Business context and reporting period
Xcel Energy Inc. is a regulated utility holding company whose four principal utilities serve electric and natural-gas customers across eight states. This Form 10-K covers the fiscal year ended December 31, 2010; quarterly figures below are unaudited.
Financial performance and position
| Metric | FY2010 | FY2009 |
|---|---|---|
| Operating revenue | $10.311 billion | $9.644 billion |
| Operating income | $1.620 billion | $1.469 billion |
| Income from continuing operations | $752 million | $686 million |
| Net income | $756 million | $681 million |
| Diluted GAAP EPS | $1.62 | $1.48 |
| Ongoing diluted EPS | $1.62 | $1.50 |
| Cash from operating activities | $1.894 billion | $1.913 billion |
| Utility capital/construction expenditures | $2.217 billion | $1.787 billion |
| Long-term debt at year-end | $9.263 billion | $7.889 billion |
Operating margin was approximately 15.7% versus 15.2% in 2009; net margin was approximately 7.3% versus 7.1%. Revenue growth was led by electric operations: electric margin rose to $4.441 billion from $4.033 billion, while natural-gas margin increased to $620 million from $600 million. Retail electric sales rose 3.1%; retail natural-gas deliveries declined 2.3%.
Cash used in investing activities was $2.807 billion, including the acquisition of two Colorado gas-fired generating plants. Operating cash flow less utility capital expenditures was approximately negative $323 million. Year-end cash was $108 million; short-term debt was $466 million. As of February 14, 2011, reported available credit facilities plus cash totaled $1.686 billion. The consolidated debt-to-total-capitalization ratio was 55%, unchanged year over year. Common dividends declared were $1.00 per share, versus $0.97.
In the fourth quarter, revenue was $2.567 billion, continuing-operations income was $137 million, and diluted EPS was $0.29, compared with $2.618 billion, $171 million, and $0.37, respectively, in fourth-quarter 2009.
Material changes versus the prior comparable period
- FY2010 ongoing EPS increased 8% to $1.62. Management attributed the improvement mainly to higher electric margins, including rate increases and warmer summer weather; higher operating and maintenance costs partly offset the gains.
- Electric margin increased $408 million. Higher rates, conservation-related revenue and incentives, and weather were principal contributors. O&M expense rose $149 million, depreciation and amortization rose $41 million, and interest charges rose $16 million.
- Natural-gas margin improved $20 million, while natural-gas revenue fell $83 million, primarily because of lower purchased-gas costs passed through to customers.
- Long-term debt rose about $1.4 billion and total assets rose to $27.4 billion from $25.3 billion, reflecting capital investment, debt issuance, and the generation-asset acquisition. The company issued 21.85 million common shares, raising $449.8 million.
- Electric revenues increased to $8.452 billion from $7.705 billion; natural-gas revenues fell to $1.783 billion from $1.866 billion. Total revenue increased despite the natural-gas decline.
Outlook, management commentary, risks and unusual items
- 2011 outlook: ongoing diluted EPS guidance is $1.65–$1.75. Assumptions include normal weather, weather-adjusted retail electric sales growth of 1.0%–1.3%, relatively flat firm natural-gas sales, constructive regulatory outcomes, O&M growth of about 4%, depreciation growth of $55–$65 million, and interest expense growth of $15–$25 million.
- Longer-term objectives: management targets annual EPS growth of 5%–7%, dividend growth of 2%–4%, and senior unsecured debt ratings in the BBB+ to A range. Planned 2011–2015 capital expenditures total approximately $13.15 billion; management expects average annual rate-base growth above 7% over that period.
- Major investment and regulatory plans: PSCo acquired the Blue Spruce and Rocky Mountain gas plants for approximately $739 million. Colorado’s approved emissions plan is expected to require about $1.0 billion over seven years and management estimated average future customer-bill increases of about 2% annually. Xcel also plans substantial transmission, renewable, nuclear, and distribution investment.
- Unusual items: a $25 million non-taxable COLI-related settlement contributed about $0.05 per share; separate COLI/IRS and Medicare Part D items included approximately $10 million and $17 million of charges. SPS’s sale of Lubbock distribution assets for $87 million generated an approximately $20 million pretax gain, deferred as a regulatory liability pending customer-sharing determination.
- Key risks and contingencies: cost recovery and timing of rate decisions; environmental and emissions compliance costs and uncertainty; nuclear operations and unresolved spent-fuel disposal; pension and postretirement costs; weather, fuel supply, credit and capital-market conditions; and pending litigation or regulatory investigations. Notable matters include a $7.6 million NMED penalty contested by SPS, ongoing FERC/NERC compliance matters, and nuclear-waste litigation. The filing does not establish the ultimate outcomes of these matters.
- Environmental operating costs were $256 million in 2010; management forecast an average of approximately $298 million annually for 2011–2015. The company reported $104 million of estimated site-remediation liabilities. Regulatory assets totaled approximately $2.5 billion, dependent on continued probable recovery through rates.
- The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether 2011 EPS guidance and its assumptions remain achievable, especially rate-case outcomes, sales growth, expenses, and weather.
- How the $13.15 billion five-year investment program will be funded and its effects on debt, share count, cash flow, and customer rates.
- Final recovery and customer-sharing treatment for the Lubbock sale gain, SPS fuel settlements, and major environmental and transmission investments.
- Progress and potential costs from emissions regulation, the Colorado emissions plan, and the contested New Mexico penalty.
- Resolution, potential financial exposure, and rate recovery for nuclear-waste, remediation, litigation, and reliability-compliance matters.
- The sustainability of cash generation and dividends given negative cash flow after utility capital expenditures, higher debt, and pension funding needs.