Xcel Energy Inc. — Form 10-Q Summary
Business and period: Xcel Energy is a regulated electric and natural gas utility holding company with operations across multiple U.S. states. This unaudited report covers the quarter and nine months ended September 30, 2013; interim results are seasonal and are not necessarily indicative of full-year results.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Operating revenue | $2.822 billion | $2.724 billion | $8.184 billion | $7.577 billion |
| Operating income | $665 million | $720 million | $1.522 billion | $1.506 billion |
| Net income | $365 million | $398 million | $798 million | $765 million |
| Diluted EPS, GAAP | $0.73 | $0.81 | $1.61 | $1.57 |
| Electric margin | $1.502 billion | $1.526 billion | $3.878 billion | $3.781 billion |
| Natural gas margin | $130 million | $125 million | $513 million | $460 million |
Revenue rose about 3.6% in Q3 and 8.0% for the nine-month period. Q3 net income fell about 8.4%; nine-month net income increased about 4.3%. Operating margin was approximately 23.6% in Q3 versus 26.4% a year earlier, and 18.6% for nine months versus 19.9%. Management reported ongoing diluted EPS of $0.77 for Q3 versus $0.78, and $1.65 for nine months versus $1.54; this non-GAAP measure excludes specified items.
- Cash flow: Nine-month operating cash flow was $2.003 billion, up from $1.572 billion. Investing cash outflow was $2.311 billion, including $2.454 billion of utility capital expenditures; financing cash inflow was $327 million. Ending cash was $102 million.
- Debt and liquidity: At September 30, long-term debt was $10.914 billion, current long-term debt $281 million, and short-term debt $302 million. Cash plus current debt facilities available was approximately $2.23 billion at quarter-end (cash of $102 million and undrawn committed facilities of $2.129 billion). Current assets of $3.121 billion exceeded current liabilities of $2.839 billion.
- Capital and dividends: Property, plant and equipment, net, was $25.343 billion, up from $23.809 billion at year-end 2012. Dividends declared were $0.28 per share for Q3 and $0.83 for nine months.
Material changes and drivers
- Q3 ongoing earnings were pressured by cooler weather than in Q3 2012 and higher operating and maintenance costs, partly offset by rate increases. Q3 O&M expense rose $44 million, or 8.2%; nine-month O&M rose $91 million, or 5.8%, reflecting distribution maintenance, nuclear operations, transmission costs and employee benefits.
- For nine months, electric margin increased $97 million on a GAAP basis, including a $26 million reduction from the SPS FERC matter; natural gas margin increased $53 million. Rate increases and lower interest charges supported earnings.
- Cash from operations increased by $431 million, while capital spending and investing outflows increased substantially, mainly for nuclear, transmission and clean-air projects.
- Long-term debt increased from $10.144 billion at December 31, 2012. Xcel issued debt and 7.7 million shares through its at-the-market program, receiving $223 million net, and redeemed $400 million of 7.60% junior subordinated notes.
Outlook, risks and contingencies
- Guidance: 2013 ongoing EPS is expected in the upper half of $1.85–$1.95; GAAP EPS is expected within $1.85–$1.95. 2014 ongoing EPS guidance is $1.90–$2.05. Guidance assumes normal weather and constructive regulatory outcomes. Long-term objectives are 4%–6% annual EPS growth and 4%–6% annual dividend increases.
- SPS FERC orders: An August 2013 FERC decision on demand-cost allocation created an estimated refund liability of about $42 million including interest. Xcel recorded a $35 million pretax Q3 charge, reducing GAAP EPS by about $0.04; rehearing requests were pending. Potential annual revenue impacts were estimated at up to $6 million through 2014, declining to $4 million from June 2015.
- Regulatory matters: Minnesota regulators approved an electric rate increase of about $103 million, below the revised company request; approximately $132 million of interim-rate refunds, including interest, were expected to begin in 2014. Several state rate cases and rate implementation decisions remained pending.
- Project and environmental exposure: The Monticello life-extension/uprate project’s final cost was approximately $665 million versus a preliminary $320 million estimate; cost prudence and recovery remained subject to regulatory review, and federal licenses were pending. NSP-Wisconsin had recorded a $101.2 million Ashland site remediation liability; sediment cleanup costs and allocation among responsible parties remained uncertain.
- Other risks: Earnings and cash flows are exposed to weather, regulatory cost recovery, nuclear licensing and operations, environmental rules, litigation, interest rates, commodity prices and counterparty credit. The filing states that the impact of proposed emissions rules was not yet determinable. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification priorities
- Track FERC rehearing and the final refund amount and timing for the SPS demand-allocation orders.
- Confirm implementation of Minnesota’s approved rates and interim refunds, and outcomes of pending state rate cases.
- Monitor Monticello licensing, final project costs, prudence review and recoverability in rates.
- Assess Ashland remediation estimates, sediment cleanup responsibility, and potential contributions or public funding.
- Compare actual results with 2013 and 2014 EPS guidance assumptions, especially weather, O&M, depreciation, rate-case outcomes and capital funding needs.