Xcel Energy Inc. — Q1 2014 Form 10-Q
Business context and reporting period. Xcel Energy is a regulated electric and natural gas utility holding company with operations across eight states through NSP-Minnesota, NSP-Wisconsin, PSCo and SPS. This unaudited filing covers the three months ended March 31, 2014, compared with Q1 2013; balance sheet comparisons are to December 31, 2013. Management cautions that seasonal interim results are not a reliable basis for projecting full-year performance.
Key financial metrics
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Operating revenue | $3.203 billion | $2.783 billion; up 15.1% |
| Operating income | $494.0 million | $454.6 million; up 8.7% |
| Net income | $261.2 million | $236.6 million; up 10.4% |
| Diluted EPS | $0.52 | $0.48 |
| Electric margin | $1.235 billion | $1.167 billion; up $68 million |
| Natural gas margin | $256 million | $231 million; up $25 million |
| Operating cash flow | $592.6 million | $642.3 million |
| Utility capital/construction expenditures | $822.6 million | $752.3 million |
| Cash and cash equivalents | $132.3 million | $107.1 million at Dec. 31, 2013 |
| Long-term debt, including current portion | $11.487 billion | $11.192 billion at Dec. 31, 2013 |
| Short-term debt | $765 million | $759 million at Dec. 31, 2013 |
| Stockholders’ equity | $9.747 billion | $9.566 billion at Dec. 31, 2013 |
Operating cash flow less utility capital expenditures was negative approximately $230 million. At March 31, committed credit facilities totaled $2.45 billion, with $1.639 billion available. Reported current liabilities were $3.468 billion and current assets were $3.129 billion. Quarterly dividends declared were $0.30 per share, versus $0.27 a year earlier.
Material changes and management commentary
- Revenue growth largely reflected higher fuel and purchased-gas cost recoveries, which generally pass through to customers, as well as rates, weather and sales. Electric and natural gas margins increased by $68 million and $25 million, respectively.
- Colder-than-normal weather contributed an estimated $0.049 per share versus normal weather, compared with $0.013 per share in Q1 2013. Weather-normalized retail electric sales rose 2.0%; weather-normalized firm natural gas sales rose 3.7%.
- O&M expense increased $30.9 million (5.8%), conservation and demand-side management expense increased $13.5 million (21.1%), and taxes other than income taxes increased $11.3 million. Management attributed the O&M increase to timing and higher operating costs, including nuclear and distribution expenses.
- Income tax expense rose $17.3 million, primarily with higher pretax earnings; the effective tax rate was 34.2%, versus 33.4%. Interest expense decreased slightly, reflecting refinancing at lower rates, partly offset by higher debt.
- Operating cash flow declined $49 million, mainly from working-capital timing and changes in regulatory accounts, partly offset by higher earnings and lower pension contributions. Investing cash use increased $88 million, primarily on transmission and Clean Air Clean Jobs projects.
- Financing included a $300 million PSCo bond issue at 4.30%, due 2044. Xcel Energy received $62 million net from settled common-stock sales in the quarter; the filing also reports additional unsettled at-the-market sales transactions.
Guidance, outlook, risks and contingencies
- 2014 ongoing EPS guidance: $1.90–$2.05 per share. Key assumptions include constructive regulatory outcomes, normal weather for the rest of the year, weather-normalized electric sales growth up to about 1%, O&M expense growth of 2%–3%, and an effective tax rate of approximately 34%–36%.
- Long-term objectives are annual EPS growth of 4%–6% from normalized 2013 EPS of $1.90, dividend growth of 4%–6%, and senior unsecured debt ratings in the BBB+ to A range. Moody’s upgraded Xcel Energy and its subsidiaries by one notch in January 2014; outlook was stable.
- Regulatory outcomes are important to earnings and cost recovery. Pending matters include NSP-Minnesota’s two-year electric rate case, requesting interim rates and later increases subject to regulatory review; SPS’s Texas electric rate case; and PSCo’s electric earnings-test refund obligation, for which a $45.7 million refund was proposed. Decisions and final customer impacts remained pending as of filing.
- The MPUC is reviewing the prudence of NSP-Minnesota’s Monticello life-cycle management/extended power uprate project. Final costs were approximately $665 million, compared with $320 million in the certificate of need. A decision was anticipated in Q1 2015.
- NSP-Wisconsin recorded an Ashland site environmental liability of $115.2 million at March 31, 2014, up from $104.6 million at year-end. The estimate and ultimate cost depend on the sediment cleanup remedy, contributions from other responsible parties, and possible public funding; customer recovery has regulatory support for certain costs.
- Other uncertainties include an IRS audit adjustment proposed at $10 million; a City of Seattle refund claim with preliminary calculations of approximately $28 million, excluding interest; and a disputed biomass fuel reimbursement demand of approximately $19 million. No accrual was recorded for the latter two matters; the filing says potential loss estimates are uncertain.
- Environmental rulemaking, emissions compliance, nuclear regulation, weather, commodity and interest-rate exposure, credit risk, transmission proceedings, and litigation may affect costs, capital requirements or recovery. Management said the financial impact of several proposed environmental requirements could not yet be estimated clearly.
Investor verification priorities
- Track regulatory decisions and final rate outcomes, including the Minnesota and Texas cases and PSCo’s proposed customer refund.
- Verify the outcome of the Monticello project prudence review and the recoverability of its costs.
- Monitor Ashland remediation estimates, sediment remedy negotiations, and the basis for customer cost recovery.
- Compare actual 2014 results with EPS guidance assumptions, especially weather, sales, O&M, property taxes, and regulatory outcomes.
- Review capital spending, operating cash flow, debt issuance and available credit capacity as investment requirements continue.