Xcel Energy Inc. — Form 10-Q Summary
Business context and reporting period
Xcel Energy is a regulated electric and natural gas utility holding company with operations primarily in the Upper Midwest, Colorado, Texas and New Mexico. This unaudited filing covers the quarter and nine months ended September 30, 2015; balance-sheet comparisons are with December 31, 2014. Management cautions that seasonal interim results are not necessarily indicative of full-year performance.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Operating revenue | $2.901 billion | $2.870 billion | $8.379 billion | $8.758 billion |
| Operating income | $786 million | $666 million | $1.560 billion | $1.557 billion |
| Net income | $426 million | $369 million | $775 million | $825 million |
| Diluted GAAP EPS | $0.84 | $0.73 | $1.53 | $1.64 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $2.490 billion | $2.004 billion |
- Third-quarter electric margin was $1.652 billion, up $116 million year over year; natural gas margin was $150 million, up $12 million. For the nine months, electric margin increased $208 million to $4.236 billion, while natural gas margin was unchanged at $551 million.
- Third-quarter operating income increased about 18% and net income about 16%; revenue increased about 1%. For the nine months, revenue declined about 4% and net income about 6%, despite slightly higher operating income.
- Operating cash flow increased by $486 million year over year for the nine months. Investing cash use was $2.139 billion, mainly reflecting utility construction expenditures of $2.186 billion. Financing cash use was $26 million, versus $261 million of financing cash provided in 2014. Cash at September 30 was $404 million.
- At September 30, current assets were $3.344 billion and current liabilities $3.085 billion. Long-term debt was $12.691 billion, with $457 million current; short-term debt was $64 million. Total debt on these balance-sheet lines was approximately $13.212 billion. Stockholders’ equity was $10.545 billion.
- Committed credit facilities totaled $2.75 billion, of which $2.647 billion was available at September 30. The company declared dividends of $0.32 per share for Q3, compared with $0.30 a year earlier.
Material changes versus the prior period
- Third-quarter ongoing diluted EPS rose to $0.84 from $0.73. Management attributed improvement mainly to higher electric margins, including rate increases and riders, favorable weather and lower estimated Colorado earnings-test refunds. These gains were partly offset by higher depreciation, interest and property taxes and lower allowance for funds used during construction (AFUDC).
- Nine-month ongoing diluted EPS increased to $1.69 from $1.64, while GAAP diluted EPS fell to $1.53 from $1.64. The difference was principally the $0.16-per-share Monticello project charge recorded in Q1 2015.
- The Monticello life-cycle management/extended power uprate project charge was $129.5 million pretax. The Minnesota regulator allowed a return on approximately $415 million of project costs but only cost recovery, without a return, on the remaining approximately $333 million.
- Depreciation and amortization rose 9.4% year to date; interest charges increased 4.7%. Capital spending was lower than in the prior-year period, which included significant Colorado Clean Air-Clean Jobs Act projects.
- Long-term debt increased from $11.500 billion at year-end 2014, while short-term debt fell from $1.020 billion to $64 million. The company issued $1.627 billion of long-term debt during the nine-month period.
Guidance, outlook, risks and unusual items
- Management revised 2015 ongoing EPS guidance to $2.05–$2.15, from $2.00–$2.15. The outlook assumes constructive regulatory outcomes, normal weather for the remainder of the year, relatively flat weather-normalized electric sales and an approximately 2% decline in firm natural gas sales.
- 2016 ongoing EPS guidance is $2.12–$2.27. Assumptions include normal weather, electric sales growth of 0.5%–1.0%, relatively flat natural gas sales and constructive regulatory outcomes, including Minnesota interim rates consistent with historical precedent.
- Long-term objectives are 4%–6% annual EPS growth, 5%–7% annual dividend increases, a 60%–70% payout ratio and senior unsecured debt ratings in the BBB+ to A range.
- Key regulatory uncertainties include pending electric and gas rate cases, FERC transmission return-on-equity complaints and potential customer refunds. In Texas, an administrative law judge’s revised recommendation was a $14.4 million rate increase, below SPS’s $42.1 million rebuttal request; a final decision was expected in December 2015.
- The FERC-approved SPS wholesale settlement is expected to produce a net gain of approximately $7.9 million in Q4 2015. Its terms include settlement payments and lower wholesale return-on-equity rates, with a moratorium on changes to specified rates through 2019.
- Environmental and legal exposures include the Ashland manufactured-gas-plant cleanup, for which NSP-Wisconsin recorded a $95.7 million liability, and uncertain future sediment-remediation costs. A separate Fargo site investigation had a $1.4 million recorded liability. Potential emissions-control requirements and regulatory proceedings could affect future costs, although the company generally expects eligible compliance costs to be recoverable through rates.
- The IRS had proposed adjustments that could result in $13 million of tax expense for specified tax-loss carryback claims; the appeals outcome and timing were uncertain. Unrecognized tax benefits totaled $76.4 million.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Track whether 2015 and 2016 EPS guidance is achieved, and distinguish ongoing EPS from GAAP EPS, particularly given the Monticello charge.
- Review final outcomes and timing of the Minnesota, Wisconsin, Colorado, Texas, New Mexico and FERC rate proceedings, including any refunds or return-on-equity changes.
- Monitor debt issuance, interest expense, capital expenditures, cash generation and credit-facility availability as the utility’s investment program continues.
- Assess whether environmental liabilities—especially Ashland sediment remediation—and emissions rules remain recoverable from customers and whether cost estimates change.
- Consider the impact of weather, sales trends and seasonality; year-to-date weather-normalized electric sales declined 0.2% and firm natural gas sales declined 1.8%.