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| XEL > SEC Filings for XEL > Form 10-Q on 1-Aug-2008 | All Recent SEC Filings |
1-Aug-2008
Quarterly Report
The following discussion and analysis by management focuses on those factors that had a material effect on Xcel Energy's financial condition and results of operations during the periods presented, or are expected to have a material impact in the future. It should be read in conjunction with the accompanying unaudited consolidated financial statements and notes.
Except for the historical statements contained in this report, the matters discussed in the following discussion and analysis are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "believe," "estimate," "expect," "intend," "may," "objective," "outlook," "plan," "project," "possible," "potential," "should" and similar expressions. Actual results may vary materially. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect changes that occur after that date. Factors that could cause actual results to differ materially include, but are not limited to: general economic conditions, including the availability of credit and its impact on capital expenditures and the ability of Xcel Energy and its subsidiaries to obtain financing on favorable terms; business conditions in the energy industry; actions of credit rating agencies; competitive factors, including the extent and timing of the entry of additional competition in the markets served by Xcel Energy and its subsidiaries; unusual weather; effects of geopolitical events, including war and acts of terrorism; state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rates or have an impact on asset operation or ownership or impose environmental compliance conditions; structures that affect the speed and degree to which competition enters the electric and natural gas markets; costs and other effects of legal and administrative proceedings, settlements, investigations and claims; actions of accounting regulatory bodies; the items described under Factors Affecting Results of Continuing Operations; and the other risk factors listed from time to time by Xcel Energy in reports filed with the SEC, including "Risk Factors" in Item 1A of Xcel Energy's Form 10-K for the year ended Dec. 31, 2007, and Exhibit 99.01 to this report on Form 10-Q for the quarter ended June 30, 2008.
RESULTS OF OPERATIONS
Summary of Financial Results
The following table summarizes the earnings contributions. Continuing operations consist of the following:
† Regulated utility subsidiaries, operating in the electric and natural gas segments; and
† Other nonregulated subsidiaries and the holding company, where corporate financing activity occurs.
Discontinued operations consist of Seren Innovations Inc., NRG Energy, Inc., e prime, Xcel Energy International, Utility Engineering, and Quixx, which were all divested or sold in 2006 or earlier.
See Note 4 to the consolidated financial statements for a further discussion of discontinued operations.
Three months ended June 30, Six months ended June 30,
Contribution to Earnings (Millions of Dollars) 2008 2007 2008 2007
GAAP income (loss)
Regulated electric utility income - continuing
operations $ 106.8 $ 123.8 $ 199.9 $ 196.0
Regulated natural gas utility income - continuing
operations 11.8 8.9 79.4 65.8
Other utility results 6.3 (53.9 ) 16.0 (43.6 )
Utility income - continuing operations 124.9 78.8 295.3 218.2
Holding company costs and other results (19.4 ) (11.1 ) (35.8 ) (32.0 )
Income - continuing operations 105.5 67.7 259.5 186.2
Income (loss) - discontinued operations 0.1 1.1 (0.8 ) 2.3
Total GAAP income $ 105.6 $ 68.8 $ 258.7 $ 188.5
Three months ended June 30, Six months ended June 30,
2008 2007 2008 2007
GAAP earnings per share contribution
Regulated electric utility - continuing
operations $ 0.25 $ 0.29 $ 0.46 $ 0.45
Regulated natural gas utility -
continuing operations 0.02 0.02 0.18 0.15
Other utility results 0.01 (0.13 ) 0.03 (0.10 )
Utility earnings per share - continuing
operations 0.28 0.18 0.67 0.50
Holding company costs and other results (0.04 ) (0.02 ) (0.08 ) (0.06 )
Earnings per share - continuing
operations 0.24 0.16 0.59 0.44
Earnings per share - discontinued
operations - - - 0.01
Total GAAP earnings per share - diluted $ 0.24 $ 0.16 $ 0.59 $ 0.45
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The following table summarizes significant components contributing to the changes in the first quarter of 2008 diluted earnings per share compared with the same period in 2007, which are discussed in more detail later.
Three months ended June 30, Six months ended June 30,
Increase (decrease) 2008 vs. 2007 2008 vs. 2007
2007 GAAP earnings per share $ 0.16 $ 0.45
Earnings per share - discontinued
operations - (0.01 )
2007 GAAP earnings per share-continuing
operations 0.16 0.44
PSRI/COLI IRS settlement 0.11 0.10
2007 ongoing earnings per share 0.27 0.54
Components of change - 2008 vs. 2007
Higher natural gas margins 0.02 0.05
Higher allowance for funds used during
construction-equity 0.01 0.02
Lower depreciation and amortization - 0.01
Higher operating and maintenance
expense (0.04 ) (0.06 )
Higher (lower) base electric utility
margins (0.01 ) 0.06
Higher conservation and demand-side
management program expenses (0.01 ) (0.03 )
Higher financing costs (0.01 ) (0.01 )
Other, including income taxes 0.01 0.01
Net change in earnings per share (0.03 ) 0.05
2008 GAAP earnings per share $ 0.24 $ 0.59
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During 2007, Xcel Energy resolved a dispute with the IRS regarding its COLI program. Excluding the impact of the COLI program, Xcel Energy's ongoing second quarter 2008 earnings were $104 million, or $0.24 per share, compared with second quarter 2007 ongoing earnings of $117 million or $0.27 per share. The following tables provide a reconciliation of GAAP earnings and earnings per share to ongoing earnings and ongoing earnings per share for 2008 and 2007.
Three months ended June 30, Six months ended June 30,
(Millions of Dollars) 2008 2007 2008 2007
Ongoing earnings $ 103.9 $ 117.3 $ 259.3 $ 230.9
PSRI/COLI IRS settlement 1.6 (49.6 ) 0.2 (44.7 )
Total continuing operations 105.5 67.7 259.5 186.2
Discontinued operations 0.1 1.1 (0.8 ) 2.3
Total GAAP earnings $ 105.6 $ 68.8 $ 258.7 $ 188.5
Three months ended June 30, Six months ended June 30,
2008 2007 2008 2007
Ongoing earnings $ 0.24 $ 0.27 $ 0.59 $ 0.54
PSRI/COLI IRS settlement - (0.11 ) - (0.10 )
Total GAAP earnings per
share-continuing operations $ 0.24 $ 0.16 $ 0.59 $ 0.44
Discontinued operations - - - 0.01
Total GAAP earnings per share $ 0.24 $ 0.16 $ 0.59 $ 0.45
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As a result of the termination of the COLI program, Xcel Energy's management believes that ongoing earnings provide a more meaningful comparison of earnings results between different periods in which the COLI program was in place and is more representative of Xcel Energy's fundamental core earnings power. Xcel Energy's management uses ongoing earnings internally for financial planning and analysis, for reporting of results to the board of directors, in determining whether performance targets are met for performance-based compensation and when communicating its earnings outlook to analysts and investors.
Utility Results
Ongoing earnings for the second quarter of 2008 were lower than last year largely due to lower electric margins and higher operating and maintenance expenses. Lower electric margins were largely due to cooler temperatures in 2008.
GAAP earnings for second quarter 2008 earnings were higher than last year, primarily due to a second quarter 2007 charge associated with the resolution of a COLI dispute with the IRS.
The following summarizes the estimated impact of weather on regulated utility earnings per share, based on estimated temperature variations from historical averages (excluding the impact on commodity trading operations):
Three months ended Six months ended
June 30, June 30,
2008 vs. 2007 vs. 2008 vs. 2007 vs.
Normal Normal 2008 vs. 2007 Normal Normal 2008 vs. 2007
Retail electric $ (0.02 ) $ 0.01 $ (0.03 ) $ (0.01 ) $ 0.01 $ (0.02 )
Firm natural gas - - - 0.01 - 0.01
Total $ (0.02 ) $ 0.01 $ (0.03 ) $ - $ 0.01 $ (0.01 )
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Other Results - Holding Company and Other Costs
Financing Costs and Preferred Dividends - Holding company results include interest expense and preferred dividend costs, which are incurred at the Xcel Energy and intermediate holding company levels and are not directly assigned to individual subsidiaries.
Discontinued Operations
Seren Innovations Inc., NRG, e prime, Xcel Energy International, Utility Engineering, and Quixx, which were all divested or sold in 2006 or earlier, have activity reflected on Xcel Energy's financial statements. See Note 4 to the consolidated financial statements.
Income Statement Analysis
Electric Utility, Short-Term Wholesale and Commodity Trading Margins
Electric fuel and purchased power expenses tend to vary with changing retail and wholesale sales requirements and cost changes in fuel and purchased power. Due to fuel and purchased energy cost-recovery mechanisms for customers in most states, the fluctuations in these costs do not materially affect electric utility margin.
Xcel Energy has two distinct forms of wholesale sales: short-term wholesale and commodity trading. Short-term wholesale refers to energy-related purchase and sales activity, and the use of financial instruments associated with the fuel required for, and energy produced from, Xcel Energy's generation assets or the energy and capacity purchased to serve native load. Commodity trading is not
associated with Xcel Energy's generation assets or the energy and capacity purchased to serve native load. Short-term wholesale and commodity trading activities are considered part of the electric utility segment.
Short-term wholesale and commodity trading margins reflect the estimated impact of regulatory sharing of margins, if applicable. Commodity trading revenues are reported net of related costs (i.e., on a margin basis) in the consolidated statements of income. Commodity trading expenses include purchased power, transmission, broker fees and other related costs.
The following table details the revenues and margin for base electric utility, short-term wholesale and commodity trading activities.
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