Xcel Energy Inc. — Q3 2014 Form 10-Q
Business context and reporting period. Xcel Energy is a regulated electric and natural gas utility holding company operating through four utility subsidiaries. This unaudited filing covers the quarter and nine months ended Sept. 30, 2014; balance-sheet comparisons are with Dec. 31, 2013. Management cautions that seasonal interim results are not necessarily indicative of full-year results.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Operating revenue | $2.870 billion | $2.822 billion | $8.758 billion | $8.184 billion |
| Operating income | $666 million | $665 million | $1.557 billion | $1.522 billion |
| Net income | $369 million | $365 million | $825 million | $798 million |
| GAAP diluted EPS | $0.73 | $0.73 | $1.64 | $1.61 |
| Cash dividends declared per share | $0.30 | $0.28 | $0.90 | $0.83 |
- Q3 revenue rose about 1.7%; nine-month revenue rose about 7.0%. Natural gas revenue growth substantially reflected purchased-gas cost recovery, which generally has little effect on margin.
- Electric margin was $1.536 billion in Q3 versus $1.502 billion, and $4.028 billion year to date versus $3.878 billion. Natural gas margin was $138 million versus $130 million in Q3 and $551 million versus $513 million year to date.
- Q3 ongoing diluted EPS was $0.73, down $0.04 from $0.77. Management attributed the decline principally to weather, which reduced EPS by an estimated $0.07 year over year. Higher margins and lower Q3 O&M partly offset higher depreciation and property taxes. Nine-month ongoing EPS was $1.64 versus $1.65.
- Q3 O&M declined $7 million, while nine-month O&M increased $47 million. Depreciation and amortization increased $27 million in Q3 and $36 million year to date; other taxes, primarily property taxes, rose $13 million and $38 million, respectively.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $2.004 billion, essentially unchanged from 2013. Investing cash outflow was $2.235 billion, including $2.301 billion of utility construction expenditures. Financing provided $261 million; dividends paid were $418 million. Period-end cash was $138 million.
- At Sept. 30, long-term debt was $11.502 billion, current maturities $258 million and short-term debt $697 million. Combined reported debt was approximately $12.456 billion, compared with approximately $11.951 billion at year-end 2013. Stockholders’ equity was $10.155 billion.
- Committed credit facilities totaled $2.45 billion, with $1.682 billion available at Sept. 30. Amendments signed Oct. 14 extended maturities to October 2019 and increased total commitments to $2.75 billion; the company reported $1.843 billion available on Oct. 27.
- Management forecast $14.48 billion of capital expenditures for 2015–2019. Its funding plan assumes $11.5 billion of operating cash after dividends and pension funding, $2.605 billion of new debt and $375 million from dividend reinvestment and benefit programs.
Material changes, outlook and commentary
- 2014 ongoing EPS guidance was raised at the low end to $1.95–$2.05 per share from $1.90–$2.05. Assumptions include normal weather for the remainder of 2014, roughly 1% weather-normalized electric sales growth, 3% firm gas sales growth, and constructive regulatory outcomes.
- 2015 ongoing EPS guidance is $2.00–$2.15. Key assumptions include normal weather, approximately 1% electric sales growth and a 2% decline in firm natural gas sales. Management’s long-term objectives are annual EPS and dividend growth of 4%–6%, and senior unsecured debt ratings in the BBB+ to A range.
- Weather was materially unfavorable in Q3: retail electric sales were 2.7% lower year over year on an actual basis, while weather-normalized retail electric sales grew 0.9%. Management cited growth in commercial and industrial demand in several service territories.
- Capital investment, new rates and regulatory cost recovery remain central to the outlook. Major pending matters include the Minnesota multi-year electric rate case and the Monticello nuclear upgrade prudence review. The Minnesota Department of Commerce recommended a roughly $94 million system-wide Monticello cost disallowance; the Minnesota Attorney General recommended a $321 million system-wide disallowance and no return on $107 million. Xcel disputes the proposed disallowances; decisions were expected in 2015.
- Other material regulatory and legal exposures include FERC transmission ROE proceedings and related potential customer refunds; a potential Pacific Northwest refund claim against PSCo of about $28 million plus interest, for which no accrual was recorded; and a disputed biomass transportation reimbursement claim of about $20 million, also without an accrual.
- NSP-Wisconsin recorded a $106.9 million liability for the Ashland environmental site at Sept. 30, while deferring estimated remediation costs as a regulatory asset based on expected rate recovery. Sediment cleanup costs and allocation among responsible parties remain uncertain.
- Environmental rules could require significant investment. Estimated costs include $46 million for cooling-water impingement compliance and potentially up to $180 million for entrainment measures; management expects recovery through rates. Proposed greenhouse-gas requirements and some other environmental obligations remained uncertain.
- The IRS had proposed an adjustment that would result in $10 million of tax expense related to federal carryback claims; the audit outcome and timing were uncertain. Management said unrecognized tax benefits could change, including a possible decrease of up to about $8 million.
Most important facts for investors to verify
- Whether 2014 and 2015 EPS guidance assumptions—especially normal weather and constructive regulatory outcomes—remain achievable.
- Final Minnesota rate-case and Monticello prudence decisions, including any disallowance, refund obligation or effect on cost recovery.
- Resolution and financial impact of FERC ROE/refund proceedings, the Pacific Northwest claim and SPS’s older FERC complaint matters.
- Whether Ashland remediation estimates, environmental compliance costs and expected regulatory recovery change materially.
- Capital-spending execution, projected operating cash generation, debt issuance needs and the continued availability of committed credit facilities.
- The filing reports effective disclosure controls and no material change in internal control over financial reporting during the quarter; verify against subsequent filings and events.