XCEL ENERGY INC. — Q3 2009 Form 10-Q
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2009, compared with the same 2008 periods. Xcel Energy is a regulated electric and natural gas utility holding company, with operations including NSP-Minnesota, NSP-Wisconsin, PSCo and SPS. Management cautions that seasonal sales make interim results an unreliable basis for projecting full-year results.
Key financial metrics
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Operating revenue | $2.315 billion | $2.852 billion | $7.026 billion | $8.496 billion |
| Operating income | $465.1 million | $448.0 million | $1.115 billion | $1.038 billion |
| Net income | $220.8 million | $222.8 million | $512.0 million | $481.5 million |
| GAAP diluted EPS | $0.48 | $0.51 | $1.11 | $1.10 |
| Electric margin | $1.147 billion | $1.062 billion | $3.045 billion | $2.833 billion |
| Natural gas margin | $98 million | $103 million | $414 million | $438 million |
For the nine months, operating cash flow was $1.629 billion, investing cash outflow $1.294 billion and financing cash outflow $492 million. Cash and cash equivalents ended at $90.2 million, down from $249.2 million at year-end 2008.
At September 30, total assets were $25.081 billion. Long-term debt was $7.945 billion, current maturities $184.5 million and short-term debt $494 million. Current assets of $2.391 billion were approximately level with current liabilities of $2.386 billion. As of October 21, available credit facilities were $1.620 billion; including $40.4 million cash, stated liquidity was $1.661 billion.
Material changes versus the prior comparable period
- Revenue fell 18.8% in Q3 and 17.3% year to date, primarily reflecting lower fuel and purchased-energy cost recovery and lower natural gas prices; these pass-through revenue declines do not translate directly into equivalent margin declines.
- Electric margin rose $85 million in Q3 and $212 million year to date, mainly from retail rate increases. Natural gas margin decreased $5 million in Q3 and $24 million year to date.
- Q3 net income was nearly flat, while year-to-date net income increased 6.3%. GAAP diluted EPS decreased $0.03 for Q3 and increased $0.01 year to date; share issuance also diluted per-share results.
- Operating and maintenance expense increased $44 million in Q3 and $70 million year to date, driven by nuclear outage and operating costs and higher employee benefits. Year-to-date interest expense increased $14.8 million, primarily reflecting debt used to fund investment.
- Year-to-date operating cash flow improved by $417 million, chiefly due to working-capital changes. Capital/construction expenditures were $1.311 billion, down from $1.523 billion a year earlier.
Outlook, commentary, risks and contingencies
Management expected 2009 earnings near the midpoint of its $1.45–$1.55 per-share guidance range. Assumptions included normal weather for the rest of the year, reasonable regulatory outcomes, approximately 2% weather-adjusted electric sales decline, 1% natural gas sales decline, and a 34%–36% effective tax rate. Management also projected $140 million higher O&M expense and $15–$20 million higher interest expense versus 2008.
- Regulatory developments include MPUC approval of an approximately $91 million annual Minnesota electric rate increase, below the revised $136 million request; PSCo’s 2010 Colorado electric rate request remained pending. Rider filings, fuel-cost proceedings and other state and FERC matters could affect recovery and customer refunds.
- Environmental remediation liabilities were estimated at $103.1 million. NSP-Wisconsin recorded $97.5 million for the Ashland site, based on the low end of the EPA’s proposed $94.4–$112.8 million cleanup range plus related costs; recovery in rates is expected but depends on regulatory treatment.
- Climate-change litigation and regulation remain uncertain. Appellate courts revived significant portions of two emissions-related lawsuits; Xcel said it would seek rehearing. The company also faced a federal misdemeanor case concerning the 2007 Cabin Creek accident and a contractor’s Comanche Unit 3 construction claim exceeding $55 million, which Xcel disputed.
- Other exposures include wholesale fuel and rate refund proceedings, a FERC investigation, nuclear waste litigation, and possible environmental compliance costs. Management stated some outcomes or amounts could not yet be determined.
- Commodity, interest-rate and counterparty risks persist. A 100-basis-point change in rates on variable-rate debt would affect annual pretax interest expense by about $6.1 million. Proposed derivatives regulation could create significant margin and fee requirements.
Important facts for investors to verify
- Whether full-year earnings land within guidance, given weather, sales trends, higher operating costs and pending regulatory decisions.
- Actual cash generation, capital spending, debt issuance and liquidity needs, especially with only $90.2 million of cash at quarter-end.
- Final outcomes and customer-refund impacts from Minnesota, Wisconsin, Colorado and SPS rate and fuel proceedings.
- Whether Ashland remediation, climate litigation, Cabin Creek charges and Comanche Unit 3 claims produce costs not recoverable from customers or other parties.
- How much reported margin improvement is sustained by approved rates versus temporary or recoverable items, and how share dilution affects EPS.