Xcel Energy Inc. — 2013 Form 10-K
Business context and reporting period. Annual report for the fiscal year ended December 31, 2013; this is not a standalone fourth-quarter filing. Xcel Energy is a regulated utility holding company operating through four electric utilities, with electric and natural-gas customers across eight states. Results are primarily subject to state and federal rate regulation.
Financial results and position
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Operating revenue | $10.915 billion | $10.128 billion | +7.8% |
| Operating income | $1.848 billion | $1.823 billion | +1.4% |
| Net income | $948 million | $905 million | +4.8% |
| GAAP diluted EPS | $1.91 | $1.85 | +3.2% |
| Ongoing diluted EPS (non-GAAP) | $1.95 | $1.82 | +7.1% |
| Electric margin | $5.015 billion | $4.893 billion | +$122 million |
| Natural-gas margin | $722 million | $656 million | +$66 million |
| Cash from operations | $2.584 billion | $2.005 billion | +$579 million |
| Capital expenditures | $3.395 billion | $2.570 billion | +$825 million |
| Long-term debt | $10.911 billion | $10.144 billion | +$767 million |
- Operating margin was approximately 16.9%, down from 18.0% in 2012, as expenses grew faster than operating income. Electric and gas cost-recovery revenues raised reported revenue but generally had a corresponding expense.
- Electric margin improvement chiefly reflected rate increases; natural-gas margin improvement primarily reflected colder winter weather and rate increases. Retail electric sales increased 0.3%; total energy sold fell 0.4%, mainly due to lower resale sales.
- Year-end assets were $33.907 billion, common equity $9.566 billion, cash and cash equivalents $107 million, and short-term debt $759 million. Current liabilities exceeded current assets ($3.654 billion versus $3.218 billion). Total debt including current maturities and short-term debt was approximately $11.951 billion.
- Operating cash flow less utility construction expenditures was negative approximately $811 million. Financing activities provided $654 million; dividends paid were $514 million and declared dividends totaled $1.11 per share.
- The company reported a 56% debt-to-total-capitalization ratio for its credit-facility covenant measure, within the 65% limit. Available committed liquidity was approximately $1.408 billion as of February 18, 2014, including $1.406 billion of undrawn facilities and $2.5 million of cash.
Material changes and unusual items
- Ongoing earnings rose $0.13 per diluted share. Management cited higher electric and gas margins, higher equity AFUDC and lower interest charges, partly offset by increased O&M and depreciation.
- GAAP earnings included a $36 million pretax charge from August 2013 FERC orders involving SPS wholesale rates and potential customer refunds; the after-tax impact was $24.4 million, or $0.04 per share. Ongoing EPS excludes $20.2 million after tax attributable to prior periods.
- Monticello nuclear life-extension and uprate work was completed in July 2013. Integrated life-cycle-management and uprate costs were approximately $665 million, including $146 million attributed to the uprate and $519 million to life-cycle work. Regulators are reviewing the prudence of costs above earlier estimates; rate recovery is not yet settled.
- NSP-Wisconsin determined it was ineligible to recover its 2013 electric fuel-cost under-recovery under Wisconsin’s earnings test and expensed those costs.
- SPS sold certain Texas transmission assets for $37.1 million and recorded a $13.6 million pretax gain, partly offset by jurisdictional gain-sharing liabilities.
- Generation mix continued shifting: coal provided 46% of company generation in 2013 versus 47% in 2012; wind rose to 14% from 12%. The company estimated customer-related CO₂ emissions fell 2.5 million tons year over year.
Outlook, management commentary and risks
- 2014 ongoing EPS guidance is $1.90–$2.05. Assumptions include normal weather, constructive regulatory outcomes, weather-adjusted retail electric sales growth of about 0.5%, natural-gas sales flat to down 2%, O&M growth of 2%–3%, and an effective tax rate of 34%–36%.
- Management targets long-term annual EPS and dividend growth of 4%–6%, based on normalized 2013 EPS of $1.90. It announced a $0.30-per-share dividend on February 19, 2014. Planned 2014–2018 utility investment is approximately $14.1 billion, with projected rate-base compound annual growth of about 5.4%.
- Key risks include regulatory disallowance or delay in cost recovery; environmental compliance costs and uncertain emissions rules; fuel, weather and operating disruptions; nuclear safety and spent-fuel storage; interest rates, credit ratings and capital-market access; pension obligations; cybersecurity; and competition from customer-owned generation.
- Material proceedings to monitor include the Monticello cost-prudence review; pending rate cases and rate riders; the MISO transmission return-on-equity complaint, with a potential annual revenue reduction of $11.7 million for NSP-Minnesota and NSP-Wisconsin; and SPS’s FERC refund and allocation proceedings.
- Environmental and legal exposures include the Ashland manufactured-gas-plant site, for which NSP-Wisconsin accrued $104.6 million, and unresolved cleanup scope and cost for contaminated sediments. The filing notes that some potential losses cannot be reasonably estimated.
- The filing reports unqualified audit opinions on the financial statements and internal control over financial reporting; management concluded controls were effective as of year-end.
Important facts for investors to verify
- Track final regulatory decisions and recoverability of Monticello LCM/EPU costs, including the outcome and timing of the prudence review.
- Compare 2014 EPS results with the $1.90–$2.05 guidance range and test the stated weather, sales, expense, tax and regulatory assumptions.
- Assess funding of the $14.1 billion investment plan against operating cash flow, debt issuance, share issuance, dividends and liquidity; note that 2013 operating cash flow did not cover construction expenditures.
- Monitor the MISO ROE complaint and SPS FERC matters for refund, revenue and customer-rate impacts.
- Review environmental contingency updates, particularly Ashland remediation costs, and whether regulatory recovery or third-party contributions offset the accrued liability.