Xcel Energy is a major U.S. regulated electric and natural gas delivery company headquartered in Minneapolis, Minnesota, serving customers in eight states through its four utility subsidiaries: NSP-Minnesota, NSP-Wisconsin, PSCo, and SPS . The company operates in two primary segments: Regulated Electric and Regulated Natural Gas, focusing on generating, transmitting, and distributing electricity, as well as transporting, storing, and distributing natural gas . Xcel Energy's primary focus is on electricity generation and distribution, which accounts for the majority of its revenue .
- Regulated Electric - Generates, transmits, and distributes electricity across several states, including Minnesota, Wisconsin, Michigan, North Dakota, South Dakota, Colorado, Texas, and New Mexico, and includes wholesale commodity and trading operations.
- Regulated Natural Gas - Transports, stores, and distributes natural gas primarily in Minnesota, Wisconsin, North Dakota, Michigan, and Colorado.
- All Other - Includes smaller revenue streams such as steam revenue, appliance repair services, and non-utility real estate activities.
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What went well
- Xcel Energy anticipates significant electric sales growth driven by data center expansion, with nearly 9,000 megawatts of data center opportunities in the customer pipeline before 2030. They have included approximately 25% of this in their five-year sales forecast, indicating potential upside.
- The company plans to invest heavily in clean energy generation and grid enhancements, adding between 15,000 and nearly 30,000 megawatts of generation by 2030, and expects to build at least $10 billion worth of these projects.
- These investments are expected to result in 9.4% annual rate base growth, and the company is confident about executing at the upper half of their earnings growth range, potentially exceeding it.
What went wrong
- Significant increase in wildfire insurance premiums, with premiums tripling and capacity shrinking, could pressure earnings if cost recovery is not approved by regulators.
- Large capital expenditure plans require substantial equity issuances, including $1.1 billion issued via ATM in 2024, potentially leading to shareholder dilution.
- Lowered dividend growth objective to the low end of the 4%-6% range to retain cash and reduce equity needs, which may disappoint investors expecting higher dividend growth.
Q&A Summary
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CapEx Increase vs. Equity Needs
Q: Why does equity need not match CapEx increase?
A: Despite a $6 billion rise in CapEx, equity needs increased by only $0.5 billion due to improved cash flow timing and a slight benefit from lowering the dividend growth rate, which provides more flexibility long-term. Credit metrics remain stable, allowing a more favorable financing mix than the typical 40-60% debt-to-equity ratio. -
Load Growth Expectations
Q: How will load growth trend over the next years?
A: Load growth is expected at 3% in 2025, increasing to 5-8% in subsequent years. This acceleration is driven by data centers, oil and gas development in the Permian Basin, and beneficial electrification like EV adoption in Colorado. -
Wildfire Mitigation and Insurance Costs
Q: What actions are taken on wildfire mitigation?
A: The company has enhanced wildfire protection mechanisms, including operating the system with safety, enhanced power line safety settings, and the ability to execute Public Safety Power Shutoffs (PSPS). Insurance premiums have tripled, but they include constructive regulatory outcomes in their 2025 guidance, aiming for recovery of increased insurance costs and wildfire mitigation investments. -
Financing Plans and ATM Issuance
Q: Are you done with equity issuance for the year?
A: Yes, with about $1 billion of ATM issuance in Q3, the company's equity needs for the year are fulfilled. While they may remain opportunistic, there's no need to issue more equity through the end of the year. The ATM is viewed as an efficient mechanism, but they will consider other financing options moving forward. -
Large Customer's Land Acquisition in Minnesota
Q: Is a major land acquisition included in forecasts?
A: An undisclosed customer made a significant land acquisition in Minnesota, which is included in the company's 5% consolidated load growth outlook. Negotiations on services and rate design are progressing, and discussions with the Minnesota Commission are constructive. This project is expected to drive economic growth and benefit all customers. -
Timing of Equity in Capital Plan
Q: How should we think about timing of equity issuance?
A: Equity issuance is expected to follow the shape of annual CapEx over the next five years, which is larger in the first few years. While specific timing isn't provided, it generally aligns with the capital spending schedule. -
Impact on Customer Bills
Q: What is the expected impact on customer bills?
A: Customer bills are projected to increase by 1-3% over the next five years, which is considered manageable. In Colorado, a long-term plan projects a 2.2% bill increase over a 20-year period, even with significant investments and a 9% rate base growth. The company starts from a strong position, with bills lower than a decade ago and among the lowest share of wallet in the country. -
Hydrogen Initiatives
Q: Any updates on green hydrogen projects?
A: Green hydrogen initiatives are currently on the back burner. The company received a hydrogen grant with the DOE, but progress has been slow. No capital expenditures for hydrogen are included in the current forecast, though they recognize the potential future need for clean fuels.
- Given the significant increase in O&M expenses, particularly from wildfire mitigation and storm expenses leading to a revised forecast of a 3% to 4% increase over 2023, what specific measures are you implementing to control these rising costs and ensure they don't negatively impact your earnings growth targets?
- With the tripling of excess liability insurance premiums and a reduction in capacity, along with $215 million in estimated accrued liabilities from the Smokehouse Creek wildfire, how do you plan to manage the financial impact of potential future wildfire events, and are you confident in your ability to secure regulatory approval for cost recovery?
- You issued $1.1 billion of equity through your ATM program this year, which is not part of your 2025 to 2029 financing plan; can you explain the rationale behind this unexpected equity issuance and how it affects your capital structure and shareholder dilution?
- You've updated your long-term EPS growth objective to 6% to 8% with expectations to deliver earnings in the upper half of the range, yet you've modified your dividend growth objective to 4% to 6% and expect to be at the low end; could you discuss the reasons for lowering dividend growth and how this decision balances shareholder returns with funding your capital investment plan?
- Considering your significant reliance on data center load growth, with nearly 9,000 megawatts of opportunities and 50% of your 5% per year electric sales growth coming from data centers, what are the risks if these large data center loads do not materialize as expected, and how are you mitigating potential demand fluctuations from these customers?
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: FY 2024 and FY 2025
- Guidance:
- 2024 Ongoing Earnings Guidance: Reaffirmed at $3.50 to $3.60 per share .
- 2025 Earnings Guidance: Initiated at $3.75 to $3.85 per share, reflecting a 7% growth from the midpoint of the 2024 guidance .
- Long-term EPS Growth Objective: Updated to 6% to 8%, with expectations to deliver earnings in the upper half of the range .
- Dividend Growth Objective: Modified to 4% to 6%, with the expectation to be at the low end of the range .
- Electric Sales Growth: Forecasted at 5% per year over the next five years, with approximately 50% of this growth coming from data centers .
- O&M Forecast: Revised to a 3% to 4% increase relative to 2023 .
- Capital Investment Plan: An updated $45 billion 5-year base capital expenditure forecast, reflecting annual rate base growth of 9.4% .
- Sales Guidance for 2025: Sales growth expected at 3% for 2025, increasing to 5% to 8% in the years following .
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Earnings Guidance: Reaffirmed 2024 earnings guidance range of $3.50 to $3.60 per share, aligning with their long-term EPS growth objective of 5% to 7% .
- Electric Sales Forecast: Updated 2024 forecast to reflect a 1% increase for electric sales, with expected increases in Commercial & Industrial (C&I) load in the second half of the year .
- Long-term Sales Forecast: Expected to be in the 4% to 5% range, incorporating high-probability loads into their 5-year guidance .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- Earnings Guidance: Reaffirmed 2024 earnings guidance range of $3.50 to $3.60 per share, consistent with their long-term EPS growth objective of 5% to 7% .
- Electric Sales Growth: Revised projected electric sales growth to 1% to 2% for the year, with long-term electric sales expected to grow 3% annually .
- O&M Guidance: Aimed for a 1% to 2% increase in O&M expenses for the year .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- Earnings Per Share (EPS) Growth: Expected to deliver earnings at or above the top end of their long-term EPS growth objective of 5% to 7% starting in 2025 .
- Dividend Growth: Plans to grow the dividend at the low end of their current 5% to 7% range, with a target payout ratio of 50% to 60% .
- Electric Sales Growth: Expected electric sales to increase by 2% to 3% for 2024 .
- Operations and Maintenance (O&M) Expenses: Guidance for 2024 indicates O&M expenses will be up 1% to 2% relative to 2023, but flat compared to 2022 .
- Capital Expenditure (CapEx): Updated 5-year capital plan set at $39 billion, reflecting a 9% rate base growth .
- Equity Financing: Plans to fund incremental capital investment with approximately 40% equity and expects to raise at least $500 million annually through their ATM program over the next five years .
- Transfer Tax Credits: Anticipates approximately $3 billion of transfer tax credits over the next five years, starting with $500 million in 2024 and growing to about $700 million by the end of the forecast period .
Recent developments and announcements about XEL.
Financial Actions
New Share Buyback Program
Xcel Energy Inc. has announced a new buyback program. The key details are as follows: The company will repurchase shares to offset shareholder dilution from employee incentive plans, reinvestment of dividends, and director compensation programs. The buyback program is designed to avoid being classified as a Potential Adjustment Event under the 2002 Definitions .
New Share Buyback Program
Xcel Energy has initiated a new buyback program through Forward Sale Agreements with Barclays Bank PLC and Bank of America, N.A. This involves the potential repurchase of up to 18,320,610 shares of its common stock. The initial forward sale price is set at $64.4356 per share, subject to daily adjustments based on a floating interest rate factor. The program allows Xcel Energy to settle these agreements by issuing shares at the forward sale price on or before June 30, 2026 .