Xcel Energy Inc. — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. The filing is an annual report, not a quarterly filing; unaudited fourth-quarter results are included. Xcel Energy is a regulated electric and natural gas utility holding company operating through four utilities in eight states.
Financial performance
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Operating revenue | $10.128 billion | $10.655 billion | Down 4.9% |
| Operating income | $1.823 billion | $1.782 billion | Up 2.3% |
| Net income | $905.2 million | $841.2 million | Up 7.6% |
| GAAP diluted EPS | $1.85 | $1.72 | Up 7.6% |
| Ongoing diluted EPS (non-GAAP) | $1.82 | $1.72 | Up 5.8% |
| Operating cash flow | $2.005 billion | $2.406 billion | Down $401 million |
| Capital expenditures | $2.570 billion | $2.206 billion | Up $365 million |
| Long-term debt | $10.144 billion | $8.849 billion | Up $1.295 billion |
Cash and cash equivalents were $82.3 million at year-end. Short-term debt was $602 million and the current portion of long-term debt was $258 million. Total current assets were $2.625 billion versus current liabilities of $2.937 billion. As of February 19, 2013, committed credit facilities had $1.720 billion available; including cash, reported liquidity was $1.723 billion.
Electric margin increased to $4.893 billion from $4.775 billion, primarily reflecting $125 million of rate increases, partly offset by lower firm wholesale revenue. Natural gas margin rose to $656 million from $648 million. The filing reports operating income and expenses but does not present a single consolidated gross-margin percentage.
Revenue declined mainly because lower fuel and purchased-power costs were passed through to customers, reducing reported revenue without a corresponding margin effect, and because a long-term wholesale power contract expired. Retail electric revenue was $7.402 billion, down from $7.484 billion; natural gas revenue was $1.537 billion, down from $1.812 billion, largely reflecting lower gas-cost recoveries and warmer winter weather.
Fourth-quarter 2012 revenue was $2.551 billion versus $2.568 billion in fourth-quarter 2011. Fourth-quarter income from continuing operations was $140.2 million versus $140.9 million; diluted EPS was $0.29 in both quarters.
Material changes and notable items
- Ongoing EPS rose to $1.82, driven chiefly by higher electric margins and a lower effective tax rate. Higher O&M, depreciation, property taxes and interest partly offset gains. The 2012 effective tax rate was 33.2%, versus 35.8% in 2011; management said it would have been 35.6% without identified tax benefits.
- GAAP earnings included approximately $17 million, or $0.03 per share, from a prescription-drug tax benefit and approximately $15 million from a tax-loss carryback. Ongoing EPS excludes these items.
- Xcel recorded a $10.7 million pretax charge for the remaining SmartGridCity investment after an administrative law judge recommended denying recovery, and a $10.1 million pretax charge related to the cancelled Prairie Island nuclear power uprate.
- Common dividends declared rose to $1.07 per share from $1.03. The quarterly dividend was $0.27 in each of the second through fourth quarters of 2012.
- Operating cash flow fell amid working-capital timing, higher pension contributions, interest-rate hedge settlements and income-tax payments. Investing outflows increased with higher capital spending. Financing cash flow was positive $350 million, supported by debt issuance and short-term borrowing.
Outlook, management commentary and risks
- 2013 diluted EPS guidance is $1.85–$1.95, dependent in part on constructive regulatory outcomes and normal weather. Assumptions include weather-adjusted retail electric sales growth of about 0.5%, firm natural gas sales decline of about 1%, O&M expense growth of 4%–5%, and an effective tax rate of 34%–36%.
- Management expects approximately $13 billion of utility investment from 2013 through 2017. It projects rate-base growth of about 6% annually through 2014 and 4%–5% through 2017. Forecast capital expenditures are $3.155 billion in 2013 and $2.775 billion in 2014.
- Management’s stated longer-term objectives are 5%–7% annual EPS growth and 2%–4% annual dividend growth at least through 2013 or 2014; it cautions that growth may moderate thereafter.
- Major risks include regulatory lag or disallowance of costs, environmental compliance and climate rules, nuclear operations and spent-fuel disposal, severe weather and fuel or power supply disruption, pension costs, interest rates, credit ratings, cybersecurity, and dependence on subsidiary cash flows for parent-company dividends.
- Environmental and legal exposures include an accrued $103.7 million liability for the Ashland, Wisconsin site remediation; the sediment cleanup approach and cost remain unresolved. Other items include potential municipalization of PSCo’s Boulder service territory, environmental litigation and claims, and a FERC refund proceeding for which PSCo considered a loss reasonably possible but could not estimate a range.
- The Sherco Unit 3 turbine-generator failure remained under repair; substantial completion was expected in 2013, with insurance expected to cover much of the repair cost above the deductible. Nuclear safety requirements were estimated to cost $35–$50 million, which NSP-Minnesota expected to recover through regulatory mechanisms.
- In January 2013, Colorado regulators denied PSCo’s proposed Brush generation acquisition. The Prairie Island uprate was being terminated, while NRC approval of the Monticello uprate was expected in the second half of 2013. These outcomes and schedules remain subject to regulatory action.
Most important facts for investors to verify
- Whether 2013 EPS guidance is achieved and how much depends on rate-case decisions, weather, sales, and the stated cost assumptions.
- Whether planned capital spending is completed on schedule and recovered in rates, including environmental, transmission and nuclear investments.
- Available liquidity, refinancing needs and leverage after the increase in long-term debt; review debt covenants, maturities and credit ratings, including SPS’s 2012 downgrade.
- Resolution and recoverability of SmartGridCity and Prairie Island uprate costs, and the final cost allocation and timing for Ashland remediation.
- Progress on the major operating and regulatory uncertainties: Sherco Unit 3 repairs, Monticello uprate approval, Boulder’s municipalization decision and environmental rulemaking.
- The sustainability of dividend growth given capital requirements, debt service and the fact that the holding company depends on regulated subsidiaries for cash distributions.