Xcel Energy Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended Sept. 30, 2022. Xcel Energy is a regulated electric and natural gas utility holding company. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise stated. Interim results are seasonal and not necessarily indicative of full-year results.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $4,082 | $3,467 | $11,257 | $10,076 |
| Operating income | $924 | $825 | $1,903 | $1,770 |
| Net income | $649 | $609 | $1,357 | $1,282 |
| Diluted EPS | $1.18 | $1.13 | $2.48 | $2.38 |
| Operating margin | 22.6% | 23.8% | 16.9% | 17.6% |
Q3 revenue increased about 18% year over year and net income about 7%; nine-month revenue increased about 12% and net income about 6%. Management attributed EPS growth chiefly to regulatory rate outcomes, partly offset by higher depreciation, O&M, interest and other costs. Fuel and purchased-power and natural-gas cost changes are generally recovered through regulatory mechanisms, so revenue changes associated with these costs typically have limited earnings impact.
Q3 electric margin was $2,202, up $236; nine-month electric margin was $5,483, up $483. Rate outcomes were the largest stated contributor. Natural-gas margin was $184 in Q3, up $2, and $789 for nine months, up $28. The year-to-date effective tax rate was negative 6.3%, versus negative 1.3% a year earlier, principally reflecting wind production tax credits and regulatory tax differences; the credits are largely flowed back to customers and do not materially affect net income.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $3,167, versus $1,579 in 2021. Management said the increase primarily reflected the comparison with Winter Storm Uri-related costs incurred and deferred in 2021, including changes in regulatory assets and liabilities.
- Investing cash outflow was $3,321, including $3,325 of capital/construction expenditures. Financing cash inflow was $105. Cash, cash equivalents and restricted cash ended at $117, compared with $166 at year-end 2021.
- At Sept. 30, long-term debt, including its current portion, was $23,960, versus $22,380 at Dec. 31, 2021. Short-term debt was $158, down from $1,005. Total current liabilities were $4,903 and current assets were $5,090.
- Revolving credit facilities totaled $3,550, with $3,353 available at Sept. 30. The amended facilities mature in September 2027. Xcel issued $2,164 of long-term debt during the nine months and repaid $600; it also issued approximately $150 of common stock through its ATM program.
- Cash dividends paid during the nine months were $754. Dividends declared were $1.463 per share.
Material developments, outlook and risks
- Guidance: 2022 GAAP and ongoing EPS guidance was narrowed to $3.14–$3.19. 2023 guidance was $3.30–$3.40. Assumptions include constructive regulatory outcomes and normal weather. Long-term objectives are annual EPS growth of 5%–7%, dividend growth of 5%–7%, a 60%–70% payout ratio and senior secured ratings in the A range.
- Investment and financing: The 2023–2027 base capital expenditure forecast is $29.5 billion. The company identifies potential additional capital spending of about $2–$4 billion for resource-plan additions, subject to regulatory decisions. Its financing plan assumes approximately $1.8 billion of tax-credit transferability benefits.
- Inflation Reduction Act: Xcel estimates about $500 million in customer savings over five years from existing company-owned renewable projects, subject to regulatory mechanisms and a functioning credit-transfer market. It estimates tax-credit transferability could improve operating cash flow by $1.8 billion in 2023–2027, also subject to those conditions.
- Regulatory exposure: Major proceedings include the Minnesota electric rate case, Texas Winter Storm Uri cost reconciliation, and Colorado recovery treatment for retiring coal plants. Requested rate increases and recoveries are not assured until approved. The Minnesota electric case’s final order was expected in 2023; Texas Uri recommendations included proposed disallowances, with a final decision anticipated in early 2023.
- Operational and external risks: Management cited supply-chain constraints, inflation and labor shortages, including transformer and semiconductor availability, with possible delays to customer connections and capital work. Solar project costs and schedules may also be affected by the U.S. Commerce Department’s investigation of imported solar panels.
- Contingencies: A class action relates to the 2021 Marshall Fire; the cause remained under investigation and Xcel said it had seen no indication its equipment or operations caused the fire. The company cautioned that damages could exceed insurance if liability were established. A Comanche Unit 3 co-owner claims damages exceeding $125 million; Xcel considers the claims without merit. The filing also describes environmental remediation and potential regulatory costs, generally expected to be recoverable through rates where stated.
- Other unusual items: Xcel recorded a Q3 pension settlement charge of $55 million, most of which was not recognized in earnings due to regulatory accounting. The utility subsidiaries also face continued uncertainty around Winter Storm Uri recovery and potential disallowances.
Most important facts for investors to verify
- Whether rate cases and cost-recovery proceedings conclude on terms consistent with the assumptions underlying EPS guidance.
- Whether the company achieves the projected tax-credit transferability benefits and customer savings, which depend on regulatory outcomes and market development.
- Actual capital spending, financing needs, interest costs and credit metrics as the $29.5 billion base investment program proceeds.
- Final Texas Winter Storm Uri disallowances and resolution of the Minnesota electric rate case and other major regulatory matters.
- Developments in the Marshall Fire litigation, Comanche Unit 3 dispute, and environmental obligations.
- Supply-chain, inflation and project-schedule effects on reliability, customer connections and renewable investment plans.