc. (WGI), both interstate natural gas pipeline companies.

    Xcel Energy also owns or has an interest in a number of nonregulated businesses, the largest of which is NRG Energy, Inc., a publicly traded independent power producer. At Dec. 31, 2000, Xcel Energy indirectly owned 82 percent of NRG. Xcel Energy owned 100 percent of NRG until the second quarter of 2000, when NRG completed its initial public offering. During March 2001, NRG issued an additional 18.4 million shares of common stock, which caused Xcel Energy's ownership interest in NRG to decline to approximately 75 percent. For more information, see NRG Initial Public Offering discussed under Liquidity and Capital Resources in Management's Discussion and Analysis under Item 7.

    In addition to NRG, Xcel Energy's nonregulated subsidiaries include Seren Innovations, Inc. (broadband telecommunications services), e prime, inc. (natural gas marketing and trading), Planergy International Inc. (energy management, consulting and demand-side management services) and Eloigne Company (acquisition of rental housing projects that qualify for low-income housing tax credits). Xcel Energy also reports in its nonregulated activities its 50-percent stake in Yorkshire Power, a regional electricity company in the United Kingdom. Subsequent to year-end, Xcel Energy has agreed to sell a substantial portion of this investment. For more information, see Note 11 to the Financial Statements under Item 8.

    Xcel Energy owns the following additional direct subsidiaries, some of which are intermediate holding companies with additional subsidiaries: Xcel Energy Wholesale Group, Inc., Xcel Energy Markets Holdings Inc., Xcel Energy International Inc., Xcel Energy Ventures Inc., Xcel Energy Retail Holdings Inc., Xcel Energy Communications Group Inc., Xcel Energy WYCO Inc., Xcel Energy O&M Services Inc. and Xcel Energy Services Inc. Xcel Energy and its subsidiaries collectively are referred to as Xcel Energy.

    Xcel Energy was incorporated under the laws of Minnesota in 1909. Its executive offices are located at 800 Nicollet Mall, Minneapolis, Minnesota 55401.

    For information on the nonregulated subsidiaries of Xcel Energy, see Nonregulated Subsidiaries under Item 1. For information regarding Xcel Energy's segments and foreign revenues, see Note 18 to the Financial Statements under Item 8.

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NSP-Minnesota

    NSP-Minnesota was incorporated in 2000 under the laws of Minnesota. NSP-Minnesota is an operating utility engaged in the generation, transmission and distribution of electricity and the transportation, storage and distribution of natural gas. NSP-Minnesota provides generation, transmission and distribution of electricity in Minnesota, North Dakota and South Dakota. NSP-Minnesota also purchases, distributes and sells natural gas to retail customers and transports customer-owned gas in Minnesota, North Dakota and South Dakota. NSP-Minnesota provides retail electric utility service to approximately 1.3 million customers and gas utility service to approximately 0.4 million customers.

    NSP-Minnesota owns the following direct subsidiaries: United Power and Land Co., which holds real estate; First Midwest Auto Park Inc., which owns and operates a parking ramp; NSP Nuclear Corp., which holds NSP-Minnesota's interest in the Nuclear Management Company; and NSP Financing I, a special purpose business trust.

NSP-Wisconsin

    NSP-Wisconsin was incorporated in 1901 under the laws of Wisconsin. NSP-Wisconsin is an operating utility engaged in the generation, transmission and distribution of electricity to approximately 225,000 retail customers in northwestern Wisconsin and in the western portion of the Upper Peninsula of Michigan. NSP-Wisconsin is also engaged in the distribution and sale of natural gas in the same service territory to approximately 90,000 customers in Wisconsin and Michigan.

    NSP-Wisconsin owns the following direct subsidiaries: Chippewa and Flambeau Improvement Company, which operates hydro reserves; Clearwater Investments Inc., which owns interests in affordable housing; and NSP Lands, Inc., which holds real estate.

PSCo

    PSCo was incorporated in 1924 under the laws of Colorado. PSCo is an operating utility engaged principally in the generation, purchase, transmission, distribution and sale of electricity and the purchase, transportation, distribution and sale of natural gas. PSCo serves approximately 1.2 million electric customers and approximately 1.1 million gas customers in Colorado.

    PSCo owns the following direct subsidiaries: 1480 Welton, Inc., which owns certain real estate interests of PSCo; P.S.R. Investments, Inc., which owns and manages permanent life insurance policies on certain employees; PS Colorado Credit Corporation, a finance company that finances certain of PSCo's current assets; and Green and Clear Lakes Company, which owns water rights. PSCo also holds a controlling interest in several other relatively small ditch and water companies whose capital requirements are not significant.

SPS

    SPS was incorporated in 1921 under the laws of New Mexico. SPS is an operating utility engaged primarily in the generation, transmission, distribution and sale of electricity. SPS serves approximately 390,000 electric customers in portions of Texas, New Mexico, Oklahoma and Kansas. The wholesale customers served by SPS comprise approximately 34 percent of the total kilowatt-hour sales.

Other Regulated Subsidiaries

    Cheyenne was incorporated in 1900 under the laws of Wyoming. Cheyenne is an operating utility engaged in the purchase, transmission, distribution and sale of electricity and natural gas primarily serving approximately 36,000 electric customers and 29,000 natural gas customers in and around Cheyenne, Wyo.

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    BMG was incorporated in 1999 under the laws of Minnesota. BMG is a natural gas and propane distribution company, located in Cave Creek, Ariz., with approximately 6,500 customers.

    Viking Gas, acquired in 1993, owns and operates an interstate natural gas pipeline serving portions of Minnesota, Wisconsin and North Dakota. Viking operates exclusively as a transporter of natural gas for third-party shippers under authority granted by the Federal Energy Regulatory Commission (FERC).

    WGI was incorporated in 1990 under the laws of Colorado. WGI is a natural gas transmission company engaged in transporting gas from Chalk Bluffs, Colo., to Cheyenne, Wyo.

UTILITY REGULATION

Ratemaking Principles

    The Xcel Energy system is subject to the jurisdiction of the Securities and Exchange Commission (SEC) under PUHCA. The rules and regulations under PUHCA generally limit the operations of a registered holding company to a single integrated public utility system, plus additional energy-related businesses. PUHCA rules require that transactions between affiliated companies in a registered holding company system be performed at cost, with limited exceptions.

    The FERC has jurisdiction over wholesale rates for electric transmission service and electric energy sold in interstate commerce, hydro facility licensing, the wholesale gas transportation rates of Viking, the siting and construction of facilities by Viking and certain other activities of Xcel Energy's utility subsidiaries. Federal, state and local agencies also have jurisdiction over many of Xcel Energy's other activities.

    Xcel Energy is unable to predict the impact on its operating results from the future regulatory activities of any of these agencies. Xcel Energy strives to comply with all rules and regulations issued by the various agencies.

NSP-Minnesota

    Retail rates, services and other aspects of NSP-Minnesota's operations are subject to the jurisdiction of the Minnesota Public Utilities Commission (MPUC), the North Dakota Public Service Commission (NDPSC) and the South Dakota Public Utilities Commission (SDPUC) within their respective states. The MPUC also possesses regulatory authority over aspects of NSP-Minnesota's financial activities, including security issuances, certain property transfers, mergers with other utilities and transactions between NSP-Minnesota and its affiliates. In addition, the MPUC reviews and approves NSP-Minnesota's electric resource plans and gas supply plans for meeting customers' future energy needs.

    The Minnesota Environmental Quality Board (MEQB) is empowered to select and designate sites for new power plants with a capacity of 50 megawatts or more and wind energy conversion plants with a capacity of five megawatts or more. It also designates routes for electric transmission lines with a capacity of 200 kilovolts (kv) or more. No power plant or transmission line may be constructed in Minnesota except on a site or route designated by the MEQB.

NSP-Wisconsin

    NSP-Wisconsin is subject to regulation of similar scope by the Public Service Commission of Wisconsin (PSCW) and the Michigan Public Service Commission (MPSC). In addition, each of the state commissions certifies the need for new generating plants and electric and retail gas transmission lines of designated capacities to be located within the respective states before the facilities may be sited and built.

    The PSCW has a biennial filing requirement. By June of each odd-numbered year, NSP-Wisconsin must submit rate filings for calendar years beginning the following January. The filing procedure and

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review generally allow the PSCW sufficient time to issue an order effective with the start of the test year.

PSCo

    PSCo is subject to the jurisdiction of the Colorado Public Utility Commission (CPUC) with respect to its facilities, rates, accounts, services and issuance of securities. PSCo is subject to the jurisdiction of the FERC with respect to its wholesale electric operations and accounting practices and policies. PSCo has received authorization from the FERC to act as a power marketer. Also, PSCo holds a FERC certificate that allows it to transport natural gas in interstate commerce without PSCo becoming subject to full FERC jurisdiction.

SPS

    The Public Utility Commission of Texas (PUCT) has jurisdiction over SPS' Texas operations as an electric utility and original and appellate jurisdiction over its retail rates and services. The New Mexico Public Regulatory Commission (NMPRC) has jurisdiction over the issuance of securities and accounting. The NMPRC, the Oklahoma Corporation Commission and the Kansas Corporation Commission have jurisdiction with respect to retail rates and services in their respective states. The FERC has jurisdiction over SPS' rates for sales for resale and the transmission of electricity in interstate commerce.

Cheyenne

    Cheyenne is subject to the jurisdiction of the Wyoming Public Service Commission (WPSC) with respect to its facilities, rates, accounts, services and issuance of securities. All electric demand and purchased power costs are recoverable through an energy adjustment clause. Differences in costs incurred from costs recovered in rates are deferred and recovered through prospective adjustments to rates. However, rate changes for cost recovery require WPSC approval before going into effect. Historically, customers have been provided carrying costs on overcollected costs, but Cheyenne has not been allowed to collect carrying charges for under recovered costs.

Other

    Viking and WGI are subject to FERC jurisdiction and each holds a FERC certificate, which allows them to transport natural gas in interstate commerce pursuant to the provisions of the Natural Gas Act.. BMG is subject to the Arizona Corporation Commission (ACC).

Fuel, Purchased Gas and Resource Adjustment Clauses

NSP-Minnesota

    NSP-Minnesota's retail electric rate schedules provide for adjustments to billings and revenues for changes in the cost of fuel and purchased energy. NSP-Minnesota is permitted to recover option costs through a fuel clause adjustment, a mechanism that allows NSP-Minnesota to bill customers for the actual cost of fuel used to generate electricity at its plants and energy purchased from other suppliers. Changes in capacity charges are not recovered through the fuel clause. NSP-Minnesota's electric wholesale customers do not have a fuel clause provision in their contracts. Instead, the contracts have an escalation factor.

    Gas rate schedules for NSP-Minnesota include a purchased gas adjustment (PGA) clause that provides for rate adjustments for changes in the current unit cost of purchased gas compared with the last costs included in rates. The PGA factors in Minnesota are calculated for the current month based on the estimated purchased gas costs for that month.

    By September of each year, NSP-Minnesota is required to submit to the MPUC an annual report of the PGA factors used to bill each customer class by month for the previous year commencing July 1

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and ending June 30. The report verifies whether the utility is calculating the adjustments properly and implementing them in a timely manner. In addition, the MPUC reviews procurement policies, cost-minimizing efforts, rule variances, retail transportation gas volumes, independent auditors' reports and the impact of market forces on gas costs for the coming year. The MPUC has the authority to disallow certain costs if it finds the utility was not prudent in its gas procurement activities.

    NSP-Minnesota is required by Minnesota law to spend a minimum of 2 percent of Minnesota electric revenue and 0.5 percent of Minnesota gas revenue on conservation improvement programs (CIP). These costs are recovered through an annual recovery mechanism for electric and gas conservation and energy management program expenditures. NSP-Minnesota is required to request a new cost recovery level annually.

NSP-Wisconsin

    NSP-Wisconsin does not have an automatic electric fuel adjustment clause for Wisconsin retail customers. Instead, it has a procedure that compares actual monthly and anticipated annual fuel costs with those costs that were included in the latest retail electric rates. If the comparison results in a difference outside a prescribed range, the PSCW may hold hearings limited to fuel costs and revise rates. Any revised rates would be effective until the next rate case. The adjustment approved is calculated on an annual basis, but applied prospectively. Most of NSP-Wisconsin's wholesale electric rate schedules provide for adjustments to billings and revenues for changes in the cost of fuel and purchased energy.

    During 1999, the PSCW approved a new gas cost recovery mechanism to replace the PGA. The financial impact of the gas cost recovery mechanism is substantially the same as with the former PGA.

    NSP-Wisconsin's gas and retail electric rate schedules for Michigan customers include gas cost recovery factors and power supply cost recovery factors, which are based on 12-month projections. After each 12-month period, a reconciliation is submitted whereby over-collections are refunded and any under-collections are collected from the customers.

PSCo

    PSCo has five adjustment clauses: the incentive cost adjustment (ICA), the gas cost adjustment (GCA), the steam cost adjustment (SCA), the demand side management cost adjustment (DSMCA) and the qualifying facilities capacity cost adjustment (QFCCA). These adjustment clauses allow certain costs to be passed through to retail customers. PSCo is required to file applications with the CPUC for approval of adjustment mechanisms in advance of the proposed effective dates. The applications must be acted upon before becoming effective.

    The ICA allows for an equal sharing between customers and shareholders of certain fuel and energy cost increases. PSCo, through its GCA, is allowed to recover its actual costs of purchased gas. The GCA rate is revised annually in October, and otherwise as needed, to coincide with changes in purchased gas costs. Purchased gas costs and revenues received to recover such gas costs are compared on a monthly basis and differences are deferred. PSCo, through its SCA, is allowed to recover the difference between its actual cost of fuel and the amount of these costs recovered under its base rates. The SCA rate is revised annually in January, and otherwise as needed, to coincide with changes in fuel costs. The QFCCA provides for recovery of purchased capacity costs from certain QF projects not otherwise reflected in base electric rates.

    The DSMCA clause currently permits PSCo to recover DSM costs over five years while non-labor incremental expenses and carrying costs associated with deferred DSM costs are recovered on an annual basis. PSCo also has implemented a low-income energy assistance program. The costs of this energy conservation and weatherization program for low-income customers are recovered through the DSMCA.

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SPS

    Fuel and purchased power costs are recoverable in Texas through a fixed fuel factor, which is part of SPS' rates. If it appears that SPS will materially over-recover or under-recover these costs, the factor may be revised upon application by SPS or action by the PUCT. The rule requires refunding and surcharging under/over-recovery amounts, including interest, when they exceed 4 percent of the utility's annual fuel and purchased power costs, as allowed by the PUCT, if this condition is expected to continue. PUCT regulations require periodic examination of SPS fuel and purchased power costs, the efficiency of the use of such fuel and purchased power, fuel acquisition and management policies and purchase power commitments. Under the PUCT's regulations, SPS is required to file an application for the PUCT to retrospectively review at least every three years the operations of SPS' electric generation and fuel management activities.

    The NMPRC regulations provide for a fuel and purchased power cost adjustment clause and a fixed annual fuel factor for SPS' New Mexico retail jurisdiction. SPS files monthly and annual reports of its fuel and purchased power costs with the NMPRC, which include the current over/under fuel collection calculation, plus interest. In addition, SPS revises its fixed fuel factor annually to recover projected fuel and purchased power costs as well as any over/under cost balance for the current year. SPS is required to petition for a change in the fixed fuel factor if the over/under recovery balance reaches $5 million.

Regulatory Matters

NSP-Minnesota

    Conservation Recovery—NSP-Minnesota had a 4.1 percent conservation rate surcharge in place since 1998, pending resolution of the conservation incentive recovery issue. On July 31, 2000, the MPUC approved NSP-Minnesota's request to prospectively reduce the surcharge level to 0.68 percent (consistent with current costs to be recovered) and to refund cumulative overcollections of approximately $24 million. The refund occurred during December 2000. Although cash flows were reduced, NSP-Minnesota did not have any earnings impact from these actions due to accruals previously recorded. For more information, see Management's Discussion and Analysis under Item 7.

    Fuel Clause Adjustment—In June 2000, the MPUC approved a change under which bills received by NSP-Minnesota's electricity customers will more accurately reflect energy costs on a timely basis. Previously, the adjustment reflected prior period costs, and it would take approximately three months for customer bills to reflect higher, or lower, fuel costs incurred by NSP-Minnesota. Under the new method, NSP-Minnesota bases the customer billing adjustment on projected energy costs for the current month, and corrects, in a subsequent month, any differences between projected costs and actual costs incurred. This improved matching between costs and usage should encourage customers to take appropriate steps to reduce energy use during peak periods—when costs are at their highest—while giving appropriate price signals when costs are lower during off-peak periods. NSP-Minnesota implemented the revised fuel clause adjustment with July 2000 billings.

    Energy Cost Recovery—In April 2000, the Minnesota Office of Attorney General (OAG) filed a petition with the MPUC asking the MPUC to initiate an investigation of NSP-Minnesota's fuel and purchased energy cost recoveries under the FCA provisions of NSP's tariffs. The OAG alleged NSP-Minnesota could be improperly diverting low-cost NSP-Minnesota generation supplies to the wholesale market to increase profits, while recovering higher-cost energy purchases through the FCA. NSP-Minnesota contends that it has followed the appropriate FCA rules and regulations. In July 2000, the MPUC issued an order in which it indicated that the record before the MPUC did not reflect any specific allegations of wrongdoing. However, the MPUC instructed NSP-Minnesota and the OAG to resolve any concerns and file a report with the MPUC. The report is pending.

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    North Dakota Rate Case—In October 2000, NSP-Minnesota filed a request with the NDPSC to increase natural gas rates by approximately 3.3 percent, or $1.4 million, annually. Evidentiary hearings are scheduled for April 2001 with an order likely during the second quarter of 2001.

NSP-Wisconsin

    Temporary Fuel Cost Surcharge—In May 2000, the PSCW issued an order granting a fuel surcharge to increase electric rates to recover higher fuel costs. The increase was primarily the result of higher purchased power costs than were anticipated in base rates. The surcharge factor increased revenues by approximately $6.4 million in 2000 and represented an average increase for all customer classes of approximately 2 percent. The surcharge factor is expected to be effective through Dec. 31, 2001.

PSCo

    Gas Rate Case—In July 2000, PSCo filed a retail rate case with the CPUC requesting an annual increase in its gas revenues of approximately $40 million. The request for a rate increase reflects revenues for additional plant investment, a 12.5-percent return on equity, new depreciation rates and recovery of the dismantlement costs associated with the Leyden Gas Storage facility. In February 2001, the CPUC granted an increase in gas revenues of $14.2 million and authorized an 11.25-percent return on equity. The CPUC did not grant the new depreciation rates proposed by PSCo, but rather granted new depreciation rates proposed by the CPUC staff. The CPUC denied recovery of the dismantlement costs associated with the Leyden Gas Storage facility in this case and recommended PSCo request recovery in a later case.

SPS

    Fuel Recovery—At least every three years, SPS is required to file an application for the PUCT to retrospectively review the operations of a utility's electricity generation and fuel management activities. In June 2000, SPS filed an application for the PUCT to retrospectively review the operations of the utility's electricity generation and fuel management activities. In this application, SPS filed its reconciliation for generation and fuel management activities totaling approximately $419 million, for the period from January 1998 through December 1999. SPS expects to be granted recovery of these costs. Final approval is pending.

    SPS filed an application in July 2000 seeking to increase its fixed fuel factors as a result of recent increases in natural gas costs. In August 2000, SPS filed a second application seeking authority to surcharge approximately $26 million in fuel under-recoveries and related interest accrued through the June 2000 billing cycle over the eight months ending May 2001. In August 2000, the PUCT consolidated these two filings into one docket. SPS reached a unanimous stipulation with all parties to the case resolving all outstanding issues. This stipulation was approved by the PUCT in September 2000, which allowed the new fuel factors and surcharge factors to become effective in the October 2000 billing cycle.

    In October 2000, SPS filed an unopposed motion with the NMPRC, seeking to change the date for the implementation of its next fixed annual fuel factor. SPS was approximately $12.8 million under-collected in fuel and purchased power costs through August 2000 and projected that these under-collections would continue based on recent increases in natural gas costs. In October 2000, the NMPRC approved SPS' revised fixed annual fuel factor to be effective in the November 2000 billing cycle.

    In November 2000, SPS filed an application with the PUCT seeking authority to surcharge approximately $43 million in fuel under recoveries and related interest accrued during July 2000 through September 2000. SPS reached a unanimous stipulation with all parties to the case resolving all outstanding issues. In January 2001, the PUCT approved the surcharge and required amounts be applied to customers bills over an eleven-month period starting February 2001.

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Cheyenne

    On March 15, 2001, Cheyenne filed an application with the WPSC requesting approval to pass through to electric customers an increase in the cost of electricity and transmission of $36 million for the remainder of 2001. The increase is requested to be effective April 15, 2001. The application follows a dramatic increase in Cheyenne's contractual electric purchase costs. Normally, the full cost of these increases are passed through to customers on a dollar-for-dollar basis. However, as part of its application, Cheyenne has requested approval to defer recovery of approximately $61 million of increased power costs for a period of five years. The WPSC has opened an investigation into the proposed rate increased with hearings scheduled to begin April 2001. For more information on the increase in Cheyenne's purchase power costs, see Management's Discussion and Analysis under Item 7.

    For more information on regulatory matters, see Management's Discussion and Analysis under Item 7.

ELECTRIC UTILITY OPERATIONS

Competition and Industry Restructuring

    Retail competition and the unbundling of regulated energy service could have a significant financial impact on Xcel Energy and its subsidiaries, due to an impairment of assets, a loss of retail customers, lower profit margins and increased costs of capital. The total impacts of restructuring may have a significant financial impact on the financial position, results of operations and cash flows of Xcel Energy. Xcel Energy and its utility subsidiaries cannot predict when they will be subject to changes in legislation or regulation, nor can they predict the impacts of such changes on their financial position, results of operations or cash flows. Xcel Energy believes that the prices its utility subsidiaries charge for electricity and the quality and reliability of their service currently place them in a position to compete effectively in the energy market.

    Retail Business Competition—The retail electric business faces increasing competition as industrial and large commercial customers have some ability to own or operate facilities to generate their own electric energy. In addition, customers may have the option of substituting other fuels, such as natural gas for heating, cooling and manufacturing purposes, or the option of relocating their facilities to a lower cost environment. While each of Xcel Energy's utility subsidiaries face these challenges, these subsidiaries believe their rates are competitive with currently available alternatives. Xcel Energy's utility subsidiaries are taking actions to lower operating costs and are working with their customers to analyze energy efficiency, load management and cogeneration in order to better position Xcel Energy's utility subsidiaries to more effectively operate in a competitive environment.

    Wholesale Business Competition—The wholesale electric business faces increasing competition in the supply of bulk power, due to federal and state initiatives to provide open access to utility transmission systems. Under current FERC rules, utilities are required to provide wholesale open-access transmission services and to unbundle wholesale merchant and transmission operations. Xcel Energy's utility subsidiaries are operating under a joint tariff in compliance with these rules. To date, these provisions have not had a material impact on the operations of Xcel Energy's utility subsidiaries.

NSP-Minnesota

    Minnesota Restructuring—During the summer of 2000, the Commerce Commissioner, Attorney General, Senate Majority Leader and House Speaker all publicly identified the potential shortage in electric supply as a critical issue for the coming legislative session. Each of these leaders expressed hesitation about adopting a comprehensive restructuring proposal, but they acknowledged the need for reforms in our power supply regulatory system. The Minnesota Chamber of Commerce still intends to push for a comprehensive restructuring bill. Based on the recommendations made by the Department of Commerce in their report "Keeping the Lights On," it is likely that reform of utility taxation and generation and transmission siting will be two of the issues debated by the 2001 Legislature.

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    North Dakota Restructuring—In 1997, the North Dakota Legislature established an Electric Utility Committee charged with studying the impact of competition on the electric industry. The committee has six years to study the impact of competition on the electric energy industry in the state. During 2000, the committee began the study of the current tax structure on the industry. The committee was also given the responsibility for assessing the need for modifications to the Territorial Integrity Act, a law governing distribution service territories within the state. The final report presented to the legislative council made no recommendations to change the current tax structure at the present time. The committee will resume its work after the 2001 legislative session.

    In December 2000, the NDPSC approved Xcel Energy's "PLUS" Performance Based Regulation proposal, effective January 2001 for its electric operations in the state. The plan establishes performance standards for reliability, customer service, price and employee safety. The company's performance determines its allowed return on equity. The plan also includes revenue sharing and a price cap mechanism. The plan will remain in effect through 2005.

NSP-Wisconsin

    Wisconsin Restructuring—During 1999, Wisconsin state lawmakers passed "Reliability 2000" legislation, which included steps necessary to further progress toward a restructured industry, eventually including allowing retail customers to choose their electric supplier. One of the provisions of the legislation establishes a public benefits fund, to be administered by the State of Wisconsin, which will use money collected from Wisconsin utilities' customers to pay for low-income assistance, conservation programs and renewable energy and environmental research programs. NSP-Wisconsin began collecting the public benefits surcharge from its Wisconsin customers in October 2000.

    In April 1998, Wisconsin state legislators enacted a law that includes provisions that require the PSCW to order a public utility that owns transmission facilities in Wisconsin to transfer control of its transmission facilities to an independent system operator (ISO) or divest its interest in its transmission facilities to an independent transmission company (ITC) by June 2000. NSP-Minnesota and NSP-Wisconsin joined the Midwest ISO (MISO) in 1999 and filed for PSCW and FERC approval in March 2000. The MISO is not expected to be operational until November 2001. In June 2000, the PSCW issued an order that effectively waived the deadline for the state's five major utilities, including NSP-Wisconsin, to relinquish transmission system control. In October 2000, the PSCW issued an order authorizing NSP-Wisconsin's transfer of operating control of its transmission system to the MISO.

    Michigan Restructuring—In June 2000, Michigan's "Customer Choice and Electricity Reliability Act," became law. The passage of the Act means there will be customer choice for all customers in Michigan, including NSP-Wisconsin's customers in the Upper Peninsula, starting January 2002. Key elements of the law include developing distribution reliability and performance standards and environmental and fuel disclosure standards, codes of conduct, customer and employee education programs and an Upper Peninsula Market Power Study. The Act also contains a number of consumer protection provisions dealing with cramming, slamming and low-income energy assistance. NSP-Wisconsin filed its preliminary restructuring plan in October 2000 and revisions to the preliminary restructuring plan in February 2001. NSP-Wisconsin expects to file its unbundled rates by June 2001. The five-percent rate reduction and rate freeze ordered in the Act does not apply to NSP-Wisconsin or other utilities with less than 1 million customers in Michigan.

PSCo

    Colorado Restructuring—During 1998, a bill was passed in Colorado that established an advisory panel to conduct an evaluation of electric industry restructuring and customer choice. During 1999, this panel concluded that Colorado would not significantly benefit from opening its markets to retail competition.

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SPS

    New Mexico Restructuring—In April 1999, New Mexico enacted the Electric Utility Restructuring Act of 1999, which provides for customer choice. The legislation provides for recovery of no less than 50 percent of stranded costs for all utilities. Transition costs must be approved by the NMPRC prior to being recovered through a non-bypassable wires charge, which must be included in transition plan filings. SPS must separate its utility operations into at least two entities: energy generation and competitive services, and transmission and distribution utility services, either by the creation of separate affiliates that may be owned by a common holding company or by the sale of assets to one or more third parties. A regulated company, in general, is prohibited from providing unregulated services. In May 2000, the NMPRC approved:

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customer choice for residential, small commercial and educational customers by January 2002;



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customer choice for commercial and industrial customers by July 2002; and



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completion of SPS corporate separation by August 2001.

    The NMPRC has reopened its electric restructuring rulemakings to consider the impacts on New Mexico electricity markets arising from the volatile California electricity market conditions. In addition, in February 2001, the New Mexico Senate approved a bill that would delay the implementation of restructuring and retail choice until 2007. The House has yet to act on the proposal to delay. We cannot predict the changes that may result from reconsideration of the restructuring legislation or the NMPRC's reconsideration of its regulations as a result of the continuing and significant conditions in the California markets.

    Texas Restructuring—In June 1999, an electric utility restructuring act (SB-7) was passed in Texas, which provides for the implementation of retail competition for most areas of the state, including SPS' service area, beginning January 2002. The PUCT can delay the date for full retail competition if a power region is unable to offer fair competition and reliable service during the 2001 pilot projects. The legislation requires:

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a rate freeze for all customers until January 2002;



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an annual earnings test through 2001;



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a 6-percent rate reduction for those residential and small commercial customers who choose not to switch suppliers at the start of retail competition;



•

the unbundling of business activities, costs and rates relating to generation, transmission and distribution, and retail services;



•

reductions in nitrogen oxide and sulfur dioxide emissions; and



•

the recovery of stranded costs.

    SB-7 requires each utility to unbundle its business activities into three separate legal entities: a power generation company, a regulated transmission and distribution company, and a retail electric provider. SB-7 limits the market share that a single generation provider can control to 20 percent of the generating capacity within a qualified power region. The establishment of a qualified power region with multiple generation suppliers is required under SB-7 in order to implement full retail competition. SPS must return any excess earnings indicated in the annual earnings tests above its last allowed rate of return for 1999, 2000 and 2001 or alternatively may direct any excess earnings to improvements in transmission and distribution facilities, to capital expenditures to improve air quality or to accelerate the amortization of regulatory assets, subject to PUCT approval.

    The Texas Legislature is currently considering amendments to SB-7 that would delay the implementation of business separation and customer choice in SPS' market area for five years.

12

    For more information on restructuring in Texas and New Mexico, see Note 12 to the Financial Statements under Item 8.

    Kansas Restructuring—In 1999, the Kansas Corporation Commission investigated the adequacy of generation capacity of Kansas utilities. The Commission ordered the staff to continually monitor the generation capacity situation in Kansas, ensure the regular filing of information by utilities to meet their responsibility to provide electric service to retail customers and consider the opening of a new docket for conservation appeals.

    Oklahoma Restructuring—The Electric Restructuring Act of 1997 was enacted in Oklahoma during 1997. This legislation directs a series of studies, which will define the orderly transition to consumer choice of electric energy supplier by July 1, 2002. The Electric Restructuring Act was modified during 1998 to clarify terms used in the original bill, as well as advance timelines for studies of the Joint Electric Utility Task Force in order to meet the stated implementation date. In 1998, this task force began the formation of groups, which will examine numerous restructuring issues. A report was issued in 1999. The 2001 legislative session will consider the task force's findings as it considers issues related to implementing customer choice in 2002.

Other

    Wyoming Restructuring—There were no electric industry restructuring legislation proposals introduced in the Legislature during 2000. No action with respect to electric restructuring is anticipated in 2001.

Capacity and Demand

    Assuming normal weather during 2001, system peak demand and the net dependable system capacity for Xcel Energy's electric utility subsidiaries are projected below. The electric production and transmission system of NSP-Minnesota and NSP-Wisconsin are managed as an integrated system (referred to as the NSP System). The system peak demand for each of the last three years and the forecast for 2001 is listed below.

    The peak demand for the NSP System, PSCo and SPS all typically occurs in the summer. The 2000 system peak demand for the NSP System occurred on Aug. 14, 2000. The 2000 system peak demand for PSCo occurred on Aug. 9, 2000. The 2000 system peak demand for SPS occurred on Aug. 3, 2000. The system peak demand for the Cheyenne system occurs in the winter.

Energy Sources

    Xcel Energy's utility subsidiaries expect to use the following resources to meet their net dependable system capacity requirements: 1) Xcel Energy's electric generating stations, 2) purchases from other utilities, independent power producers and power marketers, 3) demand-side management options and 4) phased expansion of existing generation at select power plants.

Purchased Power

    Xcel Energy's electric utility subsidiaries have contractual arrangements to purchase power from other utilities and nonregulated energy suppliers. Capacity, typically measured in kilowatts or megawatts, is the measure of the rate at which a particular generating source produces electricity.

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Energy, typically measured in kilowatt-hours or megawatt-hours, is a measure of the amount of electricity produced from a particular generating source over a period of time. Purchase power contracts typically provide for a charge for the capacity from a particular generating source and a charge for the associated energy actually purchased from such generating source.

    The utility subsidiaries of Xcel Energy also make short-term and non-firm purchases to replace generation from company owned units that is unavailable due to maintenance and unplanned outages, to provide each utility's reserve obligation, to obtain energy at a lower cost than that which could be produced by other resource options, including company owned generation and/or long-term purchase power contracts, and for various other operating requirements.

NSP System Resource Plan

    During 2000, NSP-Minnesota filed an electric resource plan for the NSP System with the MPUC for the period 2000 to 2015. The plan describes how Xcel Energy intends to meet the energy needs of the NSP System and includes an approximate schedule of the timing of resource solicitation to meet such needs. The plan contains conservation programs to reduce the NSP System's peak demand and conserve overall electricity use, an approximate schedule of power purchase solicitations to meet increasing demand and programs and plans to maintain the reliable operation of existing resources. In summary, the plan:

•

forecasts 1.6-percent annual growth in the NSP System's energy and peak demand requirements;



•

outlines NSP System's demand side management and conservation programs;



•

shows new capacity needs of up to 600 megawatts by 2005 and 4,200 megawatts by 2015;



•

describes the programs for achieving the mandated renewable energy sources of 425 megawatts of wind and 125 megawatts of biomass (NSP-Minnesota contracted for all 125 megawatts of biomass energy, but 80 megawatts of wind energy remains to be contracted); and



•

updates the status of spent nuclear fuel at the Prairie Island plant and describes how it can continue to operate through the end of its license given different alternatives for storing spent nuclear fuel.

    The resource plan proposes to satisfy the NSP System resource needs through the following energy source options:

•

continued use of existing generation facilities, including the repowering of Black Dog Units 1 and 2;



•

demand reduction of an additional 910 megawatts by 2015 through conservation and load management;



•

425 megawatts of wind energy and 125 megawatt of biomass energy under contract by 2002; and



•

acquisition of competitively priced resources through competitive bidding.

    The MPUC is currently reviewing this resource plan. Key issues are the amount of demand side management investment, nuclear spent fuel storage and its impact on future resource needs and assumptions made regarding unaccounted for operating costs of wind. NSP-Minnesota expects the MPUC to issue an order about this resource plan in mid-2001.

PSCo Resource Plan

    PSCo estimates it will purchase approximately 37 percent of its total electric system energy input for 2001. Approximately 36 percent of the total system capacity for the summer 2001 system peak demand for PSCo will be provided by purchased power.

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    To meet the demand and energy needs of the rapidly growing economy in Colorado, PSCo recently completed a solicitation process that will add approximately 1,800 megawatts of resources to its system over the 2002-2005 time period. PSCo expects that purchased capacity will continue to meet a significant portion of system requirements at least through 2016.

Purchased Transmission Services

    Xcel Energy's electric utility subsidiaries have contractual arrangements with regional transmission service providers to deliver power and energy to the subsidiaries' native load customers (retail and wholesale load obligations with terms of more than one year). Point-to-point transmission services typically include a charge for the specific amount of transmission capacity being reserved, although some agreements may base charges on the amount of metered energy delivered. Network transmission services include a charge for the metered demand at the delivery point at the time of the provider's monthly transmission system peak, usually calculated as a 12-month rolling average.

Fuel Supply and Costs

    The following tables present the delivered cost per million Btu of each category of fuel consumed for electric generation, the percentage of total fuel requirements represented by each category of fuel and the weighted average cost of all fuels during such years.

*

Includes refuse-derived fuel and wood

NSP-Minnesota and NSP-Wisconsin

    NSP-Minnesota and NSP-Wisconsin normally maintain between 20 and 40 days of coal inventory at each plant site. NSP-Minnesota and NSP-Wisconsin have long-term contracts providing for the delivery of up to 100 percent of 2001 coal requirements and up to 70 percent of their 2002 requirements. Coal delivery may be subject to short-term interruptions or reductions due to transportation problems, weather and availability of equipment.

    NSP-Minnesota and NSP-Wisconsin expect that all of the coal they burn in 2001 will have a sulfur content of less than 1 percent. NSP-Minnesota and NSP-Wisconsin have contracts for a maximum of 21.4 million tons of low-sulfur coal for the next two years. The contracts are with two Montana coal suppliers and four Wyoming suppliers. NSP-Minnesota and NSP-Wisconsin could purchase

15

approximately 5 percent of their coal requirements in the spot market in 2001 and 45 percent of coal requirements in 2002 if spot prices are more favorable than contracted prices.

    Estimated coal requirements at NSP-Minnesota's major coal-fired generating plants and the coal supply for such requirements are approximately 12 million tons per year, which is covered by contracts with expiration dates that vary between 2001 and 2003.

    NSP-Minnesota and NSP-Wisconsin's current fuel oil inventory is adequate and they have access to additional spot purchase supplies to meet anticipated 2001 requirements. Additional oil may be obtained through spot purchases.

    To operate NSP-Minnesota's nuclear generating plants, NSP-Minnesota secures contracts for uranium concentrates, uranium conversion, uranium enrichment and fuel fabrication. The contract strategy involves a portfolio of spot purchases and medium- and long-term contracts for uranium, conversion and enrichment. Current contracts are flexible and cover 100 percent of uranium, conversion and enrichment requirements through the year 2001. These contracts expire at varying times between 2001 and 2005. The overlapping nature of contract commitments will allow NSP-Minnesota to maintain 50 percent to 100 percent coverage beyond 2001. NSP-Minnesota expects sufficient uranium, conversion and enrichment to be available for the total fuel requirements of its nuclear generating plants. Fuel fabrication is 100 percent committed through 2004 and 30 percent committed through 2010.

PSCo

    PSCo's primary fuel for its steam electric generating stations is low-sulfur western coal. PSCo's coal requirements are purchased primarily under seven long-term contracts with suppliers operating in Colorado and Wyoming. During 2000, PSCo's coal requirements for existing plants were approximately 9.9 million tons, a substantial portion of which was supplied pursuant to long-term supply contracts. Coal supply inventories at Dec. 31, 2000, were approximately 33 days usage, based on the average burn rate for all of PSCo's coal-fired plants.

    PSCo operates the Hayden Station, and has partial ownership in the Craig Station, in Colorado. All of Hayden Station's generating requirements are supplied under a long-term agreement. More than 75 percent of PSCo's Craig Station coal requirements are supplied under two long-term agreements. Any remaining Craig Station requirements for PSCo are supplied via spot coal purchases.

    PSCo has secured more than 75 percent of Cameo Station's coal requirements for 2001 and 2002. Any remaining requirements may be purchased from this contract or the spot market. PSCo has contracted for long-term coal supplies to supply approximately 40 percent of the Cherokee and Valmont Stations' projected requirements in 2001. In addition, PSCo has contracted for substantially all of Cherokee's and Valmont's remaining projected 2001 coal needs.

    PSCo has long-term coal supply agreements for the Pawnee and Comanche Stations' projected requirements. Under the long-term agreements, the supplier has dedicated specific coal reserves at the contractually defined mines to meet the contract quantity obligations. In addition, PSCo has a coal supply agreement to supply approximately 80 percent of Arapahoe Station's projected requirements for 2001. Any remaining Arapahoe Station requirements will be procured via spot purchases.

    PSCo uses both firm and interruptible natural gas and standby oil in combustion turbines and certain boilers. Natural gas supplies for PSCo's power plants are procured under short- and intermediate-term contracts to provide an adequate supply of fuel.

SPS

    SPS purchases all of its coal requirements for Harrington and Tolk electric generating stations from TUCO Inc., in the form of crushed, ready-to burn coal delivered to SPS' plant bunkers. For the Harrington station the coal supply contract expires in 2016 and the coal-handling agreement expires in

16

2004. For the Tolk station, the coal supply contract expires in 2017 and the coal-handling agreement expires in 2005. At Dec. 31, 2000, coal inventories at the Harrington and Tolk sites were approximately 30 and 32 days supply, respectively. TUCO has a long-term coal supply agreement to supply approximately 55 percent of Harrington's projected requirements in 2001. TUCO has long term contracts for supply of coal in sufficient quantities to meet the primary needs of the Tolk station.

    SPS has a number of short and intermediate contracts with natural gas suppliers operating in gas fields with long life expectancies in or near its service area. SPS also utilizes firm and interruptible transportation to minimize fuel costs during volatile market conditions and to provide reliability of supply. SPS maintains sufficient gas supplies under short- and intermediate-term contracts to meet all power plant requirements; however, due to flexible contract terms, approximately 55 percent of SPS' gas requirements during 2000 were purchased under spot agreements.

Nuclear Power Operations and Waste Disposal

    NSP-Minnesota owns two nuclear generating plants: the Monticello plant and the Prairie Island plant. Monticello began operation in 1971 and is licensed to operate until 2010. Prairie Island units 1 and 2 began operation in 1973 and 1974 and are licensed to operate until 2013 and 2014, respectively.

    Nuclear power plant operation produces gaseous, liquid and solid radioactive wastes. The discharge and handling of such wastes are controlled by federal regulation. High-level radioactive waste includes used nuclear fuel. Low-level radioactive waste consists primarily of demineralizer resins, paper, protective clothing, rags, tools and equipment that has become contaminated through use in the plant.

    Federal law places responsibility on each state for disposal of its low-level radioactive waste. Low-level radioactive waste from NSP-Minnesota's Monticello and Prairie Island nuclear plants is currently disposed of at the Barnwell facility, located in South Carolina (all classes of low-level waste), and the Clive facility, located in Utah (class A low-level waste only). Chem Nuclear is the owner and operator of the Barnwell facility, which has been given authorization by South Carolina to accept low-level radioactive waste from out of state. Envirocare, Inc. operates the Clive facility. NSP-Minnesota and Barnwell currently operate under an annual contract, while NSP-Minnesota uses the Envirocare facility through various low-level waste processors. NSP-Minnesota has low-level storage capacity available on-site at Prairie Island and Monticello that would allow both plants to continue to operate until the end of their licensed life, if off-site low-level disposal facilities were not available to NSP-Minnesota.

    The federal government has the responsibility to dispose of, or permanently store, domestic spent nuclear fuel and other high-level radioactive wastes. The Nuclear Waste Policy Act requires the Department of Energy (DOE) to implement a program for nuclear waste management. This includes the siting, licensing, construction and operation of a repository for domestically produced spent nuclear fuel from civilian nuclear power reactors and other high-level radioactive wastes at a permanent storage or disposal facility by 1998. None of NSP-Minnesota's spent nuclear fuel has yet been accepted by the DOE for disposal. See Item 3—Legal Proceedings and Note 15 to the Financial Statements under Item 8 for further discussion of this matter.

    NSP-Minnesota has on-site storage for spent nuclear fuel at its Monticello and Prairie Island nuclear plants. NSP-Minnesota has expanded the used nuclear fuel storage facilities at its Monticello plant by replacement of the racks in the storage pool and by shipping 1,058 used fuel assemblies to a General Electric storage facility. The Monticello plant is expected to have sufficient pool storage capacity to the end of its current operating license in 2010.

    The Prairie Island spent fuel pool has undergone two storage rack replacements. The on-site storage pool for spent nuclear fuel at Prairie Island was nearly filled and adequate space was no longer available. In 1994, a Minnesota law was enacted authorizing NSP-Minnesota to install 17 spent fuel casks for storage of spent nuclear fuel at Prairie Island. NSP-Minnesota has determined 17 casks will allow facility operation until 2007. As of Dec. 31, 2000, 12 storage casks were loaded and stored on the

17

Prairie Island nuclear generating plant site. The Minnesota Legislature established several energy resource requirements and other commitments for NSP-Minnesota to obtain the Prairie Island temporary nuclear fuel storage facility approval. NSP-Minnesota has implemented programs to meet the legislative commitments.

    NSP-Minnesota is part of a consortium of private parties working to establish a private facility for interim storage of spent nuclear fuel. In 1997, Private Fuel Storage LLC (PFS) filed a license application with the Nuclear Regulatory Commission (NRC) for a national temporary storage site for spent nuclear fuel. The PFS will undertake the development, licensing, construction and operation of a storage facility on the Skull Valley Indian Reservation in Utah. The NRC license review process consists of formal evidentiary hearings and opportunity for public input. Storage cask certification efforts are continuing, with one cask vendor on track to meet the project goals. The interim used fuel storage facility could be operational and able to accept the first shipment of spent nuclear fuel by 2004. However, due to uncertainty regarding regulatory and governmental approvals, it is possible that this interim storage may be delayed or not available at all.

    In March 2001, NSP-Minnesota signed a contract with Steam Generator Team Ltd. to perform engineering and construction services for the installation of replacement generators at the Prairie Island nuclear power plant. NSP-Minnesota is evaluating the economics of replacing two 25-year-old steam generators on unit 1 at the plant. NSP-Minnesota is taking steps to preserve the replacement option for as early as 2004. The total cost of replacing the steam generators is estimated to be approximately $132 million.

    The NRC has issued a number of regulations, bulletins and orders that require analyses, modification and additional equipment at commercial nuclear power plants. 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 (NMC)

    During 1999, NSP-Minnesota, Wisconsin Electric Power Co., Wisconsin Public Service Corp. and Alliant Energy established the NMC. The four companies operate seven nuclear units at five sites, with a total generation capacity exceeding 3,650 megawatts.

    During the second quarter of 2000, the Nuclear Regulatory Commission (NRC) approved requests by NMC's four affiliated utilities to transfer operating authority for their five nuclear plants to NMC. NMC responsibilities will include oversight of on-site dry storage facilities for used nuclear fuel at the Point Beach and Prairie Island nuclear plants. Utility plant owners will continue to own the plants, control all energy produced by the plants and retain responsibility for nuclear liability insurance and decommissioning costs. Existing personnel will continue to provide day-to-day plant operations, with the additional benefit of tapping into ideas from all NMC-operated plants for improved safety, reliability and operational performance.

    During the third quarter of 2000, NMC and Consumers Energy (CE) reached an agreement for the NMC to operate CE's 789-megawatt Palisades nuclear plant in Covert, Mich. The addition of Palisades gives NMC 4,500 megawatts of generation, making it the sixth largest operator of nuclear plants in the United States.

    For further discussion of nuclear issues, see Note 14 and Note 15 to the Financial Statements under Item 8.

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Electric Operating Statistics (Xcel Energy)

GAS UTILITY OPERATIONS

Competition and Industry Restructuring

    In the early 1990's, the FERC issued Order No. 636, which mandated unbundling 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

19

interconnections directly with, and the purchase of gas directly from, interstate pipelines, thereby avoiding the delivery charges added by the local gas utility. The gas utility subsidiaries of Xcel Energy have and will continue to aggressively pursue the retention of all customers on their systems.

    NSP-Minnesota and NSP-Wisconsin provide unbundled transportation service to large customers. Transportation service does not have an adverse effect on earnings because NSP-Minnesota and NSP-Wisconsin's sales and transportation rates have been designed to make NSP-Minnesota and NSP-Wisconsin 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.

    PSCo provides unbundled transportation service to large customers. and has participated fully in state regulatory and legislative efforts to develop a framework for extending unbundling down to the residential and small commercial level. PSCo supported a gas unbundling bill, passed by the Colorado Legislature 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 open its natural gas supply business to competition and continues to evaluate its business opportunities for doing so.

    PSCo and Cheyenne extend and operate their distribution systems primarily by virtue of non-exclusive franchises granted by the various cities and towns. Their respective state commissions approve such franchise agreements. Because the franchises are non-exclusive, PSCo and Cheyenne can be faced with the threat of intrusion into their gas territory by third parties. PSCo holds territorial certificates for a portion of their gas service territory, giving them the exclusive right to extend their distribution system and provide natural gas sales and transportation service. However, for the majority of their gas service territory, no such territorial certificates exist. PSCo has filed with the CPUC an application to certify its gas service territory along the front range of Colorado. PSCo is pursuing settlement negotiations and expects a resolution during 2001.

Capability and Demand

NSP-Minnesota and NSP-Wisconsin

    Xcel Energy categorizes its 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 730,026 mmBtu for 2000, which occurred on Dec. 11, 2000.

    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 630,000 mmBtu/day. In addition, NSP-Minnesota and NSP-Wisconsin have contracted with providers of underground natural gas storage services. Using storage reduces the need for firm pipeline capacity. These storage agreements provide storage for approximately 16 percent of annual and 23 percent of peak daily, firm requirements of NSP-Minnesota and NSP-Wisconsin.

    NSP-Minnesota and NSP-Wisconsin also own and operate two liquified natural gas (LNG) plants with a storage capacity of 2.5 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 mcf 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.

    Gas utilities in Minnesota 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 July 2000, the MPUC approved NSP's 1999-2000 entitlement levels, which allow NSP-Minnesota to recover the demand entitlement costs associated with the increase in transportation

20

and storage levels in its monthly PGA. NSP-Minnesota's filing for approval of its 2000-2001 entitlement levels is pending MPUC action.

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 1,639,899 mmBtu. In addition, firm transportation customers hold 379,882 mmBtu of capacity without supply backup. Total firm delivery obligations for PSCo and Cheyenne are 2,019,781 mmBtu per day. The maximum daily deliveries for both companies for 2000 (firm and interruptible services) were 1,612,589 mmBtu on Dec. 11, 2000.

    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 1,193,821 mmBtu/day, which includes 731,960 mmBtu of supplies held under third-party storage agreements. In addition, PSCo operates three company-owned storage facilities, which provide about 147,980 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' citygate meter stations and a small amount received directly from wellhead sources.

    PSCo has received approval to abandon one if its three storage facilities, Leyden Storage Field, beginning October 2001. The field's 110,000 mmBtu peak day capacity will be replaced in 2001 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 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. PSCo has filed the required Plans with the CPUC, which is reviewing the gas purchase report for the period July 1, 1999, through June 30, 2000.

Gas Supply and Costs

    Xcel Energy's 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.

21

    The following table summarizes the average cost per mmBtu of gas purchased for resale by Xcel Energy's regulated retail gas distribution business.

    The cost of 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 2001 through 2013. Approximately 80 percent of NSP-Minnesota and NSP-Wisconsin's retail gas customers are served from the Northern Natural pipeline system.

    In addition to fixed transportation charge obligations, NSP-Minnesota and NSP-Wisconsin have entered into firm gas supply agreements that provide for the payment of monthly or annual reservation charges irrespective of the volume of gas purchased. The total annual obligation is approximately $18 million. These agreements allow NSP-Minnesota and NSP-Wisconsin to purchase natural gas at a high load factor at rates below the prevailing market price, reducing the total cost per mmBtu.

    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 Dec. 31, 2000, NSP-Minnesota and NSP-Wisconsin were committed to approximately $221 million in such obligations under these contracts, which range from the years 2001-2013. NSP-Minnesota and NSP-Wisconsin have negotiated market out clauses in their new supply agreements, which reduce purchase obligations if NSP-Minnesota and NSP-Wisconsin no longer provide merchant gas service.

    NSP-Minnesota and NSP-Wisconsin purchase firm gas supply from approximately 30 domestic and Canadian suppliers under contracts with durations of one year to 10 years. NSP-Minnesota and NSP-Wisconsin purchase no more than 20 percent of their total daily supply from any single supplier. This diversity of suppliers and contract lengths allows NSP-Minnesota and NSP-Wisconsin to maintain competition from suppliers and minimize supply costs.

    NSP-Minnesota and NSP-Wisconsin have completed substantially all of their obligations related to gas supply transportation and storage contracts that resulted from FERC Order 636.

PSCo and Cheyenne

    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. During 2000, PSCo and Cheyenne purchased natural gas from approximately 47 suppliers.

    PSCo and Cheyenne have completed substantially all of their obligations related to gas supply transportation and storage contracts that resulted from FERC Order 636. PSCo and Cheyenne have entered into new contracts for firm transportation and gas storage services. Adequate supplies of natural gas are currently available for delivery within the region. PSCo and Cheyenne continually evaluate the natural gas markets and procure supplies, as needed, to meet current and anticipated customer demand.

Viking

    During 1999, Viking, WICOR and CMS Energy Corp. announced plans to build an interstate natural gas pipeline to serve the growing needs of the northern Illinois and southeastern Wisconsin

22

markets. The three energy companies each own an equal share of the pipeline. The project, called the Guardian Pipeline, will transport natural gas from a hub near Joliet, Ill. to the Ixonia, Wis., area. In March 2001, the FERC issued a certificate of public convenience and necessity authorizing the construction and operation of the Guardian pipeline. The estimated cost of the 147-mile pipeline is $230 million and is expected to be in operation by late 2002.

Gas Operating Statistics (Xcel Energy)

23

NONREGULATED SUBSIDIARIES

    Through its non-utility subsidiaries, Xcel Energy invests and operates 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 acquisition, development, ownership and operation of power generation facilities and the sale of energy, capacity and related products.

    At Dec. 31, 2000, Xcel Energy indirectly owned 82 percent of NRG. Xcel Energy owned 100 percent of NRG until the second quarter 2000, when NRG completed its initial public offering. During March 2001, NRG issued an additional 18.4 million shares of common stock, which caused Xcel Energy's ownership interest in NRG to decline to approximately 75 percent. For more information, see NRG Initial Public Offering discussed under Liquidity and Capital Resources in Management's Discussion and Analysis under Item 7.

    At Dec. 31, 2000, NRG had interests in power generation facilities with a total generating capacity of 25,059 megawatts. Of this amount, NRG has a net ownership of 15,007 megawatts. NRG also has interests in district heating and cooling systems and steam generation and transmission operations. As of Dec. 31, 2000, these thermal businesses had a steam and chilled water capacity equivalent to approximately 1,506 megawatts, of which NRG's net ownership interest is 1,379 megawatts.

    NRG conducts business domestically and internationally through various subsidiaries, including: NRG International, Inc.; NEO Corporation; NRG Energy Center, Inc; NRG Operating Services, Inc.; NRG Northeast Generating LLC; NRG South Central Generating LLC; and other businesses and affiliates.

    NRG is pursuing several energy-related investment opportunities, including those discussed further, and continues to evaluate other opportunities as they arise. The following discussion describe NRG's significant business developments including pending asset acquisitions, which are subject to various regulatory approvals. Potential capital requirements for these opportunities are discussed in Management's Discussion and Analysis under Item 7. Additional information is included in Item 1 of NRG's 2000 Form 10-K, which is incorporated by reference via Exhibit 99.02.

NRG 2001 Business Developments

    In March 2001, NRG agreed to purchase a 720-megawatt, winter-rated/640-megawatt, summer-rated simple-cycle plant, which uses natural gas and has dual-fuel capability. The project is currently under construction in Missouri and is expected to enter commercial operation in June 2001. NRG expects to close the acquisition during 2001.

    In January 2001, NRG acquired a 5,633-megawatt portfolio of operating projects and projects in construction and advanced development, located in the central United States, from LS Power, LLC for approximately $708 million. NRG owns 100 percent of this project.

NRG 2000 Business Developments

    In January 2000, NRG agreed to purchase 1,875 megawatts of fossil-fueled electric generation assets in the Mid-Atlantic region of the United States from Conectiv. The purchase price is approximately $800 million. NRG will sell 500 megawatts of energy around the clock to Delmarva Power and Light Company under a five-year agreement. The remaining energy and capacity will be sold into the markets in the Mid-Atlantic region. NRG will own a 100 percent of this project. NRG expects to close the acquisition in the second quarter of 2001.

    In February 2000, NRG executed a memorandum of understanding with GE Power Systems, a division of General Electric Company, to purchase 11 gas turbine generators and five steam turbine

24

generators over the next five years for approximately $500 million. NRG intends to install the 16 turbines, having a combined capacity of 3,000 megawatts at its existing North American plant sites.

    In March 2000, NRG purchased 1,708 megawatts of fossil-fueled generation from Cajun Electric Power Cooperative for approximately $1 billion. The output from the base-load Cajun facility will be sold principally under long-term contracts. NRG owns 100 percent of this project.

    In March 2000, NRG purchased the 680-megawatt Killingholme A station from National Power plc. for approximately 390 million pounds sterling (approximately $615 million based on exchange rates at the time of acquisition). Killingholme A was commissioned in 1994 and is a combined-cycle, gas-turbine power station located in England. NRG owns 100 percent of this project.

    During August 2000, NRG signed an agreement with Eesti Energia, the Estonian state-owned electric utility, providing for the purchase of a 49-percent interest in Narva Power, the owner and operator of the oil shale-fired Eesti and Balti power plants located near Narva, Estonia. The plants have a combined capacity of approximately 2,700 megawatts. The purchase price is approximately $66 million. NRG expects to close the acquisition in the third quarter of 2001.

    During September 2000, NRG acquired a 100-year lease of the Flinders Power assets in South Australia for approximately AUD $314 million (approximately $180 million U.S. at time of purchase). Flinders Power includes two power stations totaling 760 megawatts, the Leigh Creek coal mine, a dedicated rail line between the two, and Leigh Creek township. NRG owns 100 percent of this project.

    In October 2000, NRG agreed to purchase a 50-percent interest in Sierra Pacific Resources' 522-megawatt coal-fired North Valmy Generating Station and a 100-percent interest in 25 megawatts of peaking units near Valmy Station for approximately $273 million. The Valmy assets are currently owned by Sierra Pacific Resources' subsidiary, Sierra Pacific Power Company. The agreement includes a transitional power purchase agreement for Sierra Pacific Power to purchase energy and ancillary services through March 2003. The acquisition is expected to close during 2001.

    In November 2000, NRG and Dynegy Inc. agreed to acquire the 740-megawatt, gas-fired Clark Generating Station and 445 megawatts of the 605-megawatt, coal-fired Reid Gardner Generating Station from Sierra Pacific Resources for approximately $634 million. The facilities serve the Las Vegas market. The agreements include a transitional power purchase agreement for Nevada Power to purchase energy and ancillary services until March 2003. The transaction is expected to close during 2001. NRG will own 50 percent of this project.

    In November 2000, NRG, through subsidiaries, joined the SRW Cogeneration Limited Partnership. The limited partnership owns and will operate the 420-megawatt, natural gas-fired cogeneration plant now under construction at the DuPont Company's Sabine River Works petrochemical facility near Orange, Texas. NRG expects the plant to begin commercial operations in the summer of 2001. Bechtel Energy Corporation is the construction contractor. Electricity and all the steam generated by the power plant will be sold to the adjacent DuPont Sabine River Works facility. Additional electricity will be sold on the merchant market. NRG will own 50 percent of the $260 million facility.

    In December 2000, NRG agreed to acquire the Bridgeport and New Haven Harbor Stations in Connecticut from Wisconsin Energy Corp. for approximately $325 million. The purchase will add 1,051 megawatts to NRG's portfolio. NRG plans to seek approval for adding pollution control technology to the Bridgeport Harbor Station. The transaction is expected to close during the second quarter of 2001. NRG will own 100 percent of this project.

NRG 1999 Business Developments

    In April 1999, NRG acquired the Somerset power station for approximately $55 million from Eastern Utilities Associates (EUA). The Somerset station, located in Somerset, Mass., includes two coal-fired generating facilities and two combustion turbine peaking units with a capacity rating of 160 megawatts. NRG owns a 100 percent of this project. NRG entered into a Wholesale Standard Offer

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Service Agreement in which NRG is obligated to provide approximately 30 percent of the energy and capacity requirements of certain EUA affiliates (approximately 275 megawatts at peak requirement) until December 2009.

    In May 1999, NRG and Dynegy acquired the Encina generating station and 17 combustion turbines for approximately $356 million from San Diego Gas & Electric Company. The facilities, which have a combined capacity of 1,218 megawatts, are located near Carlsbad and San Diego, Calif. NRG and Dynegy each own a 50-percent interest.

    In June 1999, NRG acquired the Huntley and Dunkirk generating stations from Niagara Mohawk Power Corp. (NIMO) for approximately $355 million. The two coal-fired plants are located near Buffalo, N.Y., and have a combined summer capacity of 1,360 megawatts. NRG owns a 100 percent of this project. In connection with this acquisition, NRG entered into several transition power purchase agreements in which NIMO will purchase energy and capacity from these facilities for four years. NRG agreed to sell 100 percent of the capacity of and up to 39 percent of the annual energy output from the Dunkirk facility to NIMO at fixed prices.

    In June 1999, NRG acquired the Arthur Kill generating station and the Astoria gas turbine site for approximately $505 million from Consolidated Edison Company (ConEd). These facilities, which are located in the New York City area, have a combined summer capacity of 1,456 megawatts. NRG owns a 100 percent interest in these projects. NRG agreed to sell to ConEd energy from the Arthur Kill and Astoria facilities at a fixed price in varying amounts, as specified by ConEd, up to the full capability of each facility. In addition, NRG has agreed to sell to ConEd at a fixed price, during certain periods, up to 100 percent of the capacity of the Arthur Kill generating facility and Astoria gas turbines facility.

    In October 1999, NRG purchased the 1,700-megawatt, oil and gas-fired Oswego generating station, located in Oswego, N.Y., for approximately $85 million from NIMO and Rochester Gas and Electric Corporation. NRG owns a 100 percent of this project.

    In December 1999, NRG purchased gas and oil electric generating stations with a combined capacity of 2,235 megwatts for $460 million from Connecticut Light & Power Company (CL&P). The facilities are located throughout Connecticut. NRG owns a 100 percent of this project. NRG entered into a Standard Offer Service Wholesale Sales Agreement with CL&P. NRG will supply CL&P with 40 percent of its standard offer service load during 2001 and 2002, and 45 percent during 2003.

    In December 1999, NRG purchased a 50-percent interest in the Rocky Road Power Plant, a 250-megawatt, natural gas-fired simple-cycle peaking facility in East Dundee, Ill., from Dynegy Inc. for approximately $60 million. In June 2000, the installation of an additional 100-megawatt natural gas combustion turbine was completed, increasing the facility's generating capacity to 350 megawatts.

    In December 1999, NRG sold a portion of its ownership interest in Cogeneration Corp. of America to Calpine Corp. This sale reduced NRG's ownership stake in CogenAmerica from 45 percent to 20 percent.

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Significant NRG Nonregulated Generation Projects Operating at Dec. 31, 2000

(1)

Through a lease agreement, NRG has ownership of 200 megawatts.

(2)

Cogeneration Corp. owns various percentages of projects, making NRG's share of ownership 99 megawatts.

(3)

Scudder owns various percentages of projects, making NRG's share of ownership 51 megawatts.

Yorkshire Power

    Yorkshire Power is a joint venture, equally owned by Xcel International and a subsidiary of American Electric Power Company, which acquired indirectly all of the outstanding ordinary shares of Yorkshire Electricity, a U.K. regional electricity company, for approximately $362 million in April 1997. Yorkshire Electricity's main businesses are the distribution and supply of electricity and the supply of gas. Its service territory is one of the region's largest with approximately 2 million customers.

    In late February 2001, Xcel Energy reached an agreement in principle to sell at book value all of its investment in Yorkshire Power, except for an interest of approximately 5.25 percent, to Innogy Holdings plc. Xcel Energy is retaining this interest to comply with pooling-of-interests accounting requirements associated with the merger of NSP and NCE in 2000. The sale is conditional on the approval of Innogy shareholders. Following completion of the transaction, proceeds of the sale will be used by Xcel Energy to pay down short-term debt and eliminate the need for an equity issuance planned for the second half of 2001.

Utility Engineering (UE)

    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 Company, Quixx, Proto-Power and Applied Power Associates Inc. Universal Utility Services Company provides cooling tower maintenance and repair, certain other industrial plant improvement services, and engineered maintenance of high-voltage plant electric equipment. Precision Resource Company 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.

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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 also holds a 50-percent ownership interest in Johnstown Cogeneration, a limited liability company.

Planergy International Inc.

    Planergy was acquired in 1998. Planergy provides energy management, consulting, on-site generation, load curtailment and demand-side management services to industrial, commercial and utility customers.

    Energy Masters International, Inc. (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 the third quarter of 2000, Planergy and EMI, both wholly owned subsidiaries of Xcel Energy, were combined to form Planergy International.

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. Seren had capitalized $95 million for plant in service and had incurred another $86 million for construction work in progress for these systems at Dec. 31, 2000. Seren continues to expand its systems and market to new customers in these areas. The ultimate viability of Seren is dependent on the success of securing a customer and revenue base sufficient to recover the capital investment and ongoing operating costs.

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 Dec. 31, 2000, approximately $81 million had been invested in Eloigne projects, including approximately $24 million in wholly owned properties and approximately $57 million in equity interests in jointly-owned projects. These investments and related working capital requirements have been financed with approximately $51 million of long-term debt and the remainder with equity capital.

    Completed Eloigne projects as of Dec. 31, 2000, are expected to generate tax credits of $73 million over the time period of 2001-2009. Tax credits recognized in 2000 as a result of these investments were approximately $10.4 million.

Independent Power Corporation/Independent Power International (IPC/IPI)

    Xcel Energy has a 49.9 percent equity interest in IPC/IPI, which is based in Denver, Colo. IPC/IPI currently owns and operates three plants in Argentina with an installed generating capacity of 744 megawatts with a further 800 megawatts of capacity under development. During 2000, IPC/IPI purchased Fawley Power Station, which comprises four 500 MW oil-fired steam generating units, of which only one is currently operational. Over the past seven years the station has been operated primarily in peaking mode. The plant is located in England.

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ENVIRONMENTAL MATTERS

    Certain of Xcel Energy's 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. Xcel Energy has 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.

    Xcel Energy and its 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 Xcel Energy's operations. For more information on Environmental Matters, see Note 14 to the Financial Statements under Item 8 and Management's Discussion and Analysis under Item 7.

CAPITAL SPENDING AND FINANACING

    For a discussion of capital expenditures and funding sources, see Management's Discussion and Analysis under Item 7.

EMPLOYEES

    The number of Xcel Energy employees at Dec. 31, 2000, is presented in the table below. Of the employees listed below, approximately 6,900, or 44 percent, are covered under collective bargaining agreements.

EXECUTIVE OFFICERS

    James J. Howard, 65, Chairman of the Board, Xcel Energy, August 2000 to present. Previously, Chairman of the Board, President and Chief Executive Officer of NSP since December 1994.

    Wayne H. Brunetti, 58, President and Chief Executive Officer, August 2000 to present. Previously, Vice Chairman, President, Chief Operating Officer and Director of NCE since 1997 and President and Director of PSCo since 1994.

    Paul J. Bonavia, 49, President—Energy Markets, Xcel Energy, August 2000 to present. Previously, Senior Vice President and General Counsel of NCE since 1997.

    Cathy J. Hart, 51, Vice President and Corporate Secretary, Xcel Energy, August 2000 to present. Previously, Secretary of NCE since 1998 and Manager of Corporate Communications of PSCo from 1993 to 1996.

    Gary R. Johnson, 54, Vice President and General Counsel, Xcel Energy, August 2000 to present. Previously, Vice President and General Counsel of NSP since 1991.

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    Richard C. Kelly, 54, President—Enterprises, Xcel Energy, August 2000 to present. Previously, Executive Vice President and Chief Financial Officer for NCE from 1997 to August 2000 and Senior Vice President of PSCo from 1990 to 1997.

    Cynthia L. Lesher, 52, Vice President and Chief Administrative Officer, Xcel Energy, August 2000 to present. Previously, President of NSP-Gas since July 1997 and previously Vice President-Human Resources of NSP.

    Edward J. McIntyre, 50, Vice President and Chief Financial Officer, Xcel Energy, August 2000 to present. Previously, Vice President and Chief Financial Officer of NSP since 1993.

    Paul E. Pender, 46, Vice President and Treasurer, Xcel Energy, August 2000 to present. Previously, Vice President of Finance and Treasurer of NSP since May 1997 and previously Assistant Treasurer and Director of Corporate Finance of NSP.

    Tom Petillo, 56, President—Retail, Xcel Energy, August 2000 to present. Previously, Executive Vice President of New Century Services from 1998 to August 2000 and President and Director of New Century International from 1997 to 1998.

    David E. Ripka, 52, Vice President and Controller, Xcel Energy, August 2000 to present. Previously, 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.

    David M. Wilks, 54, President—Energy Supply, Xcel Energy, August 2000 to present. Previously, 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.

ITEM 2—PROPERTIES

    For discussion and information concerning nonregulated properties, see "Nonregulated Subsidiaries" under Item 1, incorporated by reference.

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

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    Electric utility generating stations:

NSP—Minnesota

    NSP-Minnesota's 59 percent of Sherco unit 3's total capability

NSP — Wisconsin

    RDF is refuse derived fuel, made from municipal solid waste

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PSCo

(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

(c)

Includes one station (2 units) not owned by PSCo but operated under contract

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SPS

    Electric utility overhead and underground transmission and distribution lines at Dec. 31, 2000:

    Electric utility transmission and distribution substations at Dec. 31, 2000:

    Gas utility mains at Dec. 31, 2000:

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ITEM 3—LEGAL PROCEEDINGS

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

    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 Aug. 31, 2000, the Court of Appeals for the Federal Circuit reversed and remanded to the Court of Federal Claims. On Dec. 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. These motions are pending before the Court of Federal Claims. On Jan. 9, 2001, the DOE filed a motion with the Chief Judge for the Court of Federal Claims asking that all cases against the DOE arising out of alleged breaches of the Standard Contract be reassigned to one judge. The DOE also asked for the extraordinary remedy of binding parties not currently party to an action before the Court of Claims to a determination in the proposed consolidated action. This motion is pending before the Court of Federal Claims.

    In April 1997, a fire damaged several buildings in downtown Grand Forks, N. D., during a flood in the city. On July 23, 1998, the St. Paul Mercury Insurance Co. commenced a lawsuit against NSP-Minnesota for damages in excess of $15 million. The suit was filed in the District Court in Grand Forks County in North Dakota. The insurance company alleged the fire was electrical in origin and that NSP-Minnesota was legally responsible for the fire because it failed to shut off electrical power to downtown Grand Forks during the flood and prior to the fire. Seven additional lawsuits were filed against NSP-Minnesota by insurance companies that insured businesses damaged by the fire. One additional lawsuit was filed by a bank. The total of damages sought by all these lawsuits was in excess of $30 million. NSP-Minnesota denied any liability. On Sept. 8, 2000, the jury returned a defense verdict in favor of NSP-Minnesota. The plaintiffs did not appeal this verdict.

    In 1997, NSP-Wisconsin was served with a summons and complaint on behalf of the owners of Schachtner Farms located in Deer Park, Wis. The complaint alleged that stray voltage from NSP-Wisconsin's system harmed their dairy herd, resulting in lost milk production, injury to the dairy herd, lost profits and increased veterinary expenses. On Nov. 23, 1999, the jury returned a verdict finding NSP-Wisconsin negligent and awarding Schachtner Farms $850,000 for economic damages and $200,000 for inconvenience, annoyance and loss of use and enjoyment of their property plus costs and interest. The Court trebled the damages because the jury found that NSP-Wisconsin was willful, wanton or reckless in its failure to provide adequate service to the farm. NSP-Wisconsin has appealed the decision to the Court of Appeals, Third District, of the State of Wisconsin. The claim was resolved on Dec. 20, 2000, on a confidential basis. NSP-Wisconsin's contribution to the settlement was reduced by insurance coverage.

    For a discussion of other legal claims and environmental proceedings, see Note 14 to the Financial Statements under Item 8, incorporated by reference. For a discussion of proceedings involving utility rates, see "Regulatory Matters" under Item 1, and Management's Discussion and Analysis under Item 7, all incorporated by reference.

ITEM 4—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None during the fourth quarter of 2000.

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PART II

ITEM 5—MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Quarterly Stock Data

    Xcel Energy's common stock is listed on the New York Stock Exchange (NYSE), Chicago Stock Exchange and the Pacific Stock Exchange. Following are the reported high and low sales prices based on the NYSE Composite Transactions for the quarters of 2000 and 1999 and the dividends declared per share during those quarters

    Book value per share at Dec. 31, 2000, was $16.32. Shareholders of record as of March 15, 2001, were 134,616.

    Xcel Energy's Restated Articles of Incorporation and First Mortgage Bond Trust Indenture provide for certain restrictions on the payment of cash dividends on common stock. At Dec. 31, 2000, the payment of cash dividends on common stock was not restricted except as described in Note 9 to the Financial Statements under Item 8.

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ITEM 6—SELECTED FINANCIAL DATA

(a)

Revenues have been restated to reflect revenues on a gross basis.

(b)

Amounts include proforma adjustments to restate periods prior to the Xcel Energy merger for historically consistent reporting. Dividends in 2000 and 1997 reflect dividends paid by predecessor companies before and successor companies after the Xcel Energy merger in August 2000 and the New Century Energies merger in August 1997.

(c)

Excludes undistributed equity income and includes allowance for funds used during construction.

(d)

Earnings in 2000 were reduced by 52 cents per share for special charges related to the merger of NSP and NCE. In addition, earnings in 2000 were reduced by 6 cents per share for extraordinary items related to electric utility restructuring in Texas and New Mexico, as discussed in Note 12 to the Financial Statements under Item 8.

(e)

Earnings in 1997 were reduced by 16 cents per share for special charges related to the merger of PSCo and SPS and to write-off costs for the terminated merger to form Primergy. In addition, earnings in 1997 were reduced by 37 cents per share for an extraordinary item related to the UK windfall tax recorded at Yorkshire Power.

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ITEM 7—MANAGEMENT'S DISCUSSION AND ANALYSIS

    On Aug. 18, 2000, New Century Energies, Inc. (NCE) and Northern States Power Co. (NSP) merged and formed Xcel Energy Inc. Xcel Energy, a Minnesota corporation, is a registered holding company under the Public Utility Holding Company Act (PUHCA). Each share of NCE common stock was exchanged for 1.55 shares of Xcel Energy common stock. NSP shares became Xcel Energy shares on a one-for-one basis. The merger was structured as a tax-free, stock-for-stock exchange for shareholders of both companies (except for fractional shares) and accounted for as a pooling-of-interests. As part of the merger, NSP transferred its existing utility operations that were being conducted directly by NSP at the parent company level to a newly formed subsidiary of Xcel Energy named Northern States Power Company.

    Xcel Energy directly owns six utility subsidiaries that serve electric and natural gas customers in 12 states. These six utility subsidiaries are Northern States Power Company, a Minnesota corporation (NSP-Minnesota); Northern States Power Company, a Wisconsin corporation (NSP-Wisconsin); Public Service Company of Colorado (PSCo); Southwestern Public Service Company (SPS); Black Mountain Gas Company (BMG); and Cheyenne Light, Fuel and Power Company (Cheyenne). Their service territories include portions of Arizona, Colorado, Kansas, Michigan, Minnesota, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, Wisconsin and Wyoming. Xcel Energy's regulated businesses also include Viking Gas Transmission Company and WestGas InterState Inc. (WGI), both interstate natural gas pipeline companies.

    Xcel Energy also owns or has an interest in a number of nonregulated businesses, the largest of which is NRG Energy, Inc., a publicly traded, independent power producer. Xcel Energy indirectly owns 82 percent of NRG. Xcel Energy owned 100 percent of NRG until the second quarter of 2000, when NRG completed its initial public offering. NRG expects to issue additional common stock during March 2001, which will cause Xcel Energy's ownership interest in NRG to decline. For more information, see NRG Initial Public Offering discussed under Liquidity and Capital Resources.

    In addition to NRG, Xcel Energy's nonregulated subsidiaries include Seren Innovations, Inc. (broadband telecommunications services), e prime, inc. (natural gas marketing and trading), Planergy International, Inc. (energy management, consulting and demand-side management services) and Eloigne Company (acquisition of rental housing projects that qualify for low-income housing tax credits). Xcel Energy also reports in its nonregulated activities its 50-percent stake in Yorkshire Power, a regional electric company in the United Kingdom. Subsequent to year end, Xcel Energy has agreed to sell a substantial portion of this investment. For more information, see Note 11 to the Financial Statements.

    Xcel Energy owns the following additional direct subsidiaries, some of which are intermediate holding companies with additional subsidiaries: Xcel Energy Wholesale Energy Group Inc., Xcel Energy Markets Holdings Inc., Xcel Energy International Inc., Xcel Energy Ventures Inc., Xcel Energy Retail Holdings Inc., Xcel Energy Communications Group Inc., Xcel Energy WYCO Inc. and Xcel Energy O & M Services Inc. Xcel Energy and its subsidiaries collectively are referred to as Xcel Energy.

XCEL ENERGY'S MISSION AND GUIDING PRINCIPLES

    Xcel Energy's mission is to provide energy and service solutions that advance the productivity and lifestyle of our customers, foster growth of our employees and enhance value for our shareholders.

    Xcel Energy's guiding principles include: focusing on the customer, respecting people, managing with facts, continually improving our business, focusing on the prevention of problems and promoting a safe and challenging work environment.

FINANCIAL REVIEW

    The following discussion and analysis by management focuses on those factors that had a material effect on Xcel Energy's financial condition, results of operations and cash flows during the periods

37

presented, or are expected to have a material impact in the future. It should be read in conjunction with the accompanying Financial Statements and Notes.

    Except for the historical statements contained in this report, the matters discussed in the following discussion and analysis are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "estimate," "expect," "objective," "outlook," "possible," "potential" and similar expressions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to: general economic conditions, including their impact on capital expenditures and the ability of Xcel Energy and its subsidiaries to obtain financing on favorable terms; business conditions in the energy industry; competitive factors, including the extent and timing of the entry of additional competition in the markets served by Xcel Energy and its subsidiaries; unusual weather; state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures and affect the speed and degree to which competition enters the electric and natural gas markets; the higher risk associated with Xcel Energy's nonregulated businesses compared with its regulated businesses; currency translation and transaction adjustments; risks associated with the California power market; the items described under "Factors Affecting Results of Operations;" and the other risk factors listed from time to time by Xcel Energy in reports filed with the Securities and Exchange Commission (SEC), including Exhibit 99.04 to Xcel Energy's Report on Form 8-K dated Aug. 21, 2000.

RESULTS OF OPERATIONS

    Xcel Energy's earnings per share for the past three years were as follows:

Contribution to earnings per share

    Earnings in 2000 were reduced by 52 cents per share for special charges related to the merger and 6 cents per share for extraordinary items. For more information on these and other significant factors that had an impact on earnings, see below.

Significant Factors that Impacted 2000 Results

    Special Charges  Xcel Energy's earnings for 2000 were reduced by 52 cents per share for special charges related to the merger to form Xcel Energy. During the third quarter and fourth quarter of 2000, Xcel Energy expensed pretax special charges of $241 million, or 52 cents per share, for costs related to the merger between NSP and NCE. Of these special charges, approximately 44 cents per share were associated with the costs of merging regulated operations and 8 cents per share were associated with merger impacts on nonregulated activities. See Note 2 to the Financial Statements for more information on these charges.

    Xcel Energy has completed the majority of its merger-related transition and integration activities in 2000 and expects to fully realize in 2001 and future years the operating synergies anticipated from the merger of NSP and NCE. Xcel Energy does not expect to incur any additional merger costs after 2000.

    Extraordinary Items—Electric Utility Restructuring  Xcel Energy's earnings for 2000 were reduced by 6 cents per share for two extraordinary items related to the discontinuation of regulatory accounting for SPS' generation business. During the second quarter of 2000, SPS wrote off its generation-related regulatory assets and other deferred costs for an extraordinary charge of approximately $19.3 million

38

before tax, or $13.7 million after tax. During the third quarter of 2000, SPS recorded an additional extraordinary charge of $8.2 million before tax, or $5.3 million after tax, related to the tender offer and defeasance of approximately $295 million of first mortgage bonds. For more information, see Note 12 to the Financial Statements.

Significant Factors that Impacted 1999 Results

    Conservation Incentive Recovery  Earnings for 1999 were reduced by 7 cents per share due to the disallowance of 1998 conservation incentives for NSP-Minnesota. In June 1999, the Minnesota Public Utilities Commission (MPUC) denied NSP-Minnesota recovery of 1998 lost margins, load management discounts and incentives associated with state-mandated programs for electric energy conservation. Xcel Energy recorded a $35 million charge in 1999 based on this action. NSP-Minnesota appealed the MPUC decision and in December 2000, the Minnesota Court of Appeals reversed the MPUC decision.

    In January 2001, the MPUC appealed the lower court decision to the Minnesota Supreme Court. On Feb. 23, 2001, the Minnesota Supreme Court declined to hear the MPUC's appeal. NSP-Minnesota is awaiting an order from the MPUC regarding the implementation of the appeals court decision before adjusting any liabilities recorded for this matter. As of Dec. 31, 2000, NSP-Minnesota had recorded a liability of $40 million, including carrying charges, for potential refunds to customers pending the final resolution of this matter.

    In addition, based on the 1999 change in MPUC policy on conservation incentives and regulatory uncertainty, beginning in 1999 management discontinued the accrual of conservation incentives other than those approved by the MPUC.

    Special Charges  During 1999, Xcel Energy expensed pretax special charges of $31 million, or 7 cents per share, stemming from asset impairments related to goodwill and marketable securities associated with nonregulated activities. See Note 2 to the Financial Statements for more information on these charges.

Nonregulated Subsidiaries

Contribution to Xcel Energy's earnings per share

*

NRG's earnings for 2000 in this report exclude earnings of approximately 8 cents per share related to minority interests.