Xcel Energy Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended Sept. 30, 2020. Xcel Energy is a regulated electric and natural gas utility holding company. Interim results are seasonal and should not be treated as a direct forecast of full-year performance.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Operating revenue | $3.182 billion | $3.013 billion | $8.579 billion | $8.731 billion |
| Operating income | $813 million | $758 million | $1.690 billion | $1.654 billion |
| Net income | $603 million | $527 million | $1.185 billion | $1.080 billion |
| Diluted EPS | $1.14 | $1.01 | $2.25 | $2.08 |
| Electric margin | $1.960 billion | $1.819 billion | $4.819 billion | $4.666 billion |
| Natural gas margin | $165 million | $167 million | $657 million | $678 million |
For the nine months, operating cash flow was $2.174 billion, down from $2.557 billion. Capital and construction expenditures were $3.681 billion. Investing cash outflow was $3.021 billion, including $684 million of proceeds from the sale of the Mankato Energy Center (MEC). Financing cash inflow was $1.484 billion, and cash ended the period at $885 million.
At Sept. 30, cash and cash equivalents were $885 million. Long-term debt was $19.960 billion, current maturities of long-term debt were $401 million, and short-term debt was $500 million. Total long-term debt including current maturities had a reported fair value of $24.396 billion, versus a carrying amount of $20.361 billion. Available committed revolving credit capacity was $3.080 billion at quarter-end; the company reported approximately $3.530 billion of total available liquidity as of Oct. 26, 2020.
Material changes and drivers
- Q3 diluted EPS rose $0.13 year over year; nine-month EPS rose $0.17. Higher electric margin, lower effective tax rates and higher allowance for funds used during construction (AFUDC) were key contributors. Higher depreciation and interest expense partly offset gains.
- Electric margin increased $141 million in Q3 and $153 million year to date, principally from regulatory rate outcomes and riders. Sales and demand reductions attributed to COVID-19 reduced the electric-margin comparison by $9 million in Q3 and $56 million year to date.
- Weather- and leap-year-adjusted retail electric sales declined 2.4% in Q3 and 3.1% year to date. Lower commercial and industrial use, particularly in manufacturing, energy and services, was partly offset by stronger residential use as customers worked from home.
- Nine-month natural gas margin decreased $21 million, mainly due to weather; natural gas revenue declined as sales and gas costs fell.
- Depreciation and amortization increased 14.8% in Q3 and 9.9% year to date, reflecting new renewable facilities, system expansion and updated depreciation rates. Interest charges rose 11.1% in Q3 and 8.7% year to date, primarily because of higher debt levels.
- The effective tax rate was 6.7% in Q3 and 2.0% for the nine months, compared with 12.0% and 10.1%, respectively, in 2019. Drivers included wind production tax credits and regulatory tax differences; a roughly $13 million benefit from a federal tax-loss carryback was recognized in 2020.
Outlook, risks and unusual items
- Guidance: 2020 GAAP and ongoing EPS guidance was narrowed to $2.75–$2.81 from $2.73–$2.83. 2021 guidance is $2.90–$3.00 per share. Management assumes constructive regulatory outcomes and says 2020 guidance assumes contingency plans will offset COVID-19 effects. These are forward-looking estimates, not assurances.
- Long-term objectives: Annual EPS growth of 5%–7% from a 2020 base of $2.78, annual dividend growth of 5%–7%, a 60%–70% payout ratio and senior secured debt ratings in the A range.
- COVID-19: Management cited continued uncertainty around restrictions, economic recovery, sales, bad debt and cost recovery. It reported approximately $6 million of pandemic-related expenses deferred as regulatory assets and noted that recovery remains subject to regulators. Approximately $3.5 billion of liquidity was available as of Oct. 26.
- Capital plans: Base capital expenditures forecast for 2021–2025 total $22.6 billion. Proposed Minnesota wind repowering and solar projects would add $1.4 billion, subject to regulatory approval. The company expects to finance capital needs with operating cash flow, debt and equity.
- Regulatory and operating matters: Pending proceedings include Minnesota rider filings, PSCo wildfire and advanced-grid riders, and a Minnesota prudence review of the Sherco Unit 3 outage. PSCo’s Comanche Unit 3 was damaged during a June start-up incident; return to service was anticipated in Q4 2020, and regulators initiated a performance review. PSCo reported potential groundwater impacts at one coal-ash monitoring location; the financial or operational impact was not yet clear.
- Unusual transaction: Xcel purchased MEC for approximately $650 million in January and sold it for $684 million in July. The approximately $20 million gain was offset by charitable giving, including COVID-19 relief, and had no material Q3 earnings impact.
- Other risks include weather and commodity-price volatility, credit and counterparty exposure, environmental compliance and coal-ash closure requirements, regulatory cost-recovery outcomes, and litigation or arbitration. The filing says the Westmoreland arbitration damages could not yet be reasonably estimated.
Investor verification priorities
- Track actual results against 2020 and 2021 EPS guidance, particularly COVID-related sales, bad debt and cost-recovery assumptions.
- Verify outcomes and timing for key rate cases, riders and the Sherco prudence review, including any customer refunds or disallowances.
- Monitor execution and financing of the $22.6 billion base capital plan and the approval status of proposed Minnesota incremental projects.
- Review debt issuance, forward equity settlement and liquidity as capital spending and maturities progress.
- Follow Comanche Unit 3’s return to service, coal-ash remediation requirements and the Westmoreland arbitration as those matters develop.