Business context and reporting period
Xcel Energy Inc. is a regulated electric and natural gas utility holding company serving customers through NSP-Minnesota, NSP-Wisconsin, PSCo and SPS. This unaudited Form 10-Q covers the three months ended March 31, 2013; comparisons are with the first quarter of 2012 unless otherwise noted. Management cautions that seasonal interim results are not an appropriate basis for projecting full-year results.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 / comparator |
|---|---|---|
| Operating revenue | $2.783 billion | $2.578 billion |
| Operating income | $454.6 million | $380.2 million |
| Net income | $236.6 million | $183.9 million |
| Diluted EPS | $0.48 | $0.38 |
| Cash dividends declared per share | $0.27 | $0.26 |
| Operating cash flow | $642.3 million | $477.5 million |
| Utility capital/construction expenditures | $752.3 million | $497.2 million |
Electric margin rose to $1.167 billion from $1.073 billion; natural gas margin increased to $231 million from $203 million. Reported operating margin was approximately 16.3% of revenue, versus 14.7% a year earlier. Operating cash flow less utility capital expenditures was approximately negative $110 million. Cash and cash equivalents were $113.0 million at March 31, 2013, versus $82.3 million at year-end 2012.
At March 31, long-term debt was $10.642 billion, short-term debt was $425 million and current long-term debt was $6.9 million. Total committed credit facilities were $2.450 billion, with $2.010 billion available. Total assets were $31.588 billion and stockholders’ equity was $9.155 billion. Xcel reported $494.3 million of long-term debt proceeds and $160.1 million of common-stock proceeds during the quarter.
Material changes versus the prior comparable period
- Revenue increased 7.9%, net income increased 28.6% and diluted EPS rose from $0.38 to $0.48.
- Management attributed the earnings improvement primarily to higher electric and natural gas margins and lower interest expense. Colder-than-normal winter weather, unlike the unusually warm first quarter of 2012, was a major driver; rate increases also contributed.
- Electric margin increased $94 million, including $75 million from rate increases and $22 million from weather. Natural gas margin increased $28 million, including $22 million from weather.
- Operating and maintenance expense increased $18.5 million, depreciation and amortization rose $20.0 million, and taxes other than income taxes increased $7.8 million. Interest charges declined $12.2 million.
- Operating cash flow increased $164.8 million, while investing cash use increased $314.3 million, principally reflecting higher capital expenditures. The company issued common stock through an at-the-market program and PSCo issued $500 million of first-mortgage bonds.
Outlook, commentary, risks and contingencies
Xcel reaffirmed 2013 EPS guidance of $1.85–$1.95. Assumptions include constructive regulatory outcomes; normal weather for the balance of the year; weather-adjusted retail electric sales growth of about 0.5% and firm natural gas sales decline of about 1%; O&M expense growth of 4%–5%; depreciation growth of $75–$85 million; property-tax growth of $35–$40 million; and an effective tax rate of about 34%–36%. Guidance is exposed to regulatory decisions, weather, costs, financing conditions and other forward-looking risks.
- Rate cases: Minnesota’s electric case sought an annual increase revised to approximately $215 million; interim rates were subject to refund, and the company recorded its best estimate of any refund liability. North Dakota interim rates were also subject to refund. Colorado gas and Texas electric proceedings remained pending; the Texas parties’ proposed settlement included staged increases, subject to regulatory approval. Regulatory outcomes may differ materially from company requests.
- Environmental exposure: NSP-Wisconsin recorded a $103.8 million Ashland site remediation liability. Cleanup of the site’s sediment area remained unresolved; estimated remediation costs for that area were $63–$77 million, with potential deviation of up to 50% higher or 30% lower. The company expects recovery of the recorded costs through rates, but recovery and ultimate costs remain subject to uncertainty.
- Legal matters: PSCo disclosed a reasonably possible loss in a FERC Pacific Northwest refund proceeding; Seattle’s preliminary claim was approximately $28 million plus interest, but the potential loss range was not estimable and no accrual was recorded. Other disclosed litigation includes climate-related claims and the appealed Merricourt Wind judgment; the company characterized loss likelihood in those matters as remote.
- Capital and financing: The company expected additional debt issuance during 2013 and planned to redeem $400 million of 7.60% junior subordinated notes on May 31, 2013. It also had an at-the-market common-stock program of up to $400 million, creating potential dilution. In January, it made $191.5 million of pension contributions and did not expect further 2013 contributions.
- Other operating risks: Nuclear compliance requirements were estimated to cost $35–$50 million, which management expected to be recoverable from customers. Air-quality requirements and litigation, transmission cost-allocation changes, and Boulder’s possible municipal utility action could affect future investment, operations or cost recovery.
Disclosure controls were assessed as effective at March 31, 2013; the filing reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Final outcomes and refund exposure in the Minnesota, North Dakota, Colorado, Texas and New Mexico rate proceedings.
- Whether the assumptions supporting the $1.85–$1.95 EPS guidance—especially normal weather and constructive regulatory outcomes—remain achievable.
- Planned capital spending, cash generation, debt issuance and common-stock issuance, including the resulting financing needs and dilution.
- Ashland remediation scope, cost-sharing, regulatory recovery and any developments in the FERC refund proceeding.
- Progress on environmental compliance, nuclear requirements, transmission projects and Boulder’s municipal utility process.