UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

 

 

 

April 18, 2007

Dear Shareholder:

Please join us at the Xcel Energy Annual Meeting of Shareholders, which will be held on May 23, 2007, at 10:00 a.m. CDT, at The Minneapolis Convention Center, 1301 Second Avenue South, in Minneapolis, Minnesota. The doors will open at 9:00 a.m. CDT.

At the meeting, I will report recent Xcel Energy results, discuss ongoing operations and talk about future plans. I also will provide time for your questions and comments.

The attendance of our shareholders at annual meetings over the years has been very helpful in maintaining good communications and understanding. The annual meeting is open to shareholders and those guests invited by the Company. We sincerely hope you will be able to be with us. If you are a registered shareholder, your admission ticket to the annual meeting is attached to the proxy card. You will not receive an admission ticket if a bank or broker holds your shares. In that case, please come to the annual meeting and present proof of ownership of Xcel Energy stock at the registration table. As set forth in these guidelines, all attendees will be asked to provide photo identification, such as a driver’s license, in order to gain admittance to the annual meeting. We ask that you review the annual meeting guidelines contained on the back cover of this proxy statement. If you cannot attend in person, you can listen to our webcast of the annual meeting at www.xcelenergy.com.

Most important, we encourage you to vote on the issues included in this proxy statement as soon as possible. You can vote electronically over the Internet, by telephone or by mailing the proxy card. Instructions about each of the options are included on the proxy card.

Again, we would be delighted to see you in Minneapolis—and please vote soon.

Cordially,

Richard C. Kelly

ANNUAL MEETING OF SHAREHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS

		Page
Notice Of Annual Meeting of Shareholders			ii
Questions and Answers about the Proxy Materials and the Annual Meeting			1
Corporate Governance			7
Board Structure and Compensation			12
Proposal No. 1 Election of Directors			16
Proposal No. 2 Ratification of the Appointment of Deloitte & Touche LLP as Xcel Energy’s Principal Independent Accountants for 2007			25
Proposal No. 3 Shareholder Proposal Relating to the Role of the Chairman and CEO			26
Proposal No. 4 Shareholder Proposal Relating to Executive Compensation			28
Common Stock Ownership of Directors, Executive Officers and 5% Shareholders			31
Section 16(a) Beneficial Ownership Reporting Compliance			32
Compensation Discussion and Analysis			33
Executive Compensation			44
Compensation Committee Report			59
Legal Proceedings			60
Related Party Transactions			60
Potential Payments Upon Termination or Change in Control			61
Securities Authorized for Issuance Under Equity Compensation Plans			68
Report of the Audit Committee of the Board of Directors			69
Independent Public Accountants			70
Other Business			72

 

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XCEL ENERGY INC.
414 Nicollet Mall
Minneapolis, Minnesota 55401-1993

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

Time		10:00 a.m. CDT on Wednesday, May 23, 2007
Place		The Minneapolis Convention Center, 1301 Second Avenue South, in Minneapolis, Minnesota.
Items of Business		(1)    To elect a board of directors to hold office until the next annual meeting of shareholders or until their respective successors have been elected or appointed.
		(2)    To ratify the appointment of Deloitte & Touche LLP as Xcel Energy Inc.’s principal independent accountants for 2007.
		(3)    To consider a shareholder proposal relating to the separation of the role of chairman of the board and chief executive officer, if properly presented at the Annual Meeting.
		(4)    To consider a shareholder proposal relating to financial performance criteria for the Company’s executive compensation plans, if properly presented at the Annual Meeting.
		(5)    To consider such other business as may properly come before the Annual Meeting or any adjournments thereof.
Record Date		You are entitled to vote if you were a shareholder at the close of business on March 29, 2007.
Annual Meeting Admission		If you are a registered shareholder, an admission ticket is attached to the proxy card. You will not receive an admission ticket if a bank or broker holds your shares. In that case, please come to the Annual Meeting and present proof of ownership of our stock at the registration table. The Annual Meeting is open to shareholders and those guests invited by the Company. All attendees will be asked to provide a photo identification, such as a driver’s license, in order to gain admittance to the Annual Meeting.
Voting by Proxy		Please submit a proxy as soon as possible so that your shares can be voted at the Annual Meeting in accordance with your instructions. You may submit your proxy:
		(1)    over the Internet;
		(2)    by telephone; or
		(3)    by mail.
		For specific instructions, refer to the Questions and Answers beginning on page 1 of this proxy statement and the voting instructions on the proxy card.

 

THIS PROXY STATEMENT AND PROXY CARD ARE BEING DISTRIBUTED ON OR ABOUT APRIL 18, 2007.

By Order of the Board of Directors,

CATHY J. HART
Corporate Secretary

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XCEL ENERGY INC.
414 Nicollet Mall
Minneapolis, Minnesota 55401-1993

April 18, 2007

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 23, 2007

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING

Q:            Why Am I Receiving These Materials?

A:    The Board of Directors of Xcel Energy Inc. is providing these proxy materials to you in connection with the solicitation by the Board of proxies to be voted at Xcel Energy’s Annual Meeting of Shareholders that will take place on May 23, 2007. You are requested to vote on the proposals described in this proxy statement.

Q:            What Information is Contained in These Materials?

A:    The information included in this proxy statement relates to the proposals to be voted on at the Annual Meeting, the voting process, the compensation of directors and our most highly paid officers and certain other required information. For those of you not receiving the proxy statement electronically, our 2006 Annual Report to Shareholders is enclosed in this mailing and also is available via the Internet at www.xcelenergy.com.

Q:            What Proposals Will be Voted On at the Annual Meeting?

A:    There are four proposals scheduled to be voted on at the Annual Meeting:

·        the election of a board of directors to hold office until the next annual meeting of shareholders or until their respective successors have been elected or appointed;

·        the ratification of the appointment of Deloitte & Touche LLP as Xcel Energy Inc.’s principal independent accountants for 2007;

·        if properly presented at the Annual Meeting, a shareholder proposal relating to the separation of the role of chairman of the board and chief executive officer; and

·        if properly presented at the Annual Meeting, a shareholder proposal relating to financial performance criteria for the Company’s executive compensation plans.

Q:            What Are the Company’s Voting Recommendations?

A:    Our Board recommends that you vote your shares as follows:

·        “FOR” each of the nominees to the Board;

·        “FOR” the ratification of the appointment of Deloitte & Touche LLP as Xcel Energy Inc.’s principal independent accountants for 2007; and

·        “AGAINST” each of the shareholder proposals.

Q:            What Shares Can I Vote?

A:    All shares of our common and preferred stock owned by you as of March 29, 2007, the record date, may be voted by you. These shares include those (1) held directly in your name as the shareholder of record and (2) held for you as the beneficial owner through a stockbroker, bank or other nominee.

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Q:            What is the Difference Between Holding Shares as a Shareholder of Record and as a Beneficial Owner?

A:    Many of our shareholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially:

Shareholder of Record.   If your shares are registered directly in your name with our transfer agent, The Bank of New York, you are considered, with respect to those shares, the shareholder of record and these proxy materials are being sent directly to you by us. As the shareholder of record, you have the right to vote your proxy directly to the Company (by Internet, by telephone or by mail) or to vote in person at the Annual Meeting. We have enclosed a proxy card for you to use.

Beneficial Owner.   If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name and these proxy materials are being forwarded to you by your broker or nominee who is considered, with respect to those shares, the shareholder of record. As the beneficial owner, you have the right to direct your broker on how to vote and are also invited to attend the Annual Meeting. If you wish to vote your shares in person, you must provide us with a legal proxy from your broker.

Q:            How Can I Vote My Shares?

A:    Whether you hold shares directly as the shareholder of record or beneficially in street name, you may vote in person at the Annual Meeting, by granting a proxy or, for shares held in street name, by submitting voting instructions to your broker or nominee. In most instances, you will be able to do this over the Internet, by telephone or by mail. Please refer to the summary instructions and those included on your proxy card or, for shares held in street name, the voting instruction card included by your broker or nominee.

·        By Internet — If you have Internet access, you may submit your proxy from any location in the world by following the “Vote by Internet” instructions on the proxy card.

·        By Telephone — If you are in the United States, you may submit your proxy by following the “Vote by Telephone” instructions on the proxy card.

·        By Mail — You may do this by signing your proxy card or, for shares held in street name, the voting instruction card included by your broker or nominee and mailing it in the enclosed, postage prepaid and addressed envelope. If you provide specific voting instructions, your shares will be voted as you instruct. If you sign your proxy card, but do not provide instructions, your shares will be voted as described in “How Are Votes Counted?” If you provide voting instructions but do not sign your card, your vote will not be counted.

We Encourage You to Vote by Internet or by Telephone.

Q:            Can I Change My Vote?

A:    If you change your mind after voting your proxy and prior to the Annual Meeting, you can revoke your proxy and change your proxy instructions. You can revoke your proxy by either signing another proxy with a later date, voting a second time by telephone or by the Internet prior to 11:59 p.m. EDT on May 22, 2007, or voting again at the Annual Meeting. Alternatively, you may provide a written statement to the Company (attention: Corporate Secretary) of your intention to revoke your proxy.

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Q:            Is My Vote Confidential?

A:    Yes. Xcel Energy Inc. has adopted a confidential voting policy under which shareholder votes are revealed only to a non-employee proxy tabulator or an independent inspector of election, except (1) as necessary to meet legal requirements, (2) in a dispute regarding authenticity of proxies and ballots, (3) in the event of a proxy contest if the other party does not agree to comply with the confidential voting policy, and (4) where disclosure may be necessary for the Company to assert or defend claims.

Q:            How Are Votes Counted?

A:    In the election of directors, you may vote “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. For the other proposals, you may vote “FOR,” “AGAINST,” or “ABSTAIN.” If you “ABSTAIN,” it has the same effect as a vote “AGAINST.” If you sign your proxy card or broker voting instruction card with no further instructions, your shares will be voted in accordance with the recommendations of the Board. However, if you are a participant in one of our employee savings or stock ownership plans, your proxy card is a voting directive for shares allocated to your account. The trustee will vote the shares as instructed by you in your voting directive. If you do not return your voting directive, the trustee will vote your allocated shares, along with all unallocated shares held, in the same proportion that all other allocated shares are voted.

If you are a participant in our Dividend Reinvestment and Cash Payment Plan, your proxy form will include the shares held on your behalf under such plan and the shares will be voted in accordance with your proxy vote. If you do not vote your proxy, your shares in the Dividend Reinvestment and Cash Payment Plan will not be voted.

Q:            What is the Voting Requirement to Approve Each of the Proposals?

A:    All proposals require the affirmative “FOR” vote of a majority of the voting power of the shares present. For the election of directors, you are entitled to cumulatively vote your shares as described more specifically under the heading “Proposal No. 1 Election of Directors.” If you are a beneficial owner and do not provide the shareholder of record with voting instructions, your shares may constitute broker non-votes for certain proposals, as described in “What is the Quorum Requirement for the Annual Meeting?” below. In tabulating the voting result for any particular proposal, abstentions from voting are treated as votes “AGAINST” that proposal.

Q:            What Does it Mean if I Receive More Than One Proxy or Voting Instruction Card?

A:    It means your shares are registered differently or are in more than one account. Please provide voting instructions for all proxy and voting instruction cards you receive.

Q:            How Can I Obtain an Admission Ticket for the Annual Meeting?

A:  If you are a registered shareholder, the admission ticket is attached to the enclosed proxy card. You will not receive an admission ticket if a bank or a broker holds your shares. In that case, please come to the Annual Meeting and present proof of ownership of our stock at the registration table. A photo identification, such as a driver’s license, will also be requested.

Q:            Where Can I Find the Voting Results of the Annual Meeting?

A:  We will announce preliminary voting results at the Annual Meeting. When the votes are finalized, we will include the final results in our second quarter Form 10-Q, which will be available on our website, www.xcelenergy.com, on or before August 9, 2007.

Q:            What Classes of Shares are Entitled to be Voted?

A:  If you owned shares of our common or preferred stock at the close of business on March 29, 2007, the record date, you are entitled to vote at the Annual Meeting. Each share of our common

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stock is entitled to one vote upon each matter presented at the Annual Meeting. On March 29, 2007, there were 408,805,486 shares of common stock issued and outstanding. Of these, 408,737,319 were eligible to vote. The balance of the shares of our outstanding common stock represent shares in our predecessor companies that have not yet been exchanged for shares of our common stock as required by the terms of the applicable mergers. Accordingly, these unexchanged shares are not eligible to vote. If you owned preferred stock (other than the $3.60 Series), you are entitled to one vote per share of such preferred stock upon each matter presented at the Annual Meeting. On March 29, 2007, we had 774,800 shares of our preferred stock (other than the $3.60 Series) outstanding. If you owned shares of our $3.60 Series preferred stock, you are entitled to three votes per share of such $3.60 Series preferred stock upon each matter presented at the Annual Meeting. On March 29, 2007, we had 275,000 shares of our $3.60 Series preferred stock outstanding. Other than as described below under the heading “Common Stock Ownership of Directors, Executive Officers and 5% Shareholders,” no person holds of record or, to our knowledge, beneficially owns more than 5% of any class of our outstanding voting securities.

Q:            What is the Quorum Requirement for the Annual Meeting?

A:  The quorum requirement for holding the Annual Meeting and transacting business is a majority of the voting power of the shares of common stock and cumulative preferred stock issued, outstanding and entitled to vote at a meeting. The shares may be present in person or represented by proxy at the Annual Meeting. If you submit a properly executed proxy card or vote in person, by telephone or over the Internet, you will be considered part of the quorum. Both abstentions and broker non-votes will be counted for the purpose of determining the presence of a quorum. Generally, broker non-votes occur when shares held by a broker for a beneficial owner are not voted with respect to a particular proposal because (1) the broker has not received voting instructions from the beneficial owner and (2) the broker lacks discretionary voting power to vote such shares.

Q:            Who Will Count the Vote?

A:  Representatives of The Bank of New York will tabulate the votes and act as the inspectors of election.

Q:            Who Will Bear the Cost of Soliciting Votes for the Annual Meeting?

A:  The Company will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials, except that certain expenses for Internet access may be incurred by you if you choose to access the proxy materials and/or vote over the Internet. In addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees, who will not receive any additional compensation for these solicitation activities. We also have hired Georgeson Inc. to assist us in the distribution of proxy materials and the solicitation of votes. We will pay Georgeson Inc. a fee of $7,500 for these services. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to beneficial owners of stock.

Q:            Does the Company Offer Shareholders Electronic Delivery of Proxy Materials?

A:  Yes. The Company offers shareholders the option to receive the Annual Report to Shareholders and proxy statement electronically, instead of receiving paper copies of these documents in the mail. You must consent to do so prior to the record date for the Annual Meeting.

To provide your consent for electronic delivery, please go to www.xcelenergy.com and click on “Investor Information.” Then look for electronic delivery. As soon as the Annual Report to Shareholders and proxy statement are available, electronic delivery participants will receive an e-mail with a link to the information and a control number to use to vote online.

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Q:            What Happens if Additional Proposals are Presented at the Annual Meeting?

A:  Other than the proposals described in this proxy statement, we do not expect any matters to be presented for a vote at the Annual Meeting. If you grant a proxy, the persons named as proxy holders, Benjamin G.S. Fowke III and Cathy J. Hart, or either of them, will have the discretion to vote your shares on any additional matters properly presented for a vote at the Annual Meeting. If for any unforeseen reason any of our nominees is not available as a candidate for director, the persons named as proxy holders will vote your proxy for such other candidate or candidates as may be nominated by the Board.

Q:            May I Propose Actions for Consideration at Next Year’s Annual Meeting of Shareholders or Nominate Individuals to Serve as Directors?

A:              Yes, you may submit proposals for consideration at future shareholder meetings as follows:

To Be Included in the Proxy Statement. Unless we indicate otherwise at a later date, in order for a shareholder proposal to be considered for inclusion in the Company’s proxy statement for next year’s annual meeting, the written proposal must be received by the Corporate Secretary no later than 5:00 p.m. CDT on December 20, 2007. These proposals must be in writing and sent to: Corporate Secretary, Xcel Energy Inc., 414 Nicollet Mall — 5th floor, Minneapolis, Minnesota 55401-1993. These proposals also will need to comply with Securities and Exchange Commission regulations regarding the inclusion of shareholder proposals in Company-sponsored proxy materials.

To Be Raised from the Floor. Similarly, unless we indicate otherwise at a later date, in order for a shareholder proposal to be raised from the floor during next year’s annual meeting, the shareholder’s written notice must be received by the Corporate Secretary between January 18, 2008 and March 4, 2008, and must contain certain information as required under our bylaws. You may contact the Corporate Secretary at our headquarters for a copy of the relevant provisions of our bylaws regarding the requirements for making shareholder proposals. Please note that these requirements relate only to matters a shareholder wishes to bring before next year’s annual meeting and that are not to be included in our proxy statement.

To Recommend an Individual to Serve as a Director. You may make a recommendation to our Governance, Compensation and Nominating Committee of an individual to serve as a director by sending a written statement of the qualifications of the recommended individual to the Corporate Secretary of Xcel Energy Inc. at 414 Nicollet Mall — 5th floor, Minneapolis, Minnesota 55401-1993. In order to be considered for next year’s annual meeting, your recommendation should be received by October 12, 2007.

Q:            I Received More Than One Complete Proxy Package. Is it Possible to Eliminate Duplicates?

A:  Yes, we have adopted a procedure approved by the Securities and Exchange Commission called “householding.” Under this procedure, certain shareholders who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of our Annual Report to Shareholders and proxy statement, unless one or more of these shareholders notifies us that they would like to continue to receive individual copies. This will reduce our printing costs and postage fees. Shareholders who participate in householding will continue to receive separate proxy cards. Also, householding will not in any way affect dividend check mailings.

If you and other shareholders of record with whom you share an address currently receive multiple copies of our Annual Report to Shareholders and/or proxy statement, or if you hold stock in more than one account, and in either case, you would like to receive only a single copy of the Annual

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Report to Shareholders or proxy statement for your household, please forward your written request to The Bank of New York, Shareholder Relations — 12E, P.O. Box 11258, Church Street Station, New York, New York 10286. You may also e-consent to householding on the Internet at www.stockbny.com.

If you are a shareholder of record, or a beneficial owner whose shares are held through a broker or bank, and participate in householding and would like to receive a separate copy of our 2006 Annual Report to Shareholders or this proxy statement, please contact us in the manner described in the immediately preceding paragraph or call 1-877-778-6786. We will deliver the requested documents to you promptly upon receipt of your request. If you are a shareholder of record and you want to receive separate copies of the Annual Report to Shareholders and proxy statement in the future, please contact us in the manner described in the immediately preceding paragraph or call 1-877-778-6786. If you are not a shareholder of record and your shares are held through a broker or bank and you want to receive separate copies of the Annual Report to Shareholders and proxy statement in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker, or other nominee record holder.

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CORPORATE GOVERNANCE

Governance Guidelines and Code of Conduct

The Board of Directors of the Company operates under a set of written Guidelines on Corporate Governance. These Guidelines set forth the Company’s corporate governance philosophy and the governance policies and practices that the Company has established to assist in governing the Company and its affiliates.

The Guidelines describe Board membership criteria, the Board selection and member orientation process and stock ownership guidelines. The Guidelines require that all but two of the directors must be independent and that the members of each committee must be independent. Directors are to retire from the Board prior to the annual meeting of shareholders in the year in which they turn 72 and, except for inside directors and directors first elected prior to 2000, are to serve no more than 15 years on the Board. The Guidelines also provide that no director may serve on more than three other boards of directors of publicly held companies without the prior approval of the Governance, Compensation and Nominating Committee. Directors whose professional responsibilities change, such as upon retirement or a change in employer, are required to submit a letter of resignation for the Board’s consideration.

The Guidelines provide that the Governance, Compensation and Nominating Committee of the Board will evaluate the performance of the Chief Executive Officer on an annual basis, using objective criteria. The Guidelines also provide that the members of the Board will conduct an annual assessment of the performance of the Board and the processes used by the Board. The members of each respective committee will conduct an annual assessment of the performance of the committees.

The Guidelines provide that Board members have full access to officers and employees of the Company and, as necessary and appropriate, the Company’s independent advisors, including legal counsel and independent accountants. The Guidelines further provide that the Board and each committee have the power to hire independent legal, financial or other advisors as they deem necessary. The Guidelines provide that the independent directors are to meet in executive session on a regularly scheduled basis, and that the rotating lead independent director will chair these executive sessions. The chairs of the Board’s respective committees identified in the following sections will serve, on a quarterly rotational basis, as the lead independent director.

The Board of Directors of the Company has adopted a Code of Conduct that applies to employees and directors of Xcel Energy Inc., its wholly owned subsidiaries and affiliates. Our Code of Conduct applies to our chief executive officer, our chief financial officer and our chief accounting officer, and complies with the requirements imposed by the Sarbanes-Oxley Act of 2002 and the rules issued thereunder for codes of conduct applicable to such officers as well as the governance requirements of the New York Stock Exchange. All of our corporate governance material, including our Code of Conduct, our Guidelines on Corporate Governance and each of our committee charters, is available for public viewing on the Company’s web site at www.xcelenergy.com, under “About Us — Corporate Governance.” Copies of our corporate governance material are also available free of charge to shareholders who request them. Requests must be in writing and sent to: Corporate Secretary, Xcel Energy Inc., 414 Nicollet Mall, 5th floor, Minneapolis, Minnesota 55401-1993.

Board Composition and Independence

In 2004, the Board requested and received shareholder approval to amend our bylaws to eliminate the classification of the Board of Directors. Consequently, all directors are elected annually for one-year terms.

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The Board of Directors of the Company currently has thirteen directors, twelve of whom are independent within the meaning of the listing standards of the New York Stock Exchange. For purposes of determining independence, we have adopted the following categorical standards for director independence in compliance with the listing standards of the New York Stock Exchange:

·       No director qualifies as “independent” unless the Board affirmatively determines, taking into account all of the relevant facts and circumstances, that the director has no material relationship with us or any of our subsidiaries (either directly or as a partner, shareholder or officer of an organization that has a relationship with us or any of our subsidiaries);

·       A director who is an employee, or whose immediate family member is an executive officer, of us or any of our subsidiaries is not independent until four years after the end of such employment relationship;

·       A director who receives, or whose immediate family member receives, more than $100,000 per year in direct compensation from us or any of our subsidiaries, other than director and committee fees and pension or other forms or deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), is not independent until four years after he or she ceases to receive more than $100,000 per year in such compensation;

·       A director (a) who is a current partner or employee of the firm that is the Company’s external auditor, or (b) whose immediate family member is a current partner of such firm or a current employee of such firm and participates in that firm’s audit, assurance, or tax compliance (but not tax planning) practice, or (c) who was, or whose immediate family member was, within the last four years a partner or employee of such a firm and personally worked on the Company’s audit within that time, is not independent;

·       A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of our or any of our subsidiaries’ present executives serve on that company’s compensation committee is not “independent” until four years after the end of such service or the employment relationship;

·       A director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, us or any of our subsidiaries for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues is not “independent” until four years after falling below such threshold; and

·       A director who is an employee or representative of a significant supplier of any Xcel Energy business unit or legal entity will not be “independent” unless we entered into the relationship with the supplier as a result of competitive purchasing practices.

For purposes of determining whether a director is independent, the Board has determined that the receipt of regulated electric and gas service from the Company does not constitute a material relationship. One of our directors, Mr. Richard K. Davis, is the President and Chief Executive Officer of U.S. Bancorp. As described below under the heading “Related Party Transactions,” U.S. Bancorp serves as trustee for some of our debt securities and has in the past, and may in the future, perform investment and other banking services for the Company. For purposes of determining whether Mr. Davis is independent, the Board has determined that, due to the nature and relative size of such banking work compared to the revenues of both the Company and U.S. Bancorp, such banking work did not constitute a material relationship.

The Board determined that the following current members of the Board: Mr. C. Coney Burgess, Mr. Fredric W. Corrigan, Mr. Richard K. Davis, Mr. Roger R. Hemminghaus, Mr. A. Barry Hirschfeld,

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Mr. Douglas W. Leatherdale, Mr. Albert F. Moreno, Ms. Margaret R. Preska, Ms. A. Patricia Sampson, Mr. Richard H. Truly, Mr. David A. Westerlund, and Mr. Timothy V. Wolf meet the independence standards described above. Mr. Richard C. Kelly does not meet the independence standards because he is our current Chairman, President and Chief Executive Officer.

Standing Committees; Independent Members

Our Board has four standing committees — Audit; Finance; Governance, Compensation and Nominating; and Operations, Nuclear and Environmental. All members of these committees are independent directors who are nominated and approved by the Board each year. The Governance, Compensation and Nominating Committee will recommend to the Board the directors to chair these committees. The roles and responsibilities of these committees are defined in the committee charters adopted by the Board and provide for oversight of executive management. Each of the charters is available for public viewing on our website at www.xcelenergy.com under “About Us — Corporate Governance” and the name of the specific committee. The duties and responsibilities of all the Board committees are reviewed regularly and are outlined in the following sections.

Lead Independent Directors

In an effort to strengthen independent oversight of management and to strengthen communication, the Board has appointed the chairpersons of each committee (Messrs. Burgess, Hemminghaus, Hirschfeld and Leatherdale) to serve in the role of lead independent director on a quarterly rotational basis. The responsibilities of the lead independent director include:

·       Preside at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors

·       Serve as liaison between the Chairman and the independent directors

·       Approve the agenda for meetings of the Board

·       Approve meeting schedules to ensure sufficient time is provided for discussion of agenda items

·       Call meetings of the independent directors

·       Provide consultation and direct communication with major shareholders, if requested

The executive sessions of the non-management directors are held on a regular basis. During 2006, the independent directors met in executive session on six (6) occasions.

Process Related to Executive Officer and Director Compensation

Under the terms of its charter, the Governance, Compensation and Nominating Committee of the Board of Directors has broad authority to develop and implement compensation policies and programs for executive officers and Board members. In particular the Governance, Compensation and Nominating Committee is to:

·       Review and approve corporate goals and objectives relevant to the compensation of the Chief Executive Officer

·       Evaluate the performance of the Chief Executive Officer in light of those corporate goals and objectives and set the compensation level for the Chief Executive Officer based on such evaluation and any other factors it deems appropriate

·       Review and recommend to the Board the approval, adoption and amendment of all cash and equity-based incentive compensation plans in which any executive officer participates and all other equity-based plans

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·       Administer the equity-based incentive compensation plans and any other plans adopted by the Board that contemplate administration by the Governance, Compensation and Nominating Committee

·       Review performance and approve salaries and other forms of compensation, including perquisites and awards under the incentive compensation plans and equity-based plans, for executive and senior officers and report the results of such performance and compensation evaluations to the Board

·       Approve short-term and long-term incentive awards and review company annual and long-term performance against goals

·       Review severance arrangements for senior officers

·       Review and recommend Board compensation and retirement policies and plans

The Governance, Compensation and Nominating Committee may in its discretion delegate all or a portion of its duties and responsibilities to a subcommittee.

The Chief Executive Officer may make recommendations to the Governance, Compensation and Nominating Committee regarding the compensation levels for executive officers other than his own.

The Governance, Compensation and Nominating Committee has in the past, and expects to do so in the future as well, directly engaged Towers Perrin, a nationally recognized compensation consulting firm, to help survey the marketplace. Typically, Towers Perrin has been asked to provide information to the Governance, Compensation and Nominating Committee about officer compensation within the energy industry and on a broader scale. In particular, for 2006, at the request of the Governance, Compensation and Nominating Committee, Towers Perrin provided an annual evaluation of trends in executive compensation and director compensation and an evaluation of executive and senior officer compensation. Towers Perrin based its evaluation on executive compensation data collected in two survey groups — one for energy companies and one for general industry companies.

In 2006, Towers Perrin provided an analysis of the Company’s outside director compensation with that of the utility industry and S&P 500 companies. Specific components that were analyzed included annual board and committee retainers, board and committee meeting fees, committee chairperson fees, and annualized expected value of stock-based compensation. The Governance, Compensation and Nominating Committee then established new directors fees at its meeting in August 2006.

Communications with the Board of Directors

Shareholders or other interested parties who wish to communicate with members of the Board, including the independent directors individually or as a group, may send correspondence to them in care of the Corporate Secretary at the Company’s principal offices, 414 Nicollet Mall, 5th floor, Minneapolis, Minnesota 55401-1993. Alternatively, the directors may be contacted via e-mail at boardofdirectors@xcelenergy.com. We currently do not intend to have the Corporate Secretary screen this correspondence, but we may change this policy if directed by the Board due to the nature and volume of the correspondence.

The Company does not have a formal policy, but encourages each of its Board members to attend the Annual Meeting. All members of our Board as of the 2006 annual meeting attended the 2006 meeting.

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Nomination of Directors

In considering individuals for nomination as directors, the Governance, Compensation, and Nominating Committee typically solicits recommendations from its current directors and is authorized to engage third party advisors, including search firms, to assist in the identification and evaluation of candidates. For 2006, the committee hired Russell Reynolds Associates, Inc., an international search firm, to help identify and facilitate the screening and interview process of potential director nominees. The search firm screened the candidates, conducted reference checks, prepared a biography of each candidate for the committee to review and helped set up interviews. The committee selected the nominees that best suited our needs. Mr. David A. Westerlund and Mr. Timothy V. Wolf were each initially recommended by Russell Reynolds Associates, Inc. and elected to the Board in December 2006, effective January 30, 2007.

In evaluating potential candidates, the committee may consider such factors as it deems appropriate. These factors may include judgment, skill, diversity, integrity, experience with businesses and other organizations of comparable size, the interplay of the candidate’s experience with the experience of other Board members and the extent to which the candidate would be a desirable addition to the Board and any committees of the Board. While the committee has not established any specific minimum qualifications for director nominees, the committee believes that demonstrated leadership, as well as significant years of service in an area of endeavor such as business, law, public service, related industry or academia, is a desirable qualification for service as a director of the Company.

Any shareholder may make recommendations to the Governance, Compensation and Nominating Committee for membership on the Board by sending a written statement of the qualifications of the recommended individual to the Corporate Secretary at 414 Nicollet Mall — 5th Floor, Minneapolis, Minnesota 55401-1993. Such recommendations should be received by October 12, 2007 in order to be considered for next year’s annual meeting. The committee will evaluate candidates recommended by shareholders on the same basis as it evaluates other candidates.

Prohibition on Loans; Ratification of Auditors

The Xcel Energy Inc. 2005 Omnibus Incentive Plan, approved by shareholders at the 2005 annual meeting, expressly prohibits Company loans to any employees, including executive officers.

As is more fully discussed later in this proxy statement, the Board of Directors is requesting shareholder ratification of the Audit Committee’s appointment of Deloitte & Touche LLP as the Company’s principal independent accountants for 2007.

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BOARD STRUCTURE AND COMPENSATION

As previously discussed, our Board currently consists of thirteen directors, twelve of whom are considered independent within the meaning of the listing standards of the New York Stock Exchange.

The Board had the following four standing committees during 2006:

·       Audit

·       Finance

·       Governance, Compensation and Nominating

·       Operations, Nuclear and Environmental

The function of each committee and current membership are described in the following sections. During 2006, the Board met seven (7) times and the independent directors met in executive session on six (6) occasions. Various committees of the Board met as indicated below. Of the eleven directors currently serving on the Board who served on the Board during 2006, nine (9) of them attended 100% of the meetings of the Board and committees on which such director served during 2006, one (1) director attended at least 90% of such meetings and Mr. Richard K. Davis attended 70% of such meetings.

Audit Committee

Members: Roger R. Hemminghaus (Chair), Fredric W. Corrigan, Douglas W. Leatherdale, Albert F. Moreno, Margaret R. Preska and Timothy V. Wolf. All members of the Audit Committee are independent, as defined in the listing standards of the New York Stock Exchange, and are financially literate in accordance with the listing standards of the New York Stock Exchange. The Board has determined that Roger R. Hemminghaus, Fredric W. Corrigan, Douglas W. Leatherdale and Mr. Timothy V. Wolf meet the Securities and Exchange Commission’s definition of audit committee financial expert.

Number of meetings in 2006: Six (6)

The functions of the Audit Committee include, among other things:

·       Oversight of our financial reporting process, including the integrity of our financial statements, compliance with legal and regulatory requirements, and the independence and performance of internal and external auditors;

·       Review of the annual audited financial statements and quarterly financial information with management and the independent auditors;

·       Appointment of independent auditors;

·       Review with the independent auditors of the scope and the planning of the annual audit;

·       Review of findings and recommendations of the independent auditors and management’s response to the recommendations of the independent auditors; and

·       Preparation of the Report of the Audit Committee included in this proxy statement.

Finance Committee

Members: C. Coney Burgess (Chair), Richard K. Davis, Roger R. Hemminghaus, Margaret R. Preska, A. Patricia Sampson and Timothy V. Wolf.

Number of meetings in 2006: Six (6)

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The functions of the Finance Committee include, among others:

·       Oversight of corporate capital structure and budgets;

·       Oversight of financial plans and dividend policies;

·       Recommendations as to dividends;

·       Oversight of insurance coverage and banking relationships;

·       Oversight of investor relations; and

·       Oversight of financial and operational risk management.

Governance, Compensation and Nominating Committee

Members: Douglas W. Leatherdale (Chair), C. Coney Burgess, Fredric W. Corrigan, A. Barry Hirschfeld, Richard H. Truly and David A. Westerlund. All members of the Governance, Compensation and Nominating Committee are independent, as defined in the listing standards of the New York Stock Exchange.

Number of meetings in 2006: Six (6)

The functions of the Governance, Compensation and Nominating Committee include, among others:

·       Determination of Board organization, selection of director nominees and setting of director compensation;

·       Evaluation of performance of the Chief Executive Officer and other senior officers;

·       Approval of executive compensation, including incentives and other benefits;

·       Establishment of corporate governance principles and procedures;

·       Review of corporate structure and policies with respect to human resource policies, corporate ethics, and long range planning and strategy;

·       Review proxy disclosures regarding directors’ and officers’ compensation and benefits, including but not limited to the Compensation Discussion and Analysis; and

·       Preparation of the Governance, Compensation and Nominating Committee Report on its review of management’s report on executive compensation for inclusion in this proxy statement.

Operations, Nuclear and Environmental Committee

Members: A. Barry Hirschfeld (Chair), Richard K. Davis, Albert F. Moreno, A. Patricia Sampson, Richard H. Truly and David A. Westerlund.

Number of meetings in 2006: Four (4)

The functions of the Operations, Nuclear and Environmental Committee include, among others:

·       Oversight of nuclear and non-nuclear operations, electric and gas delivery and retail service operations;

·       Review of environmental compliance, performance issues and initiatives, and customer operations;

·       Review of safety and operations performance; and

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·       Review of operational decisions and plans related to performance.

Directors’ Compensation for 2006

The following table provides information on the compensation we paid during 2006 to each of our non-employee directors. Mr. Kelly, who is employed by the Company, received no compensation for his Board activities.

Director Compensation

(1)            Amounts in this column represent the dollar value of the stock equivalent units discussed below. As of December 31, 2006, the number of stock equivalent units owned by the directors were as follows: Mr. Anderson: 6,805 units; Mr. Burgess: 45,515 units; Mr. Corrigan: 3,586 units; Mr. Davis: 3,586 units; Mr. Hemminghaus; 57,096 units; Mr. Hirschfeld: 47,890 units; Mr. Leatherdale: 73,734 units; Mr. Moreno: 54,131 units; Ms. Preska: 45,889 units; Ms. Sampson: 46,462 units and Mr. Truly: 5,732 units.

(2)            Elected as director effective January 30, 2007 and did not receive any compensation from the Company in 2006.

(3)            Served as a director until May 17, 2006.

The fee amounts reflected in column (b) above include an annual retainer, board and committee meeting fees and additional retainers for service as committee chair or audit committee member. The

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amounts reflected in column (c) represent stock equivalent units. For 2006, the amounts payable for each of those components was as follows:

 

We have a Stock Equivalent Plan for Non-Employee Directors to more closely align directors’ interests with those of our shareholders. Under this Stock Equivalent Plan, directors may receive an annual award of stock equivalent units with each unit having a value equal to one share of our common stock. Stock equivalent units do not entitle a director to vote and are only payable as a distribution of whole shares of the Company’s common stock upon a director’s disability or termination of service. The stock equivalent units fluctuate in value as the value of our common stock fluctuates. Additional stock equivalent units are accumulated upon the payment of, and at the same value as, dividends declared on our common stock.

On May 18, 2006, each then-serving non-employee director of the Company received an award of 3,509.73 stock equivalent units representing approximately $64,000 in cash value. Additional stock equivalent units were accumulated during 2006 as dividends were paid on our common stock. The number of stock equivalents for each non-employee director is listed in the Beneficial Ownership Table on page 31.

Prior to 2005, directors were able to participate in a deferred compensation plan that provided for deferral of director retainer and meeting fees until after retirement from the Board. A director could defer director retainer and meeting fees into the Stock Equivalent Plan. A director who elected to defer compensation under this plan received a premium of 20% of the compensation that was deferred. In December 2004, the Board amended a number of executive and director compensation plans, including the Stock Equivalent Plan for Non-Employee Directors and the Non-Employee Directors Deferred Compensation Plan, in part to comply with deferred compensation requirements of new Section 409A of the Internal Revenue Code of 1986, as amended, as added by Section 885 of the American Jobs Creation Act of 2004, and other legislation. As a result of the amendments, participation in the Stock Equivalent Plan for Non-Employee Directors and the Non-Employee Directors Deferred Compensation Plan was frozen. The plans will continue to operate in accordance with their terms with respect to amounts deferred and/or awarded prior to January 1, 2005. It is expected that the plans will be amended in 2007 in order to achieve compliance with the new deferred compensation requirements. In addition, Mr. Roger R. Hemminghaus, Mr. A. Barry Hirschfeld and Mr. C. Coney Burgess are entitled to a benefit upon retirement from the Board resulting from their service as a director for a predecessor company under a tenure policy that was frozen on August 22, 2000 at the time of the formation of Xcel Energy. Based on the terms of this tenure policy, Messrs. Hemminghaus, Hirschfeld and Burgess are eligible to receive a monthly benefit ($353.75, $1,844.20 and $406.25, respectively) for the lesser of ten years or life.

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PROPOSALS TO BE VOTED ON

PROPOSAL NO. 1
ELECTION OF DIRECTORS

Number of Nominees, Classification and Voting

The Board of Directors consists of thirteen directors. Each director serves a one-year term, with all directors subject to annual election.

The following thirteen individuals are the nominees to be elected to serve until the 2008 annual meeting or until their successors are elected: C. Coney Burgess, Fredric W. Corrigan, Richard K. Davis, Roger R. Hemminghaus, A. Barry Hirschfeld, Richard C. Kelly, Douglas W. Leatherdale, Albert F. Moreno, Dr. Margaret R. Preska, A. Patricia Sampson, Richard H. Truly, David A Westerlund and Timothy V. Wolf. Each of the nominees is a current director.

The persons named as proxies intend to vote the proxies for the election of the nominees to the Board. If any of the nominees should be unavailable to serve as a director by an event that is not anticipated, the persons named as proxies reserve full discretion to vote for any other persons who may be nominated.

You are entitled to vote cumulatively for the election of directors. This means that you are entitled to a number of votes equal to the number of votes entitled to be cast with respect to the shares held by you multiplied by the number of directors to be elected. You may cast all your votes for one nominee or distribute your votes among the nominees. The election of each director shall be decided by majority vote. This means that, to be elected, a nominee must receive the affirmative vote of the holders of a majority of the total voting power present in person or by proxy and entitled to vote at the Annual Meeting. With respect to the election of the nominated directors, the persons named as proxies reserve the right to cumulate votes represented by proxies which they receive and to distribute such votes among one or more of the nominees at their discretion.

Information as to Nominees

The nominees, their ages, principal occupations or positions, experience and the years first elected as a director of the Company, if applicable, are shown on the following pages.

None of the nominees are related to each other or to any other nominee or to any executive officer of the Company or its subsidiaries by blood, marriage or adoption.

Except for Mr. Kelly, no nominee has been an employee of the Company within the past five years.

The Board of Directors recommends a vote “FOR” the election to the Board of each of the following nominees. Proxies solicited by the Board of Directors will be voted “FOR” each of the nominees, unless a contrary vote is specified.

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Nominees for Directors

 

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PROPOSAL NO. 2

RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS XCEL ENERGY’S
PRINCIPAL INDEPENDENT ACCOUNTANTS FOR 2007

The Audit Committee of our Board of Directors has selected Deloitte & Touche LLP as the principal independent accountants to audit the accounts of the Company for the fiscal year ending December 31, 2007. Deloitte & Touche LLP was originally selected by the Board, upon the recommendation of the Audit Committee, as principal independent accountants for the Company effective March 27, 2002.

While the Audit Committee is responsible for the appointment, retention, termination and oversight of the Company’s principal independent accountants, the Audit Committee and the Board are requesting, as a matter of policy, that shareholders ratify the appointment of Deloitte & Touche LLP as the Company’s principal independent accountants. The Audit Committee is not required to take any action as a result of the outcome of the vote on this proposal. However, if the shareholders do not ratify the appointment, the Audit Committee may investigate the reasons for the shareholders’ rejection and may consider whether to retain Deloitte & Touche LLP or to appoint another auditor. Furthermore, even if the appointment is ratified, the Audit Committee in its discretion may direct the appointment of different principal independent accountants at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders.

Representatives of Deloitte & Touche LLP will be present at the Annual Meeting and will have an opportunity to make a statement if they so desire. Such representatives will be available to respond to appropriate questions from shareholders at the Annual Meeting.

Vote Required

The affirmative vote of the holders of a majority of the total voting power present in person or by proxy and entitled to vote at the Annual Meeting will be required for the ratification of the appointment of Deloitte & Touche LLP as the Company’s principal independent accountants for 2007. Abstentions from voting in this matter are treated as votes “AGAINST.”  Proxies solicited by the Board of Directors will be voted “FOR” the proposal, unless a different vote is specified.

The Board of Directors recommends a vote “FOR” the ratification of the appointment of the Company’s principal independent accountants. Proxies solicited by the Board of Directors will be voted “FOR” the ratification of the appointment of the Company’s principal independent accountants, unless a different vote is specified.

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PROPOSAL NO. 3

SHAREHOLDER PROPOSAL RELATING TO THE ROLE OF THE CHAIRMAN AND CEO

Gerald R. Armstrong, 820 Sixteenth Street, No. 705, Denver, Colorado, 80202, beneficial owner of 914 shares, has given notice that he intends to present for action at the Annual Meeting the following resolution:

Resolution

That the shareholders of XCEL ENERGY INC. request their Board of Directors to establish a policy of separating the roles of the Chairman of the Board and the Chief Executive Officer (or President) whenever possible, so that an independent director who has not served as an executive officer of the Company serves as the Chairman of the Board of Directors. This proposal shall not apply to the extent that complying would necessarily breach any contractual obligations in effect at the time of the 2007 annual meeting.

STATEMENT

There are only a few cases where the back-dating of stock options took place in the presence of a non-employee chairman of the board. There was, however, a predominance of back-dating options where the chairman was an employee or also served as the corporate president.

PLEASE NOTE THE PRESENCE OF DOUGLAS LEATHERDALE, A DIRECTOR OF UNITEDHEALTH GROUP, OF THE BOARD OF XCEL ENERGY INC.

“One person” leadership did not work under the previous Chairman of the Board, President, and Chief Executive Officer Wayne Brunetti and now our Board is creating another era of “one person” leadership and allowing another “empire” to be built.

Xcel’s board defied the request to the Attorney General to terminate the former chairman.

As the primary purpose of the Board of Directors is to protect shareholders’ interests by providing independent oversight of management, including the Director serving as President and/or Chief Executive Officer, the proponent believes that the separation of these roles will promote greater accountability to the Board of Directors and to the shareholders whose capital has created the company.

BUSINESSWEEK MAGAZINE (November 27, 2006) quotes Ira Millstein:  “Why the Roles of CEO and Chairman are Better Off Apart — Splitting the roles of chairman and CEO is sensible if you seek good governance. The tasks are different:  The board oversees, and management manages. Each needs its own leader, and each leader needs to respect the limits of each job.”

In 2004, Mr. Brunetti abolished the position of Vice-President for Colorado and Wyoming noting there was not a need for a geographical vice president. Just over a year ago, Mr. Kelly appointed someone to a similar position but with a different title and announced that he was purchasing a home in suburban Denver and would be “splitting time between Xcel’s Minneapolis headquarters and its Colorado offices.”

The proponent believes that an independent Board Chairman would have followed approved governance practices and required policies of accountability.

Many respected institutional investors support the proposed separation. CalPERS Corporate Core Principles and Guideline state:  “the independence of a majority of the Board is not enough” and that “the leadership of the Board must embrace independence, and it must ultimately change the way in which directors interact with management.

If you agree, please vote “FOR” this proposal.

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THE XCEL ENERGY BOARD UNANIMOUSLY RECOMMENDS
A VOTE AGAINST THIS PROPOSAL

The Xcel Energy Board of Directors believes that maintaining its independence from management is important. The Board is committed to high standards of corporate governance and has adopted Corporate Governance Guidelines that are posted on our website. These guidelines outline the following policies for board independence: Outside, Independent Directors; Committee Membership; Lead Independent Directors; Executive Board Sessions, and Succession Planning.

The Board of Directors, which includes twelve independent, non-management directors among its thirteen members, believes that the positions of Chairman of the Board and Chief Executive Officer should be held by the same person, except in unusual circumstances such as a transition in leadership. The Board believes that currently it is in the best interest of our company to have a single person serve as Chairman and CEO to provide unified leadership and direction. The Board may separate these positions in the future should circumstances change.

The Board believes that its current independent Board structure is best for our Company and provides the necessary good corporate governance and accountability. The Board does not believe that it is necessary for the Chairman to be an independent director and does not believe its independence is compromised by having a single person serve as Chairman and CEO. The functions of the Board are carried out by the full Board, and when delegated, by the Board committees. Each director is a full and equal participant in the major strategic and policy decisions of our company. The independent Board members meet on a regular basis in executive sessions that are led by a rotating lead director, who is an independent director. As described in the Corporate Governance section on pages 7 to 11 in this proxy statement, the lead independent director has numerous responsibilities.

The Board does not agree that separating the roles of Chairman and CEO will promote greater accountability to the shareholders. The Board also disputes the shareholder proponent’s claim that somehow approved governance practices and policies for accountability were not followed. Our Corporate Governance Guidelines were designed, in part, to ensure the independence of the Board and include a formal process for the evaluation of CEO performance by all independent Board members.

The Board believes that our corporate governance structure, with its emphasis on independence and the active role of the lead independent director, makes it unnecessary to have a policy of separating the roles of Chairman and CEO. The Board believes it is important that it has the discretion to act in the best interests of shareholders at any point in time. The proposal would deprive the Board of its flexibility to organize its functions and conduct its business in the manner it deems most efficient.

The Board of Directors recommends a vote “AGAINST” this proposal for the reasons described above. Proxies solicited by the Board of Directors will be voted “AGAINST” this proposal unless a shareholder has indicated otherwise in voting the proxy.

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PROPOSAL NO. 4

SHAREHOLDER PROPOSAL RELATING TO EXECUTIVE COMPENSATION

The Sheet Metal Workers’ National Pension Fund, 601 N. Fairfax Street, Suite 500, Alexandria, Virginia 22314, beneficial owner of 12,750 shares, has given notice that it intends to present for action at the Annual Meeting the following resolution:

Pay-for-Superior-Performance Proposal

Resolved:   That the shareholders of Xcel Energy, Inc. (“Company”) request that the Board of Director’s Executive Compensation Committee establish a pay-for-superior-performance standard in the Company’s executive compensation plan for senior executives (“Plan”), by incorporating the following principles into the Plan:

1.               The annual incentive or bonus component of the Plan should utilize defined financial performance criteria that can be benchmarked against a disclosed peer group of companies, and provide that an annual bonus is awarded only when the Company’s performance exceeds its peers’ median or mean performance on the selected financial criteria;

2.               The long-term compensation component of the Plan should utilize defined financial and/or stock price performance criteria that can be benchmarked against a disclosed peer group of companies. Options, restricted shares, or other equity or non-equity compensation used in the Plan should be structured so that compensation is received only when the Company’s performance exceeds its peers’ median or mean performance on the selected financial and stock price performance criteria; and

3.               Plan disclosure should be sufficient to allow shareholders to determine and monitor the pay and performance correlation established in the Plan.

Supporting Statement:   We feel it is imperative that compensation plans for senior executives be designed and implemented to promote long-term corporate value. A critical design feature of a well-conceived executive compensation plan is a close correlation between the level of pay and the level of corporate performance relative to industry peers. We believe the failure to tie executive compensation to superior corporate performance; that is, performance exceeding peer group performance, has fueled the escalation of executive compensation and detracted from the goal of enhancing long-term corporate value.

We believe that common compensation practices have contributed to excessive executive compensation. Compensation committees typically target senior executive total compensation at the median level of a selected peer group, then they design any annual and long-term incentive plan performance criteria and benchmarks to deliver a significant portion of the total compensation target regardless of the company’s performance relative to its peers. High total compensation targets combined with less than rigorous performance benchmarks yield a pattern of superior-pay-for-average-performance. The problem is exacerbated when companies include annual bonus payments among earnings used to calculate supplemental executive retirement plan (SERP) benefit levels, guaranteeing excessive levels of lifetime income through inflated pension payments.

We believe the Company’s Plan fails to promote the pay-for-superior-performance principle. Our Proposal offers a straightforward solution:  The Compensation Committee should establish and disclose financial and stock price performance criteria and set peer group-related performance benchmarks that permit awards or payouts in its annual and long-term incentive compensation plans only when the Company’s performance exceeds the median of its peer group. A senior executive compensation plan based on sound pay-for-superior-performance principles will help moderate excessive executive compensation and create competitive compensation incentives that will focus senior executives on building sustainable long-term corporate value.

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THE XCEL ENERGY BOARD UNANIMOUSLY

RECOMMENDS A VOTE AGAINST THIS PROPOSAL

The Xcel Energy Board of Directors believes the Company’s existing compensation programs appropriately reward performance by senior executives. The existing compensation programs, which include annual and long-term incentives, are designed and implemented to promote long-term corporate value, which is the purported goal of the proposal. As discussed in more detail below, the existing compensation programs are aligned with the interests of the Company’s shareholders, customers and employees.  In contrast, the proposal is not consistent with the interests of the Company’s shareholders, customers or employees and is ill suited for a public utility holding company with regulated operations in a number of states.

The Board believes the existing compensation programs promote long-term corporate value. The Board believes that long-term corporate value encompasses more than strictly financial performance, however. That is why our executive compensation programs are aligned with the interests of our shareholders, customers and employees. As described in the Compensation Discussion and Analysis appearing on pages 33 to 43 in this proxy statement, the annual and long-term incentive programs are designed to reward performance in different aspects of our business. The Company has designed its annual incentive to reward performance over the course of the year with respect to financial, environmental and safety goals, among others. For some of these goals, such as safety, it is appropriate to use external benchmarks in determining the appropriate goals and, in this case, the Company targets first quartile safety performance as compared to similar companies that are members of the Edison Electric Institute. For other goals, such as environmental, it is not appropriate to use external benchmarks as benchmarks may not be readily available or comparable to the Company’s operations. In every instance, these goals for annual incentives are implemented to promote long-term corporate value. Further, by emphasizing different aspects of our business, the goals promote the interests of the Company’s stakeholders.

Similarly, the Company has designed its long-term incentives to reward long-term financial and environmental performance. As described in the Compensation Discussion and Analysis, a component of the compensation program rewards financial performance based on total shareholder return compared to a peer group of similar energy companies. The Board believes this is one basis for an appropriate long-term incentive and rewards long-term performance.

In contrast to the Company’s existing compensation programs, the proposal is overly prescriptive and subverts other critical company goals to relative total shareholder return. For example, environmental stewardship is a stated and critical part of the Company’s strategy but would be struck from the Company’s compensation programs if the proposal stood. Further, the proposal is requesting that the Company’s annual incentive plan be based on defined financial criteria relative to a disclosed group of peer companies. The Company’s stakeholders consist of not only shareholders, but also of other key groups such as customers and employees. Therefore, other metrics such as safety or environmental goals are important indicators of Company performance and should not be excluded from potential performance metrics in the annual incentive plan—as would be the case if the Plan were limited to only financial criteria.

At the same time, the proposal’s approach, which would prescribe such an approach for all elements of the compensation program, is not appropriate. Measuring relative performance based solely on financial performance over a limited timeframe, particularly in a capital-intensive industry and in an industry where external factors such as weather can affect performance, may not be a reliable indication of whether a company is truly outperforming its peers over the long-term. The proposal states that awards should not be granted unless the Company performs at or above median or mean peer performance. Incorporating this guideline has the potential to encourage biased behavior among plan participants. Individuals may be influenced to take temporary actions (e.g., deferring

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maintenance and capital improvements) that ensure they at least outperform the median/mean performance of peers on a financial or shareholder return basis, without considering the longer-term implications of their actions. The Company’s executive compensation philosophy, on the other hand, is intended to ensure that long-term objectives are balanced with short-term actions. The Board believes this provides an objective approach to our annual and long-term goals, thereby resulting in balancing capital investment decisions with environmental stewardship. As a regulated utility, Xcel Energy and its peer companies have allowable rates of return, which vary from company-to-company as determined on a state-by-state basis. Therefore, annual financial performance is influenced by both the allowable rate of return as well as management’s performance in running the utility. Thus, on an annual basis, it is difficult to determine if a utility truly “outperformed” its peers or if it was simply the beneficiary of a higher, state-allowed regulated rate of return.

In summary, the Board believes that the existing compensation programs do promote long-term value and do not provide “excessive executive compensation,” as implied by the proposal. As described in the Compensation Discussion and Analysis, the Compensation Committee analyzes and evaluates executive compensation practices as compared to a peer group of energy companies to ensure that the compensation delivered to the Company’s executives remains competitive and appropriately rewards performance. This analysis is considered by the Compensation Committee when it makes adjustments to the executive compensation. The Board believes it is in the best interest of the shareholders to give the Committee the flexibility and discretion to use performance-based compensation as appropriate and based on the specific goals of the Company.

The Board of Directors recommends a vote “AGAINST” this proposal for the reasons described above. Proxies solicited by the Board of Directors will be voted “AGAINST” this proposal unless a shareholder has indicated otherwise in voting the proxy.

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COMMON STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND 5% SHAREHOLDERS

The following table sets forth information concerning beneficial ownership of our common stock as of March 1, 2007, for: (a) each director and nominee for director; (b) the executive officers set forth in the Summary Compensation Table (the “Named Executive Officers”); (c) the directors and executive officers as a group; and (d) each beneficial holder of more than 5% of our voting securities. Unless otherwise indicated, each person has sole investment and voting power (or shares such powers with his or her spouse) with respect to the shares set forth in the following table. None of the individual directors or officers or the nominees for director listed in the Beneficial Ownership Table below owned more than 0.17% of Xcel Energy’s common stock. None of these individuals owns any shares of Xcel Energy’s preferred stock.

Beneficial Ownership Table

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(1)            At March 29, 2007, the closing price of Xcel Energy common stock on the New York Stock Exchange was $24.89.

(2)            Mr. Kelly’s wife owns 408 of these shares and 4,497 of these shares are held in a trust for which Mr. Kelly serves as trustee. Mr. Kelly disclaims beneficial ownership of these shares.

(3)            Based on a Schedule 13G filed on February 14, 2007, Pictet Asset Management SA is deemed to beneficially own these shares as a result of acting as manager to three non-U.S. investment funds. These shares represented approximately 5.02% of our outstanding common stock at March 1, 2007.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the 1934 Act requires our directors and officers to file with the Securities and Exchange Commission reports regarding their ownership and changes in ownership of our stock. We are required to disclose whether we have knowledge that any person required to file such a report may have failed to do so in a timely manner. Other than as discussed below, we believe that during 2006 and to date in 2007, all of our officers and our directors subject to such reporting obligations have satisfied all Section 16(a) filing requirements. Ms. Teresa S. Madden filed an amended Form 3 in February 2007 to include shares of our stock that were inadvertently omitted from her initial Form 3 that she filed in January 2004. Ms. Madden also filed one Form 4 one day late relating to the acquisition of shares in connection with an employee benefit plan. In making this statement, we have relied upon examinations of the copies of Forms 3, 4 and 5 and the written representations of our directors and executive officers.

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COMPENSATION DISCUSSION AND ANALYSIS

Introduction

Xcel Energy is a public utility holding company. In 2006, our continuing operations consisted primarily of the activity of our four utility subsidiaries: Northern States Power Company, a Minnesota corporation; Northern States Power Company, a Wisconsin corporation; Public Service Company of Colorado; and Southwestern Public Service Company. These utilities serve electric and natural gas customers in portions of Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas and Wisconsin. Along with WestGas InterState Inc. (WGI), an interstate natural gas pipeline, these companies comprise our continuing regulated utility operations.

Xcel Energy’s strategy, which we call “Building the Core,” is to invest in our core utility businesses and earn the return authorized by our regulatory commissions. We are a vertically integrated utility and we intend to stay that way. We intend to invest approximately $9 billion over the next five years in our core utility operations to grow our business in response to increasing customer demand. We anticipate a need for additional energy supply in both Colorado and Minnesota during the next 15 years. In addition, we continue to focus on enhancing the reliability of our electrical system, which includes making significant investment in our transmission and distribution systems. Finally, in meeting the growing needs of our customers for power, we intend to reduce the environmental impact of generating that power. Xcel Energy is an environmental leader in the utility industry and will continue to rely on renewable sources of energy, such as wind, and innovative technologies in power production and energy conservation to serve our customers.

Our executive compensation program is designed to promote the success of this strategy in two ways. First, through a competitive base salary, we seek to attract and retain the executive leadership needed to execute our strategy. Second, through performance-based, incentive compensation, we seek to motivate our executive officers to deliver results that promote the goals of our shareholders, customers and employees.

Oversight of Executive Compensation Program

The Governance, Compensation and Nominating Committee of the Xcel Energy Inc. Board of Directors oversees the Xcel Energy executive compensation program. From January 1, 2006 to May 17, 2006, the date of the Company’s Annual Meeting of the Shareholders, the members of the Committee were Douglas W. Leatherdale, C. Coney Burgess, A. Barry Hirschfeld and A. Patricia Sampson. From May 17, 2006 to December 31, 2006, members of the Committee were Douglas W. Leatherdale, C. Coney Burgess, A. Barry Hirschfeld, Frederic W. Corrigan and Richard H. Truly. The Committee’s responsibilities for executive compensation are to establish and administer the compensation policies and programs of Xcel Energy, including the form and amounts of compensation paid to the members of the Xcel Energy Board of Directors and to the Xcel Energy executive and senior officers. The Committee has direct responsibility to: (1) review and approve corporate goals and objectives relevant to the Chief Executive Officer’s (CEO’s) compensation, evaluate the CEO’s performance in light of those goals and objectives, and, either as a committee or together with the other independent directors, as directed by the Board, determine and approve the CEO’s compensation level based on this evaluation; and (2) make determinations or recommendations with respect to non-CEO compensation, incentive-compensation plans and equity-based plans.

The Committee has retained Towers Perrin as its compensation consultant for the last several years. Towers Perrin is an independent, nationally recognized consulting firm in the areas of executive compensation and benefits and has extensive expertise in evaluating compensation in the utility industry. In 2006, at the Committee’s request, Towers Perrin provided an annual evaluation of trends in executive compensation and director compensation and an evaluation and analysis with respect to

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executive compensation. Towers Perrin also provided an evaluation and analysis of other specific executive compensation issues either at the direct request of the Committee or the Xcel Energy Human Resources Department. The Committee has the authority pursuant to its charter to retain other compensation consultants; however, in 2006 it did not do so. The Committee receives additional support from the Xcel Energy Human Resources Department and the office of the Corporate Secretary.

In its oversight of the Company’s executive compensation program, the Committee works with Towers Perrin, the CEO, the Chief Administrative Officer and the Xcel Energy Human Resources Department. The CEO and executive officers provide recommendations with respect to the corporate goals and objectives on which payouts of both annual and long-term incentive compensation are based and provide recommendations with respect to specific issues related to attracting, retaining or motivating individual executive officers. The CEO and executive officers also provide the Committee with information with respect to financial performance and budgets, forecasts and accruals with respect to executive compensation. The Committee considers this information and the advice of its compensation consultant and takes into account several factors, including but not limited to, the desire to align management interests with those of shareholders, customers and employees; the desire to strongly link management pay to both annual and long-term Company performance; and the need to attract talent from both within and outside of the utility industry. Since 2005 the Committee has reviewed tally sheets for each executive officer, which identify the components of the executive officer’s compensation. The Committee is responsible, as part of setting the CEO’s compensation, for conducting an annual review of the CEO’s performance.

Executive Compensation Philosophy and Core Principles

Xcel Energy’s executive compensation philosophy is to use a combination of salary and performance-based incentive compensation, delivered through annual and long-term incentives, to align executive leadership’s interests with those of our shareholders, customers and employees.

This philosophy has four core principles:

·       Our executive compensation levels must be sufficiently competitive to attract and retain talented leaders and, for this reason, we target the energy industry 50th percentile as the primary reference point for all elements of executive compensation;

·       Our executive compensation is substantially performance-based and, for this reason, we target a compensation mix in which annual and long-term incentives account for more than 50% of the Named Executive Officer’s targeted annual compensation;

·       Payouts of annual and long-term incentives are based on achievement of corporate and business unit goals that reinforce management’s link to shareholders, customers and employees; and

·       Through equity-based incentives, coupled with the Company’s stock ownership guidelines, our executive compensation program should encourage our executive leadership to have a significant stake in the Company’s business.

Executive officers in general and the executive officers named in the Summary Compensation Table on page 44 (Named Executive Officers or NEOs) in particular all receive the same components of the executive compensation program with the amount dependent on scope of responsibilities, experience, internal equity and the market for executive officers with similar skills and experience. In considering whether to change compensation materially, the Company considers changes in its business and the market for executive leadership in the energy industry and, as appropriate, in general industry. We are primarily a public utility company and believe our compensation philosophy

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and core principles should reflect our business. For 2006, the targeted amount of long-term incentive compensation was reduced from the 75th percentile to the 50th percentile of the energy industry. This change was made to make our executive compensation consistent with the strategy of the Company. As the Company was solely focused on core utility operations, the Company focused target long-term compensation on the median of the energy industry. Apart from this change, Xcel Energy did not make any material changes to executive compensation in 2006.

Xcel Energy targets approximately 50% of an NEO’s total direct compensation, which includes base salary, annual incentive and long-term incentives, to long-term compensation as compared to currently paid-out compensation in order to align the NEO’s interest with the long-term performance of the Company. This is consistent with the long-term nature of the Company’s operations and capital investment necessary for our utility operations. Prior year compensation is one consideration in setting current year compensation, but it is not the primary driver in determining future compensation.

Components of the Xcel Energy Executive Compensation Program

The Xcel Energy executive compensation program has five components: base salary, annual incentives, long-term incentives, perquisites and post-retirement benefits. At the request of the Committee, Towers Perrin prepared an analysis and evaluation of the Company’s executive compensation program relative to competitive benchmarks.

Towers Perrin evaluated fourteen executive officer positions, including each NEO. Towers Perrin was able to identify benchmark positions, find competitive data, and formulate a competitive rate for each of the fourteen positions in its analysis. Towers Perrin concluded the competitive rate represents the compensation level provided to a hypothetical seasoned performer in a position with similar responsibilities and scope. At the Committee’s request and in order to provide a broad perspective of the competitive market, Towers Perrin analyzed data for various market mid-points, where possible, including:  energy industry at the 50th and 75th percentile, general industry at the 50th percentile and blended industry at the 50th percentile. Blended industry is a blend of energy and general industry data for each pay component, where available. Utility-specific positions were analyzed using energy industry specific data. The CEO and executive positions in a corporate function, as compared to a utility operating function, were analyzed in both the energy industry and general industries. Towers Perrin typically considers compensation within 15% (above or below) of the competitive rate to be in the permissible range. Variances from the competitive rate are the result of the incumbent’s experience, time in position, internal equity considerations and individual performance.

Towers Perrin based its analysis on competitive compensation data collected in two surveys:  the Energy Industry Executive Compensation Database, which includes pay data for approximately 95 companies in the utility industry, including nearly all major utilities in the United States, and the Executive Compensation Database and Long-Term Incentive Plan Reports, which include pay data for over 820 general industry companies. All compensation data from these surveys was size adjusted so that it would compare to the Company’s or a subsidiary’s projected annual revenues.

The Company generally does not use employment contracts as a part of its executive compensation program with one exception. One NEO, Paul Bonavia, President, Utilities Group, has an employment contract, which was entered into between Mr. Bonavia and the Company at the time of the merger between Northern States Power Company and New Century Energies, Inc., which formed Xcel Energy. In addition, as described below under the heading, “Severance and Change of Control,” the Company does have a severance and change of control policy.

Base Salary

The role of base salary in the Xcel Energy executive compensation program is to provide a base level of monthly income that is competitive in our market. As stated above, the Company’s executive

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compensation strategy is generally to target the energy industry 50th percentile as the primary reference point, with the flexibility to review other data points as appropriate. Company management and the Committee also consider the executive officer’s individual performance, experience, financial results, internal equity, and changes in the marketplace in determining base salary. In December 2005, the Committee reviewed the evaluation and analysis prepared regarding executive compensation and set the base salary of the CEO at the 50th percentile of the energy industry, as identified in the Towers Perrin analysis. For 2006, the Committee targeted the base salaries of the other NEOs at approximately the 50th percentile of the energy industry, with the exception of the Chief Financial Officer and the Vice President and General Counsel. With respect to each of these positions, the Company management and the Committee set the base salary at the 50th percentile of the blended industry benchmark. Company management considered this benchmark because the market for experienced financial and legal officers is broader than the energy industry. The Company set these base salaries approximately 5% above the 50th percentile of the energy industry. In the aggregate, Xcel Energy’s base salaries are within 15% of the 50th percentile of the energy industry. For the NEO’s, Xcel Energy’s base salaries are within 6% of the 50th percentile of the energy industry. Base salary is only one element of executive compensation and is intended to be no more than 50% of a NEO’s targeted annual compensation.

Annual Incentives

The role of annual incentives in the Xcel Energy executive compensation program is to reward achievement of corporate and business unit operational goals that are designed to benefit our shareholders, customers and employees. For 2006, annual incentive awards were granted under the Xcel Energy Inc. Executive Annual Incentive Award Plan, which was approved by shareholders in 2005 (the “2005 Annual Incentive Plan”). The target amounts of the awards were generally benchmarked against the 50th percentile of the energy industry, as discussed above, and were based on achieving corporate financial and operational goals and business unit operational goals previously approved by the Committee. As described below, individual performance is considered in application of a leadership factor.

In December 2005 and February 2006, the Committee set target annual incentive awards for 2006, expressed as a percentage of salary, for all Xcel Energy officers. These awards ranged from 100% of salary for the CEO, to 65% of salary for the President, Utilities Group and the Chief Financial Officer, to 55% of salary for the other NEOs. Payouts of annual incentive awards were determined based on the level of achievement of corporate financial and operational goals and business unit operational goals previously approved by the Committee and described below, with each individual having the opportunity to earn from 0% to approximately 150% of his or her 2006 performance with respect to corporate or business unit goals. In February 2007, the Committee and Board reviewed and approved the payment amounts based on the achievement of the performance goals.

Payouts of the annual incentive awards for the CEO were determined entirely by attainment of corporate goals. For the other NEOs, the formula was weighted 67% to the attainment of corporate goals and 33% to attaining business unit operational goals. Corporate goals included targeted earnings per share, a customer satisfaction metric, an environmental metric related to air emissions and operations metrics related to generation availability, system availability, and safety. Business unit goals included customer service, reliability, safety, environmental responsibility and management relative to budgeted financial results, measured at a business unit level. Threshold performance provided an opportunity to earn 50% of the target for the goal and target performance provided an opportunity to earn 100% of the target for the goal. Exceptional performance provided an opportunity to earn 150% of the target for the goal except for safety, which provided an opportunity to earn up to 200% of target. Corporate goals and business unit goals were selected based on the objectives of the Company and areas of particular importance to shareholders, customers and employees. Targets

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were determined based on Company management’s evaluation of performance and, where possible, comparisons to objective benchmarks. The Committee retains the discretion to modify the goals during the course of the year and in 2006 the Committee adjusted several of the business unit goals because of business conditions that changed during the course of the year. None of the adjustments changed the annual incentives awarded to the NEOs. The performance period for 2006 annual incentives was January to December 2006.

The specific corporate goal targets for the 2006 annual incentive awards were:

Corporate Goal				Target			Actual Performance				% Payout				Weight
Residential Customer Satisfaction (% positive)				85				85				100				10	%
Emissions Intensity for CO2 (pounds per MWh)				1,556				1,478				150				10	%
Generation Availability (Unforced Outage Rate or UOR)				6.83				6.23				122				10	%
System Reliability (System Availability Index or SAIDI)				83.0				79.2				138				10	%
Safety (OSHA incident rate per hundred workers)				2.69				2.53				114				10	%
Earnings Per Share (from continuing operations)				$	1.30			1.35				150				50	%

 

With the approval of the Committee, awards are multiplied by a leadership-rating factor from zero to two. If multiplied by zero, no award would be granted and actual results on the corporate and business unit portion would be forfeited. Individual performance is not considered in calculating an executive officer’s annual incentive, which is determined prior to any application of the leadership-rating factor. The leadership rating-factor can be applied to increase or decrease an executive officers’ annual incentive award. The leadership-rating factor allows the Committee, upon the recommendation of the CEO, to recognize extraordinary leadership or individual performance. In 2006, the CEO recommended, and the Committee approved, application of a leadership-rating factor of 1.25 to the annual incentive of one of the NEOs, the Chief Financial Officer. The leadership-rating factor was applied to reward the leadership role of the Chief Financial Officer in significantly improving financial results and focusing on capital expenditures where the Company can achieve a timely and reasonable rate of return. The Committee also applied a leadership-rating factor of approximately 1.2 to the annual incentive of the Chief Executive Officer. The leadership-rating factor was applied to reward the leadership role of the Chief Executive Officer in significantly improving financial results and developing and executing the Company’s environmental leadership strategy.

Based on corporate performance during 2006, payouts under the corporate performance component were 137.4% of the corporate target. Business unit performance resulted in payouts ranging from 87.5% to 130% of the target for the business unit goals. As a result, and taking into account adjustments for individual leadership ratings factor, the NEO’s received from 121% to 169% of their targeted annual incentive awards. These annual incentive payments attributable to the achievement of the performance goals are included in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table on page 44. Amounts attributable to the adjustments for the leadership factor are included in the Bonus column of the Summary Compensation table.

In order to encourage significant share ownership by executive officers, the 2005 Annual Incentive Plan provides an option for executives to receive their payments in shares of common stock or shares of restricted common stock (which vests in equal annual installments over a three-year period) in lieu of cash. A 5% premium is added to amounts paid in shares of common stock, and a 20% premium is added to amounts paid in shares of restricted common stock. In 2006, three NEO’s elected to receive stock in lieu of a portion of or all of their cash payments. The number of shares received by each of such NEOs is reflected in footnote 4 to the Summary Compensation table.

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Long-Term Incentives

The role of long-term incentives in the Xcel Energy executive compensation program is to align management’s interests with the Company’s long-term strategy and with shareholders. For 2006, long-term incentives were granted under the Xcel Energy Inc. 2005 Omnibus Incentive Plan, approved by shareholders in 2005 (the “2005 Omnibus Incentive Plan”). This plan allows for several forms of incentive compensation from which the Committee may select in designing long-term incentives.

For 2006, the Company’s long-term incentive plan had two components:

·       performance-based restricted stock units; and

·       performance shares.

Performance-based restricted stock units are targeted to deliver 50% of each executive officer’s long-term incentive opportunity, with the remaining 50% delivered through the performance share component.

Long-term incentive awards were targeted to the 50th  percentile of the utility industry. For the NEO’s in aggregate, Xcel Energy’s 2006 target long-term incentive awards, as a percentage of base salary, were within approximately 6% of the 50th percentile of the energy industry.

Performance-Based Restricted Stock Unit Component.   At the December 2005 Committee meeting, effective January 1, 2006, the Company granted performance-based restricted stock units (“Units”) to executive officers. The Company’s practice is to award Units annually in December. The award of the Units is priced based on the expected value of the award (including the Xcel energy stock price) on the first trading day 2006. The grant of the Units is intended to link the interest of executive officers with improvements in shareholder value creation. Each Unit represented one share of our common stock. Prior to the expiration of the restricted period, Units may not be sold or otherwise transferred by the participant. The restricted period will end, and restrictions on transfer of the Units will lapse based on two separate performance criteria. Of the awarded Units, 75% of them plus associated earned dividend equivalents will be settled, and the restricted period will lapse after Xcel Energy achieves 15% earnings per share on continuing operations (EPS) growth (adjusted for corporate-owned life insurance) measured against December 31, 2005 EPS (adjusted for corporate-owned life insurance). Additionally, Xcel Energy’s annual dividend paid on its common stock must remain at $0.86 per share or greater. EPS growth will be measured annually at the end of each fiscal year and Units could vest between two and four years after the date of the grant. However, under no circumstances will the restrictions lapse prior to December 31, 2007. If the performance criteria have not been met within four years of the date of grant, all associated Units are forfeited.

The remaining 25% of the awarded Units plus associated earned dividend equivalents will be settled, and the restricted period will lapse after the average of actual performance results for the environmental goal, which considers whether nitrogen oxide (NOx), sulfur dioxide (SO2) and carbon dioxide (CO2) emissions reductions (measured as a percent of target performance), meets or exceeds 100%. For these purposes, the targets were 2.7 pounds per megawatt hour (lbs/MWh) for NOx, 3.4 lbs/MWh for SO2 and 1,476 lbs/MWh for CO2. Performance against these environmental targets will be measured annually at the end of each fiscal year. Units could vest between two and four years after the date of the grant. However, under no circumstances will the restrictions lapse prior to December 31, 2007. If the performance criteria have not been met within four years of the date of grant, all associated Units will be forfeited.

The number of Units awarded was based on the expected value of the long-term incentive using the Binomial Lattice model making appropriate adjustment for the risk of forfeiture.

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For 2006, the CEO was awarded 90,218 Units. Other NEO’s were awarded from 14,904  to 22,976 Units. These awards are included in the Grants of Plan-Based Awards table.

Performance Share Component.   At the December 2005 Committee meeting, the Company awarded performance shares to executive officers. The Company’s practice is to award performance shares annually in December. Awards of performance shares directly link the interest of executive officers with shareholders by rewarding management for creating enterprise value as compared to utility industry peer companies. Awards in the performance share component are denominated in shares, each of which represents the value of one share of Xcel Energy common stock. The target number of shares granted was calculated by dividing the executive’s target award by the expected value of the long-term incentive using the Binomial Lattice model. Payout of the performance share award is dependent entirely on a single measure, Total Shareholder Return (“TSR”) relative to peers. Xcel Energy’s TSR, as measured over a three-year period, will be compared to the three-year TSR of other companies in the EEI Electrics Index as a peer group. At the end of each three-year period, the performance share component provides for payout at the target level if Xcel Energy’s TSR is at the 50th percentile of the peer group and payout at 200% of the target level for performance at or above the 90th percentile of the peer group. The performance unit component provides smaller payouts for performance below the 50th percentile. No payout would be made for performance below the 35th percentile.

For the measurement cycle that ended in 2006 (representing awards granted effective January 1, 2004), the TSR was at the 56th percentile resulting in a 124% payout.

For the 2006 to 2008 measurement cycle, the CEO was awarded 100,073 shares. Other Named Executive Officers were awarded from 16,532 to 25,486 shares. These awards are included in the Grants of Plan-Based Awards table.

Stock Options.   The Company has not granted stock options since December 2001. The CEO and other NEO’s received stock option grants from the Company or its predecessors. The grant price for the majority of these stock options were above the market price of the Company’s shares as of December 31, 2006.

Other Benefits

Perquisites.   In 2006, the Company undertook a thorough review of perquisites provided to executive officers. The Company compared the perquisites to those being offered to executive officers in other companies and evaluated the value the perquisites provided in attracting and retaining executive officers. The Company also evaluated the perquisites offered to the executive officers as compared to the benefits available to other employees of the Company. Based on this evaluation, the Company substantially changed the perquisites that will be provided to executive officers, including the NEO’s, in 2007. The Company eliminated most perquisites for executive officers. The Company has increased the cash perquisite allowance to partially offset the elimination of the perquisites.

Among the perquisites provided by the Company in 2006 to its executives were a cash perquisite allowance of $18,000, reimbursement for financial planning services up to 2% of the executive officer’s base salary (unused amounts may be carried over from prior years), home security systems (including installation and monitoring), executive medical insurance and physicals, and executive life insurance. The cash perquisite allowance was to be used for such items as the purchase or lease of a car, club dues, or similar purposes. The allowance is fully taxable at the time of payment. The cash perquisite is paid separate from the executive officer’s base salary but is paid at the same time as the base salary. The Company does not prescribe use of the perquisite allowance. To offset the increase in taxable income by the executives from the receipt of the financial planning and home security systems, the Company provided the executives with a gross-up for taxes so taxation had a no net impact to the officers. The executive medical plan offered a greater benefit than traditional employee plans,

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including a zero deductible program, very little or no network exclusions and no pharmacy co-pays; however, it also had a higher premiums paid by the executive officer. Each executive officer was eligible to receive an annual executive physical. The Company paid for all services received and not reimbursed by the medical plan. Effective January 1, 2007, the Committee eliminated all of these executive perquisites other than the cash allowance, which was increased to $30,000 for the CEO and $25,000 for other NEO’s to partially offset the elimination of the perquisites.

The Company owns two jets for business travel purposes. Executive officers and their families also may use the aircrafts for personal travel but only when the aircraft is already scheduled to fly on Company business to the destination and only when there is an open seat available. Personal travel for the individual or his or her family member is reported as taxable income on behalf of the individual.

In addition, the Company provided Company-paid life insurance in an amount equal to four times base pay. This benefit upon retirement is reduced to two times base salary (which, in general, the executives can purchase upon termination by repaying to the Company the greater of the cash surrender value or the aggregate premiums paid by the Company). This annual benefit is subject to imputed income for tax purposes. This benefit was eliminated in its entirety effective January 1, 2007 for all NEOs other than Mr. Johnson, whose benefit will expire effective December 31, 2011.

Retirement and Deferred Compensation Benefits.   In 2006 the Company provided retirement benefits to executive officers under the Xcel Energy qualified and non-qualified pension plans subject to the same terms as all eligible non-bargaining employees. The role of the pension plans in executive compensation is the same as it is for other employees. The purpose is to provide a basis for providing income after retirement. The qualified pension plan includes earnings below the Internal Revenue Service’s established limits and the benefit may be payable in a manner that results in individual income tax advantages. The non-qualified pension plan includes earnings, if any, above the same Internal Revenue Service limit. The 2006 the Internal Revenue Service earnings limit was $220,000.

Each executive officer was eligible to participate in Xcel Energy’s (401(k)) Savings Plan and Deferred Compensation Plans. The plans allow executive officers, like other eligible employees, to defer all or a portion of their base salary and their annual incentive award. The Company matches 100% of eligible amounts deferred to both plans up to 3% of base salary and then up to 50% of eligible amounts deferred in both plans in excess of 3% of base salary up to 5% of base salary. The purpose of the Deferred Compensation Plan is to make up for retirement benefits that cannot be paid under the Company’s qualified retirement plans due to the Internal Revenue Service Code limitations and the exclusion of certain compensation elements from pension eligible earnings.

Most executive officers and all of the NEOs are eligible to participate in the Supplemental Executive Retirement Plan (SERP). The SERP provides benefits to executive officers in addition to those provided through the qualified and non-qualified pension plans. The SERP benefit accrues over twenty years and is equal to 55% of the average of the highest three years of covered compensation out of the five years preceding retirement or termination minus the qualified and non-qualified pension plan benefits. Covered compensation for the purposes of calculating SERP benefits includes base salary and annual incentive. Long-term incentive payments are not included in covered compensation. The SERP benefit is valued as a 20-year annuity but is payable as a lump sum (unless the executive officer elected otherwise). Unreduced benefits are payable at age 62, or as early as age 55 reduced 5% for each year that the benefit commencement date precedes age 62. As part of the merger agreements, New Century Energies granted additional credited service years under the SERP to two NEOs. The Company granted the President and CEO of PSCo five additional credited years of service for purposes of SERP accrual. The Company has agreed to accrue SERP benefits for the President, Utilities Group ratably over eleven years rather than twenty years and to permit distribution of his full unreduced benefit as early as age 60.

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Severance Policies.   All NEO’s, other than Mr. Bonavia, the President, Utilities Group, may receive severance benefits in accordance with the Xcel Energy Senior Executive Severance and Change in Control Policy, which was adopted in October 2003 (“2003 Policy”). The rationale for the Company’s severance policies is to provide a market-competitive severance benefit and in the event the Company undergoes a change in control. Xcel Energy’s severance policies encourage executive officers to focus on the interests of Xcel Energy and its shareholders, without undue concern the officer will be terminated without compensation and benefits until the officer obtains another position. As a result, Xcel Energy’s severance policies align the executive officer’s interest with that of the Company and shareholder. This is particularly true with respect to a transaction, such as a sale or merger transaction, which may result in an executive officer’s termination. The policy is intended to provide a market competitive severance benefit, which provides an incentive to complete such transactions when the transactions may result in the officer’s termination. Each of the NEOs, other than the President, Utilities Group, is a participant in the 2003 Policy. The Board of Directors or the Committee may name additional participants. Under the 2003 Policy, a participant whose employment is terminated will receive severance benefits unless:

·       the employer terminated the participant for cause (as defined in the 2003 Policy);

·       termination was because of the participant’s death, disability or retirement;

·       the participant’s division, subsidiary or business unit was sold and the buyer agreed to continue the participant’s employment with specified protections for the participant; or

·       the participant terminated voluntarily.

The severance benefits for executive officers under the 2003 Policy include the following:

·       a cash payment equal to two times the participant’s annual base salary and target annual incentive award;

·       prorated target annual incentive compensation for the year of termination;

·       a cash payment ranging from approximately $45,000 to $75,000 (depending on salary range) for financial planning and outplacement services;

·       a cash payment equal to the value of the additional amounts that would have been credited to or paid on behalf of the participant under pension and retirement savings plans if the participant had remained employed for another two years;

·       continued medical, dental and life insurance benefits for two years; and

·       continued perquisite cash allowance for two years.

If the participant is terminated, including voluntary termination following a diminution in salary, benefits or responsibilities within two years following a change in control, as defined in the 2003 Policy, the participant will receive benefits under the 2003 Policy similar to the severance benefits above, except that for certain of our executive officers, including those NEOs who are participants, the cash payment will be equal to three times the participant’s annual base salary and target annual incentive award, the cash payment for the value of the additional retirement savings and pension credits will be for three years instead of two and medical, dental and life insurance, financial planning and perquisite allowance benefits will be continued for three years instead of two. In addition, each of the participants entitled to receive enhanced benefits upon a change in control will be entitled to receive an additional cash payment to assist with making the participant’s payment of any excise tax on excess parachute payments that he or she may incur, with certain limitations specified in the 2003 Policy. To receive benefits under the 2003 Policy, the participant must also sign an agreement releasing all claims against the employer and its affiliates, and agreeing not to compete with the

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employer and its affiliates and not to solicit their employees and customers. The specific benefits payable to the NEOs are described below under the heading “Employment Agreements and Severance Arrangements”.

In October 2006, the Committee amended the 2003 Policy to reduce the separation benefits payable to an executive officer other than in the event of a change in control to the following: (i) a lump sum severance benefit equal to one times annual salary and target annual incentive; (ii) a lump sum payment equal to the actuarial equivalent of the additional benefits accrued under the Company’s retirement plans as the executive officer had continued in employment for one additional year; (iii) a lump sum payment equal to the additional employer contributions that the executive officer would have received under the Company’s savings plans if the executive officer’s employment had continued for one additional year; and (iv) for a period of one year following termination, continued medical, dental and life insurance benefits, and perquisite cash allowance. This change will be effective October 2009.

Mr. Bonavia may receive severance benefits under his employment agreement and/or his change in control agreement, which is described below.

Mr. Johnson retired on March 31, 2007 and will receive benefits as described below.

Stock Ownership Guidelines

The Company believes that it is essential to align management’s interests with those of the shareholders. As part of this philosophy, the Company adopted stock ownership guidelines for executive officers. The Company believes that linking a significant portion of an executive’s current and potential future net worth to the Company’s success, as reflected in the stock price, ensures that executives have a stake similar to that of the Company’s shareholders. Such guidelines also encourage the long-term management of the Company for the benefit of the shareholders. The share ownership guideline for each executive is based on the executive’s position. The guideline for the CEO is five times base salary. The other NEOs have a guideline of three times base salary. Other executive officers have share ownership guidelines of two or three times base salary. Each executive is expected to achieve the applicable ownership guidelines within five years of assuming an executive position. All shares that the executive is entitled to vote count toward compliance with the ownership guidelines and the number of shares necessary to satisfy the guidelines is based on an assumed valuation of $18 per share.

Name				Date of 5-year guideline achievement		5-year guideline				Ownership position as of 12/31/06
Richard C. Kelly				July 2010			5				2.81
Benjamin G.S. Fowke III				October 2008			3				1.50
Paul J. Bonavia				August 2005			3				2.79
Patricia K. Vincent				March 2006			3				2.60
Gary R. Johnson				August 2005			3				3.53

 

Xcel Energy does not have any policy with respect to use of hedging arrangements to meet the stock ownership guidelines.

Impact of Accounting and Tax Treatment on Executive Compensation

The Company does not have a policy with respect to executive officers’ forfeiting annual or long-term incentive awards upon restatement of earnings. The Company does not have a policy with respect to adjustment or recovery of annual or long-term incentive awards upon restatement of earnings.

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Federal tax law limits the deductibility of executive compensation in excess of $1,000,000 unless certain exceptions are met. It is the Committee’s intent to maintain the deductibility of executive compensation to the extent reasonably practicable and to the extent consistent with its other compensation objectives. For 2006, a portion of the CEO’s compensation was non-deductible.

As stated above, the Company offers a qualified pension plan to all employees that includes earnings below an Internal Revenue Service established limit and the benefit may be payable in a manner that results in individual income tax advantages. The Company also offers a non-qualified pension plan that includes earnings, if any, above the same Internal Revenue Service limit and the benefit generally does not provide any individual income tax advantages. For 2006 the Internal Revenue Service annual limit was $220,000.

Each executive officer was eligible to participate in Xcel Energy’s Deferred Compensation Plans. The purpose of the Deferred Compensation Plan is to make up for retirement benefits that cannot be paid under the Company’s qualified retirement plans due to Internal Revenue Service Code limitations and the exclusion of certain elements of pay from pension-eligible earnings.

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EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table provides information regarding compensation paid or to be paid by us or any of our subsidiaries to the Chief Executive Officer, the Chief Financial Officer and the three other most highly compensated executive officers for 2006.

Summary Compensation Table

(1)            Amounts in this column reflect that portion of the awards under the Executive Annual Incentive Award Plan that are attributable to the leadership-rating factor, a discretionary adjustment applied by the Governance, Compensation and Nominating Committee.

(2)            Amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for 2006 in accordance with Statement of Financial Accounting Standards 123R, “Share Based Payment” (“SFAS 123R”), for (i) the performance shares that were granted in 2004 (with a 1/1/04 to 12/31/06 performance period), 2005 (with a 1/1/05 to 12/31/07 performance period) and 2006 (with a 1/1/06 to 12/31/08 performance period), (ii) performance-based restricted stock units granted in 2004, 2005 and 2006 and (iii) the incremental value attributable to the premium (5% for unrestricted stock and 20% for restricted stock) received for electing to receive stock in lieu of a portion of the cash payment otherwise payable under the Executive Annual Incentive Award Plan. The assumptions used in the valuation are discussed in Note 8 to our Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2006.

(3)            Amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for 2006 in accordance with SFAS 123R for stock options awarded prior to 2002. The assumptions used in this valuation are discussed in Note 8 to our Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2006.

(4)            The amounts in this column represent awards earned under the Xcel Energy Inc. Executive Annual Incentive Award Plan that was approved by shareholders in 2005, including amounts that the executive officer elected to receive in shares of unrestricted and restricted common stock in lieu of a portion of the cash payment for which they were otherwise entitled under the Xcel Energy Inc. Executive Annual Incentive Award Plan. This

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amount does not, however, reflect the premium (5% for unrestricted stock and 20% for restricted stock) attributable to the election to receive shares of stock in lieu of a cash payment. The value of the premium is reflected in the Stock Awards column. The number of shares of stock issued is set forth below (shares were actually issued in February 2007 following determination of bonus amounts by the Governance, Compensation and Nominating Committee):

 

(5)            Amounts in this column reflect the actuarial increase in the present value of the executive officer’s benefits under all pension plans established by the Company determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements and includes amounts which the executive officers may not currently be entitled to receive because such amounts are not vested. The increase from the prior year is generally due to (1) the additional years of service earned by the executive officer under the plans, (2) the increase in the final average salary from the prior year used to determine plan benefits, and (3) the interest earned on accumulated benefits during the year (that is, the decrease in the deferral period until benefits commence as the executive officer approaches retirement). For Mr. Johnson, this amount also includes preferential earnings of approximately $17,993 under a nonqualified compensation plan from a grandfathered deferred compensation benefit.

(6)            The amounts represented in the “All Other Compensation” column for the Named Executive Officers include the following:

 

1/               Executive officers and their families may use the corporate aircraft for personal travel only in the event the aircraft already is scheduled to fly to the destination and an open seat is available. The aggregate cost of personal use of the corporate aircraft is determined on a per flight basis and includes the cost of actual fuel used, the cost of on-board catering, the hourly cost of aircraft maintenance for the applicable number of flight hours, landing fees, trip related hangar and parking costs, universal weather monitoring costs, if applicable, crew expenses and other variable costs specifically incurred. Because the plane may only be used for personal travel if the aircraft already is scheduled to fly to the destination and an open seat is available, there is no incremental cost to the Company for such

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personal use. The Company has significant corporate operations in Minneapolis, Minnesota and Denver, Colorado and some executive officers, including several of the Named Executive Officers, split time between those offices and utilize the corporate aircraft to get back and forth between Minneapolis and Denver. These trips are not considered personal travel.

(7)            Mr. Johnson retired on March 31, 2007.               

Grants of Plan-Based Awards

(1)            The Committee approved the awards December 13, 2005, effective as of January 1, 2006.

(2)            Amounts reflect annual incentive awards pursuant to the Executive Annual Incentive Award Plan, exclusive of the leadership-rating factor discussed below. The actual payments of these awards are included in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table.

(3)            Amounts reflect performance shares (top number) and performance-based restricted stock units based on EPS growth measurement (second number) and performance-based restricted stock units based on environmental index measurement (third number) issued under the 2005 Omnibus Incentive Plan. Performance share payout values, while based on percentile performance, are also determined by the price of Xcel Energy common stock at payout.

(4)            Amounts reflect the shares of restricted and unrestricted stock received by the executive officers as a result of their election to receive such stock in lieu of a portion of the cash payment for which they were otherwise entitled under the Executive Annual Incentive Award Plan for 2006. The Committee approved the awards February 21, 2007. The value of these shares is included in the Stock Awards column of the Summary Compensation Table.

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Annual incentive awards, expressed as a percentage of salary, were set by the Committee under the Xcel Energy Executive Annual Incentive Award Plan. Payouts of annual incentive awards are dependent on the level of achievement of corporate financial and operational goals and business unit operational goals approved by the Committee, with each individual having the opportunity to earn from 0% to approximately 150% of his or her target annual incentive award based on the level of achievement in 2006 of the goals applicable to such individual.

Corporate goals for 2006 include targeted earnings per share of $1.35, a customer service measurement, an environmental measurement related to air emissions and operations measurements related to generation availability, system reliability and safety. Business unit goals included customer service, reliability, safety, environmental responsibility, and management relative to budgeted financial results, measured at a business unit level.

Target annual incentive awards, as a percentage of base salary, were set for all Xcel Energy officers, ranging from 100% of salary for Mr. Kelly to 55% to 65% of salary for the other Named Executive Officers. With the approval of the Committee, an award may be multiplied by a leadership-rating factor from zero to two.

Payout of the annual incentive award for Mr. Kelly was dependent entirely on attaining corporate goals. For the other executive officers, including Named Executive Officers, the formula was weighted 67% to attaining corporate goals and 33% to attaining business unit operational goals.

In order to encourage increased share ownership by executive officers, the Xcel Energy Annual Incentive Plan provides an option for executives to receive their payments in shares of common stock or shares of restricted common stock (which vests in equal annual installments over a three-year period) in lieu of cash. A 5% premium is added to amounts paid in shares of common stock, and a 20% premium is added to amounts paid in shares of restricted common stock.

The target awards and payouts under the Annual Incentive Plan for 2006 are discussed in more detail above under the heading “Compensation Discussion and Analysis.”

The Committee also approved target long-term incentive grants under the Xcel Energy 2005 Omnibus Incentive Plan. As explained below, payout of long-term incentive grants is dependent on achievement of performance goals set by the Committee. Long-term incentive grants were made 50% in the form of performance-based restricted stock units and 50% in the form of performance shares. The amounts of the awards for each individual were established by the Committee and expressed as a percentage of such individual’s base salary. The actual number of performance-based restricted stock units and performance shares awarded to an individual were determined by dividing the dollar value of such percentage of base salary by the expected value of each award type as determined on Jan. 3, 2006. For Mr. Kelly, his target long-term award for 2006 was set at 260% of his salary. For the other Named Executive Officers, the percentage ranged from 110% to 135%.

Performance-based restricted stock units (“Units”) represent an equal number of shares of Xcel Energy common stock. Prior to the expiration of the restricted period, the Units may not be sold or otherwise transferred by the recipients. Units are credited during the restricted period at the same rate as dividends paid on all other shares of outstanding common stock. The dividend equivalents are subject to all terms of the original grant.

Payout of the Units and the lapsing of restrictions on the transfer of Units are based on two separate performance criteria. Of the awarded Units, 75% of them plus associated earned dividend equivalents will be settled, and the restricted period will lapse, after Xcel Energy achieves 15% earnings per share on continuing operations (EPS) growth (adjusted for corporate-owned life insurance) measured against Dec. 31, 2005 EPS (adjusted for corporate-owned life insurance).

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Additionally, Xcel Energy’s annual dividend paid on its common stock must remain at $0.86 per share or greater. EPS growth will be measured annually at the end of each fiscal year. However, in no event will the restrictions lapse prior to Dec. 31, 2007. If the performance criteria have not been met within four years of the date of grant, all associated Units shall be forfeited.

The remaining 25% of awarded Units plus associated earned dividend equivalents will be settled, and the restricted period will lapse, after the average of actual performance results for nitrogen oxide (NOx), sulfur dioxide (SO2) and carbon dioxide (CO2) emissions reductions (measured as a percentage of target performance) meets or exceeds 100%. For these purposes, the targets were 2.7 pounds per megawatt hour (lbs/MWh) for NOx, 3.4 lbs/MWh for SO2 and 1,476 lbs/MWh for CO2. Performance against these environmental targets will be measured annually at the end of each fiscal year. However, in no event will the restrictions lapse prior to Dec. 31, 2007. If the performance criteria have not been met within four years of the date of grant, all associated Units shall be forfeited.

The awards of performance shares also represent an equal number of shares of Xcel Energy common stock. Performance shares may not be sold or otherwise transferred. Payout of the performance share award will be dependent entirely on a single measure, total shareholder return (TSR) relative to peers over a three-year period. At the end of the three-year period, the performance share component provides for payout at the target level if Xcel Energy’s TSR is at the 50th percentile of the peer group and payout at 200% of the target level for performance at or above the 90th percentile of the peer group. The performance share component provides smaller payouts for performance below the 50th percentile. No payout will be made for performance below the 35th percentile.

The target long-term incentive awards for 2006 as well as the payout of certain long-term incentive awards granted in 2004 and 2005, are discussed in more detail above under the heading “Compensation Discussion and Analysis.”

Other perquisites and benefits provided to executives generally are not tied to the Company’s financial performance, but are primarily designed to attract and retain executives. Among the perquisites and benefits provided by the Company in 2006 to its executives were a cash perquisite allowance of $18,000, reimbursement for financial planning services up to 2% of the executive officer’s base salary (unused amounts may be carried over from prior years), home security systems (including installation and monitoring), executive medical insurance and physicals. In addition, Company-paid life insurance in an amount equal to four times base pay, reduced to two times base salary post retirement (which, in general, the executives would purchase upon termination by repaying to the Company the greater of the cash surrender value or the aggregate premiums paid by the Company), and benefits provided under the Xcel Energy Inc. Nonqualified Deferred Compensation Plan and the Xcel Energy Supplemental Executive Retirement Plan that make up for retirement benefits that cannot be paid under the Company’s qualified retirement plans due to Internal Revenue Code limitations and the exclusion of certain elements of pay from pension-covered earnings. The aggregate incremental cost to the Company for providing these perquisites to each of the Named Executive Officers is included in the Summary Compensation Table.

Certain executive officers, including four of the Named Executive Officers, may receive severance benefits in accordance with the Xcel Energy Senior Executive Severance and Change in Control Policy that is discussed below. Mr. Bonavia may receive severance benefits under his employment agreement, which is discussed below.

Based on the fair value of equity awards granted to the Named Executive Officers in 2006 and the base salary of the Named Executive Officers, “Salary” accounted for approximately 22-38% of total compensation, while incentive compensation accounted for approximately 62-78% of the total compensation. Because the value of certain equity awards included in the Summary Compensation table is based on the SFAS 123R value rather than fair value, these percentages may not be able to be derived using the amounts reflected in the Summary Compensation table.

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