Xcel Energy Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results compared with Q1 2022. Xcel Energy is a regulated electric and natural gas utility. Management cautions that seasonal interim results are not a reliable basis for projecting full-year performance.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Operating revenue | $4.080 billion | $3.751 billion |
| Operating income | $573 million | $510 million |
| Net income | $418 million | $380 million |
| Diluted EPS | $0.76 | $0.70 |
| Cash from operating activities | $1.537 billion | $1.140 billion |
| Capital/construction expenditures | $1.265 billion | $942 million |
| Cash, cash equivalents and restricted cash at quarter-end | $114 million | $90 million |
Electric revenue rose to $2.763 billion from $2.633 billion; natural gas revenue increased to $1.288 billion from $1.090 billion. Electric margin (electric revenue less fuel and purchased power) was $1.646 billion, up $107 million; natural gas margin was $444 million, up $64 million. Management attributes margin growth primarily to regulatory rate outcomes and infrastructure investment recovery. Fuel and purchased-gas cost changes are generally passed through to customers and typically have limited earnings impact.
Operating margin was approximately 14.0% of revenue versus 13.6% in Q1 2022; net margin was approximately 10.2% versus 10.1%. These percentages are calculated from reported figures. Income tax benefit was $53 million, and the effective tax rate was negative 14.5%, largely reflecting wind production tax credits and regulatory tax differences that are substantially offset through customer revenue mechanisms.
Balance sheet, debt and liquidity
At March 31, 2023, total assets were $60.945 billion, total common stockholders’ equity was $16.818 billion, and long-term debt including its current portion was $23.719 billion. Short-term debt was $1.079 billion; current long-term debt was $901 million. Cash from operations exceeded capital expenditures, but the company used $250 million in financing activities and reported a $3 million net increase in cash and restricted cash for the quarter.
Committed revolving credit facilities totaled $3.550 billion, with $2.428 billion available at quarter-end. As of April 24, 2023, the filing reported $3.142 billion of total cash liquidity, including $2.979 billion of available facilities and $163 million of cash. Short-term borrowing weighted-average interest rate was 4.85% for Q1, compared with 1.47% for 2022. The company reported $43 million of letters of credit outstanding at quarter-end under its facilities.
Changes and management commentary
- Q1 diluted EPS increased $0.06 year over year. Management cites infrastructure investment recovery and higher electric and natural gas margins, partly offset by higher depreciation, O&M and interest expense.
- Operating cash flow increased $397 million, reflecting working-capital movements, lower natural-gas-related receivables and payables, and continued collections of deferred Winter Storm Uri costs. Investing cash outflow increased $332 million, primarily due to higher capital expenditures.
- O&M expense rose $48 million, depreciation and amortization rose $62 million, and interest charges rose $39 million. The filing cites generation outages and emergent work, bad debt, inflation and labor costs, system expansion, new depreciation rates, higher interest rates and increased debt.
- Weather-normalized retail electric sales increased approximately 0.6%; weather-normalized firm natural gas sales declined approximately 0.7%. Colder-than-normal weather supported PSCo earnings, while warmer winter weather weighed on NSP-Wisconsin.
Guidance, outlook and key risks
2023 guidance: GAAP and ongoing EPS of $3.30–$3.40. Assumptions include constructive regulatory outcomes, normal weather for the remainder of the year, approximately 1% weather-normalized retail electric sales growth and relatively flat firm natural gas sales. Management projects O&M expense to decline about 2%, depreciation to increase $130–$140 million, property taxes to increase $30–$40 million, and interest expense (net of debt AFUDC) to increase $100–$110 million. The projected effective tax rate is negative 7% to negative 9%; management says tax-credit changes are largely earnings-neutral through rate mechanisms.
Long-term objectives are annual EPS growth of 5%–7% from a 2022 base of $3.15, annual dividend increases of 5%–7%, and a 60%–70% dividend payout ratio. The company also targets senior secured debt ratings in the A range. Guidance depends on regulatory outcomes, weather, sales, financing and other assumptions; ongoing EPS may differ from GAAP EPS due to unplanned adjustments.
- Regulatory proceedings: The Minnesota electric rate case remained pending, with an ALJ recommendation for an approximately $386 million cumulative increase over 2022–2024 and a commission decision expected by June 30, 2023. Major Colorado and New Mexico/Texas rate proceedings were also pending. Recovery timing and outcomes could affect earnings and customer rates.
- Capital and financing: The company expects substantial investment and planned debt issuance. Subsequent to quarter-end, PSCo issued $850 million of 5.25% first-mortgage bonds due 2053; NSP-Wisconsin priced $125 million of 5.30% bonds for expected closing in June. Financing plans may change with capital needs, market conditions and regulatory outcomes.
- Litigation: In Comanche Unit 3 litigation, CORE’s expert estimated $270 million of damages; PSCo disputes the claims, and the court barred CORE from seeking withdrawal-related damages in that case. The Marshall Fire cause remained under investigation; the company says the remote possibility of liability could exceed insurance coverage and materially affect results.
- Environmental and operating exposure: Potential costs include at least $30 million for additional coal-ash groundwater corrective action and approximately $45 million for certain ash processing, both expected to be recoverable through regulatory mechanisms. Potential Clean Air Act NOx costs could be significant, though management expects regulatory recovery. Supply-chain constraints, transformer availability, solar import policy, weather, cyber threats, commodity prices and nuclear fuel supply are also identified risks.
- Other notable items: A tritium release at Monticello was repaired and contained onsite; management expects immaterial remediation costs and reported no detection in drinking water. The company’s risk factors were reported as unchanged from its 2022 Form 10-K, and management concluded disclosure controls were effective.
Important facts for investors to verify
- Final regulatory decisions and timing of rate recovery, especially Minnesota, Colorado, New Mexico and Texas proceedings.
- Delivery of 2023 EPS guidance amid projected higher depreciation, property taxes and interest costs, and the stated sales and weather assumptions.
- Capital spending and financing execution, including debt issuance, credit-facility availability and the impact of higher borrowing rates.
- Developments in Comanche Unit 3 and Marshall Fire litigation, including any changes to estimated exposure or insurance coverage.
- Whether environmental compliance, supply-chain and fuel-supply costs remain recoverable and whether new rules or project delays change expected costs.