Xcel Energy Inc. — Q1 2011 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2011, compared with Q1 2010. Xcel Energy is a regulated electric and natural gas utility holding company operating through subsidiaries including NSP-Minnesota, NSP-Wisconsin, PSCo and SPS. Management cautions that seasonal interim results are not necessarily indicative of full-year results.
Key financial results
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Operating revenue | $2.817 billion | $2.807 billion | Up 0.3% |
| Operating income | $426.7 million | $403.7 million | Up 5.7% |
| Net income | $203.6 million | $167.1 million | Up 21.8% |
| Earnings available to common shareholders | $202.5 million | $166.1 million | Up 22.0% |
| Diluted EPS, GAAP | $0.42 | $0.36 | Up $0.06 |
| Operating cash flow | $659.4 million | $551.6 million | Up $107.9 million |
Calculated operating margin was approximately 15.1%, versus 14.4% a year earlier; calculated net margin was approximately 7.2%, versus 6.0%. Electric margin increased $90 million to $1.098 billion, while natural gas margin rose $13 million to $222 million. Common dividends declared were $0.25 per share, unchanged year over year.
Cash flow, debt and liquidity
- Investing activities used $624.3 million, including $540.3 million of utility capital expenditures and a $90.8 million Merricourt wind-project deposit. Financing activities used $49.2 million; cash declined $14.1 million to $94.3 million.
- At March 31, short-term debt was $531.5 million, current long-term debt $54.8 million and long-term debt $9.264 billion. Consolidated debt-to-total capitalization was 54%, within the 65% credit-facility covenant.
- The company reported $1.909 billion of available committed credit capacity at March 31. Its new $2.45 billion revolving facilities mature in March 2015. Commercial paper outstanding was $532 million, with a 0.34% period-end weighted average rate.
- Cash from operations benefited from working-capital movements; the company also made $134 million of voluntary pension contributions in January.
Material changes and management commentary
- Management reported ongoing diluted EPS of $0.42, flat with Q1 2010 ongoing EPS. The increase in GAAP EPS largely reflects nonrecurring 2010 charges: approximately $0.02 per share related to COLI/PSRI tax matters and $0.04 per share related to Medicare Part D tax benefits.
- Higher electric margin, including rate increases and revenue requirements for acquired PSCo gas-generation facilities, supported results. O&M rose $29.1 million, depreciation and amortization rose $18.6 million, conservation-program expense rose $17.3 million, and non-income taxes rose $15.2 million.
- The effective tax rate was 35.5%, compared with 42.1% in Q1 2010; the prior-year rate reflected the cited one-time tax items.
- NSP-Minnesota’s Minnesota and North Dakota interim electric rate increases were in effect, subject to refund. SPS’s Texas settlement increased base rates by $39.4 million effective February 16, 2011, with a further 2012 increase and potential efficiency rider described in the filing.
Outlook, risks and unusual items
- 2011 guidance: Ongoing EPS of $1.65–$1.75. Assumptions include normal weather, weather-adjusted retail electric sales growth of 1.0%–1.3%, natural gas sales decline of 1%, O&M growth up to 4%, depreciation increase of $50–$60 million, interest expense increase of about $10 million, and an effective tax rate of 34%–36%. Guidance assumes constructive regulatory outcomes.
- Merricourt: On April 1, NSP-Minnesota terminated its agreement for the proposed 150 MW wind project after closing conditions were not met, including species-related concerns and lack of a site-compatibility certificate. The approximately $101 million deposit recorded at quarter-end was collected in April; the project had been projected to cost about $400 million.
- Capital and pension needs: The Colorado Clean Air-Clean Jobs plan was estimated to require about $1.0 billion of investment over seven years, with an expected average bill impact of about 2% annually. Pension contributions for 2012 were estimated at $150–$175 million, subject to actuarial and market factors.
- Environmental and regulatory exposure: Future costs and requirements remain uncertain for proposed or evolving greenhouse-gas, air-emissions, cooling-water and coal-ash rules. The company states that many compliance costs are expected to be recoverable from customers, but that recovery depends on regulatory decisions.
- Contingencies: Environmental remediation liabilities were estimated at $104.1 million. The company recorded $97.5 million for the Ashland site, while final responsibility and costs remain uncertain. Other unresolved matters include the Cunningham Station penalty, FERC/NERC investigations, climate litigation, and the Shaw construction dispute; the filing describes outcomes as uncertain.
- Nuclear risk: The Fukushima events could lead to additional NRC requirements, costs or delays. Separately, the company’s nuclear-waste litigation and license/uprate proceedings remained unresolved.
- Management identified weather, regulatory cost recovery, fuel and commodity markets, financing conditions, environmental requirements, legal proceedings and nuclear operations among factors that could cause actual results to differ from forward-looking statements. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether final rate-case orders support the constructive regulatory outcomes assumed in 2011 guidance, including Minnesota, North Dakota and Colorado proceedings.
- Whether ongoing EPS performance and the stated sales, expense and tax assumptions remain consistent with the $1.65–$1.75 guidance range.
- How capital spending, pension funding and the Colorado emissions plan affect cash needs, debt levels and customer rate recovery.
- Whether environmental and legal contingencies, including Ashland remediation and the cited investigations and litigation, change materially or require additional accruals.
- The final disposition and accounting treatment of the Merricourt deposit and project termination, and any resulting replacement-resource plans.