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XEL > SEC Filings for XEL > Form 10-Q on 1-Aug-2014All Recent SEC Filings

Show all filings for XCEL ENERGY INC

Form 10-Q for XCEL ENERGY INC


1-Aug-2014

Quarterly Report


Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis by management focuses on those factors that had a material effect on Xcel Energy's financial condition, results of operations and cash flows during the periods presented, or are expected to have a material impact in the future. It should be read in conjunction with the accompanying consolidated financial statements and the related notes to consolidated financial statements. Due to the seasonality of Xcel Energy's operating results, quarterly financial results are not an appropriate base from which to project annual results.


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Forward-Looking Statements

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, including the 2014 earnings per share guidance and assumptions, 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 inflation rates, monetary fluctuations and their impact on capital expenditures and the ability of Xcel Energy Inc. and its subsidiaries to obtain financing on favorable terms; business conditions in the energy industry, including the risk of a slow down in the U.S. economy or delay in growth recovery; trade, fiscal, taxation and environmental policies in areas where Xcel Energy has a financial interest; customer business conditions; 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 Inc. 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 by regulatory bodies impacting our nuclear operations, including those affecting costs, operations or the approval of requests pending before the NRC; financial or regulatory accounting policies imposed by regulatory bodies; availability or cost of capital; employee work force factors; the items described under Factors Affecting Results of Continuing Operations in Item 7 of Xcel Energy Inc.'s Form 10-K for the year ended Dec. 31, 2013; and the other risk factors listed from time to time by Xcel Energy Inc. in reports filed with the SEC, including "Risk Factors" in Item 1A of Xcel Energy Inc.'s Form 10-K for the year ended Dec. 31, 2013, and Item 1A and Exhibit 99.01 to this Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.

Financial Review

The following discussion and analysis by management focuses on those factors that had a material effect on Xcel Energy's financial condition, results of operations and cash flows during the periods presented, or are expected to have a material impact in the future. It should be read in conjunction with the accompanying consolidated financial statements and the related notes to consolidated financial statements.

The only common equity securities that are publicly traded are common shares of Xcel Energy Inc. The diluted EPS of each subsidiary discussed below do not represent a direct legal interest in the assets and liabilities allocated to such subsidiary but rather represent a direct interest in our assets and liabilities as a whole. Diluted EPS by subsidiary is a financial measure not recognized under GAAP and is calculated by dividing the net income or loss attributable to the controlling interest of each subsidiary by the weighted average fully diluted Xcel Energy Inc. common shares outstanding for the period. We use this non-GAAP financial measure to evaluate and provide details of earnings results. We believe that this measurement is useful to investors to evaluate the actual and projected financial performance and contribution of our subsidiaries. This non-GAAP financial measure should not be considered as an alternative to measures calculated and reported in accordance with GAAP.

Results of Operations

The following table summarizes the diluted EPS for Xcel Energy:
                                              Three Months Ended June 30         Six Months Ended June 30
Diluted Earnings (Loss) Per Share               2014              2013             2014             2013
PSCo                                       $      0.18       $      0.20      $      0.41       $      0.43
NSP-Minnesota                                     0.15              0.16             0.37              0.37
SPS                                               0.06              0.05             0.09              0.08
NSP-Wisconsin                                     0.02              0.02             0.07              0.06
Equity earnings of unconsolidated
subsidiaries                                      0.01              0.01             0.02              0.02
Regulated utility                                 0.42              0.44             0.96              0.96
Xcel Energy Inc. and other                       (0.03 )           (0.04 )          (0.05 )           (0.08 )
GAAP diluted EPS                           $      0.39       $      0.40      $      0.91       $      0.88


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Xcel Energy - Overall, earnings decreased $0.01 per share for the second quarter of 2014. Electric and gas margins rose in the second quarter of 2014 primarily driven by new rates in various jurisdictions. This positive factor, along with lower interest expense, was more than offset by higher O&M expenses, property taxes, and depreciation and amortization expense as well as less favorable weather.

PSCo - PSCo's earnings decreased $0.02 per share for the second quarter and six months ended June 30, 2014. Higher electric and natural gas rates and weather-normalized sales growth were offset by increased property taxes, depreciation, accruals associated with electric earnings test refund obligations as well as the impact of weather. See Note 5 to the consolidated financial statements for further discussion of rate matters.

NSP-Minnesota - NSP-Minnesota's earnings decreased $0.01 per share for the second quarter of 2014 and were flat year-to-date. Electric rate increases in Minnesota (interim, subject to refund) and North Dakota, lower depreciation expense, weather-normalized sales growth and the favorable year-over-year impact of weather were offset by higher O&M expenses, lower AFUDC and higher property taxes.

SPS - SPS' earnings increased $0.01 per share for the second quarter and six months ended June 30, 2014. The positive impact of higher electric rates in Texas and New Mexico and weather-normalized sales growth were partially offset by increased O&M expenses and depreciation.

NSP-Wisconsin - NSP-Wisconsin's earnings were flat for the second quarter of 2014 and increased $0.01 per share year-to-date. Higher electric and natural gas margins, due to an electric rate increase effective in January 2014, and weather-normalized sales growth were partially offset by higher O&M expenses.

Changes in Diluted EPS

The following table summarizes significant components contributing to the
changes in 2014 diluted EPS compared with the same period in 2013. See further
discussion below.
                                                             Three Months Ended     Six Months Ended
Diluted Earnings (Loss) Per Share                                 June 30               June 30
2013 GAAP diluted EPS                                       $         0.40         $        0.88

Components of change - 2014 vs. 2013
Higher electric margins                                               0.06                  0.14
Higher natural gas margins                                            0.01                  0.04
Lower interest charges                                                0.01                  0.01
Higher AFUDC - equity                                                    -                  0.01
Higher O&M expenses                                                  (0.03 )               (0.07 )
Higher taxes (other than income taxes)                               (0.02 )               (0.03 )
Higher conservation and demand side management (DSM)
program expenses                                                     (0.01 )               (0.03 )
Higher depreciation and amortization                                 (0.01 )               (0.01 )
Dilution from equity issued through the ATM program,
direct stock purchase plan and benefit plans                             -                 (0.01 )
Other, net                                                           (0.02 )               (0.02 )
2014 GAAP diluted EPS                                       $         0.39         $        0.91

The following tables summarize the earnings contributions of Xcel Energy's business segments:

                                              Three Months Ended June 30          Six Months Ended June 30
(Millions of Dollars)                           2014               2013             2014             2013
GAAP income (loss) by segment
Regulated electric income                  $      185.7       $      201.1     $     371.1       $     375.2
Regulated natural gas income                       15.3               16.0            92.6              80.9
Other income (a)                                    8.7                1.0            20.1              17.1
Xcel Energy Inc. and other (a)                    (14.5 )            (21.2 )         (27.4 )           (39.8 )
Total net income                           $      195.2       $      196.9     $     456.4       $     433.4


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                                              Three Months Ended June 30         Six Months Ended June 30
Contributions to Diluted Earnings (Loss)
Per Share                                       2014              2013             2014             2013
GAAP earnings (loss) by segment
Regulated electric                         $      0.37       $      0.41      $      0.74       $      0.76
Regulated natural gas                             0.03              0.03             0.18              0.16
Other (a)                                         0.02                 -             0.04              0.04
Xcel Energy Inc. and other (a)                   (0.03 )           (0.04 )          (0.05 )           (0.08 )
Total diluted EPS                          $      0.39       $      0.40      $      0.91       $      0.88

(a) Not a reportable segment. Included in all other segment results in Note 10 to the consolidated financial statements.

Statement of Income Analysis

The following discussion summarizes the items that affected the individual revenue and expense items reported in the consolidated statements of income.

Estimated Impact of Temperature Changes on Regulated Earnings - Unusually hot summers or cold winters increase electric and natural gas sales while, conversely, mild weather reduces electric and natural gas sales. The estimated impact of weather on earnings is based on the number of customers, temperature variances and the amount of natural gas or electricity the average customer historically uses per degree of temperature. Accordingly, deviations in weather from normal levels can affect Xcel Energy's financial performance, from both an energy and demand perspective.

Degree-day or Temperature-Humidity Index (THI) data is used to estimate amounts of energy required to maintain comfortable indoor temperature levels based on each day's average temperature and humidity. Heating degree-days (HDD) is the measure of the variation in the weather based on the extent to which the average daily temperature falls below 65 Fahrenheit, and cooling degree-days (CDD) is the measure of the variation in the weather based on the extent to which the average daily temperature rises above 65 Fahrenheit. Each degree of temperature above 65 Fahrenheit is counted as one cooling degree-day, and each degree of temperature below 65 Fahrenheit is counted as one heating degree-day. In Xcel Energy's more humid service territories, a THI is used in place of CDD, which adds a humidity factor to CDD. HDD, CDD and THI are most likely to impact the usage of Xcel Energy's residential and commercial customers. Industrial customers are less sensitive to weather.

Normal weather conditions are defined as either the 20-year or 30-year average of actual historical weather conditions. The historical period of time used in the calculation of normal weather differs by jurisdiction based on the time period used by the regulator in establishing estimated volumes in the rate setting process. To calculate the impact of weather on demand, a demand factor is applied to the weather impact on sales as defined above to derive the amount of demand associated with the weather impact.

The percentage increase (decrease) in normal and actual HDD, CDD and THI are provided in the following table:

          Three Months Ended June 30             Six Months Ended June 30
      2014 vs.     2013 vs.     2014 vs.    2014 vs.     2013 vs.    2014 vs.
       Normal       Normal        2013       Normal       Normal       2013
HDD      4.5 %       22.5 %      (16.6 )%     12.3 %         7.2 %      3.7  %
CDD      0.6         52.2        (29.6 )       1.0          51.8      (28.9 )
THI      9.3          6.6          7.1         8.4           6.5        7.1

Weather - The following table summarizes the estimated impact of temperature variations on EPS compared with sales under normal weather conditions:

                                               Three Months Ended June 30                     Six Months Ended June 30
                                          2014 vs.        2013 vs.      2014 vs.       2014 vs.        2013 vs.       2014 vs.
                                           Normal          Normal         2013          Normal          Normal          2013
Retail electric                        $   0.002        $    0.027     $ (0.025 )   $   0.034        $    0.031     $    0.003
Firm natural gas                           0.001             0.007       (0.006 )       0.019             0.016          0.003
Total                                  $   0.003        $    0.034     $ (0.031 )   $   0.053        $    0.047     $    0.006


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Sales Growth (Decline) - The following tables summarize Xcel Energy and its subsidiaries' sales growth (decline) for actual and weather-normalized sales in 2014:

                                                        Three Months Ended June 30
                                NSP-Minnesota     NSP-Wisconsin       PSCo           SPS        Xcel Energy
Actual
Electric residential                 0.2  %            1.7  %          (5.0 )%       (2.8 )%       (2.0 )%
Electric commercial and
industrial                          (0.4 )             4.3             (1.5 )         3.1           0.4
Total retail electric sales         (0.3 )             3.6             (2.5 )         1.9          (0.2 )
Firm natural gas sales               0.3              (0.8 )           (6.0 )         N/A          (3.7 )


                                                       Three Months Ended June 30
                                NSP-Minnesota     NSP-Wisconsin       PSCo         SPS        Xcel Energy
Weather-normalized
Electric residential                 2.0  %              0.8 %          1.1 %        1.0 %         1.4 %
Electric commercial and
industrial                          (0.1 )               4.0            1.1          3.7           1.5
Total retail electric sales          0.4                 3.1            1.1          3.2           1.4
Firm natural gas sales               7.5                14.6            8.5          N/A           8.6


                                                         Six Months Ended June 30
                                NSP-Minnesota     NSP-Wisconsin       PSCo          SPS        Xcel Energy
Actual
Electric residential                   3.2 %             5.4 %         (1.8 )%        3.7 %         1.6 %
Electric commercial and
industrial                             1.1               5.4           (0.1 )         3.8           1.7
Total retail electric sales            1.7               5.4           (0.5 )         3.6           1.7
Firm natural gas sales                12.7              13.8           (1.9 )         N/A           3.7


                                                        Six Months Ended June 30
                                NSP-Minnesota     NSP-Wisconsin       PSCo         SPS        Xcel Energy
Weather-normalized
Electric residential                  1.2 %             0.7 %           1.2 %        2.0 %         1.3 %
Electric commercial and
industrial                            0.7               4.3             1.1          4.1           1.9
Total retail electric sales           0.8               3.2             1.2          3.6           1.7
Firm natural gas sales                3.7               4.7             5.7          N/A           5.0

Weather-normalized Electric Growth

NSP-Minnesota's electric residential sales growth is primarily related to outages from severe storms experienced during the second quarter of 2013, which served to lower sales in that period and, in turn, increased year-over-year sales.

NSP-Wisconsin's electric C&I sales growth was primarily related to certain energy sector and manufacturing customers.

PSCo's electric residential sales growth reflects an increased number of customers. Several large mining and manufacturing customers drove C&I growth.

SPS' C&I growth was the result of continued expansion of oilfield development in southeast New Mexico.

Weather-normalized Gas Growth

Across the gas service territories, strong sales were experienced during the first half of the year, which continued the trend that began in the last half of 2013. As normal weather conditions are typically defined as a 30-year average of actual historical weather conditions, significant weather fluctuations in periods of low demand may result in large percentage changes on small volumes. Extreme weather variations and additional factors such as windchill and cloud cover may not be fully reflected.


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Electric Revenues and Margin

Electric revenues and fuel and purchased power expenses are largely impacted by
the fluctuation in the price of natural gas, coal and uranium used in the
generation of electricity, but as a result of the design of fuel recovery
mechanisms to recover current expenses, these price fluctuations have little
impact on electric margin. The following table details the electric revenues and
margin:
                                              Three Months Ended June 30          Six Months Ended June 30
(Millions of Dollars)                           2014               2013             2014             2013
Electric revenues                          $      2,298       $      2,220     $     4,599       $     4,312
Electric fuel and purchased power                (1,041 )           (1,011 )        (2,109 )          (1,936 )
Electric margin                            $      1,257       $      1,209     $     2,490       $     2,376

The following tables summarize the components of the changes in electric revenues and electric margin:

Electric Revenues
                                                                Three Months         Six Months
                                                               Ended June 30       Ended June 30
(Millions of Dollars)                                          2014 vs. 2013       2014 vs. 2013
Fuel and purchased power cost recovery                       $           -        $        103
Retail rate increases (a)                                               38                  73
Trading                                                                 23                  45
Transmission revenue                                                    13                  39
Conservation and DSM program revenues (offset by expenses)              12                  25
Retail sales growth, excluding weather impact                            7                  20
Non-fuel riders                                                         17                  19
Estimated impact of weather                                            (19 )                 3
PSCo earnings test refund obligations                                   (9 )               (20 )
Firm wholesale                                                          (9 )               (13 )
Other, net                                                               5                  (7 )
Total increase in electric revenues                          $          78        $        287



Electric Margin
                                                                Three Months         Six Months
                                                               Ended June 30       Ended June 30
(Millions of Dollars)                                          2014 vs. 2013       2014 vs. 2013
Retail rate increases (a)                                    $          38        $         73
Conservation and DSM program revenues (offset by expenses)              12                  25
Transmission revenue, net of costs                                      10                  21
Retail sales growth, excluding weather impact                            7                  20
Non-fuel riders                                                         17                  19
Estimated impact of weather                                            (19 )                 3
PSCo earnings test refund obligations                                   (9 )               (20 )
Firm wholesale                                                          (9 )               (13 )
Other, net                                                               1                 (14 )
Total increase in electric margin                            $          48        $        114

(a) Retail rates implemented in 2014 include interim rates in Minnesota, subject to refund, and final rates for Colorado, Wisconsin, New Mexico and North Dakota. In addition, retail rates in Texas were implemented in the second quarter of 2013. See Note 5 to the consolidated financial statements for further discussion.


Table of Contents

Natural Gas Revenues and Margin

The cost of natural gas tends to vary with changing sales requirements and the
cost of natural gas purchases. However, due to the design of purchased natural
gas cost recovery mechanisms to recover current expenses for sales to retail
customers, fluctuations in the cost of natural gas have little effect on natural
gas margin. The following table details natural gas revenues and margin:
                                               Three Months Ended June 30           Six Months Ended June 30
(Millions of Dollars)                            2014                2013             2014             2013
Natural gas revenues                       $        369         $        341     $     1,249       $     1,011
Cost of natural gas sold and transported           (211 )               (189 )          (835 )            (628 )
Natural gas margin                         $        158         $        152     $       414       $       383

The following tables summarize the components of the changes in natural gas revenues and natural gas margin:

Natural Gas Revenues
                                                     Three Months         Six Months
                                                     Ended June 30      Ended June 30
(Millions of Dollars)                                2014 vs. 2013      2014 vs. 2013
Purchased natural gas adjustment clause recovery   $         22        $           204
Retail rate increase, net of refund (Colorado)                7                     16
Retail sales growth                                           3                      6
PSIA rider (Colorado)                                         -                      4
Estimated impact of weather                                  (5 )                    3
Other, net                                                    1                      5
Total increase in natural gas revenues             $         28        $           238



Natural Gas Margin
                                                                 Three Months          Six Months
                                                                Ended June 30         Ended June 30
(Millions of Dollars)                                           2014 vs. 2013         2014 vs. 2013
Retail rate increase, net of refund (Colorado)               $            7         $            16
Retail sales growth                                                       3                       6
PSIA rider (Colorado), partially offset in O&M expenses                   -                       4
Estimated impact of weather                                              (5 )                     3
Other, net                                                                1                       2
Total increase in natural gas margin                         $            6         $            31

Non-Fuel Operating Expenses and Other Items

O&M Expenses - O&M expenses increased $23.0 million, or 4.1 percent, for the
second quarter of 2014 and $54.0 million, or 4.9 percent, for the six months
ended June 30, 2014. The year-to-date increase in O&M expense is partially due
to the timing of a prior year nuclear outage (i.e., amortization of the 2013
Monticello outage began in July 2013). Xcel Energy continues to project annual
O&M expenses will increase 2 percent to 3 percent for 2014.
                                              Three Months         Six Months
. . .
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