Xcel Energy Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited consolidated results. Xcel Energy is a regulated electric and natural gas utility. Amounts are in millions of dollars except per-share data.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Operating revenue | $2,811 | $3,141 | Down 10.5% |
| Operating income | $455 | $486 | Down 6.4% |
| Net income | $295 | $315 | Down 6.3% |
| Diluted EPS | $0.56 | $0.61 | Down $0.05 |
| Electric margin | $1,406 | $1,411 | Down $5 |
| Natural gas margin | $298 | $315 | Down $17 |
| Cash from operating activities | $669 | $793 | Down $124 |
| Capital/construction expenditures | $1,607 | $844 | Up $763 |
Financial position and liquidity
- At March 31, total assets were $51.1 billion and stockholders’ equity was $13.3 billion.
- Debt comprised $17.0 billion of long-term debt, $1.1 billion of current maturities and $1.8 billion of short-term debt. Short-term debt rose from $595 million at year-end 2019.
- Cash and cash equivalents were $244 million. At March 31, committed revolving facilities had $2.515 billion available. As of May 4, the company reported total liquidity of $3.051 billion, including $2.685 billion of available facilities and $366 million of cash.
- Investing cash outflow was $1.606 billion, principally reflecting capital expansion and the January acquisition of the Mankato Energy Center (MEC). Financing cash inflow was $933 million, primarily from short-term borrowings.
Material changes and management commentary
- Revenue fell primarily with lower natural gas sales and revenue, while fuel and purchased-gas costs also declined. Natural gas margin decreased $17 million, mainly due to unfavorable weather; electric margin decreased $5 million.
- Management attributed the $0.05 EPS decline to higher depreciation, lower electric and gas margins, higher interest and other expense, partly offset by lower O&M expense and a lower effective tax rate. The effective tax rate was negative 2.1%, versus 7.4% a year earlier, largely reflecting wind production tax credits and regulatory differences.
- Weather was unfavorable: heating degree-days were 14.1% lower year over year, and management estimated a $0.042 per-share negative impact from weather. Weather-normalized retail electric sales were approximately flat; weather-normalized firm natural gas sales increased 1.5%. The filing says COVID-19 negatively affected sales in March, with more pronounced declines in April.
- Depreciation and amortization increased $30 million, or 6.9%, reflecting new wind facilities, system expansion and higher Colorado depreciation rates. O&M declined $18 million, or 3.0%, partly from lower employee benefit, distribution and generation costs.
Guidance, outlook and risks
- Xcel reaffirmed 2020 ongoing EPS guidance of $2.73–$2.83. The base case assumes contingency actions offset COVID-19 impacts sufficiently; management said those actions would not be sufficient in the severe scenario, which could produce earnings below guidance.
- Guidance assumptions include weather-normalized retail electric sales down about 4%, firm natural gas sales down about 1%, O&M down 4%–5%, and higher depreciation, property taxes and interest expense. Long-term objectives remain annual EPS growth of 5%–7%, dividend growth of 5%–7%, a 60%–70% payout ratio and senior secured debt ratings in the A range.
- COVID-19 scenarios estimate total retail electric sales declines of 2%, 4% and 8% in mild, base and severe cases, respectively, with estimated EPS impacts of approximately $0.11, $0.17 and $0.37. The estimates depend on restrictions and economic recovery. Bad debt, customer affordability, cost recovery, supply-chain disruption and reduced commercial and industrial demand are risks.
- The company reported $3.1 billion of available liquidity as of May 4 and said it retained capital-market access. It planned to settle later in 2020 forward equity agreements associated with an earlier $743 million offering. Two wind projects could be delayed into 2021.
- In April, Xcel agreed to sell MEC for $680 million, subject to working-capital adjustments, with closing expected in Q3 2020. The company expected approximately $650 million of proceeds for general corporate purposes and liquidity after planned corporate giving; it expects a gain and said the sale should not materially affect long-term EPS.
- Other notable matters include regulatory proceedings and potential customer refunds, unresolved tax audits, environmental remediation and coal-ash requirements. The filing reports a $22 million liability for the Ashland site, while estimated remediation and restoration costs for the entire site are approximately $199 million and are subject to authorized rate recovery. Management considers the loss remote in the two remaining gas-trading lawsuits.
- On April 1, 2020, Xcel issued $600 million of 3.40% senior unsecured notes due 2030. In January it contributed $150 million to pension plans; it reported estimated pension funded status in the low 80% range in early May, compared with approximately 90% in January.
Important facts for investors to verify
- Whether actual 2020 sales, costs and regulatory recovery support the reaffirmed EPS guidance, particularly under the COVID-19 base and severe scenarios.
- Progress and final economics of the MEC sale, including closing, proceeds, gain and planned use of funds.
- Liquidity, short-term borrowing levels, planned utility debt issuance and settlement of the forward equity agreements.
- Outcomes of key rate cases, refund proceedings and tax audits, and the extent and timing of recovery for pandemic-related and environmental costs.
- Whether wind-project delays or market-related changes affect capital spending, production tax credits, pension funding or cash flows.