Xcel Energy Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Xcel Energy is a regulated electric and natural gas utility operating through subsidiaries in multiple U.S. states. Financial results are seasonal and interim results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $3.068 billion | $2.586 billion | $6.609 billion | $5.397 billion |
| Operating income | $438 million | $422 million | $945 million | $877 million |
| Net income | $311 million | $287 million | $673 million | $582 million |
| Diluted EPS | $0.58 | $0.54 | $1.25 | $1.10 |
| Operating cash flow | Not presented quarterly | $489 million | $1.148 billion |
- Revenue grew 19% in Q2 and 22% year to date; net income increased 8% and 16%, respectively. Operating income rose 4% and 8%.
- Electric margin was $1.550 billion in Q2 and $3.034 billion year to date, up $97 million and $175 million. Natural gas margin was $231 million and $579 million, up $37 million and $87 million.
- Reported operating margin, calculated as operating income divided by revenue, was approximately 14.3% in both 2021 periods, versus 16.3% in Q2 2020 and 16.2% in the first half of 2020.
- Six-month operating cash flow fell $659 million, mainly due to deferral of Winter Storm Uri costs and changes in regulatory assets and liabilities. Capital/construction expenditures were $1.967 billion; cash used in investing was $2.202 billion. Cash after capital expenditures was negative $1.478 billion.
- At June 30, cash was $538 million. Short-term debt was $1.745 billion, current long-term debt $21 million, and long-term debt $21.476 billion. These debt balances total approximately $23.2 billion. Committed revolving facilities had $2.536 billion available at quarter-end; a $1.2 billion term loan was fully drawn.
Drivers and material changes
- Management attributed earnings growth principally to higher electric and natural gas margins, capital investment recovery, regulatory outcomes, weather-normalized sales growth, and lower effective taxes. Compared with 2020, the pandemic had more adversely affected sales.
- Higher depreciation and amortization, O&M, interest expense, and lower allowance for funds used during construction partially offset margin growth. Year-to-date depreciation and amortization increased 12%, to $1.049 billion; O&M increased 5%, to $1.184 billion.
- Electric sales growth reflected recovering commercial and industrial activity. First-half weather-normalized retail electric sales increased 1.0%; weather-normalized firm natural gas sales increased 0.9%.
- The effective income tax rate was negative 13.9% in Q2 and negative 9.8% year to date, primarily reflecting wind production tax credits and regulatory tax items. The filing says PTCs are credited to customers and do not materially affect net income.
Outlook, risks and unusual items
- 2021 guidance: GAAP and ongoing EPS of $2.90–$3.00. Assumptions include constructive regulatory outcomes, modest COVID-19 impacts, normal weather for the rest of the year, and approximately 1% growth in weather-normalized electric and natural gas retail sales. Long-term objectives are annual EPS growth of 5%–7%, dividend growth of 5%–7%, a 60%–70% payout ratio, and senior secured ratings in the A range.
- Winter Storm Uri: The company incurred approximately $985 million of net natural gas, fuel and purchased-energy costs, largely deferred as regulatory assets for future recovery. Recovery requests and approvals vary by jurisdiction; some proposed disallowances and cost resettlement adjustments remain unresolved. The company is generally proposing recovery over periods up to 27 months without financing charges.
- Regulatory and operating risks: Rate cases and rider approvals, fuel-cost recovery, potential environmental requirements, seasonal weather, inflation and supply-chain constraints, customer credit losses, commodity prices, counterparty credit, interest rates, cybersecurity, and nuclear plant performance could affect results. Management noted material uncertainty around recovery of costs and outcomes of proceedings.
- Contingencies: Potential PSCo corrective action for coal-ash groundwater impacts could cost up to $35 million; the ultimate cost is uncertain. A Comanche Unit 3 owner claim has an unknown potential amount. Other proceedings include rate-of-return complaints, the Sherco outage prudence review, and litigation; management characterizes certain potential losses as remote or says a reasonable estimate cannot currently be made.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no material changes to the risk factors in the 2020 Form 10-K.
Key facts for investors to verify
- Progress and final regulatory treatment of the $985 million Uri-related costs, including disallowances, resettlements, timing of recovery, and customer bill impacts.
- Whether 2021 EPS guidance remains achievable given higher operating costs, capital spending, rate-case outcomes, weather, and supply-chain pressures.
- Available liquidity, refinancing plans for the fully drawn term loan, and the effect of rising short- and long-term debt on interest expense.
- Outcomes of major pending rate cases and resource-plan approvals, including proposed generation additions, retirements, and associated cost recovery.
- Potential environmental, litigation, and plant-performance liabilities whose amounts or timing remain uncertain.