Xcel Energy Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with Q1 2018 unless otherwise noted. Xcel Energy is a regulated electric and natural gas utility. Interim results are seasonal and are not necessarily indicative of full-year results.
Financial results
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Operating revenue | $3.141 billion | $2.951 billion; up 6.4% |
| Operating income | $486 million | $480 million |
| Net income | $315 million | $291 million; up 8.2% |
| Diluted EPS | $0.61 | $0.57 |
| Operating margin | 15.5% | 16.3% |
| Electric margin | $1.411 billion | $1.338 billion; up $73 million |
| Natural gas margin | $315 million | $287 million; up $28 million |
| Cash from operations | $793 million | $887 million |
| Capital/construction expenditures | $844 million | $860 million |
| Cash and cash equivalents | $94 million at March 31 | $147 million at Dec. 31, 2018 |
| Short-term debt | $1.252 billion at March 31 | $1.038 billion at Dec. 31, 2018 |
| Long-term debt | $16.118 billion at March 31 | $15.803 billion at Dec. 31, 2018 |
The effective tax rate was 7.4%, compared with 16.9%. The company attributes the decline principally to regulatory tax differences, wind production tax credits and a reversal of a federal valuation allowance; wind credits are flowed back to customers and do not materially affect net income. The quarter’s EPS increase reflected higher electric and natural gas margins and lower income taxes, partly offset by higher depreciation, O&M and interest expense.
Material changes and liquidity
- Electric margin rose on non-fuel riders, regulatory rate outcomes, weather, transmission revenue and lower purchased-capacity costs. Natural gas margin benefited from a Colorado rate increase, colder weather, infrastructure riders and sales growth.
- Operating cash flow declined $94 million, primarily because of changes in receivables and unbilled revenues and timing effects. Investing cash use was $852 million; financing provided $6 million. Cash decreased $53 million during the quarter.
- At March 31, committed revolving credit facilities totaled $2.75 billion, of which $1.947 billion was available. Short-term borrowings averaged $1.186 billion during the quarter at a 2.68% weighted-average rate.
- PSCo issued $400 million of 4.05% first mortgage bonds due 2049. Xcel Energy also fully drew its $500 million term loan, which matures December 2019. Planned 2019 financing includes additional debt issues and approximately $75–$80 million of equity through dividend reinvestment and benefit programs.
- Common dividends declared were $0.41 per share, versus $0.38 in Q1 2018. Cash dividends paid were $187 million, versus $175 million.
Outlook, commentary and risks
- 2019 guidance: GAAP and ongoing EPS of $2.55–$2.65. Key assumptions include constructive regulatory outcomes, normal weather for the remainder of the year, relatively flat weather-normalized retail electric sales, natural gas sales growth of 0%–1%, O&M down about 2%, and a 6%–8% effective tax rate.
- Long-term objectives: Annual EPS growth of 5%–7% from a 2018 base of $2.43; annual dividend increases of 5%–7%; a 60%–70% payout ratio; and senior secured debt ratings in the A range.
- Management cited favorable Q1 weather: heating degree-days were 8.8% above Q1 2018 and 10.5% above normal. Weather contributed an estimated $0.026 per share year over year after Minnesota decoupling.
- Depreciation and amortization increased $50 million, largely with the Rush Creek wind project entering service, other investment and prepaid pension asset amortization. O&M increased $40 million, including higher distribution, generation and business-system costs. Interest charges increased $18 million, mainly due to higher debt.
- Capital plans include major wind investments. SPS expects approximately $1.6 billion in investment for the Hale and Sagamore wind projects. NSP-Minnesota’s proposed $650 million Mankato Energy Center purchase was anticipated to close mid-2019 subject to approvals; projected customer savings are $50–$150 million over the plant’s life.
- Lease accounting adoption on January 1, 2019 recognized approximately $1.7 billion of operating lease assets and liabilities, primarily associated with power purchase agreements. Management said adoption otherwise had no significant financial-statement impact.
- Regulatory uncertainties include pending rate and rider cases, MISO transmission return-on-equity proceedings, SPP transmission-upgrade refunds under rehearing, and a potential review of Sherco Unit 3 cost recovery. Outcomes and timing remain uncertain.
- Environmental exposures include the Ashland site, for which NSP-Wisconsin recorded a $27 million liability against estimated whole-site remediation and restoration costs of about $190 million; recovery through rates has been authorized. Xcel is also assessing groundwater at coal ash sites; the financial impact, if any, is uncertain.
- Other risks include weather, regulatory cost recovery, interest and commodity prices, counterparties, environmental requirements, nuclear operations and fuel supply. Management disclosed no material change to the risk factors in its 2018 Form 10-K. Controls and procedures were reported effective.
Key facts for investors to verify
- Whether the company achieves its $2.55–$2.65 EPS guidance, given regulatory, weather, sales and cost assumptions.
- Progress and final regulatory treatment of major rate proceedings, MISO ROE matters, SPP upgrade charges and Sherco cost recovery.
- Actual funding needs and leverage as capital spending continues, including term-loan repayment, planned debt issuance and forward-equity settlement by February 2020.
- Final approvals, costs and expected customer benefits for the Mankato acquisition and wind projects.
- Developments in coal-ash groundwater assessments and environmental remediation estimates, including the extent of rate recovery.
- Cash-flow conversion: operating cash flow was below the prior-year quarter while capital expenditures remained substantial.