EX-99.01 2 a05-19034_1ex99d01.htm EXHIBIT 99

Exhibit 99.01

 

 

 

U.S. Bancorp Center

 

800 Nicollet Mall

 

Minneapolis, MN 55402-2023

 

October 26, 2005

 

 

INVESTOR RELATIONS EARNINGS RELEASE

 

 

XCEL ENERGY ANNOUNCES THIRD QUARTER 2005 EARNINGS

 

MINNEAPOLIS – Xcel Energy Inc. (NYSE: XEL) announced income from continuing operations of $198 million, or 47 cents per share on a diluted basis, for the third quarter of 2005, compared with $166 million, or 40 cents per share, in the third quarter of 2004.

 

Total earnings for the quarter, which include the impact of discontinued operations, were $196 million, or 47 cents per share, in 2005, compared with $47 million, or 12 cents per share, in 2004.

 

Xcel Energy’s total earnings for the third quarter of 2005 included the following:

•                  Regulated utility earnings from continuing operations were $194 million, or 46 cents per share, compared with $174 million, or 41 cents per share, in 2004;

•                  Nonregulated subsidiary and holding company income from continuing operations was $6 million, or 1 cent per share, compared with a loss of $5 million, or 1 cent per share in 2004; and

•                  Results from discontinued operations were a loss of $2 million, or less than 1 cent per share, compared with losses of $119 million, or 28 cents per share, in 2004.  The loss in 2004 includes an after-tax impairment charge of $112 million, or 27 cents per share, related to Seren Innovations, Inc.

 

Regulated utility earnings for the third quarter of 2005 increased primarily due to higher electric margins resulting from warmer weather in 2005 compared with cooler weather in 2004, a lower effective tax rate and sales growth, particularly in the northern regions.  Partially offsetting these positive factors were higher operating and maintenance expense and higher depreciation expense resulting from major plant and software additions completed in 2004 and early 2005.

 

“Throughout the year, we have initiated activities that will begin to contribute to earnings in 2006 and beyond,” said Ben Fowke, vice president and chief financial officer.  “While we are pleased with the company’s third quarter results, we currently expect our fourth quarter financial performance to be somewhat lower than previously anticipated and 2005 earnings from continuing operations to be within the lower half of our $1.18 to $1.28 per share guidance range.  Today we are initiating 2006 earnings guidance of $1.25 to $1.35 per share,” Fowke said.

 

1


 

At 9 a.m. CDT today, Xcel Energy will host a conference call to review third quarter financial results.  To participate in the conference call, please dial in five to 10 minutes prior to the scheduled start and follow the operator’s instructions.

 

US Dial-In:
 
(800) 374-0832
International Dial-In:
 
(706) 634-5081
 

The conference call also will be simultaneously broadcast and archived on Xcel Energy’s Web site at www.xcelenergy.com.  To access the presentation, click on Investor Information.  If you are unable to participate in the live event, the call will be available for replay from 12 p.m. CDT on Oct. 26 through 11:59 p.m. CDT on Oct. 29.

 

Replay Numbers

US Dial-In:
 
(800) 642-1687
International Dial-In:
 
(706) 645-9291
Conference ID:
 
9828840
 

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. 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; structures that affect the speed and degree to which competition enters the electric and natural gas markets; the higher risk associated with Xcel Energy’s nonregulated businesses compared with its regulated businesses; effects of legal and administrative proceedings, settlements, investigations and claims; actions of accounting regulatory bodies; risks associated with the California power market; availability of adequate coal supplies; recovery of fuel costs; and the other risk factors listed from time to time by Xcel Energy in reports filed with the Securities and Exchange Commission (SEC), including Exhibit 99.01 to Xcel Energy’s Annual Report on Form 10-K for the year ended Dec. 31, 2004.

 

For more information, contact:

R J Kolkmann

 

Managing Director, Investor Relations

 

(612) 215-4559

P A Johnson

 

Director, Investor Relations

 

(612) 215-4535

 

For news media inquiries only, please call Xcel Energy media relations                                    (612) 215-5300

Xcel Energy Internet address: www.xcelenergy.com

 

This information is not given in connection with any

sale, offer for sale or offer to buy any security.

 

2


 

XCEL ENERGY INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Thousands of Dollars, Except Per Share Data)

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Operating revenues:

 

 

 

 

 

 

 

 

 

Electric utility

 

$

2,063,368

 

$

1,773,026

 

$

5,318,573

 

$

4,707,620

 

Natural gas utility

 

207,220

 

189,895

 

1,368,622

 

1,221,253

 

Nonregulated and other

 

15,535

 

12,014

 

53,344

 

55,035

 

Total operating revenues

 

2,286,123

 

1,974,935

 

6,740,539

 

5,983,908

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Electric fuel and purchased power – utility

 

1,121,154

 

888,845

 

2,794,791

 

2,290,560

 

Cost of natural gas sold and transported – utility

 

127,493

 

111,185

 

1,028,317

 

891,778

 

Cost of sales – nonregulated and other

 

3,745

 

1,563

 

17,163

 

19,802

 

Other operating and maintenance expenses – utility

 

400,748

 

378,758

 

1,240,857

 

1,165,293

 

Other operating and maintenance expenses - nonregulated

 

4,913

 

6,620

 

21,145

 

18,737

 

Depreciation and amortization

 

189,798

 

176,477

 

575,468

 

519,491

 

Taxes (other than income taxes)

 

73,547

 

73,653

 

220,634

 

219,880

 

Total operating expenses

 

1,921,398

 

1,637,101

 

5,898,375

 

5,125,541

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

364,725

 

337,834

 

842,164

 

858,367

 

 

 

 

 

 

 

 

 

 

 

Interest and other income – net of expense

 

1,930

 

(562

)

4,365

 

(1,837

)

Allowance for funds used during construction – equity

 

4,265

 

7,400

 

14,897

 

24,084

 

 

 

 

 

 

 

 

 

 

 

Interest charges and financing costs:

 

 

 

 

 

 

 

 

 

Interest charges – (includes other financing costs of $6,426, $6,355, $19,322 and $20,786, respectively)

 

117,449

 

110,919

 

345,459

 

335,153

 

Allowance for funds used during construction – debt

 

(4,979

)

(5,916

)

(14,347

)

(17,169

)

Total interest charges and financing costs

 

112,470

 

105,003

 

331,112

 

317,984

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

258,450

 

239,669

 

530,314

 

562,630

 

Income taxes

 

60,633

 

73,972

 

130,241

 

162,575

 

Income from continuing operations

 

197,817

 

165,697

 

400,073

 

400,055

 

Income (loss) from discontinued operations – net of tax

 

(1,798

)

(118,977

)

830

 

(117,119

)

Net income

 

196,019

 

46,720

 

400,903

 

282,936

 

Dividend requirements on preferred stock

 

1,060

 

1,060

 

3,180

 

3,180

 

Earnings available for common shareholders

 

$

194,959

 

$

45,660

 

$

397,723

 

$

279,756

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

Basic

 

402,735

 

399,746

 

402,028

 

399,184

 

Diluted

 

426,085

 

423,078

 

425,368

 

422,517

 

Earnings per share – basic:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.49

 

$

0.41

 

$

0.99

 

$

0.99

 

Income from discontinued operations

 

(0.01

)

(0.30

)

—

 

(0.29

)

Total

 

$

0.48

 

$

0.11

 

$

0.99

 

$

0.70

 

Earnings per share – diluted:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.47

 

$

0.40

 

$

0.96

 

$

0.97

 

Income from discontinued operations

 

—

 

(0.28

)

—

 

(0.28

)

Total

 

$

0.47

 

$

0.12

 

$

0.96

 

$

0.69

 

 

3


 

XCEL ENERGY INC. AND SUBSIDIARIES

Notes to Investor Relations Release (Unaudited)

 

Due to the seasonality of Xcel Energy’s operating results, quarterly financial results are not an appropriate base from which to project annual results.

 

Note 1.  Earnings per Share Summary

 

The following table summarizes the earnings-per-share contributions of Xcel Energy’s businesses.

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Earnings (Loss) Per Share

 

 

 

 

 

 

 

 

 

Regulated utility segments – continuing operations – Note 2

 

$

0.46

 

$

0.41

 

$

1.00

 

$

0.99

 

Nonregulated and holding company segment

 

0.01

 

(0.01

)

(0.04

)

(0.02

)

Earnings per share – continuing operations

 

0.47

 

0.40

 

0.96

 

0.97

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

—

 

(0.28

)

—

 

(0.28

)

Total earnings per share – diluted

 

$

0.47

 

$

0.12

 

$

0.96

 

$

0.69

 

 

The loss from discontinued operations in 2004 includes an after-tax impairment charge of $112 million, or 27 cents per share, related to Seren Innovations, Inc.  Seren assets are expected to be sold to two parties with anticipated completion dates in late 2005 and early 2006.

 

The following table summarizes significant components contributing to the changes in the third quarter and year-to-date 2005 earnings per share compared with the same periods in 2004, which are discussed in more detail later in the release.

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

2004 Earnings per share – diluted

 

$

0.12

 

$

0.69

 

 

 

 

 

 

 

Components of change – 2005 vs. 2004

 

 

 

 

 

Higher base electric utility margins

 

0.10

 

0.20

 

Lower short-term wholesale and commodity trading margins

 

(0.02

)

(0.05

)

Higher depreciation and amortization expense

 

(0.02

)

(0.08

)

Higher utility operating and maintenance expense

 

(0.03

)

(0.11

)

Effective tax rate changes and other

 

0.04

 

0.03

 

Net change in earnings per share – continuing operations

 

0.07

 

(0.01

)

 

 

 

 

 

 

Changes in Earnings Per Share – Discontinued Operations

 

0.28

 

0.28

 

2005 Earnings per share – diluted

 

$

0.47

 

$

0.96

 

 

Note 2.  Regulated Utility Segment Results – Continuing Operations

 

Estimated Impact of Temperature Changes on Regulated Earnings –The following summarizes the estimated impact of temperature variations on utility results included in continuing operations, compared with sales under normal weather conditions.

 

 

 

Earnings per Share Increase (Decrease)

 

 

 

2005 vs. Normal

 

2004 vs. Normal

 

2005 vs. 2004

 

3 months ended September 30

 

$

0.04

 

$

(0.04

)

$

0.08

 

9 months ended September 30

 

$

0.04

 

$

(0.07

)

$

0.11

 

 

4


 

Sales Growth – The following table summarizes Xcel Energy’s regulated utility growth from continuing operations for actual and weather-normalized energy sales for the three- and nine-month periods ended Sept. 30, 2005, compared with the same period in 2004.

 

 

 

Three months ended

 

Nine months ended

 

 

 

Sept. 30,

 

Sept. 30,

 

 

 

Actual

 

Normalized

 

Actual

 

Normalized

 

Electric residential

 

11.0

%

0.0

%

6.3

%

1.0

%

Electric commercial and industrial

 

5.7

%

2.0

%

3.4

%

1.6

%

Total retail electric sales

 

7.2

%

1.4

%

4.1

%

1.4

%

Firm natural gas sales

 

(18.9

)%

(9.0

)%*

(1.4

)%

(0.5

)%

 

*                 Due to the low volume of natural gas sales for the third quarter, the weather-normalized sales growth is not a meaningful measure.

 

Base Electric Utility, Short-term Wholesale and Commodity Trading Margins – The following table details the revenue and margin for base electric utility, short-term wholesale and commodity trading activities that are included in continuing operations:

 

(Millions of Dollars)

 

Base
Electric
Utility

 

Short-term
Wholesale

 

Commodity
Trading

 

Consolidated
Total

 

3 months ended 09/30/2005

 

 

 

 

 

 

 

 

 

Electric utility revenue (excluding commodity trading)

 

$

2,004

 

$

61

 

$

—

 

$

2,065

 

Electric fuel and purchased power utility

 

(1,078

)

(43

)

—

 

(1,121

)

Commodity trading revenue

 

—

 

—

 

282

 

282

 

Commodity trading costs

 

—

 

—

 

(284

)

(284

)

Gross margin before operating expenses

 

$

926

 

$

18

 

$

(2

)

$

942

 

Margin as a percentage of revenue

 

46.2

%

29.5

%

(0.7

)%

40.1

%

 

 

 

 

 

 

 

 

 

 

3 months ended 09/30/2004

 

 

 

 

 

 

 

 

 

Electric utility revenue (excluding commodity trading)

 

$

1,689

 

$

76

 

$

—

 

$

1,765

 

Electric fuel and purchased power-utility

 

(833

)

(56

)

—

 

(889

)

Commodity trading revenue

 

—

 

—

 

256

 

256

 

Commodity trading costs

 

—

 

—

 

(248

)

(248

)

Gross margin before operating expenses

 

$

856

 

$

20

 

$

8

 

$

884

 

Margin as a percentage of revenue

 

50.7

%

26.3

%

3.1

%

43.7

%

 

 

 

 

 

 

 

 

 

 

9 months ended 09/30/2005

 

 

 

 

 

 

 

 

 

Electric utility revenue (excluding commodity trading)

 

$

5,162

 

$

153

 

$

—

 

$

5,315

 

Electric fuel and purchased power utility

 

(2,700

)

(95

)

—

 

(2,795

)

Commodity trading revenue

 

—

 

—

 

513

 

513

 

Commodity trading costs

 

—

 

—

 

(509

)

(509

)

Gross margin before operating expenses

 

$

2,462

 

$

58

 

$

4

 

$

2,524

 

Margin as a percentage of revenue

 

47.7

%

37.9

%

0.8

%

43.3

%

 

 

 

 

 

 

 

 

 

 

9 months ended 09/30/2004

 

 

 

 

 

 

 

 

 

Electric utility revenue (excluding commodity trading)

 

$

4,501

 

$

193

 

$

—

 

$

4,694

 

Electric fuel and purchased power-utility

 

(2,182

)

(109

)

—

 

(2,291

)

Commodity trading revenue

 

—

 

—

 

493

 

493

 

Commodity trading costs

 

—

 

—

 

(479

)

(479

)

Gross margin before operating expenses

 

$

2,319

 

$

84

 

$

14

 

$

2,417

 

Margin as a percentage of revenue

 

51.5

%

43.5

%

2.8

%

46.6

%

 

Note – The short-term wholesale and commodity trading results in the above table reflect the estimated impacts of the regulatory sharing of certain margins.

 

Base electric utility margins, which are primarily derived from retail customer sales, increased approximately $70 million for the third quarter of 2005, compared with the third quarter of 2004.  Base electric utility margins increased approximately $143 million for the first nine months of 2005, compared with the same period in 2004.  For more information see the following table:

 

5


 

Base Electric Utility Margin

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

(Millions of Dollars)

 

2005 vs. 2004

 

2005 vs. 2004

 

Sales growth (excluding weather impact)

 

$

11

 

$

34

 

Estimated impact of weather

 

53

 

75

 

Purchased capacity costs

 

(10

)

(18

)

Quality of service obligations

 

(11

)

(4

)

Transmission revenue

 

6

 

3

 

Transmission costs

 

7

 

15

 

Conservation and non-fuel rider revenues

 

8

 

15

 

Capacity sales

 

2

 

10

 

Other

 

4

 

13

 

Total base electric utility margin increase

 

$

70

 

$

143

 

 

Short-term wholesale margins consist of energy-related purchase and sales activity and the use of certain financial instruments associated with the fuel required for and energy produced from Xcel Energy’s generation assets and energy and capacity purchased to serve native load.  Commodity trading margins are not associated with Xcel Energy’s generation assets or the capacity and energy purchased to serve native load.

 

Short-term wholesale and commodity trading margins decreased approximately $12 million and $36 million for the third quarter and first nine months of 2005, respectively, compared with the same periods in 2004.  The higher 2004 short-term wholesale results reflect the impact of more favorable market conditions and higher levels of surplus generation available to sell.  In addition, a preexisting contract contributed $17 million in the first quarter of 2004 and expired at that time.

 

Other Operating and Maintenance Expenses – Utility – Other operating and maintenance expenses for the third quarter of 2005 increased by approximately $22 million, or 5.8 percent, compared with the same period in 2004.  The increase is primarily due to higher employee benefit costs of approximately $10 million compared with 2004. The higher employee benefit costs are primarily associated with increased pension expense.  In addition, the increase reflects the unfavorable impact of $8.5 million related to two accrued litigation adjustments recorded in 2005 and 2004, as well as $4.8 million related to a favorable inventory adjustment recorded in 2004.

 

Other operating and maintenance expenses for the first nine months of 2005 increased $76 million, or 6.5 percent, compared with the same period in 2004.   Two nuclear plant refueling, inspection and upgrade outages in 2005, with no comparable outages in the first nine months of 2004, increased costs by approximately $33 million.  In addition, employee benefit costs were approximately $20 million higher in 2005 than 2004, primarily due to increased performance-based compensation and pension benefits.  Also contributing to the increase was the unfavorable impact of $8.5 million related to two accrued litigation adjustments recorded in 2005 and 2004, as well as $4.8 million related to a favorable inventory adjustment in 2004.

 

Depreciation and Amortization – Depreciation and amortization expense increased by approximately $13 million, or 7.5 percent, for the third quarter, and $56 million, or 10.8 percent, for the first nine months of 2005, compared with the same periods in 2004.  The changes were primarily due to the installation of new steam generators at the Prairie Island nuclear plant and software system additions during 2004 and early 2005, both of which have relatively short depreciable lives compared with other capital additions.  In addition, renewable development fund and renewable cost recovery amortization increased over 2004.  The increase was partially offset by the changes in lives and net salvage rates contained in two Northern States Power Co., a Minnesota corporation (NSP-Minnesota) depreciation filings approved by state regulators during August 2005.

 

Income Taxes – Income taxes for continuing operations decreased by $13 million for the third quarter of 2005, compared with the same period in 2004.  The effective tax rate for continuing operations was 23.5 percent for the third quarter of 2005, compared with 30.9 percent for the same period in 2004.  Income taxes for the third quarter

 

6


 

of 2005 reflect tax benefits from increased research credits and a net operating loss carryback.  Income tax expense recorded in the third quarter of 2005 also reflects reductions to adjust to the forecasted annual effective tax rate.

 

Income taxes for continuing operations decreased by $32 million for the first nine months of 2005, compared with the same period in 2004.  The effective tax rate for continuing operations was 24.6 percent for the first nine months of 2005, compared with 28.9 percent for the same period in 2004.  Income taxes recorded in 2005 reflect tax benefits from increased research credits and a net operating loss carryback.

 

Note 3.  Xcel Energy Capital Structure

 

The following is the preliminary capital structure of Xcel Energy at September 30, 2005:

 

(Billions of Dollars)

 

Balance at
September 30,
2005

 

Percentage of
Total
Capitalization

 

Current portion of long-term debt

 

$

0.5

 

4

%

Short-term debt

 

0.3

 

2

%

Long-term debt

 

6.2

 

50

%

Total debt

 

7.0

 

56

%

 

 

 

 

 

 

Preferred equity

 

0.1

 

1

%

Common equity

 

5.4

 

43

%

Total equity

 

5.5

 

44

%

 

 

 

 

 

 

Total capitalization

 

$

12.5

 

100

%

 

On July 21, 2005, NSP-Minnesota, issued $250 million of first mortgage bonds.  The bonds mature in 2035 and have a coupon interest rate of 5.25 percent.  NSP-Minnesota intends to use the net proceeds from the sale of the first mortgage bonds to repay borrowings under its credit facility and approximately $75 million of debt maturing during 2005.

 

On Aug. 18, 2005, Public Service Company of Colorado (PSCo) issued  $129.5 million of 4.375 percent pollution control refunding revenue bonds due September 2017.  The proceeds were used to repay prior to maturity $79.5 million of outstanding Adams County Pollution Control Refunding Revenue Bonds, 1993 Series A and $50 million of Morgan County Pollution Control Refunding Revenue Bonds, 1993 Series A.

 

Note 4.  Rates and Regulation

 

NSP-Minnesota Natural Gas Rate Case - In September 2004, NSP-Minnesota filed a natural gas rate case for its Minnesota retail customers, seeking a rate increase of $9.9 million, based on a return on equity of 11.5 percent.  In August 2005, the MPUC approved an annual rate increase of $5.8 million, based on a return on equity of 10.4 percent.

 

NSP-Wisconsin 2006 General Rate Case - Northern States Power Company, a Wisconsin corporation (NSP-Wisconsin), filed with the Public Service Commission of Wisconsin (PSCW) an electric and natural gas rate case, as amended on Sept. 28, 2005, to reflect higher energy costs. The amended filing requested an electric revenue increase of $53.1 million, or 13.4 percent, and a natural gas revenue increase of $7.7 million, or 4.8 percent, based on an 11.9 percent return on equity and a 56.32 percent common equity to total capitalization ratio.

 

On Oct. 12, 2005, the staff of the PSCW filed testimony recommending that NSP-Wisconsin has a 2006 test year electric revenue deficiency of $45.4 million, or 11.4 percent, and a natural gas revenue deficiency of $5.8 million, or 3.5 percent, based on an 11.0 percent return on equity and a 56.43 percent common equity to total capitalization ratio.

 

7


 

Intervenor testimony was also filed on Oct. 12, 2005.  Consultants representing the industrial intervenor group advocated a return on equity of 10.5 percent and a common equity to total capitalization ratio of 51 percent, as well as modifications to NSP-Wisconsin’s class cost of service study and rate design that would benefit their clients.  Testimony submitted on behalf of the U.S. Department of Defense and other federal executive agencies advocated a 10.25 percent return on equity and a common equity to total capitalization ratio of 56.3 percent, as well as cost allocations and rate design to benefit the Fort McCoy military installation.

 

Both the staff of the PSCW and the industrial intervenor group suggested that the PSCW consider whether it should continue to authorize a common equity to total capitalization ratio and return on equity comparable to other A or AA rated Wisconsin utilities or use metrics appropriate to a BBB+ credit rating.

 

Hearings are scheduled to begin on Nov. 1, 2005, with a decision expected near the end of 2005.

 

PSCo Natural Gas Rate Case — On May 27, 2005, PSCo filed for an increase of natural gas base rates in Colorado.  PSCo’s filing, amended in July 2005, requests an increase in annual revenues of approximately $34.5 million, or 3 percent annually.  The filing asks for a return on equity of 11.00 percent with a capital structure consisting of 55.49 percent equity and 44.51 percent debt resulting in an overall return on rate base of 9.01 percent applied to year end rate base.

 

On Oct. 5, 2005, intervenors began filing testimony regarding the PSCo gas rate case.  In its testimony, the staff of the Colorado Public Utilities Commission (CPUC) recommended an increase in annual revenues of approximately $9 million, a return on equity of 9.5 percent and a capital structure consisting of 52.53 percent equity and 47.47 percent debt, resulting in an overall return on rate base of 8.11 percent applied to average rate base.

 

The Office of Consumer Counsel also proposed a decrease in annual revenues of $189,000, a return on equity of 8.5 percent and a capital structure consisting of 50.11 percent equity and 49.89 percent debt, resulting in an overall return on rate base of 7.56 percent applied to average rate base.

 

Several other parties filed testimony with their proposals to the CPUC.  It is anticipated that a decision by the CPUC would become effective early in 2006.

 

Note 5.  Corporate-Owned Life Insurance

 

Tax Matters – As previously disclosed in Note 3 to Xcel Energy’s financial statements in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, in April 2004, Xcel Energy filed a lawsuit in U.S. District Court for the District of Minnesota against the Internal Revenue Service (IRS) to establish its entitlement to deduct, for tax years 1993 and 1994, policy loan interest related to corporate-owned life insurance (COLI) policies on some current and former employees of PSCo.  These COLI policies are owned and managed by PSR Investments, Inc. (PSRI), a wholly owned subsidiary of PSCo.  In December 2004, Xcel Energy filed suit in U.S. Tax Court in Washington, D.C., for tax years 1995 through 1997 and again in March 2005 for tax years 1998 and 1999.  The IRS had challenged the deductibility of such interest expense deductions and has disallowed the deductions taken in tax years 1993 through 2001.

 

On May 2, 2005, Xcel Energy filed a motion for summary judgment in the district court litigation, which summary judgment motion asserted that Xcel Energy is entitled, as a matter of law, to deduct the policy loan interest.  On June 22, 2005, the government also filed a summary judgment motion arguing that Xcel Energy lacked an insurable interest in the lives of its employees, and therefore, the policies were allegedly void.  Both motions were heard in district court on Aug. 19, 2005.

 

On Oct. 12, 2005, because there were material issues of fact still in dispute, the district court denied Xcel Energy’s motion for summary judgment, which asserted that Xcel Energy is entitled, as a matter of law, to deduct the policy loan interest.  It also denied the government’s motion for summary judgment, which asserted that Xcel Energy had no insurable interest in the lives of its employees.  The district court did grant partial summary judgment to Xcel

 

8


 

Energy affirming that it had an insurable interest in the lives of its employees.  The case is expected to proceed to trial, and the litigation could require several years to reach final resolution, if the trial court decision is appealed.

 

9


 

Accounting for Uncertain Tax Positions – On July 14, 2005, the Financial Accounting Standards Board (FASB) issued an exposure draft on accounting for uncertain tax positions under SFAS No. 109.  As issued, the exposure draft would have been effective Dec. 31, 2005, and only tax benefits that meet the probable recognition threshold may be recognized or continue to be recognized on the effective date.  Initial derecognition amounts will be reported as a cumulative effect of a change in accounting principle.

 

Accordingly, as proposed under the exposure draft, Xcel Energy would report as a cumulative effect of a change in accounting principle in its income statement for the year ended Dec. 31, 2005, a charge of approximately $350 million relating to COLI tax benefits and additional interest costs.  Under the exposure draft, penalties are to be accrued when a tax position does not meet the minimum statutory threshold.  Xcel Energy believes the COLI position exceeds the minimum statutory threshold and, therefore, does not expect to accrue penalties under the interpretation.  However, if penalties were required to be accrued, they would be approximately $65 million.  Xcel Energy has not yet evaluated the impact the proposed interpretation would have on other existing income tax positions.  The FASB has announced that the effective date of the new rules will be delayed, with a revised pronouncement to be released no earlier than the first quarter of 2006.

 

Note 6.  Capital Expenditure Forecast Update

 

The following is the consolidated Xcel Energy capital expenditure forecast:

 

Project Description

 

2005

 

2006

 

2007

 

2008

 

2009

 

(Millions of Dollars)

 

 

 

 

 

 

 

 

 

 

 

MERP*

 

$

211

 

$

336

 

$

228

 

$

180

 

$

44

 

Comanche 3

 

62

 

198

 

331

 

284

 

73

 

Capital expenditures – base

 

982

 

1,035

 

1,016

 

920

 

1,031

 

Total

 

$

1,255

 

$

1,569

 

$

1,575

 

$

1,384

 

$

1,148

 

 

*Minnesota emissions reduction project

 

The following is an update of the capital expenditure forecast for each of the utility subsidiaries of Xcel Energy:

 

Utility Subsidiary

 

2005

 

2006

 

2007

 

2008

 

2009

 

(Millions of Dollars)

 

 

 

 

 

 

 

 

 

 

 

NSP-Minnesota

 

$

673

 

$

879

 

$

697

 

$

564

 

$

517

 

NSP-Wisconsin

 

58

 

66

 

67

 

95

 

63

 

PSCo

 

414

 

525

 

684

 

604

 

457

 

SPS

 

110

 

99

 

127

 

121

 

111

 

Total

 

$

1,255

 

$

1,569

 

$

1,575

 

$

1,384

 

$

1,148

 

 

The capital expenditure programs of Xcel Energy are subject to continuing review and modification.  Actual utility construction expenditures may vary from the estimates due to changes in electric and natural gas projected load growth, the desired reserve margin and the availability of purchased power, as well as alternative plans for meeting Xcel Energy’s long-term energy needs.  In addition, Xcel Energy’s ongoing evaluation of compliance with future requirements to install emission-control equipment, and merger, acquisition and divestiture opportunities to support corporate strategies may impact actual capital requirements.

 

10


 

Note 7.  Xcel Energy Earnings Guidance

 

2005 Earnings Guidance – Xcel Energy’s 2005 earnings per share from continuing operations guidance and key assumptions are detailed in the following table.  However, Xcel Energy currently expects that the year’s earnings will be within the lower half of the guidance range.

 

 

 

2005 Diluted EPS Range

 

Utility operations

 

$1.18 - $1.28

 

COLI tax benefit

 

$0.09

 

Holding company financing costs and other

 

$(0.09)

 

Xcel Energy Continuing Operations – EPS

 

$1.18 - $1.28

 

 

Key Assumptions for 2005:

•                  Seren is held for sale and accounted for as discontinued operations;

•                  Normal weather patterns are experienced for the fourth quarter;

•                  Weather-adjusted retail electric utility sales growth of approximately 1.3 percent to 1.6 percent;

•                  No weather-adjusted retail natural gas utility sales growth;

•                  Capacity costs increase by $10 million, net of capacity cost recovery;

•                  No additional margin impact results from the fuel allocation issue at SPS;

•                  Short-term wholesale and commodity trading margins decline by approximately $40 million to $50 million;

•                  Other utility operating and maintenance expense increases approximately 5 percent from 2004;

•                  Depreciation expense increases approximately 8 percent to 9 percent from 2004;

•                  Interest expense increases approximately $10 million to $15 million from 2004;

•                  Allowance for funds used during construction is expected to decline from 2004;

•                  Xcel Energy continues to recognize corporate-owned life insurance tax benefits of 9 cents per share;

•                  The effective tax rate for continuing operations is approximately 25 percent to 27 percent; and

•                  Average common stock and equivalents total approximately 426 million shares, based on the “If Converted” method for convertible notes.

 

2006 Earnings Guidance – Xcel Energy’s 2006 earnings per share from continuing operations guidance and key assumptions are detailed in the following table.

 

 

 

2006 Diluted EPS Range

 

Utility operations

 

$1.25 - $1.35

 

COLI tax benefit

 

$0.10

 

Holding company financing costs and other

 

$(0.10)

 

Xcel Energy Continuing Operations – EPS

 

$1.25 - $1.35

 

 

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Key Assumptions for 2006:

•                  Normal weather patterns are experienced;

•                  Reasonable rate recovery in the following rate increase requests:

•                  Minnesota electric

•                  Wisconsin natural gas and electric

•                  Colorado natural gas

•                  North Dakota electric;

•                  Weather-adjusted retail electric utility sales growth of approximately 1.3 percent to 1.7 percent;

•                  Weather-adjusted retail natural gas utility sales growth of approximately 0.0 percent to 1.0 percent;

•                  Short-term wholesale and trading margins decline by approximately $15 million to $30 million from projected 2005 levels;

•                  Other utility operating and maintenance expense increases between 3 percent and 4 percent from projected 2005 levels;

•                  Depreciation expense increases approximately $100 million to $110 million from projected 2005 levels, approximately $60 million of this increase in depreciation expense relates to changes in decommissioning accruals that are expected to be recovered through rates approved in the Minnesota electric rate case anticipated to be filed in November 2005;

•                  Interest expense increases approximately $10 million to $15 million from projected 2005 levels;

•                  Allowance for funds used during construction recorded for equity financing is expected to increase approximately $10 million to $15 million from projected 2005 levels;

•                  Xcel Energy continues to recognize COLI tax benefits;

•                  The effective tax rate for continuing operations is approximately 27 percent to 29 percent and

•                  Average common stock and equivalents total approximately 428 million shares, based on the “If Converted” method for convertible notes.

 

12


 

XCEL ENERGY INC. AND SUBSIDIARIES

UNAUDITED EARNINGS RELEASE SUMMARY

All dollars in thousands, except earnings per share

 

3 months ended September 30,

 

2005

 

2004

 

Operating revenue:

 

 

 

 

 

Electric and natural gas utility revenue, and trading margins

 

$

2,270,588

 

$

1,962,921

 

Nonregulated and other revenue

 

15,535

 

12,014

 

Total revenue

 

$

2,286,123

 

$

1,974,935

 

 

 

 

 

 

 

Income from continuing operations

 

$

197,817

 

$

165,697

 

Income from discontinued operations

 

(1,798

)

(118,977

)

Net income

 

$

196,019

 

$

46,720

 

 

 

 

 

 

 

Earnings available for common shareholders

 

$

194,959

 

$

45,660

 

Average shares – common and potentially dilutive (1000’s)

 

426,085

 

423,078

 

 

 

 

 

 

 

Segments and Components of Earnings per share – diluted

 

 

 

 

 

Utility earnings – continuing operations

 

$

0.46

 

$

0.41

 

Losses from nonregulated subsidiaries and holding company

 

0.01

 

(0.01

)

Earnings per share - continuing operations

 

0.47

 

0.40

 

 

 

 

 

 

 

Discontinued operations

 

0.00

 

(0.28

)

 

 

 

 

 

 

Total earnings per share – GAAP

 

$

0.47

 

$

0.12

 

 

9 months ended September 30,

 

2005

 

2004

 

Operating revenue:

 

 

 

 

 

Electric and natural gas utility revenue, and trading margins

 

$

6,687,195

 

$

5,928,873

 

Nonregulated and other revenue

 

53,344

 

55,035

 

Total revenue

 

$

6,740,539

 

$

5,983,908

 

 

 

 

 

 

 

Income from continuing operations

 

$

400,073

 

$

400,055

 

Income from discontinued operations

 

830

 

(117,119

)

Net income

 

$

400,903

 

$

282,936

 

 

 

 

 

 

 

Earnings available for common shareholders

 

$

397,723

 

$

279,756

 

Average shares – common and potentially dilutive (1000’s)

 

425,368

 

422,517

 

 

 

 

 

 

 

Segments and Components of Earnings per share – diluted

 

 

 

 

 

Utility earnings – continuing operations

 

$

1.00

 

$

0.99

 

Losses from nonregulated subsidiaries and holding company

 

(0.04

)

(0.02

)

Earnings per share - continuing operations

 

0.96

 

0.97

 

 

 

 

 

 

 

Discontinued operations

 

—

 

(0.28

)

 

 

 

 

 

 

Total earnings per share – GAAP

 

$

0.96

 

$

0.69

 

 

 

 

 

 

 

Book value per share

 

$

13.36

 

$

13.04

 

 

13