Xcel Energy Inc. — Q2 2009 Form 10-Q
Reporting period: Three and six months ended June 30, 2009. The unaudited filing covers Xcel Energy and its regulated utility subsidiaries. Management cautions that seasonal interim results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q2 2009 | Q2 2008 | Six months 2009 | Six months 2008 |
|---|---|---|---|---|
| Operating revenue | $2.016 billion | $2.616 billion | $4.712 billion | $5.644 billion |
| Operating income | $279.4 million | $259.8 million | $650.2 million | $590.0 million |
| Net income | $117.1 million | $105.6 million | $291.2 million | $258.7 million |
| Diluted EPS | $0.25 | $0.24 | $0.63 | $0.59 |
| Electric margin | $937 million | $885 million | $1.898 billion | $1.770 billion |
| Natural gas margin | $120 million | $124 million | $317 million | $335 million |
Revenue fell 23% in Q2 and 17% year to date, largely reflecting lower fuel and purchased-energy and natural-gas cost recoveries, which reduce revenue and related expenses. Operating income nevertheless rose 8% in Q2 and 10% year to date. Management attributed improved electric margin primarily to rate increases, partly offset by declining retail sales and higher purchased-capacity costs. Natural gas margin declined.
For the six months, operating and maintenance expense increased $26.5 million, including higher employee-benefit and nuclear costs; interest expense rose $15.2 million as debt increased to fund investment. Conservation and demand-side management expenses also increased, generally with recovery through rates or riders.
Cash flow, balance sheet and financing
- Operating cash flow: $1.126 billion for the first half, versus $803 million a year earlier; management cited improved working-capital activity.
- Investing cash flow: $934 million used, including $947 million of utility construction expenditures. Financing activities used $61 million, compared with $278 million provided in the prior-year period.
- Cash and liquidity: Cash was $380 million at June 30, up from $249 million at year-end. As of July 21, available credit facilities were $1.749 billion; reported total liquidity, including cash, was $1.815 billion.
- Debt: Long-term debt, including current maturities, was $8.514 billion; short-term debt was $370 million. PSCo issued $400 million of 5.125% first mortgage bonds due 2019 and used part of the proceeds for a $200 million note maturity. NSP-Wisconsin redeemed $65 million of bonds.
- Equity and dividends: Common stockholders’ equity was $7.074 billion. The quarterly common dividend declared was $0.25 per share, versus $0.24 a year earlier.
Outlook and management commentary
Xcel maintained 2009 diluted EPS guidance of $1.45–$1.55. Key assumptions include normal weather for the rest of the year, reasonable regulatory outcomes, weather-adjusted retail electric sales declining about 2%, natural-gas sales declining about 1%, and capacity costs increasing approximately $45 million from 2008. The forecast also assumes higher operating costs, depreciation and interest expense, partly offset by rate increases and higher allowance for funds used during construction.
Management cited economic weakness and conservation as contributors to lower commercial and industrial electricity sales. It also noted continued investment needs, market-financing uncertainty, and potential effects from climate and other environmental regulation. Standard & Poor’s affirmed ratings and revised the outlook for Xcel and rated subsidiaries to positive in June 2009.
Regulatory matters, risks and unusual items
- Rate cases: NSP-Minnesota’s electric rate case remained pending, with interim rates in effect subject to refund; a final decision was expected in October 2009. PSCo’s 2009 electric settlement provided a $112.2 million annual base-rate increase effective July 1. SPS had approved or settled rate increases in Texas and New Mexico, with new rates taking effect in 2009.
- Environmental exposure: Xcel reported $102.9 million of estimated site-remediation liabilities. NSP-Wisconsin recorded a $97.5 million Ashland-site liability based on the minimum of the EPA’s proposed remediation-cost range and related costs, with corresponding costs deferred as a regulatory asset based on expected rate recovery. The final remedy and allocation of responsibility remained unresolved.
- Legal and regulatory contingencies: A $116.5 million judgment against the federal government for nuclear-waste costs was not recorded in earnings pending appeal and resolution of regulatory treatment. A second DOE claim asserted damages exceeding $250 million. A contractor filed a July 2009 suit alleging more than $55 million of Comanche Unit 3 construction damages, as well as a claim relating to a prior settlement; PSCo denied the allegations.
- Other exposures: Pending proceedings included wholesale-rate and fuel-refund matters, environmental litigation, and utility compliance investigations. Management stated that some outcomes could materially affect results, but the filing does not provide a clear estimate for several unresolved matters. Federal climate legislation and potential emissions-control requirements could raise costs; recovery through customer rates is not assured.
- Derivatives and market risk: Commodity and interest-rate changes, counterparty performance, and potential collateral or margin requirements could affect earnings or liquidity. The filing reports $86.3 million of Level 3 nuclear decommissioning-fund assets and significant Level 3 commodity-derivative valuations that rely on less observable inputs.
Important facts for investors to verify
- Progress and final outcomes in NSP-Minnesota’s rate case and other pending rate and rider proceedings, including any refunds or disallowances.
- Whether Xcel achieves its $1.45–$1.55 2009 EPS guidance given sales declines, cost increases, weather assumptions and regulatory outcomes.
- Cash generation, construction spending, planned debt issuance and access to credit markets; confirm liquidity figures and debt maturities against subsequent filings.
- Final remediation obligations and rate recovery for the Ashland site, and developments in the DOE nuclear-waste claims and Comanche Unit 3 litigation.
- Potential costs and recoverability of climate, emissions-control and other environmental requirements, along with material changes in derivative or counterparty exposure.