Xcel Energy Inc. — Q2 2011 Form 10-Q
Business context and period. Xcel Energy is a regulated electric and natural gas utility holding company operating through NSP-Minnesota, NSP-Wisconsin, PSCo and SPS. This unaudited filing covers the three and six months ended June 30, 2011. Management cautions that seasonal sales make interim results an imperfect basis for projecting annual performance.
Financial performance
Amounts below are in millions except per-share data.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Operating revenue | $2,438 | $2,308 | $5,255 | $5,115 |
| Operating income | $359 | $325 | $786 | $729 |
| Net income | $159 | $140 | $362 | $307 |
| EPS from continuing operations, diluted | $0.33 | $0.29 | $0.74 | $0.65 |
| Cash provided by operating activities | — | — | $1,123 | $913 |
- Q2 electric margin was $1,139 million, up from $1,055 million; natural gas margin was $129 million, up from $122 million. First-half electric margin was $2,237 million versus $2,061 million; gas margin was $351 million versus $332 million.
- For the first half, utility capital/construction expenditures were $1,122 million. Net cash used in investing activities was $1,090 million; net cash used in financing was $40 million. Cash and cash equivalents ended June at $102 million, versus $108 million at year-end 2010.
- At June 30, long-term debt was $9,264 million, current long-term debt $54 million and short-term debt $656 million. Common shareholders’ equity was $8,235 million. Xcel Energy’s debt-to-total-capitalization ratio was 55%, within its 65% credit-facility covenant.
- Committed credit facilities totaled $2.45 billion, of which $1.782 billion was available at June 30. Commercial paper outstanding was $656 million. The new facilities expire in March 2015.
- Common dividends declared were $0.26 per share in Q2, versus $0.25 a year earlier. First-half dividends were $0.51 per share versus $0.50.
Material changes and drivers
- Ongoing diluted EPS rose to $0.33 in Q2 from $0.29 and to $0.74 for the first half from $0.71. Reported 2010 EPS included $0.06 per share of one-time COLI and Medicare Part D items in the first half; 2011 ongoing and GAAP EPS were the same.
- Higher electric margins were the largest earnings driver: increases of $84 million in Q2 and $176 million in the first half. Drivers included rate increases, the PSCo gas-generation acquisitions and conservation-related revenues and incentives.
- Higher O&M, depreciation and other taxes partly offset margin gains. First-half O&M rose $45 million, depreciation and amortization rose $36 million, and taxes other than income taxes rose $27 million. Interest expense rose $5 million for the first half.
- First-half operating cash flow increased $210 million year over year, principally reflecting working-capital timing; the company also contributed $134 million to pension plans in January. Capital spending increased $155 million year over year.
Outlook, regulatory matters and risks
- Guidance: 2011 ongoing EPS guidance is $1.65–$1.75. Assumptions include normal weather, weather-adjusted retail electric sales growth of about 1%, natural gas sales decline of 1%–2%, constructive regulatory outcomes, O&M growth up to 4%, depreciation growth of $50–$60 million, interest expense growth of about $10 million and an effective tax rate of 34%–36%.
- Rate cases: The Minnesota electric rate case remained pending; the company’s revised 2011 request was $122.8 million, with a decision expected in Q4 2011. Interim Minnesota and North Dakota rates were subject to refund. Other state and federal rate proceedings also remained pending or were expected to affect future rates.
- Environmental compliance: EPA’s Cross-State Air Pollution Rule requires compliance beginning in 2012. Xcel was assessing its response and expected possible additional controls at SPS coal units and other near-term operating measures. The company said compliance costs were expected to be recoverable from customers, but CSAPR costs were not yet estimable. Proposed or pending rules on greenhouse gases, mercury, regional haze, coal ash and cooling-water intakes add cost and timing uncertainty.
- Major projects: PSCo’s Colorado Clean Air Clean Jobs plan represents about $1.0 billion of investment over seven years; the filing estimates an average future customer-bill impact of about 2% annually. NSP-Minnesota’s proposed Black Dog repowering is estimated at about $600 million, subject to approval.
- Contingencies: The Ashland, Wisconsin remediation liability was $97.5 million, recorded as a regulatory asset based on expected customer recovery; the ultimate liability and recovery remain uncertain. The EPA could pursue enforcement. enXco sought more than $240 million over termination of the Merricourt wind-project agreements; Xcel recorded no accrual. In July 2011, after quarter-end, NSP-Minnesota settled spent-fuel litigation for an initial $100 million payment and a mechanism to recover storage costs through 2013, currently estimated at a further $100 million.
- Other risks: Nuclear operations face regulatory, safety, waste-disposal and potential post-Fukushima requirements. The filing also describes environmental and reliability investigations, climate-related litigation and commodity, interest-rate and counterparty risks. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress and final outcomes of the Minnesota and other pending rate cases, including possible refunds of interim rates.
- Whether the $1.65–$1.75 ongoing EPS outlook assumptions and planned financing are tracking as expected.
- Actual costs, timing and rate recovery for CSAPR and other environmental mandates, and for major generation and transmission projects.
- Exposure and recoverability of the Ashland remediation accrual, Merricourt litigation claim and other material contingencies.
- Cash generation relative to capital spending, short-term borrowing levels, pension contributions and available credit capacity.