Xcel Energy Inc. — 2011 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2011, Xcel Energy operated four regulated electric and natural gas utilities serving customers in eight states, primarily in the Midwest and Colorado, plus a small pipeline, joint venture, and nonregulated housing investment business. This is an annual report; the filing also provides fourth-quarter results.
Financial and operating performance
| Metric | 2011 | 2010 | Change or context |
|---|---|---|---|
| Operating revenue | $10.655 billion | $10.311 billion | Up 3.3% |
| Operating income | $1.782 billion | $1.620 billion | Up 10.0%; operating margin was approximately 16.7%, versus 15.7% (calculated) |
| Net income | $841 million | $756 million | Up 11.3% |
| Diluted EPS | $1.72 | $1.62 | Up 6.2%; 2011 ongoing diluted EPS was also $1.72 |
| Electric margin | $4.775 billion | $4.441 billion | Up $334 million |
| Natural gas margin | $648 million | $620 million | Up $28 million |
| Cash from operating activities | $2.406 billion | $1.894 billion | Up $512 million |
| Utility capital expenditures | $2.206 billion | $2.216 billion | Operating cash flow less utility capex was about $200 million (calculated) |
| Total assets | $29.497 billion | $27.388 billion | Up $2.110 billion |
| Long-term debt, excluding current maturities | $8.849 billion | $9.263 billion | Current portion of long-term debt rose to $1.060 billion from $55 million; short-term debt was $219 million |
At year-end, cash and cash equivalents were $61 million and restricted cash was $95 million. Current assets of $2.983 billion were below current liabilities of $3.589 billion. At December 31, committed credit facilities totaled $2.45 billion, with $2.218 billion available; the filing reports $2.191 billion of liquidity, including cash, as of February 17, 2012.
Electric revenues increased 3.7% to $8.767 billion; natural gas revenues increased 1.6% to $1.812 billion. Retail electric sales rose 0.4%, but weather-normalized retail electric sales declined 0.1%. The company attributed earnings growth primarily to higher electric margins, rate increases, and warmer-than-normal summer weather. In 2011, weather contributed an estimated $0.07 per share.
Material changes versus the prior year
- Electric margin increased mainly from rate increases and recovery of PSCo’s acquired Blue Spruce and Rocky Mountain gas-generation facilities; favorable weather also contributed.
- Operating and maintenance expense rose $83 million, depreciation and amortization $32 million, and taxes other than income taxes $43 million, partly offsetting margin gains.
- Operating cash flow increased, aided by higher net income, working-capital timing, and a $100 million DOE spent-fuel settlement payment. The payment was recorded as restricted cash and a regulatory liability.
- Long-term debt declined overall, but the current maturity balance increased substantially because approximately $1.06 billion of long-term debt was due in 2012. Xcel redeemed all preferred stock in October 2011 for approximately $108 million.
- The nuclear decommissioning asset-retirement obligation increased to $1.483 billion from $810 million, primarily following an updated cost study and revised assumptions.
- Year-end common dividends declared were $1.03 per share, up from $1.00 in 2010. Fourth-quarter 2011 diluted EPS was $0.29, unchanged from fourth-quarter 2010.
Outlook, commentary, risks and contingencies
- Management expected 2012 ongoing EPS in the lower half of its $1.75–$1.85 guidance range. Assumptions included normal weather, electric sales growth of 0.5%–1.0%, relatively flat firm natural gas sales, and constructive regulatory outcomes.
- The company projected approximately $13.4 billion of utility investment for 2012–2016 and rate-base growth averaging 7% annually through 2016. Capital plans remain subject to regulatory decisions, load changes, and environmental requirements.
- Management’s stated objectives were 5%–7% annual earnings growth and 2%–4% dividend growth at least through 2013, with a targeted total shareholder return of about 10%. These are objectives, not guarantees.
- Sherco Unit 3, a jointly owned coal unit, was shut down after a significant turbine, generator, and exciter failure in November 2011; the return-to-service timing was uncertain. Repair and replacement costs above a deductible were expected to be insured.
- Environmental compliance remains a major cost and execution risk. The filing estimated SPS capital spending of about $470 million over four years if CSAPR were upheld unchanged; the rule was stayed pending judicial review. PSCo’s Colorado Clean Air-Clean Jobs plan involved about $1.0 billion of investment through 2017.
- Other material uncertainties include nuclear uprate delays and potential safety upgrades, recovery of rate-case amounts subject to refund, spent-fuel disposal and storage, and pipeline-safety requirements. The filing estimated possible nuclear safety upgrades at $20 million–$250 million, depending on final requirements.
- Contingencies include an Ashland, Wisconsin remediation accrual of $104.3 million, which the utility expected to recover through rates; a Merricourt wind-project dispute with a claimed amount exceeding $240 million for which no accrual was recorded; and climate-related litigation for which management considered loss remote but could not rule out a material impact.
- The filing reported an approved FERC settlement requiring a $2 million civil penalty related to transmission arrangements, without an admission of violations. The external auditor issued an unqualified opinion, and management and the auditor concluded internal control over financial reporting was effective.
Most important facts for investors to verify
- Whether pending rate cases and settlements are approved as assumed, and the final treatment of interim rates and potential customer refunds.
- How the 2012 debt maturities are refinanced, and whether planned capital spending can be funded while maintaining liquidity, credit ratings, and dividend growth.
- The timing, repair costs, insurance recovery, and operational consequences of the Sherco Unit 3 outage.
- Final environmental-rule requirements and resulting compliance costs, including CSAPR, emissions controls, and coal-ash regulation.
- Progress and revised costs for Monticello and Prairie Island nuclear uprates, decommissioning funding, and long-term spent-fuel storage.
- Developments in the Ashland remediation, Merricourt litigation, and other environmental or legal contingencies, including the recoverability of associated costs through rates.
- Whether 2012 guidance assumptions—especially regulatory outcomes, normal weather, and modest sales growth—are being met.