Xcel Energy Inc. — 2016 Form 10-K Summary
Business context and reporting period
Reporting period: Fiscal year ended December 31, 2016. This is an annual 10-K; the filing also reports fourth-quarter results. Xcel Energy is a regulated utility holding company whose four operating utilities serve electric and natural gas customers across eight states. Its principal businesses are regulated electric and natural gas utility operations.
Financial performance and position
| Metric | 2016 | 2015 |
|---|---|---|
| Operating revenue | $11.107 billion | $11.024 billion |
| Operating income | $2.214 billion | $2.001 billion |
| Net income | $1.123 billion | $984.5 million |
| Diluted EPS, GAAP | $2.21 | $1.94 |
| Ongoing diluted EPS, non-GAAP | $2.21 | $2.09 |
| Cash from operating activities | $3.052 billion | $3.038 billion |
| Cash used in investing activities | $3.261 billion | $3.623 billion |
- Electric margin increased to $5.782 billion from $5.513 billion; natural gas margin rose to $798 million from $767 million.
- Capital expenditures were approximately $3.256 billion. Cash and cash equivalents were $84.5 million at year-end.
- Total assets were $41.155 billion; long-term debt was $14.195 billion, up from $12.399 billion. Short-term debt was $392 million, down from $846 million.
- At December 31, committed credit facilities totaled $2.75 billion, with $2.339 billion available. The company reported compliance with its debt covenants.
- Common dividends declared were $1.36 per share for 2016, versus $1.28 in 2015. Return on average common equity was 10.4%.
Material changes versus the prior comparable period
- Revenue increased 0.7%, while net income rose 14.1%. The increase in GAAP earnings partly reflects the absence of the 2015 Monticello project charge: $129.5 million pre-tax, or $79.2 million after tax ($0.16 per share). Ongoing EPS increased 5.7%, from $2.09 to $2.21.
- Management attributed 2016 earnings growth mainly to higher electric and natural gas margins from rate increases and riders, favorable weather versus 2015, and a lower effective tax rate. These gains were partly offset by higher depreciation, interest and property taxes.
- Electric margin growth was led by rate increases and non-fuel riders. Natural gas revenue declined mainly because lower gas commodity costs reduced pass-through customer collections; natural gas margin nevertheless increased.
- Depreciation and amortization rose 15.9% to $1.303 billion, and interest charges increased 8.7% to $646.9 million, reflecting investment and financing needs.
- Electric sales for resale increased, while total retail electric sales were nearly flat. Natural gas retail deliveries declined, despite customer growth, consistent with lower usage per customer and lower commodity prices.
Guidance, outlook, risks and unusual items
- 2017 guidance: GAAP and ongoing EPS of $2.25–$2.35. Assumptions include normal weather; retail electric and firm natural gas sales growth of 0%–0.5%; flat O&M; depreciation growth of $165–$175 million; and an effective tax rate of approximately 32%–34%.
- Long-term objectives: Annual EPS growth of 4%–6%, dividend increases of 5%–7%, a 60%–70% payout ratio, and senior unsecured debt ratings in the BBB+ to A range. In February 2017, the quarterly dividend was raised to $0.36 per share, a 5.9% increase.
- Investment plan: Forecast capital expenditures of $18.385 billion for 2017–2021, funded primarily by operating cash flow and approximately $4.920 billion of new debt; no equity issuance was planned for the capital program. Management projects rate-base growth of approximately 5.5% annually over the period.
- Major planned investments include $3.505 billion in renewables, including PSCo’s approved 600 MW Rush Creek wind project, and significant transmission, distribution and gas infrastructure spending. Project timing, regulatory approvals, financing costs and cost recovery could affect execution and returns.
- Environmental and regulatory exposure: Potential Texas regional-haze requirements could require approximately $600 million of scrubbers at SPS’s Tolk units and approximately $400 million at Harrington, depending on regulatory and court outcomes. Tolk also faces water-supply concerns; SPS is seeking a shorter depreciable life for the facility. Cost recovery and the final requirements remain uncertain.
- Other notable matters: Monticello moved to NRC Column 2 after a white performance indicator tied to a backup cooling-system oil leak; management expected a return to Column 1 after NRC inspection. The NRC’s settlement concerning spent-fuel canister inspection failures requires compliance steps but imposes no civil penalty. The federal government has not established a permanent spent-fuel disposal facility.
- Environmental remediation liabilities include $64.3 million for the Ashland MGP site and $11.3 million for the Fargo MGP site at year-end. The company expects customer recovery for many remediation and compliance costs, but recovery depends on regulatory approval.
- Other key risks include rate-case outcomes and possible refunds, early plant retirement or stranded costs, weather and customer usage, fuel and power supply, higher borrowing costs, pension funding, cybersecurity and operational disruptions. A potential Lubbock Power & Light move to ERCOT could reduce SPS wholesale transmission revenue by an estimated $18 million annually if implemented as proposed.
- Auditors issued an unqualified opinion on the financial statements and internal controls; management reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether 2017 EPS guidance assumptions are being met, especially rate-case outcomes, sales, weather, depreciation and financing costs.
- Final regulatory and court decisions on Texas regional-haze controls, Tolk water needs, environmental compliance costs and allowed customer recovery.
- Execution and funding of the $18.385 billion 2017–2021 capital plan, including renewable project approvals and the resulting debt and interest burden.
- Developments in SPS wholesale load exposure, particularly the Lubbock proposal, and related effects on transmission revenues and remaining customers.
- Progress on nuclear safety follow-up and spent-fuel canister compliance, as well as changes in pension funding needs and remediation liabilities.