Xcel Energy Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended Sept. 30, 2019; comparisons are with the corresponding 2018 periods. Xcel Energy is a regulated electric and natural gas utility serving customers across multiple U.S. states. Results are seasonal and interim performance is not necessarily indicative of full-year results. Unless noted, amounts below are in millions of dollars.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Operating revenue | $3,013 | $3,048 | $8,731 | $8,657 |
| Operating income | $758 | $696 | $1,654 | $1,626 |
| Net income | $527 | $491 | $1,080 | $1,047 |
| Diluted EPS | $1.01 | $0.96 | $2.08 | $2.05 |
| Electric margin | $1,819 | $1,762 | $4,666 | $4,512 |
| Natural gas margin | $167 | $169 | $678 | $644 |
| Operating cash flow | Not stated by quarter | $2,557 | $2,493 | |
| Utility capital/construction expenditures | Not stated by quarter | $3,018 | $2,681 |
- Q3 revenue declined about 1% while net income rose about 7%; nine-month revenue rose about 1%, net income about 3%, and diluted EPS about 1%.
- Electric margin increased $57 in Q3 and $154 year to date, chiefly from non-fuel riders, regulatory rate outcomes and transmission revenue. Natural gas margin fell $2 in Q3 but increased $34 year to date.
- Q3 operating expenses were lower year over year, while year-to-date expenses rose. Year-to-date depreciation and amortization increased $120, and interest charges rose $55, reflecting new plant in service, capital investment and financing costs.
- Cash used in investing activities was $3,129; cash provided by financing was $1,289. Cash and equivalents were $864 at Sept. 30, 2019, versus $147 at year-end 2018.
Financial position and funding
- Total assets were $50.2 billion and stockholders’ equity was $13.1 billion at Sept. 30, 2019. Long-term debt was $16.8 billion, with $853 current portion and $933 of short-term debt.
- Committed revolving credit facilities totaled $3.1 billion, with $2.637 billion available at Sept. 30. A separate $500 million term loan was fully drawn. The filing reported no direct advances on revolving credit facilities.
- During the nine months, the company and utility subsidiaries issued $1.937 billion of long-term debt. Xcel settled forward equity agreements in August, issuing 9.4 million shares for $453 million. Dividends paid were $587 million.
- Adoption of lease accounting in 2019 added approximately $1.7 billion of operating lease assets and liabilities to the balance sheet; management said the accounting change otherwise did not materially affect the consolidated financial statements.
Material changes and management commentary
- Management attributed year-to-date EPS growth primarily to higher electric margins and a lower effective tax rate, partly offset by increased depreciation and interest expense, lower allowance for funds used during construction (AFUDC), and higher O&M costs.
- Weather-normalized retail electric sales were down 0.3% year to date; weather-normalized firm natural gas sales were up 3.2%. Management cited customer additions and higher gas usage, alongside electric sales declines in some service territories.
- The nine-month effective tax rate was 10.1%, compared with 15.2% in 2018, primarily reflecting additional wind production tax credits and other tax adjustments. The filing notes that wind PTC benefits are generally credited to customers and do not materially affect net income.
Guidance, investment plans and outlook
- 2019 EPS guidance was narrowed to $2.60–$2.65 from $2.55–$2.65. Assumptions include constructive regulatory outcomes, normal weather, relatively stable weather-normalized electric sales, and a projected 2%–3% increase in firm natural gas sales.
- 2020 GAAP and ongoing EPS guidance was $2.73–$2.83. Assumptions include normal weather and approximately 1% growth in weather-normalized retail electric and natural gas sales.
- Long-term objectives are annual EPS growth of 5%–7% from a 2019 base of $2.60, annual dividend increases of 5%–7%, a 60%–70% dividend payout ratio, and senior secured debt ratings in the A range.
- Planned base capital expenditures for 2020–2024 total $21.97 billion. Management expects to fund these primarily with operating cash flow, new debt and equity, and expects financing plans to change with investment needs and market conditions.
- NSP-Minnesota’s request to purchase the 760 MW Mankato Energy Center (MEC) for about $650 million was denied by the MPUC in September. Xcel planned to pursue the acquisition through a non-regulated subsidiary, subject to regulatory approvals, and step into existing power purchase agreements.
- NSP-Minnesota’s proposed resource plan through 2034 targets an 80% carbon reduction by 2030 and supports a vision of 100% carbon-free energy by 2050. The plan remains subject to regulatory review and was to be updated following the MEC decision.
Regulatory matters, risks and contingencies
- PSCo revised its Colorado electric rate request in October 2019 to a net $108 million increase; a decision was anticipated in December 2019. SPS sought approximately $136 million in Texas and $51 million in New Mexico rate increases, subject to proceedings and approvals.
- In a Texas fuel reconciliation proceeding, administrative law judges recommended disallowing approximately $3 million of costs associated with two solar power purchase agreements. SPS said it planned to challenge the recommendation; a final PUCT decision was pending.
- For the Sherco Unit 3 turbine matter, the MPUC approved returning GE settlement proceeds to customers and deferred a decision on NSP-Minnesota’s prudence until related insurer litigation concludes. A state consumer advocate had recommended an additional $20 million customer refund; NSP-Minnesota disputed that recommendation.
- Environmental obligations include remediation at the Ashland manufactured-gas-plant site, for which the estimated cost of the entire site was approximately $194 million and NSP-Wisconsin recorded a $22 million liability. Costs are authorized for recovery through rates. The effects of ongoing coal-ash groundwater assessments remain uncertain.
- Other disclosed exposures include regulatory and legal proceedings, changing environmental rules, weather and natural disasters, fuel and commodity prices, customer and counterparty credit, interest rates, nuclear operations, and cybersecurity. Management considered losses remote in the two remaining gas-trading lawsuits. The filing reported no material change to previously disclosed risk factors.
- The company stated its disclosure controls were effective as of Sept. 30, 2019, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether 2019 EPS finishes within the $2.60–$2.65 guidance range and whether 2020 guidance assumptions remain achievable.
- Final outcomes and timing of Colorado, Texas and New Mexico rate cases, and other pending regulatory recovery or refund decisions.
- Regulatory approvals, structure, economics and customer impacts of the proposed MEC acquisition through a non-regulated subsidiary.
- Funding needs and leverage implications of the $21.97 billion 2020–2024 capital program, planned debt issuance and dividend commitments.
- Potential costs or rate-recovery effects from coal-ash assessments, environmental remediation, nuclear fuel supply risks and unresolved legal matters.