Xcel Energy Inc. — Q1 2010 Form 10-Q
Business context and period: Unaudited consolidated results for the three months ended March 31, 2010, compared with Q1 2009. Xcel Energy is a regulated electric and natural gas utility holding company; results are seasonal and management cautions that the quarter is not necessarily indicative of full-year results.
Financial performance
| Metric | Q1 2010 | Q1 2009 | Change |
|---|---|---|---|
| Operating revenue | $2.807 billion | $2.696 billion | +4.2% |
| Operating income | $403.7 million | $370.8 million | +8.9% |
| Income from continuing operations | $167.3 million | $175.8 million | -4.8% |
| Net income | $167.1 million | $174.1 million | -4.0% |
| Diluted GAAP EPS | $0.36 | $0.38 | Down $0.02 |
| Ongoing diluted EPS | $0.42 | $0.38 | Up $0.04 |
| Cash provided by operating activities | $555.5 million | $812.5 million | Down $257.0 million |
Margins: Electric margin rose to $1.008 billion from $962 million, mainly reflecting rate increases and higher sales. Natural gas margin increased to $209 million from $197 million. Operating margin was approximately 14.4% of revenue, versus 13.8% a year earlier.
Cash, debt and liquidity: Cash and equivalents were $79.5 million at March 31, down from $107.8 million at year-end. Utility capital and construction expenditures were $481.2 million. Gross borrowings comprising long-term debt, current maturities and short-term debt totaled approximately $8.87 billion, versus $8.89 billion at December 31, 2009. Short-term debt included $466 million of commercial paper; no credit-facility bank borrowings were outstanding at quarter-end. As of April 26, committed facilities had $1.668 billion available, with total stated liquidity of $1.671 billion including cash.
Material changes and management commentary
- Revenue growth reflected retail rate increases, fuel-cost recovery and increased sales. Weather-normalized retail electric sales grew 1.2%; firm natural gas sales grew 1.4%.
- Ongoing EPS improved, but two nonrecurring tax-related charges reduced GAAP EPS by a combined approximately $0.06 per share: a $17 million Medicare Part D tax-benefit reversal and an approximately $10 million COLI tax and interest adjustment.
- Income tax expense increased to $121.9 million from $87.1 million; the effective tax rate was 42.1% versus 33.1%, including the unusual items noted above.
- Operating cash flow declined mainly because of working-capital movements, including changes in receivables, inventories and payables. Financing cash used was $121.7 million, compared with $285.6 million, largely due to lower long-term debt repayments.
- Management attributed higher ongoing earnings principally to improved electric and gas margins and rate outcomes; higher operating costs, property taxes and lower allowance for funds used during construction partially offset the gains.
Guidance, outlook and notable developments
- 2010 ongoing diluted EPS guidance is $1.55–$1.65. Assumptions include normal weather, approximately 1% weather-adjusted retail electric sales growth, 0%–1% firm natural gas sales growth, and a 35%–37% ongoing effective tax rate.
- Management projected 2010 O&M expense growth of $115–$135 million, depreciation growth of $35–$45 million, interest expense growth of $20–$30 million, and a $15–$20 million decrease in equity AFUDC.
- Guidance assumes constructive outcomes in the Minnesota natural gas and PSCo wholesale electric rate cases, plus approximately $30 million of increased rider revenue recovery.
- Comanche Unit 3’s expected in-service date moved beyond Q1 because of noise during testing; the company expected service in Q2 2010 after corrective work.
- In April 2010, PSCo agreed to acquire two natural-gas generating plants for $739 million, subject to regulatory approvals, with closing expected in December 2010.
- Colorado’s Clean Air-Clean Jobs Act, signed April 19, requires PSCo to submit an emissions-reduction plan by August 15, 2010, potentially involving controls, conversion, retirement or replacement of coal capacity. The company stated that prudently incurred costs under an approved plan are recoverable.
Risks, contingencies and unusual items
- Environmental remediation liabilities were estimated at $102.3 million. This includes a $97.5 million recorded liability for the Ashland, Wisconsin site; ultimate responsibility and costs remain uncertain, though NSP-Wisconsin expects regulatory recovery.
- SPS received a draft New Mexico compliance order alleging NOx permit violations and proposing a $16.1 million penalty. SPS disputes the allegations and intends to defend its position.
- Material proceedings include gas-trading and greenhouse-gas litigation, the Comanche Unit 3 construction dispute, and claims relating to a 2008 natural-gas explosion in Pueblo. Outcomes and potential financial effects are uncertain; the filing does not provide a clear aggregate exposure value.
- Potential regulatory and environmental cost exposure includes evolving air-emissions, regional-haze and cooling-water requirements. The company generally expects qualifying costs to be recoverable through rates, but approvals and cost allocation are not assured.
- Other risks include weather, fuel and commodity prices, interest rates, counterparty credit, regulatory decisions, financing access, and possible collateral requirements if credit ratings decline. Management reported no material change to the risk factors in its 2009 Form 10-K.
Most important facts for investors to verify
- Whether 2010 ongoing EPS guidance remains achievable, particularly the assumed rate-case outcomes, rider recovery and expense increases.
- Actual cash generation and funding needs, given the year-over-year decline in operating cash flow, planned capital spending, and expected debt and equity issuance.
- Timing, cost recovery and construction progress for Comanche Unit 3 and the proposed $739 million generation-plant acquisition.
- Regulatory outcomes and ratepayer recovery for environmental remediation, emissions controls and the Colorado Clean Air-Clean Jobs plan.
- Developments in the proposed $16.1 million SPS penalty and other significant litigation or regulatory proceedings, whose ultimate exposures are uncertain.