Xcel Energy Inc. — Q1 2016 Form 10-Q
Business context and reporting period. Xcel Energy is a regulated electric and natural gas utility holding company operating through subsidiaries in the Upper Midwest, Colorado, Texas and New Mexico. This unaudited report covers the three months ended March 31, 2016; quarterly results are seasonal and are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Operating revenue | $2.772 billion | $2.962 billion | Down 6.4% |
| Operating income | $490 million | $351 million | Up 39.6% |
| Net income | $241 million | $152 million | Up 58.7% |
| GAAP diluted EPS | $0.47 | $0.30 | Up $0.17 |
| Ongoing diluted EPS (non-GAAP) | $0.47 | $0.46 | Up $0.01 |
| Cash from operations | $790 million | $985 million | Down $195 million |
| Cash dividends declared per share | $0.34 | $0.32 | Up $0.02 |
Electric margin increased to $1.323 billion from $1.275 billion; natural gas margin rose to $254 million from $244 million. Revenue fell largely because lower fuel and purchased-gas costs were passed through customers, alongside lower sales and adverse weather. The filing attributes improved ongoing earnings principally to rate increases, non-fuel riders and lower O&M, partly offset by higher depreciation, interest, property taxes and weather.
Operating cash flow declined mainly because of lower tax refunds, higher customer refunds, timing of incentive recovery and higher pension contributions. Utility capital/construction expenditures were $700 million, versus $771 million. Investing cash outflow was $694 million; financing cash outflow was $79 million. Cash at quarter-end was $101 million.
Balance sheet, debt and liquidity
- Total assets were $39.070 billion at March 31, 2016, compared with $38.962 billion at year-end 2015. Stockholders’ equity was $10.672 billion.
- Long-term debt was $13.148 billion, with a current portion of $657 million and short-term debt of $183 million. Xcel issued $750 million of senior notes in March: $400 million at 2.4% due 2021 and $350 million at 3.3% due 2025.
- At March 31, committed credit facilities totaled $2.75 billion, of which $2.538 billion was available. The facilities expire in October 2019. Commercial paper outstanding was $183 million at quarter-end, down from $846 million at December 31, 2015.
Material changes, outlook and commentary
- Q1 2015 included a $129 million pretax ($0.16 per share) Monticello nuclear project charge following a Minnesota regulator’s decision to allow recovery of part of the project cost without a return. Excluding that item, ongoing EPS increased from $0.46 to $0.47; the GAAP year-over-year increase therefore reflects both improved operations and the absence of the prior-year charge.
- 2016 ongoing EPS guidance remained $2.12–$2.27. Assumptions include constructive regulatory outcomes, normal weather, approximately 0.5% weather-normalized retail electric sales growth, relatively flat firm natural gas sales, and O&M expense growth of 0%–1%.
- Management expects 2016 depreciation to increase about $200 million, property taxes to rise $40–$50 million, and interest expense (net of debt AFUDC) to rise $40–$50 million versus 2015. The projected effective tax rate is 34%–36%.
- Long-term objectives are annual EPS growth of 4%–6% from 2015 ongoing EPS of $2.10, annual dividend growth of 5%–7%, and a 60%–70% dividend payout ratio. These are objectives, not guarantees.
- Regulatory matters with potential earnings or investment implications include pending electric rate cases in Minnesota and Texas, a proposed New Mexico settlement subject to approval, and MISO transmission ROE complaints. Minnesota interim rate increases are subject to refund.
Risks, contingencies and unusual items
- Environmental compliance could require substantial investment. The EPA’s Texas regional haze rule calls for dry scrubbers at Tolk Units 1 and 2, with estimated investment of about $600 million and compliance by 2021; SPS is appealing and seeking reconsideration, and says costs would be recoverable through regulation if required.
- NSP-Wisconsin recorded a $94.2 million liability for the Ashland manufactured-gas-plant site, with remediation costs and timing uncertain. The EPA’s estimated cost for the sediment remedy is $63–$77 million, subject to a potential range of 30% below to 50% above that estimate; rate recovery has generally been authorized.
- The IRS had proposed a $14 million adjustment relating to tax-loss carryback claims; the matter was in Appeals with uncertain outcome and timing. Total unrecognized tax benefits were $122.5 million; the filing says this amount could decrease by up to approximately $58 million as audits and appeals progress.
- A FERC proceeding could reduce NSP System transmission revenue by an estimated $8–$10 million annually. Separately, a proposed SPP retroactive transmission-upgrade charge could affect SPS, but the company said any potential loss was not estimable and recorded no accrual.
- PSCo faces a potentially reasonably possible refund claim tied to historic Pacific Northwest power sales; the claimant’s preliminary calculation was about $28 million excluding interest. No accrual was recorded, and the loss range was not estimable.
- Other sensitivities include weather, lower-than-expected customer usage, regulatory decisions and cost recovery, environmental rules, interest rates, commodity prices, counterparty credit risk, and nuclear-fuel supply exposure to events in Ukraine and sanctions against Russia. Management reported no material change in previously disclosed risk factors.
Important facts for investors to verify
- Track whether regulators approve requested rate increases and whether interim rates or other collections become refundable.
- Assess progress and cost exposure in the Texas scrubber requirement, Ashland remediation and other environmental proceedings, including the extent of regulatory recovery.
- Monitor the MISO ROE cases, SPP upgrade-charge dispute and tax audits for changes in recorded liabilities, refunds or revenue.
- Compare full-year results with the $2.12–$2.27 ongoing EPS guidance and its weather, sales, cost and regulatory assumptions; ongoing EPS is a non-GAAP measure.
- Review cash generation, planned capital investment, debt issuance and available credit capacity alongside the lower Q1 operating cash flow.