Xcel Energy Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Figures are unaudited; dollar amounts are in millions except per-share data. Xcel Energy is a regulated electric and natural gas utility. Interim results are seasonal and may not indicate full-year performance.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $3,424 | $3,068 | $7,175 | $6,609 |
| Operating income | $469 | $438 | $979 | $945 |
| Net income | $328 | $311 | $708 | $673 |
| Diluted EPS | $0.60 | $0.58 | $1.30 | $1.25 |
| Electric margin | $1,742 | $1,550 | $3,281 | $3,034 |
| Natural gas margin | $225 | $231 | $605 | $579 |
Q2 revenue rose about 12% and net income about 5% year over year; six-month revenue rose about 9% and net income about 5%. Q2 operating margin was approximately 13.7% of revenue versus 14.3% a year earlier; six-month operating margin was approximately 13.6% versus 14.3%. The six-month effective tax rate was negative 21.2%, compared with negative 9.8% in 2021, largely reflecting wind production tax credits and regulatory tax items that generally flow through to customers and do not materially affect net income.
For the first six months, operating cash flow was $1,988, capital and construction expenditures were $2,040, and investing cash outflow was $2,055. Financing cash inflow was $236; dividends paid were $497. Cash and restricted cash ended at $335, up from $166 at year-end 2021.
At June 30, total long-term debt, including current maturities, was $23,856; short-term debt was $136. Cash was $335, and committed revolving credit capacity available was $2,925. Total assets were $59,317 and stockholders’ equity was $15,971. Long-term debt fair value was $22,076 versus carrying value of $23,856.
Changes and management commentary
- Revenue growth reflected rate outcomes, Texas rate-case revenue recognition, sales and demand, and higher natural gas revenues. Much of the increase in fuel and gas costs is recovered through regulatory mechanisms and generally does not materially affect earnings.
- Electric margin increased $192 in Q2 and $247 year to date, driven principally by regulatory rate outcomes and Texas surcharge revenue recognition. Natural gas margin declined $6 in Q2 but increased $26 year to date.
- Higher depreciation and amortization, interest, taxes other than income taxes, and O&M partly offset margin growth. Q2 depreciation and amortization increased $110 year over year; interest charges rose $35.
- Operating cash flow was $1,988 versus $489 in the prior-year period. Management attributed the increase primarily to Winter Storm Uri-related costs and associated regulatory balances in 2021, together with working-capital and regulatory-balance movements.
- The company issued $2,066 of long-term debt during the six months and issued approximately $150 of common stock through its at-the-market program in Q2. Approximately $300 remained available under that program at June 30.
Guidance, risks and contingencies
- 2022 guidance: GAAP and ongoing EPS of $3.10–$3.20. Assumptions include normal weather, approximately 2% weather-normalized retail electric sales growth and 1% firm natural gas sales growth. Management projected O&M growth of about 2%, depreciation growth of $300–$310, interest expense growth of $100–$110, and an effective tax rate of approximately negative 6% to negative 8%. Guidance depends on constructive regulatory outcomes and other stated assumptions.
- Long-term objectives: Annual EPS growth of 5%–7% from the 2021 base of $2.96; annual dividend increases of 5%–7%; a 60%–70% dividend payout ratio; and senior secured debt ratings in the A range.
- Regulatory exposure: Minnesota Winter Storm Uri cost recovery remained pending; intervenors recommended disallowances, while administrative law judges recommended no disallowance. A state commission decision was expected in August 2022. Colorado approved a settlement with an $8 disallowance from PSCo’s Uri costs. Texas Uri recovery and prudence remained under review, with intervenor disallowance recommendations ranging up to approximately $100.
- Other proceedings: Minnesota electric and gas rate cases, Colorado gas rates, and several rider and transmission matters were pending. Colorado’s revised resource plan accelerates coal retirements and anticipates substantial renewable, storage and dispatchable-generation additions; recovery treatment for retiring coal assets remained for a separate proceeding.
- Operational and project risks: Supply-chain constraints, inflation, labor and shipping disruptions, and potential solar import tariffs could delay or raise the cost of planned projects. Advanced-meter deployment and certain solar projects could be affected. Comanche Unit 3 returned to service in June; PSCo said it would not seek recovery of about $18 of incremental replacement-power costs from the 2022 outage.
- Litigation and environmental matters: A Marshall Fire class action was pending; the cause had not been determined, and the company stated that a remote adverse-liability outcome could exceed insurance coverage. CORE alleged damages exceeding $125 related to Comanche Unit 3, though certain claims were dismissed. Environmental ash and water matters include recorded or estimated costs, generally expected to be recoverable through regulatory mechanisms where stated.
- Other exposures: Higher interest rates, commodity prices, counterparty credit risk, severe weather, regulatory change, cybersecurity, and nuclear-fuel supply were identified risks. The company reported no material change in its previously disclosed risk factors or market-risk disclosure.
Important facts for investors to verify
- Subsequent regulatory decisions on Winter Storm Uri disallowances and recovery, and the resulting effects on earnings, customer rates and cash flows.
- Whether 2022 EPS guidance remains achievable given pending rate cases, weather, higher interest costs, inflation and supply-chain constraints.
- Capital spending and financing needs, including debt levels, ATM equity issuance, dividend growth and available liquidity.
- Project timing and cost recovery for Colorado resource-plan changes, transmission investments and delayed solar developments.
- Developments in the Marshall Fire litigation, Comanche-related disputes and environmental proceedings, including insurance and regulatory recovery.