Xcel Energy(XEL) - 2019 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides Xcel Energy Inc.'s interim financial statements and management's analysis for the reporting period Item 1 — FINANCIAL STATEMENTS This section presents Xcel Energy Inc.'s unaudited consolidated financial statements and detailed notes CONSOLIDATED STATEMENTS OF INCOME Presents Xcel Energy Inc.'s unaudited consolidated statements of income, detailing revenues, expenses, and net income changes - Net income decreased for both the three and six months ended June 30, 2019, compared to the same periods in 2018, primarily driven by lower operating revenues and higher operating expenses[17] Consolidated Statements of Income (Unaudited) | Metric | 3 Months Ended June 30, 2019 (Millions) | 3 Months Ended June 30, 2018 (Millions) | 6 Months Ended June 30, 2019 (Millions) | 6 Months Ended June 30, 2018 (Millions) | | :-------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Total Operating Revenues | $2,577 | $2,658 | $5,718 | $5,609 | | Total Operating Expenses | $2,167 | $2,208 | $4,822 | $4,679 | | Operating Income | $410 | $450 | $896 | $930 | | Net Income | $238 | $265 | $553 | $556 | | Basic EPS | $0.46 | $0.52 | $1.07 | $1.09 | | Diluted EPS | $0.46 | $0.52 | $1.07 | $1.09 | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Presents unaudited consolidated statements of comprehensive income, including net income and other comprehensive income/loss - Comprehensive income decreased for both the three and six months ended June 30, 2019, compared to the prior year, mainly due to a net fair value decrease in derivative instruments and a net loss in other comprehensive income[19] Consolidated Statements of Comprehensive Income (Unaudited) | Metric | 3 Months Ended June 30, 2019 (Millions) | 3 Months Ended June 30, 2018 (Millions) | 6 Months Ended June 30, 2019 (Millions) | 6 Months Ended June 30, 2018 (Millions) | | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net Income | $238 | $265 | $553 | $556 | | Other Comprehensive (Loss) Income | $(8) | $2 | $(11) | $3 | | Comprehensive Income | $230 | $267 | $542 | $559 | CONSOLIDATED STATEMENTS OF CASH FLOWS Outlines unaudited consolidated statements of cash flows, detailing cash movements from operating, investing, and financing activities - Net cash provided by operating activities decreased, while net cash used in investing activities also decreased. Net cash provided by financing activities decreased for the six months ended June 30, 2019, compared to the same period in 2018[21] Consolidated Statements of Cash Flows (Unaudited) | Metric | 6 Months Ended June 30, 2019 (Millions) | 6 Months Ended June 30, 2018 (Millions) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net cash provided by operating activities | $1,334 | $1,437 | | Net cash used in investing activities | $(1,708) | $(1,865) | | Net cash provided by financing activities | $580 | $677 | | Net change in cash and cash equivalents | $206 | $249 | | Cash and cash equivalents at end of period | $353 | $332 | CONSOLIDATED BALANCE SHEETS This section provides the unaudited consolidated balance sheets, presenting assets, liabilities, and equity at specific reporting dates - Total assets increased to $48,584 million at June 30, 2019, from $45,987 million at December 31, 2018, primarily due to increases in property, plant and equipment, and other assets including operating lease right-of-use assets. Total liabilities also increased, driven by current and deferred liabilities[24][25] Consolidated Balance Sheets (Unaudited) | Metric | June 30, 2019 (Millions) | Dec. 31, 2018 (Millions) | | :-------------------------------- | :----------------------- | :----------------------- | | Total Assets | $48,584 | $45,987 | | Total Current Assets | $2,939 | $3,094 | | Property, Plant and Equipment, net | $37,651 | $36,944 | | Total Liabilities and Equity | $48,584 | $45,987 | | Total Current Liabilities | $5,060 | $4,460 | | Total Common Stockholders' Equity | $12,366 | $12,222 | CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY Details unaudited consolidated statements of common stockholders' equity, showing changes from net income, dividends, and stock issuances - Common stockholders' equity increased to $12,366 million at June 30, 2019, from $12,222 million at December 31, 2018, primarily due to net income and issuances of common stock, partially offset by dividends declared and other comprehensive loss[28][31] Consolidated Statements of Common Stockholders' Equity (Unaudited) | Metric | June 30, 2019 (Millions) | Dec. 31, 2018 (Millions) | | :-------------------------------- | :----------------------- | :----------------------- | | Total Common Stockholders' Equity | $12,366 | $12,222 | | Net Income (6 months) | $553 | $556 | | Dividends Declared (6 months) | $(419) | $(389) | | Issuances of Common Stock (6 months) | $22 | $27 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Detailed notes explain significant accounting policies, recent pronouncements, and specific financial data for the consolidated statements 1. Summary of Significant Accounting Policies Incorporates significant accounting policies from the prior annual report and highlights seasonality's impact on interim results - The significant accounting policies from the 2018 Annual Report on Form 10-K are incorporated by reference. Interim results are not necessarily an appropriate base to project annual results due to the seasonality of electric and natural gas sales[32][33] 2. Accounting Pronouncements Discusses adoption of new accounting standards, including ASC Topic 842 (Leases), and evaluation of ASC Topic 326 (Credit Losses) - Xcel Energy adopted ASC Topic 842 (Leases) on January 1, 2019, resulting in the recognition of approximately $1.7 billion of operating lease Right-of-Use (ROU) assets and current/noncurrent operating lease liabilities on the balance sheet[35][37] - The company is currently evaluating the impact of ASC Topic 326 (Credit Losses), which is effective for interim and annual periods beginning on or after December 15, 2019[34] 3. Selected Balance Sheet Data Selected balance sheet data includes accounts receivable, inventories, property, plant and equipment, and planned power plant retirements Selected Balance Sheet Data (Millions of Dollars) | Metric | June 30, 2019 | Dec. 31, 2018 | | :-------------------------- | :------------ | :------------ | | Accounts receivable, net | $737 | $860 | | Inventories | $483 | $548 | | Property, plant and equipment, net | $37,651 | $36,944 | - PSCo's Comanche Units 1 and 2 are approved for early retirement in approximately 2022 and 2025, respectively, and Craig Unit 1 is expected to be retired early in 2025[38] 4. Borrowings and Other Financing Instruments Details Xcel Energy's short-term liquidity, credit facilities, and recent long-term debt issuances by the company and its subsidiaries - Xcel Energy and its utility subsidiaries meet short-term liquidity requirements primarily through commercial paper and credit facilities. In June 2019, amended five-year credit agreements increased the total borrowing limit to $3.1 billion[39][45] Short-Term Borrowings and Credit Facilities (Millions of Dollars) | Metric | June 30, 2019 | Dec. 31, 2018 | | :-------------------------------- | :------------ | :------------ | | Short-Term Debt Outstanding | $1,597 | $1,038 | | Total Committed Credit Facilities | $3,100 | N/A | | Available Credit Facilities | $1,972 | N/A | - During the six months ended June 30, 2019, PSCo issued $400 million of 4.05% first mortgage bonds, Xcel Energy Inc. issued $130 million of 4.00% senior unsecured bonds, and SPS issued $300 million of 3.75% first mortgage bonds[54] 5. Revenues This note analyzes operating revenues by type, highlighting changes in electric and natural gas revenues for the reported periods - Total operating revenues for the three months ended June 30, 2019, decreased to $2,577 million from $2,658 million in 2018, while for the six months, they increased to $5,718 million from $5,609 million. Electric revenues decreased, while natural gas revenues increased for both periods[56] Operating Revenues by Type (Millions of Dollars) | Revenue Type | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Electric | $2,249 | $2,348 | $4,574 | $4,617 | | Natural Gas | $308 | $292 | $1,102 | $954 | | Other | $20 | $18 | $42 | $38 | | Total Revenues | $2,577 | $2,658 | $5,718 | $5,609 | 6. Income Taxes Explains changes in income taxes and effective tax rates, driven by lower pretax earnings, increased wind PTCs, and regulatory differences - Income taxes decreased significantly for both the three and six months ended June 30, 2019, compared to 2018, primarily due to lower pretax earnings, increased wind Production Tax Credits (PTCs), and plant-related regulatory differences. Wind PTCs flow back to customers and do not materially impact net income[216][217] Income Taxes and Effective Tax Rate | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income Taxes (Millions) | $24 | $54 | $49 | $114 | | Effective Income Tax Rate | 9.2% | 16.9% | 8.1% | 17.0% | - The IRS commenced an examination of tax years 2012 and 2013 in 2015, proposing an adjustment that would impact Xcel Energy's Net Operating Loss (NOL) and ETR. The case has been forwarded to the Office of Appeals[58] 7. Earnings Per Share This note presents basic and diluted earnings per share, along with the calculation of common shares outstanding for the reported periods - Basic and diluted EPS for the three and six months ended June 30, 2019, decreased compared to the same periods in 2018[17] Earnings Per Average Common Share | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic EPS | $0.46 | $0.52 | $1.07 | $1.09 | | Diluted EPS | $0.46 | $0.52 | $1.07 | $1.09 | - Diluted common shares outstanding included common stock equivalents of 1.8 million and 1.5 million for the three and six months ended June 30, 2019, respectively, related to forward equity agreements and time-based equity compensation awards[65][66] 8. Fair Value of Financial Assets and Liabilities Describes the fair value hierarchy for financial instruments and details valuation of nuclear decommissioning funds, rabbi trusts, and derivatives - Fair value measurements are categorized into a hierarchical framework: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (significant unobservable inputs)[68][69][70] Nuclear Decommissioning Fund and Rabbi Trusts (Millions of Dollars) | Fund/Asset Type | June 30, 2019 | Dec. 31, 2018 | | :-------------------------------- | :------------ | :------------ | | Nuclear Decommissioning Fund Total | $2,301 | $2,055 | | Unrealized Gains (Nuclear Fund) | $606 | $450 | | Rabbi Trusts Total | $71 | $67 | - Xcel Energy enters into derivative instruments (forward contracts, futures, swaps, options) for trading purposes and to manage risk related to interest rates, utility commodity prices, and vehicle fuel prices[88][92] 9. Benefit Plans and Other Postretirement Benefits Outlines net periodic benefit cost for pension and postretirement health care plans, including contributions made during the period - Net periodic benefit cost for pension benefits decreased for both the three and six months ended June 30, 2019, compared to 2018, while postretirement health care benefits remained a credit[114] Net Periodic Benefit Cost (Credit) (Millions of Dollars) | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Periodic Pension Benefit Cost | $28 | $31 | $55 | $63 | | Net Periodic Postretirement Health Care Benefit (Credit) | $(1) | $(1) | $(1) | $(3) | - Contributions of $150 million were made across four pension plans in January 2019, with an additional $4 million contribution made in July 2019[115] 10. Commitments and Contingencies Details various legal proceedings, regulatory matters, and lease commitments, including adoption of new lease accounting standards - Xcel Energy is involved in various legal proceedings, including gas trading litigation and line extension disputes, for which losses are generally deemed remote[122][125] - NSP-Minnesota's proposal to refund GE settlement proceeds to customers through the Fuel Clause Adjustment (FCA) was approved by the MPUC in March 2019[130] - The MISO Transmission Owners (TOs) face complaints regarding Return on Equity (ROE), with FERC making preliminary determinations that the base ROE was outside the range of reasonableness. NSP-Minnesota has recognized a current refund liability[134] Operating and Finance Lease Commitments (Millions of Dollars) | Lease Type | June 30, 2019 | Dec. 31, 2018 | | :-------------------------------- | :------------ | :------------ | | Operating Lease ROU Assets | $1,763 | $0 (new standard) | | Finance Lease ROU Assets | $142 | $0 (new standard) | | Total Minimum Operating Lease Obligation | $2,246 | N/A | | Total Minimum Finance Lease Obligation | $278 | $286 | 11. Other Comprehensive Loss Explains changes in accumulated other comprehensive loss, primarily due to fair value adjustments on cash flow hedges and defined benefit plan items - Accumulated other comprehensive loss increased to $(135) million at June 30, 2019, from $(124) million at January 1, 2019, primarily due to net fair value decreases on cash flow hedges and defined benefit pension and postretirement items[166] Changes in Accumulated Other Comprehensive Loss (Millions of Dollars) | Metric | June 30, 2019 | Jan. 1, 2019 | | :-------------------------------------- | :------------ | :----------- | | Accumulated Other Comprehensive Loss | $(135) | $(124) | | Other Comprehensive (Loss) Gain before Reclassifications (6 months) | $(14) | $0 | 12. Segment Information This note provides financial information for Xcel Energy's reportable segments: Regulated Electric, Regulated Natural Gas, and All Other - Xcel Energy operates through three reportable segments: Regulated Electric, Regulated Natural Gas, and All Other. These segments are managed separately due to regulated rate recovery[168][170] Segment Net Income (Millions of Dollars) | Segment | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Regulated Electric Net Income | $249 | $264 | $482 | $483 | | Regulated Natural Gas Net Income | $23 | $27 | $128 | $121 | | All Other Net Loss | $(34) | $(26) | $(57) | $(48) | | Consolidated Total Net Income | $238 | $265 | $553 | $556 | Item 2 — MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition, operations, and cash flows, covering regulatory, risk, liquidity, and earnings guidance Non-GAAP Financial Measures Defines and reconciles non-GAAP financial measures used to evaluate Xcel Energy's core performance, such as electric margin and ongoing earnings - Xcel Energy uses non-GAAP financial measures like electric margin, natural gas margin, ongoing earnings, and ongoing diluted EPS to evaluate core performance, as these measures exclude the revenue impact of fuel and purchased power/gas expenses, which are generally recovered through regulatory mechanisms[180][181] - For the three and six months ended June 30, 2019 and 2018, GAAP earnings equal ongoing earnings, as there were no adjustments for certain items[184] Results of Operations This section analyzes the key drivers of changes in diluted EPS, including weather impacts, operating expenses, and segment contributions - Xcel Energy's diluted EPS decreased by $0.06 for the second quarter of 2019 and $0.02 year-to-date, primarily due to unfavorable weather, increased depreciation, interest, and O&M expenses, partially offset by higher electric and natural gas margins[186][191] Diluted Earnings (Loss) Per Share by Subsidiary | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Diluted EPS | $0.46 | $0.52 | $1.07 | $1.09 | | PSCo Diluted EPS | $0.20 | $0.24 | $0.47 | $0.50 | | NSP-Minnesota Diluted EPS | $0.19 | $0.18 | $0.41 | $0.40 | | SPS Diluted EPS | $0.11 | $0.11 | $0.22 | $0.18 | | NSP-Wisconsin Diluted EPS | $0.02 | $0.03 | $0.06 | $0.09 | Statement of Income Analysis Provides detailed analysis of consolidated statements of income, focusing on changes in revenues, margins, and operating expenses - Unfavorable weather conditions led to an estimated $0.051 per share decrease for the three months and $0.020 per share decrease for the six months ended June 30, 2019, compared to 2018 (adjusted for decoupling)[198] Changes in Electric and Natural Gas Margins and Operating Expenses (Millions of Dollars) | Metric | 3 Months Ended June 30, 2019 vs. 2018 | 6 Months Ended June 30, 2019 vs. 2018 | | :-------------------------------------- | :------------------------------------ | :------------------------------------ | | Electric Margin Increase | $23 | $97 | | Natural Gas Margin Increase | $8 | $36 | | O&M Expenses Increase | $8 | $49 | | Depreciation and Amortization Increase | $62 | $112 | | Income Taxes Decrease | $30 | $65 | - Weather-normalized total retail electric sales increased by 0.2% for the three months and 0.4% for the six months ended June 30, 2019, while firm natural gas sales increased by 4.4% and 3.0% respectively[199] Regulation Discusses significant regulatory proceedings, rate cases, and resource plans impacting Xcel Energy's operations and financial outlook - NSP-Wisconsin's rate case settlement for 2020-2021 was verbally approved, resulting in no change to electric base rates and a $3.2 million (4.6%) decrease to natural gas base rates[221] - PSCo filed a request with the CPUC seeking a net electric rate increase of approximately $158 million (5.7%), based on a 10.35% ROE and 56.46% equity ratio, with rates requested effective January 1, 2020[222] - SPS filed an electric rate case in New Mexico seeking a $51 million increase in retail electric base rates, with an expected net revenue increase of $26 million (5.7%) due to fuel cost reductions and PTCs[224][225][229] - NSP-Minnesota's Minnesota resource plan (through 2034) aims for an 80% carbon reduction by 2030 and 100% carbon-free by 2050, including extending Monticello nuclear plant life, MEC acquisition, early retirement of coal plants, and adding significant wind and solar capacity[238][249] Derivatives, Risk Management and Market Risk Describes Xcel Energy's exposure to commodity price and interest rate risks, and strategies to manage these market risks, including derivatives - Xcel Energy is exposed to commodity price risk, managed through physical purchase/sales contracts and financial derivative instruments, and interest rate risk, managed through fixed/floating rate debt and interest rate derivatives[257][268] Value at Risk (VaR) for Commodity Trading Operations (Millions of Dollars) | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | | :-------------------- | :--------------------------- | :--------------------------- | | VaR Limit | $3.00 | $3.00 | | Average VaR | $0.93 | $0.16 | | High VaR | $1.26 | $0.44 | | Low VaR | $0.68 | $0.06 | - Fluctuations in equity prices or interest rates affecting the nuclear decommissioning fund do not have a direct impact on earnings due to regulatory deferral of gains/losses as a component of the regulatory asset[271] Liquidity and Capital Resources Details Xcel Energy's cash flow activities, future financing requirements, and available liquidity from credit facilities and planned issuances - Net cash provided by operating activities decreased by $103 million for the six months ended June 30, 2019, while net cash used in investing activities decreased by $157 million. Net cash provided by financing activities decreased by $97 million[277][278][279] - Xcel Energy expects to meet future financing requirements by issuing short-term debt, long-term debt, common stock, hybrid, and other securities. The company plans to issue approximately $75-$80 million of equity through DRIP and benefit programs in 2019, and has completed or pending debt issuances totaling $2.98 billion[280][289] Committed Credit Facilities Available (Millions of Dollars) as of July 29, 2019 | Entity | Credit Facility | Drawn | Available | Cash | Liquidity | | :---------------- | :-------------- | :---- | :-------- | :--- | :-------- | | Xcel Energy Inc. | $1,250 | $663 | $587 | $1 | $588 | | PSCo | $700 | $373 | $327 | $1 | $328 | | NSP-Minnesota | $500 | $203 | $297 | $1 | $298 | | SPS | $500 | $2 | $498 | $242 | $740 | | NSP-Wisconsin | $150 | $55 | $95 | $1 | $96 | | Total | $3,100 | $1,296 | $1,804 | $246 | $2,050 | Off-Balance-Sheet Arrangements Confirms no material off-balance-sheet arrangements beyond those already disclosed in the financial statements - Xcel Energy does not have any material off-balance-sheet arrangements other than those currently disclosed in the financial statements[292] Earnings Guidance and Long-Term EPS and Dividend Growth Rate Objectives Provides Xcel Energy's 2019 earnings guidance and outlines long-term objectives for EPS growth, dividend increases, and credit ratings - Xcel Energy's 2019 GAAP and ongoing earnings guidance is a range of $2.55 to $2.65 per share, based on assumptions including constructive regulatory outcomes, normal weather, and specific sales and expense projections[293] - Long-term objectives include delivering annual EPS growth of 5-7% (off a 2018 base of $2.43 per share), annual dividend increases of 5-7%, targeting a dividend payout ratio of 60-70%, and maintaining senior secured debt credit ratings in the A range[302] Item 3 — Quantitative and Qualitative Disclosures about Market Risk Refers to detailed market risk disclosures, including commodity, interest rate, and credit risk, in Management's Discussion and Analysis (Item 2) - Refer to Management's Discussion and Analysis — Derivatives, Risk Management and Market Risk under Item 2 for detailed quantitative and qualitative disclosures about market risk[295] Item 4 — Controls and Procedures CEO and CFO concluded disclosure controls were effective as of June 30, 2019, with no material changes to internal control over financial reporting - Xcel Energy's disclosure controls and procedures were effective as of June 30, 2019, based on the evaluation by the CEO and CFO[296] - No changes in Xcel Energy's internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[297] PART II — OTHER INFORMATION Provides additional information including legal proceedings, risk factors, equity sales, and a list of exhibits filed with the report Item 1 — Legal Proceedings Xcel Energy is involved in various legal proceedings, with management not anticipating material financial statement effects from ultimate liabilities - Management does not anticipate that the ultimate liabilities, if any, from current legal proceedings not specifically reported, would have a material effect on Xcel Energy's financial statements[119][298] Item 1A — Risk Factors Incorporates risk factors from the 2018 Annual Report on Form 10-K, noting no material changes from previously disclosed risks - There have been no material changes from the risk factors previously disclosed in Item 1A of Part I of Xcel Energy Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2018[300] Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds For the quarter ended June 30, 2019, Xcel Energy Inc. did not purchase any of its registered equity securities - For the quarter ended June 30, 2019, no equity securities registered by Xcel Energy Inc. pursuant to Section 12 of the Securities Exchange Act of 1934 were purchased by or on behalf of the company or any affiliated purchasers[301] Item 6 — Exhibits Lists all exhibits filed with the Form 10-Q, including amended credit agreements and certifications from principal executive and financial officers - Key exhibits include amended credit agreements for Xcel Energy Inc. and its utility subsidiaries, dated June 7, 2019, and certifications from the Principal Executive Officer and Principal Financial Officer[303] SIGNATURES Contains official signatures of Xcel Energy Inc.'s principal accounting and financial officers, certifying the Form 10-Q Signatures The Form 10-Q was signed on August 1, 2019, by Jeffrey S. Savage (Principal Accounting Officer) and Robert C. Frenzel (Principal Financial Officer) - The Form 10-Q was signed by Jeffrey S. Savage (Principal Accounting Officer) and Robert C. Frenzel (Principal Financial Officer) on August 1, 2019[308]