XCEL ENERGY INC quarterly report, Q2 FY2013

Xcel Energy Inc. — Q2 2013 Form 10-Q

Business context and reporting period

Unaudited results cover the three and six months ended June 30, 2013, compared with the same 2012 periods. Xcel Energy is a regulated electric and natural gas utility holding company, with operations through NSP-Minnesota, NSP-Wisconsin, PSCo and SPS. Management cautions that seasonality makes interim results an unreliable basis for projecting full-year results.

Key financial metrics

Metric	Q2 2013	Q2 2012	Six months 2013	Six months 2012
Operating revenue	$2.579B	$2.275B	$5.362B	$4.853B
Operating income	$402.2M	$405.7M	$856.9M	$785.9M
Net income	$196.9M	$183.1M	$433.4M	$367.0M
Diluted EPS	$0.40	$0.38	$0.88	$0.75
Cash from operations	Not separately presented for Q2	$1.074B	$865.3M

• Q2 revenue rose 13.4%, while net income increased 7.5%; operating income declined slightly. Six-month revenue, operating income and net income rose about 10.5%, 9.0% and 18.1%, respectively.
• Q2 electric margin increased $26M year over year to $1.209B; natural gas margin increased $21M to $152M. For the first six months, electric and gas margins increased $119M and $49M, respectively. Management attributed gains mainly to rate increases and cooler weather benefiting gas sales. Fuel and purchased-gas cost recovery largely passes through to customers.
• Q2 operating and maintenance expense increased 5.3%; depreciation and amortization increased 7.6%. For the first six months, these rose 4.5% and 8.2%, respectively, reflecting distribution and nuclear activity, storm restoration, and system investment.
• Six-month investing cash outflow was $1.512B, including $1.597B of utility capital expenditures; financing provided $414M. Cash was $58.8M at June 30, versus $82.3M at year-end 2012.
• At June 30, gross reported debt was approximately $11.45B, including short-term debt and current maturities, versus approximately $11.00B at year-end. Total committed credit facilities were $2.45B, with $2.08B available at June 30. Current assets were $2.818B and current liabilities $2.697B.
• Common dividends declared were $0.28 per share for Q2, up from $0.27. Shares outstanding were about 497.3M at June 30, versus 488.0M at year-end.

Material changes and financing

• Six-month operating cash flow improved by $209M, attributed to higher earnings, working-capital timing and income tax refunds versus payments in 2012. Investing outflow increased $556M, mainly because of greater nuclear, transmission and Clean Air Clean Jobs Act project spending.
• Xcel issued $1.3B of long-term debt during the first half, issued common stock with approximately $223M net proceeds through an at-the-market program, and redeemed $400M of 7.60% junior subordinated notes. The redemption generated a $6.3M write-off of unamortized debt issuance costs.
• The Q2 earnings improvement reflected higher electric and gas margins, AFUDC-equity and lower interest expense, partly offset by higher O&M, depreciation and share dilution. The Q2 effective tax rate was 33.4%, compared with 35.7% a year earlier.

Outlook, risks and unusual items

• 2013 diluted EPS guidance is $1.85–$1.95. Assumptions include normal weather for the remainder of the year; weather-adjusted retail electric sales growth of 0.0%–0.5% and firm gas sales growth of about 2%; O&M growth of 4%–5%; depreciation growth of $75M–$85M; and an effective tax rate of 33%–35%.
• NSP-Minnesota’s revised Minnesota electric rate request was about $209M annually, with $50M of proposed deferrals. The ALJ recommended a $127M increase and deferrals estimated by the company to affect net income by $34M. The MPUC decision was pending; the company had recorded a $47M refund liability for interim rates as of June 30.
• Other notable rate matters include an approved SPS Texas settlement providing staged annual increases of $37M and $13.8M, and pending Wisconsin, Colorado and New Mexico rate cases. Outcomes and timing of regulatory recovery remain important uncertainties.
• Monticello life-cycle management and power-uprate project costs were projected at approximately $650M, versus a prior $587M budget estimate; final costs remained subject to vendor negotiations and regulatory prudence review. The uprate required NRC approval. The company expects customer recovery but that recovery and timing are subject to regulatory decisions.
• NSP-Wisconsin recorded a $101.3M liability for the Ashland environmental site. The EPA’s estimated sediment-remediation cost was $63M–$77M, with potential variation; responsibility, cost-sharing and funding remained unresolved. The company deferred estimated costs as a regulatory asset based on expected rate recovery.
• PSCo faced a reasonably possible, unaccrued FERC refund claim preliminarily estimated at approximately $28M plus interest. Other litigation and environmental requirements, including emissions and water rules, could affect costs; several impacts were not yet estimable.
• Other considerations include proposed power-plant environmental rules, nuclear regulatory requirements, weather, fuel and interest-rate exposure, and potential municipalization proceedings in Minneapolis and Boulder. Management reported effective disclosure controls and no material change in internal control over financial reporting.

Important facts for investors to verify

• Final outcomes of Minnesota and other utility rate cases, including refund exposure and allowed returns.
• Progress, final cost and regulatory recovery of the Monticello project and other major capital programs.
• Ashland cleanup costs, allocation among responsible parties, and the extent of recoverable environmental costs.
• Execution of the $1.85–$1.95 EPS guidance assumptions, especially weather, sales growth, operating costs and tax rate.
• Capital spending and funding needs, debt levels, share issuance and resulting dilution.