Xcel Energy Inc. — Form 10-Q Summary
Business context and reporting period
Quarter ended March 31, 2018. Xcel Energy is a regulated electric and natural gas utility holding company operating through four utility subsidiaries across portions of the central and western United States. Results are seasonal; management cautions that first-quarter results are not an appropriate basis for projecting the full year.
Financial results and key metrics
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Operating revenue | $2.951 billion | $2.946 billion |
| Operating income | $480 million | $492 million |
| Net income | $291 million | $239 million |
| Diluted EPS | $0.57 | $0.47 |
| Operating cash flow | $887 million | $718 million |
| Utility capital/construction expenditures | $883 million | $749 million |
| Cash and cash equivalents at quarter end | $116 million | $83 million at Dec. 31, 2017 |
| Carrying value of debt, including current portion | $16.004 billion | $15.791 billion at Dec. 31, 2017 |
Net margin measures reported by management, after TCJA-related revenue reductions, were $1.338 billion for electric (down $36 million year over year) and $287 million for natural gas (up $26 million). Before those TCJA reductions, electric margin rose $27 million and natural gas margin rose $37 million. The filing attributes increases principally to weather, rates and other operating factors. Operating margin is not a GAAP measure.
Income tax expense fell to $59 million from $117 million; the effective tax rate was 16.9% versus 32.9%, primarily reflecting the lower federal tax rate, tax credits and regulatory tax-accounting effects. Cash from operations increased $169 million, mainly from timing of recovery of regulatory riders and incentive programs. Investing cash outflow rose to $872 million, largely due to higher capital spending, including the Rush Creek wind project. Dividends declared were $0.38 per share versus $0.36.
At March 31, current assets were $2.782 billion and current liabilities $4.122 billion. Short-term debt was $1.025 billion. Committed credit facilities totaled $3.250 billion, with $2.194 billion available at quarter end. These facilities support commercial paper and other short-term funding needs.
Material changes versus the prior period
- Net income increased 22% and diluted EPS rose from $0.47 to $0.57, while operating income declined from $492 million to $480 million.
- Total operating revenue was nearly unchanged; TCJA-related customer revenue reductions offset growth in underlying electric and natural gas revenues.
- O&M expense declined $23 million, mainly due to timing, lower nuclear operating costs and planned generation maintenance. Depreciation and amortization rose $18 million, and interest charges rose $5 million.
- Operating cash flow improved, but capital expenditures also increased. Short-term debt at quarter end rose $211 million from year-end 2017.
Outlook, commentary, risks and contingencies
- 2018 guidance: GAAP and ongoing EPS of $2.37–$2.47. Assumptions include constructive regulatory outcomes, normal weather, weather-normalized retail electric and firm gas sales growth of 0%–0.5%, flat O&M, and an effective tax rate of 15%–17%. Management said the tax rate could fall to 8%–10% as regulators clarify treatment of excess deferred taxes, with corresponding revenue reductions offsetting the tax benefit.
- Long-term objectives: annual EPS growth of 5%–6% from a 2017 base of $2.30, dividend growth of 5%–7%, a 60%–70% dividend payout ratio, and senior unsecured ratings in the BBB+ to A range. These are objectives, not guarantees.
- Tax reform and rates: State and federal regulatory proceedings will determine how TCJA savings and excess deferred taxes are returned to customers. Several proposals and settlements remained pending. The Colorado 2017 electric rate case was dismissed; PSCo anticipated filing a new case in summer 2018, with rates expected in early 2019. Other rate cases and rider requests could affect earnings and customer recovery.
- Capital program: Xcel planned 2018 debt issuances by the parent and utility subsidiaries and approximately $300 million of incremental equity, in addition to equity through benefit and dividend-reinvestment programs. Financing plans may change with capital needs and market conditions. The 1,550 MW Minnesota wind portfolio was expected to be completed by end-2020, with approximately $1.9 billion of utility investment.
- Environmental and legal matters: Ashland site remediation was estimated at $172 million, with $33 million accrued at March 31; the company stated that authorized customer recovery applies. Fargo remediation was estimated at $22 million, with $15 million accrued. Other litigation and regulatory matters include MISO transmission ROE complaints, SPP upgrade charges, and ongoing gas-trading and line-extension disputes; outcomes and timing may be uncertain.
- Other risks: Management cited weather, regulatory decisions and cost recovery, financing and credit conditions, commodity and interest-rate exposure, cybersecurity, environmental obligations, and nuclear fuel supply. The company reported no material changes to previously disclosed risk factors. It reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether reported earnings growth is sustained after separating the effects of the federal tax-rate change, tax credits, regulatory deferrals and customer revenue pass-throughs.
- Final regulatory treatment and timing of TCJA benefits, including the effects on revenue, tax expense and rate cases.
- Execution, cost and customer recovery for the wind and broader capital programs, and the planned debt and equity financing.
- Available liquidity, short-term borrowing levels, interest costs and progress toward stated credit-rating objectives.
- Final remediation costs and recovery for Ashland, Fargo and other environmental sites, and developments in material regulatory and legal proceedings.