Xcel Energy Inc. — Q2 2015 Form 10-Q
Business context and reporting period. Xcel Energy is a regulated electric and natural gas utility holding company operating through NSP-Minnesota, NSP-Wisconsin, Public Service Company of Colorado (PSCo) and Southwestern Public Service Company (SPS). This unaudited filing covers the quarter and six months ended June 30, 2015. Results are seasonal and management cautions that interim results are not a reliable basis for projecting full-year performance.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Operating revenue | $2.515 billion | $2.685 billion | $5.477 billion | $5.888 billion |
| Operating income | $422.8 million | $397.2 million | $773.7 million | $891.2 million |
| Net income | $196.9 million | $195.2 million | $349.0 million | $456.4 million |
| Diluted GAAP EPS | $0.39 | $0.39 | $0.69 | $0.91 |
| Electric margin | $1.308 billion | $1.257 billion | $2.583 billion | $2.490 billion |
| Natural gas margin | $157 million | $158 million | $401 million | $414 million |
Cash flow and liquidity. First-half operating cash flow was $1.509 billion, investing cash outflow was $1.431 billion, including $1.478 billion of utility construction expenditures, and financing cash outflow was $22 million. Cash ended the period at $135.6 million. At June 30, current assets were $3.049 billion and current liabilities $3.537 billion. Debt comprised $11.896 billion of long-term debt, $707.4 million of current long-term debt and $451 million of short-term debt. Committed credit facilities totaled $2.75 billion, with $2.231 billion available at June 30. Cash dividends paid in the first half were $298 million; declared dividends were $0.32 per share for Q2.
Material changes versus the prior comparable period
- Q2 revenue declined 6.3%, while net income was broadly flat and diluted EPS remained $0.39. Lower fuel and purchased-power costs reduced revenue but largely pass through regulatory recovery mechanisms.
- First-half revenue fell 7.0%, net income declined 23.5%, and diluted EPS fell to $0.69 from $0.91. The 2015 result included a $129.5 million pre-tax Monticello project charge, equivalent to $0.16 per share; ongoing diluted EPS, a non-GAAP measure, was $0.85 versus $0.91.
- Electric margin increased $51 million in Q2 and $93 million in the first half, driven by rate increases, riders and a lower PSCo earnings-test refund, partly offset by weaker sales and unfavorable weather. Natural gas margin declined $1 million in Q2 and $13 million year to date.
- First-half operating cash flow rose by $469 million, mainly from working-capital changes, including tax refunds received versus taxes paid in the prior-year period, and changes in regulatory balances.
Outlook, regulatory matters and risks
- Guidance: 2015 ongoing EPS guidance is $2.00–$2.15. Assumptions include normal weather for the remainder of the year, weather-normalized retail electric sales growth of about 0.5%, natural gas sales decline of about 2%, and O&M expense growth of 0%–2%. Management targets long-term EPS growth of 4%–6%, annual dividend growth of 5%–7%, and a 60%–70% payout ratio. Guidance depends on constructive regulatory outcomes.
- Monticello: Minnesota regulators allowed a return on approximately $415 million of project costs but no return on the remaining $333 million. The resulting charge was recorded in Q1. The MPUC’s July reconsideration decision and NRC approval of the full uprate may affect final rate recovery.
- Rate proceedings: The Minnesota rate order implies an estimated 2015 annual increase of $149.4 million before interim-rate effects. Significant pending proceedings include PSCo’s multi-year Colorado gas rate case and SPS’s Texas electric rate case; requested amounts remain subject to regulator and intervenor positions. SPS’s New Mexico filing was dismissed and appealed.
- Federal transmission ROE disputes: NSP-Minnesota and SPS recorded estimated refund liabilities. The filing estimates annual net revenue reductions of $7–$9 million for the NSP System and $4–$6 million for SPS; outcomes and timing remain uncertain.
- Environmental and legal contingencies: NSP-Wisconsin recorded a $108.5 million liability for the Ashland cleanup; the sediment remedy and cost allocation remain unresolved. A newly discovered Fargo site has a $2.1 million recorded liability, with further costs not estimable. PSCo disclosed a reasonably possible Seattle refund loss with a preliminary claim of about $28 million excluding interest, and NSP-Minnesota disclosed a disputed Fibrominn reimbursement claim of about $20 million; no accrual was recorded for either. A proposed EPA requirement for dry scrubbers at SPS’s Tolk units could cost about $600 million plus operating costs if finalized; Xcel expects recovery through regulatory mechanisms.
- Other operating risks: Weather and sales trends, regulatory cost recovery, environmental rules, nuclear oversight, commodity and interest-rate exposure, and possible supply disruption affecting nuclear fuel from Russia-related sources could affect results. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile GAAP EPS of $0.69 year to date with ongoing EPS of $0.85 and the $0.16 Monticello adjustment; ongoing EPS is non-GAAP.
- Track final rate-case outcomes, interim-rate refunds and the timing and amount of recovery for Monticello costs.
- Monitor FERC ROE proceedings and related refund accruals, plus the Ashland and Fargo remediation estimates and the Seattle and Fibrominn claims.
- Assess whether the $2.00–$2.15 ongoing EPS outlook remains achievable given weather, sales, cost and regulatory assumptions.
- Review funding needs and debt maturities alongside construction spending, planned bond issuance and available credit capacity.