Key Highlights

● Xcel narrowed current-year ongoing Earnings guidance and introduced a higher range for next year.

● The new five-year base Capital plan totals about $70 billion.

● The plan emphasizes renewables, transmission and distribution, and excludes spending for unsigned large customers.

● The filing updates Smokehouse Creek wildfire settlement progress and a long calendar of rate cases.

Xcel Energy (NASDAQ:XEL) turned its third-quarter report, filed on the last Thursday of October, into a wider statement about the next five years. Alongside quarterly earnings that were sharply higher than a year earlier, the Minneapolis-based company narrowed its guidance for the current year, introduced a range for the following year and published a refreshed capital plan that stretches to the end of the decade.

The quarter itself benefited from several items. Management pointed to recovery of electric infrastructure spending, gains on energy technology funds that are accounted for under the Equity method and warm summer weather, partly offset by higher financing costs. The comparison with the previous year was also flattered by the absence of a large wildfire charge that depressed the earlier period.

What did Xcel Energy report for the quarter?

Earnings per share under generally accepted accounting principles were $1.52, compared with $0.88 in the same quarter last year. Ongoing earnings per share, the measure the company guides to, were also $1.52, up from $1.24. Ongoing earnings were about $960 million, against about $737 million before.

Revenue rose to about $4.2 billion from about $3.9 billion. Over the first nine months, ongoing Earnings Per Share reached $3.37 against $2.84 a year earlier, and Book Value per share rose to about $40.32.

The company attributed the improvement to higher electric infrastructure recovery, to equity method earnings mainly from unrealized gains on energy technology funds, and to warm weather that added about $0.07 per share compared with normal conditions. Higher financing costs partly offset those factors.

How did the operating companies compare?

Xcel Energy is the parent of four regulated utilities. Public Service Company of Colorado reported quarterly earnings of $0.57 per share on a GAAP basis, a large increase from $0.08 a year earlier, when it recorded a wildfire charge for the Marshall fire. Northern States Power in Minnesota reported $0.51, a touch below the prior year's $0.53.

Southwestern Public Service, which serves the Texas Panhandle and eastern New Mexico, earned $0.34, up from $0.27. Northern States Power in Wisconsin, the smallest of the four, reported $0.08, up from seven.

These Subsidiary figures help explain the consolidated improvement. The Colorado comparison alone accounts for much of the difference, which underlines how a single legal or wildfire-related accrual can move quarterly results. In the current year, the company even recorded small reductions to its Marshall fire estimate because of higher expected insurance recoveries.

What guidance did the company issue?

For the current year, ongoing earnings per share guidance was narrowed to a range from $4.10 to $4.16. The earlier range started at $4.04, so the company lifted the bottom while keeping the top unchanged.

For next year, it introduced a range of $4.48 to $4.62. The assumptions include weather-normalized electric sales growth of about 5%, up from about 3% this year, Natural Gas sales growth of about 1%, operations and maintenance expense up about 4%, and Depreciation up by roughly $460 million to $470 million.

Interest expense is expected to rise again next year by a sum comparable to the increase in the current year. The company's long-term objectives are unchanged: earnings growth of six to more than 8% a year, Dividend growth of 4 to 6%, a Payout Ratio between 40-5 and 55%, and senior secured Debt rated in the A range.

What does the new capital plan include?

The base capital plan for the next five years totals about $70 billion. By utility, Southwestern Public Service accounts for about $26 billion, Northern States Power in Minnesota for about $25 billion, Public Service of Colorado for about $16 billion and Northern States Power in Wisconsin for about $3.5 billion.

By function, the plan assigns about $21 billion to renewables, nearly $19 billion to transmission, nearly $14 billion to distribution, about $9 billion to generation, about $4 billion to natural gas and about $3.5 billion to other needs. Annual spending peaks in the first year at roughly $16 billion and declines to under $11 billion in the final year.

The company stated what the plan leaves out: generation from current requests for proposals, spending for large customers not yet signed, and later transmission projects in the two regional grid operators it participates in. In other words, additional projects could lift the totals if approvals and customer contracts materialize.

How will the company pay for it?

Funding for the five-year plan combines about $36 billion of cash from operations, net of dividends and pension funding, about $26 billion of new debt and about $8 billion of equity. Debt maturing during the period totals a little over $5.5 billion.

The equity piece is already in motion. During the quarter, Xcel Energy issued about 10.5 million shares for net proceeds of roughly $819 million. Forward sale agreements cover about $79 million unsettled shares with minimum proceeds of about $5.8 billion.

At the end of September, total debt was about $40.6 billion, or 62% of capitalization, and common equity was about $25.5 billion. Liquidity totaled about $5 billion, though a $1.5 billion term Loan is fully drawn and matures early next year.

What did the filing say about Credit ratings?

The Parent Company is rated in the Baa category by Moody's with a negative stance, BBB with a stable stance by S&P and BBB-plus with a stable stance by Fitch. The Colorado Utility is rated in the A category by Moody's and by S&P, each with a negative stance, and A-plus by Fitch with a stable stance.

Ratings matter for a company that expects to issue a large amount of debt, because they influence borrowing costs and access to markets. The company's stated objective of senior secured ratings in the A range reflects that concern.

During the year, the company has already issued several tranches of long-term debt, including junior subordinated notes at the parent and first mortgage bonds at its Colorado, Minnesota, Wisconsin and Texas-based utilities. The filing lists each issue, which lets readers trace how the financing plan is being executed.

Where do Data Center projects stand?

The filing devotes a section to large customers. In Minnesota, the Northern States Power utility signed an electric service agreement with Google for a project at Pine Island, under which Google pays all costs of its service for the contract term. A related proposal would add a clean energy charge to support about 1900 megawatts of clean generation, with an estimated customer benefit of about $1.1 billion. A commission decision is expected early next year.

In Colorado, a second phase of a resource solicitation seeks 500 megawatts by the end of the plan period, with room to grow as large loads are approved. Bids are due in December, and a decision is expected in the second half of next year. A regional solicitation in the upper Midwest seeks up to 3,500 megawatts by the end of the decade, with filings expected near year end.

In the Southwest, the integrated resource plan for Southwestern Public Service points to roughly 2000 megawatts of additional accredited capacity needed by the middle of the next decade, and a solicitation is expected in the middle of next year.

What is the status of the wildfire litigation?

The Smokehouse Creek fire complex in the Texas Panhandle burned roughly 1 million acres two years ago. The Texas A&M Forest Service attributed the fires to power lines of Southwestern Public Service, and the company has said it is cooperating. As of the filing, there are about 140 groups of plaintiffs, and more than 350 complaints and claims have been settled.

Settlements total about $410 million, of which about $405 million had been paid through the end of September. The company estimates total probable losses at about $475 million, and with roughly $50 million of legal costs, total losses and costs of about $525 million. It reports an insurance receivable of about $96 million net of recoveries, and annual insurance coverage of about $525 million.

The filing cautions that these estimates exclude penalties, exemplary damages and government claims, and that losses could exceed insurance coverage. The Texas attorney general filed a lawsuit last December seeking damages and penalties, and discovery is expected to continue into next year.

Which rate cases are pending or decided?

In Minnesota, regulators issued an order in the summer approving an electric increase of about $211 million over two years at an allowed earnings rate on equity of 9.6%, with new rates beginning early next year. In October the company proposed a stay-out arrangement that would freeze base rates for the next two years in exchange for accelerated recognition of tax credits on five battery projects, and it asked for a decision by January.

In Colorado, the commission approved an electric increase of about $184 million at an allowed rate of 9.3%, and a gas settlement of about $123 million that took effect in October. In New Mexico, a stipulation for about $90 million won a hearing examiner endorsement, with a decision expected in the fourth quarter and new rates in December.

Texas regulators approved the company's self-build generation portfolio in October, except for one battery project, and the company will seek rehearing. Wisconsin's utility also agreed to divest about $150 million of Michigan assets, with closing expected next year.

What drove sales and costs in the quarter?

Weather was one Factor but not the only one. For the current year, management expects weather-normalized electric sales to rise by about 3% and natural gas sales to be flat, and for next year it expects electric growth to accelerate to about 5%. The company ties the faster pace to new large customers and general economic activity in its service areas.

Costs are rising too. Operations and maintenance expense is expected to climb by about 5% this year and about 4% next year, depreciation will rise as new Assets enter service, and interest expense is expected to increase by close to $300 million this year and by a slightly larger amount next year. Those lines show how a heavy spending program feeds through to the earnings statement even before new rates take effect.

The balance between higher Revenue from rate recovery and higher depreciation and interest is the core of the guidance. Regulators in each state decide how much of the added cost is passed to customers and when, which is why the rate case calendar receives so much space in the filing.

How is the company organized?

Xcel Energy runs four utility subsidiaries across eight states. Northern States Power in Minnesota and in Wisconsin serve the upper Midwest, Public Service Company of Colorado serves Denver and surrounding areas, and Southwestern Public Service covers parts of Texas and New Mexico. Each has its own regulator, rate case schedule and capital plan.

The structure explains the size of the Southwestern Public Service share of the plan, which is nearly as large as that of the Minnesota utility despite serving far fewer customers. Wind, solar, storage and transmission needs in the southern plains are driving much of that spending, according to the company's description of its resource plans.

It also explains the variety of regulatory outcomes in the filing: allowed earnings rates on equity range from just over 9% to 9.6%, and equity ratios from about 52.5 to 55%, depending on the state and the case.

How does this fit with the wider utility group?

Xcel Energy describes itself as one of the nation's largest builders of clean generation and high-voltage transmission, and its chief executive, Bob Frenzel, said the updated plan gives a clear path to extend its growth cycle. The company operates in eight states, many of which have set clean energy standards.

Readers following Utility Stocks will notice a common thread: large customers, Supply shortages and heavy spending on the grid are reshaping plans across the group, while regulators weigh what customers should pay. Xcel Energy differs from some peers in its large wind and solar program and in its exposure to wildfire litigation.

The company is part of the S&P 500 and trades on the Nasdaq.

What should readers watch next for Xcel Energy?

Near-term dates include the Minnesota decision on the stay-out proposal, the New Mexico commission ruling, the Minnesota gas order and the December bid deadline in Colorado. Each could change the pace at which assets enter rates.

Beyond that, the filing points to the Pine Island decision early next year, the progress of wildfire settlements and the continued issuance of equity under forward sale agreements. Weather in the final months of the year will also affect where results land within the narrowed range.

Further detail is available in the company's Quarterly Report filed with the Securities and Exchange Commission, which includes the full set of regulatory, financing and legal disclosures.