Summary
Xcel Energy Inc. (XEL) filed an 8-K on June 20, 2007, to disclose a settlement in principle with the U.S. government regarding a tax dispute concerning corporate-owned life insurance (COLI) policies held by its subsidiary, Public Service Company of Colorado (PSCo). The dispute, which spanned tax years 1993-2007 and involved an initial potential exposure of approximately $583 million, has been resolved with Xcel Energy agreeing to pay $64.4 million (net $56 million after tax) to the IRS. This settlement also requires Xcel Energy to cease claiming deductions for interest expenses related to these COLI policies after 2007 and surrender the policies without incurring tax liability on any gain. The company expects the financial impact of this settlement and the related subsidiary's (PSRI) earnings to be accounted for as discontinued operations. The settlement, if approved by the necessary government bodies and Xcel Energy's board, is anticipated to be finalized in the third quarter of 2007. This development significantly reduces the company's contingent tax liabilities and clarifies future tax strategies.
Key Highlights
- 1Xcel Energy reached a settlement in principle with the U.S. government to resolve a tax dispute related to COLI policies.
- 2The settlement involves a payment of $64.4 million to the IRS, representing full settlement of claims for tax years 1993-2007.
- 3Xcel Energy will cease claiming deductions for COLI policy loan interest expenses after 2007 and will surrender the policies.
- 4The settlement requires final approval from Xcel Energy's board, the IRS, and the Department of Justice.
- 5The company anticipates the settlement decision will be made in Q3 2007.
- 6Financial results related to the COLI program and its subsidiary PSRI will be reported as discontinued operations.
- 7The net financial impact of the settlement on Xcel Energy's 2007 earnings is estimated to be a loss of $35 million to $45 million from discontinued operations.