MINNEAPOLIS--(BUSINESS WIRE)--Feb. 1, 2005--Xcel Energy Inc.
(NYSE:XEL) met its expectations for earnings from continuing
operations in 2004. The company reported income from continuing
operations of $527 million, or $1.27 per share on a diluted basis, for
the year 2004, compared with $526 million, or $1.27 per share, in
2003.
Total earnings for the year, which include the impact of
discontinued operations, were $401 million, or $0.97 per fully diluted
share, compared with total earnings of $622 million, or $1.50 per
share, in 2003.
Xcel Energy's earnings for 2004 included the following:
-- Regulated utility earnings from continuing operations were
$558 million, or $1.32 per share, compared with $562 million,
or $1.34 per share, in 2003;
-- Non-regulated subsidiary and holding company losses from
continuing operations were 5 cents per share, compared with 7
cents per share in 2003; and
-- Results from discontinued operations were losses of $126
million, or 30 cents per share, compared with earnings of $97
million, or 23 cents per share, in 2003. The loss in 2004
includes an after-tax impairment charge of $112 million, or 27
cents per share, related to the planned sale of Seren
Innovations, Inc. The earnings in 2003 were largely
attributable to an adjustment to previously estimated tax
benefits related to Xcel Energy's write-off of its investment
in NRG Energy, Inc., which was divested at year-end 2003.
While earnings from continuing operations for 2004 were flat
compared with 2003, current period results were favorably impacted by
electric sales growth, short-term wholesale markets, and lower
depreciation, but negatively impacted by unfavorable weather, legal
settlement costs and certain regulatory accruals.
"I'm pleased our financial results for 2004 exceeded initial
guidance of $1.15 to $1.25 per share," said Richard C. Kelly,
president and chief operating officer. "It was a very good year for us
in many respects."
"We put in place building blocks that should serve our customers
and our shareholders well in the coming years. For example, we
initiated the refurbishment of our King Plant as part of our Minnesota
Metro Emissions Reduction Plan, received approval from the Colorado
Public Utilities Commission to build the 750-megawatt Comanche 3 unit
and successfully replaced our Prairie Island Unit 1 steam generators,"
Kelly said.
At 9 a.m. CT today, Xcel Energy will host a conference call to
review fourth quarter and annual 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. CT on Feb. 1 through 11:59 p.m. CT on Feb. 4.
Replay Numbers
--------------
US Dial-In: (800) 642-1687
International Dial-In: (706) 645-9291
Access Code: 2808601
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 electrical and natural gas markets; the higher
risk associated with Xcel Energy's nonregulated businesses compared
with its regulated businesses; final approval and implementation of
the pending settlement of the securities, ERISA and derivative
litigation; costs and other effects of legal and administrative
proceedings, settlements, investigations and claims; actions of
accounting regulatory bodies; risks associated with the California
power market; 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, 2003.
This information is not given in connection with any sale, offer
for sale or offer to buy any security.
XCEL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Thousands of Dollars, Except Per Share Data)
Three months ended Twelve months ended
Dec. 31, Dec. 31,
-----------------------------------------------
2004 2003 2004 2003
-----------------------------------------------
Operating revenues:
Electric utility.....$1,525,892 $1,442,182 $6,260,938 $5,951,852
Natural gas utility.. 696,257 585,602 1,923,526 1,685,346
Nonregulated and
other............... 37,212 58,387 160,795 221,807
----------- ----------- ----------- -----------
Total operating
revenues......... 2,259,361 2,086,171 8,345,259 7,859,005
Operating expenses:
Electric fuel and
purchased power -
utility............. 750,199 659,900 3,040,759 2,705,839
Cost of natural gas
sold and transported
- utility........... 553,995 445,028 1,445,773 1,190,996
Cost of sales -
nonregulated and
other............... 17,873 33,643 83,394 142,540
Other operating and
maintenance expenses
- utility........... 427,117 431,218 1,592,564 1,570,492
Other operating and
maintenance expenses
- nonregulated...... 16,757 16,882 56,425 70,216
Depreciation and
amortization........ 187,708 155,845 708,474 728,992
Taxes (other than
income taxes)....... 73,283 71,572 327,029 317,878
Special charges...... 17,625 5,623 17,625 19,039
----------- ----------- ----------- -----------
Total operating
expenses......... 2,044,557 1,819,711 7,272,043 6,745,992
Operating income....... 214,804 266,460 1,073,216 1,113,013
Interest and other
income - net of
expense............... 16,693 (1,625) 14,808 10,101
Allowance for funds
used during
construction - equity 9,564 7,199 33,648 25,338
Interest charges and
financing costs:
Interest charges..... 123,818 114,984 458,971 448,882
Allowance for funds
used during
construction - debt (6,645) (5,375) (23,814) (20,402)
Distributions on
redeemable preferred
securities of
subsidiary trusts... -- 958 -- 22,731
----------- ----------- ----------- -----------
Total interest
charges and
financing costs.. 117,173 110,567 435,157 451,211
Income from continuing
operations before
income taxes.......... 123,888 161,467 686,515 697,241
Income taxes (benefit) (2,701) 8,538 159,586 171,401
----------- ----------- ----------- -----------
Income from continuing
operations............ 126,589 152,929 526,929 525,840
Income (loss) from
discontinued
operations - net of
tax................... (8,621) 324,517 (126,025) 96,552
----------- ----------- ----------- -----------
Net income............. 117,968 477,446 400,904 622,392
Dividend requirements
on preferred stock.... 1,060 1,060 4,241 4,241
----------- ----------- ----------- -----------
Earnings available for
common shareholders... $116,908 $476,386 $396,663 $618,151
=========== =========== =========== ===========
Weighted average common
shares outstanding (in
thousands):
Basic.................. 400,265 398,874 399,456 398,765
Diluted................ 423,603 422,086 423,334 418,912
Earnings per share -
basic:
Income from
continuing
operations.......... $0.31 $0.39 $1.31 $1.31
Income (loss) from
discontinued
operations.......... (0.02) 0.81 (0.32) 0.24
----------- ----------- ----------- -----------
Total............. $0.29 $1.20 $0.99 $1.55
=========== =========== =========== ===========
Earnings per share -
diluted:
Income from
continuing
operations.......... $0.31 $0.37 $1.27 $1.27
Income (loss) from
discontinued
operations.......... (0.02) 0.77 (0.30) 0.23
----------- ----------- ----------- -----------
Total............. $0.29 $1.14 $0.97 $1.50
=========== =========== =========== ===========
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.
Financial information reported in this release is based on facts
and circumstances as of the date of this release. If events occur
between the date of this release and the filing of Xcel Energy's
annual report on Form 10-K, currently expected to occur in early March
2005, such financial information may change.
Note 1. Earnings Per Share Summary
The following table summarizes the earnings-per-share
contributions of Xcel Energy's businesses.
Three months Twelve months
ended ended
Dec. 31, Dec. 31,
---------------------------
Earnings (Loss) Per Share 2004 2003 2004 2003
---------------------------
Regulated utility segments - continuing
operations - Note 2.......................$0.33 $0.36 $1.32 $1.34
Financing costs and preferred dividends -
holding company...........................(0.02) (0.02) (0.08) (0.09)
Other nonregulated results and holding
company................................... -- 0.03 0.03 0.02
------ ------ ------ ------
Total earnings per share - continuing
operations........................... 0.31 0.37 1.27 1.27
Discontinued operations - Note 3...........(0.02) 0.77 (0.30) 0.23
------ ------ ------ ------
Total earnings per share - diluted....$0.29 $1.14 $0.97 $1.50
====== ====== ====== ======
Other nonregulated results and holding company results were
reduced by 3 cents per share for the fourth quarter of 2004 compared
with the same period in 2003, due to the accrual of $17.6 million for
a January 2005 settlement agreement related to shareholder lawsuits,
which is reflected as a component of Special Charges on the
Consolidated Statement of Operations. Results for 2004 improved by 1
cent per share, compared with 2003, due to reduced losses at Planergy
International Inc., whose operations were closed or sold in 2003 and
early 2004. In addition, restructuring charges related to NRG, which
were recorded in 2003, did not recur in 2004. The 2004 improvements
were partially offset by the shareholder lawsuit accrual.
The following table highlights significant components contributing
to the changes in the three months ended and the 12 months ended Dec.
31, 2004, earnings per share, compared with the same periods in 2003,
which are discussed in more detail later in this release.
Three months Twelve months
ended ended
Dec. 31, Dec. 31,
------------ -------------
2003 Earnings per share - diluted........... $1.14 $1.50
Components of change - 2004 vs. 2003
Unfavorable weather....................... (0.01) (0.08)
Higher (lower) short-term electric
wholesale and trading margins............ (0.01) 0.04
Lower (higher) depreciation and
amortization expense..................... (0.05) 0.03
Lower (higher) utility operating and
maintenance expense...................... 0.01 (0.03)
Lower (higher) financing costs............ (0.01) 0.02
Higher nonregulated operating and
maintenance expense...................... (0.02) (0.01)
Other..................................... 0.03 0.03
------------ -------------
Net change in earnings per share -
continuing operations.................. (0.06) -
Changes in Earnings Per Share -
Discontinued Operations................... (0.79) (0.53)
------------ -------------
2004 Earnings per share - diluted........... $0.29 $0.97
============ =============
Note 2. Results of 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)
--------------------------------------
2004 vs. 2003 vs. 2004 vs.
Normal Normal 2003
------------ ------------ ------------
Three months ended Dec. 31...... $(0.02) $(0.01) $(0.01)
Twelve months ended Dec. 31..... $(0.08) $0.00 $(0.08)
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 12-month periods
ended Dec. 31, 2004, compared with the same periods in 2003.
Three months Twelve months
ended ended
Dec. 31, Dec. 31,
-----------------------------------
Actual Normalized Actual Normalized
-----------------------------------
Electric residential............... 2.3% 3.1% (1.6)% 1.6%
Electric commercial and industrial 2.3% 2.4% 1.1% 2.0%
Total retail electric sales... 2.3% 2.6% 0.2% 1.8%
Firm natural gas sales.............(2.6)% (1.8)% (3.8)% (1.9)%
Total natural gas sales.......(0.3)% 0.2% (2.9)% (1.7)%
The following table summarizes Xcel Energy's number of utility
customers:
(Thousands) Dec. 31, Dec. 31,
2004 2003
------------------
Electric residential................................ 2,800 2,769
Electric commercial and industrial.................. 402 399
Total retail electric............................... 3,282 3,249
Firm natural gas.................................... 1,756 1,723
Total natural gas................................... 1,761 1,727
Electric Utility, Short-term Wholesale and Commodity Trading
Margins - The following table details the changes in revenues, costs
and margins (including the trading activity that is reported net on
the income statement with Electric Utility Revenue) from Xcel Energy's
electric utility, short-term wholesale and commodity trading
operations that are included in continuing operations.
Base
Electric Short-Term Commodity Consolidated
(Millions of Dollars) Utility Wholesale Trading Total
--------- ---------- --------- ------------
Three months ended
12/31/2004
Electric utility revenue... $1,498 $26 $- $1,524
Fuel and purchased power
utility................... (734) (16) - (750)
Commodity trading revenue -
gross..................... - - 117 117
Commodity trading costs.... - - (115) (115)
--------- ---------- --------- ------------
Gross margin before
operating expenses........ $764 $10 $2 $776
Margin as a percentage of
revenue................... 51.0% 38.5% 1.7% 47.3%
Three months ended
12/31/2003
Electric utility revenue... $1,405 $35 $- $1,440
Fuel and purchased power
utility................... (641) (19) - (660)
Commodity trading revenue -
gross..................... - - 76 76
Commodity trading costs.... - - (74) (74)
--------- ---------- --------- ------------
Gross margin before
operating expenses........ $764 $16 $2 $782
Margin as a percentage of
revenue................... 54.4% 45.7% 2.6% 51.6%
Twelve months ended
12/31/2004
Electric utility revenue... $6,025 $220 $- $6,245
Fuel and purchased power
utility................... (2,916) (125) - (3,041)
Commodity trading revenue -
gross..................... - - 610 610
Commodity trading costs.... - - (594) (594)
--------- ---------- --------- ------------
Gross margin before
operating expenses........ $3,109 $95 $16 $3,220
Margin as a percentage of
revenue................... 51.6% 43.2% 2.6% 47.0%
Twelve months ended
12/31/2003
Electric utility revenue... $5,756 $179 $- $5,935
Fuel and purchased power
utility................... (2,588) (118) - (2,706)
Commodity trading revenue -
gross..................... - - 333 333
Commodity trading costs.... - - (316) (316)
--------- ---------- --------- ------------
Gross margin before
operating expenses........ $3,168 $61 $17 $3,246
Margin as a percentage of
revenue................... 55.0% 34.1% 5.1% 51.8%
Note - The wholesale and trading margins in the above table reflect
the estimated impacts of the regulatory sharing of certain margin.
Base electric utility margins, which are primarily derived from
retail customer sales, were unchanged for the fourth quarter of 2004,
compared with the fourth quarter of 2003, and decreased approximately
$59 million for 2004 compared with 2003. The change in margins is
primarily the result of the following:
Three months Twelve months
ended Dec. 31, ended Dec. 31,
(Millions of Dollars) 2004 vs. 2003 2004 vs. 2003
-------------- --------------
Estimated impact of weather........... $(3) $(56)
Sales growth (excluding weather
impact).............................. 20 55
Purchased capacity costs.............. (6) (12)
Other cost recovery................... (7) (18)
Quality of service obligations........ (7) (12)
Renewable development fund............ 1 (5)
Capacity sales........................ (4) (2)
Regulatory accruals and other......... 6 (9)
-------------- --------------
Total base electric utility margin
decrease........................... $- $(59)
Short-term wholesale margins consist of asset-based electric
marketing activities. Commodity trading margins consist of
non-asset-based marketing activities. Short-term wholesale margins
decreased approximately $6 million during the fourth quarter of 2004
compared with the fourth quarter of 2003.
Short-term wholesale margins increased $34 million for 2004
compared with 2003. The increased margins reflect a number of market
factors, including higher market prices, additional resources
available for sale and a pre-existing contract, which provided $17
million of short-term wholesale margins and expired in the first
quarter of 2004.
Other Operating and Maintenance Expenses - Utility - Other
operating and maintenance expenses for the fourth quarter of 2004
decreased by approximately $4 million, or 1.0 percent, compared with
the same period in 2003. The decrease is primarily due to lower
compensation costs of $37 million in 2004. The lower costs were
partially offset by higher plant outage costs of $11 million, lower
pension credits and higher employee benefit costs of $11 million,
higher legal settlement costs of $6 million and higher information
technology costs of $4 million.
Other operating and maintenance expenses for 2004 increased by
approximately $22 million, or 1.4 percent, compared with 2003. Of the
increase, $12 million of increased costs are offset by increased
revenue, including those incurred to assist with the storm damage
repair in Florida. The remaining increase of $10 million is primarily
due to lower pension credits and higher employee benefit costs of $31
million, higher electric service reliability costs of $9 million,
higher information technology costs of $8 million, higher legal
settlement costs of $7 million, higher plant-related costs of $4
million, higher costs related to a customer billing system conversion
of $4 million and $4 million of increased costs primarily related to
compliance with the Sarbanes-Oxley Act of 2002. The higher costs were
partially offset by lower compensation costs of $43 million, lower
costs associated with inventory adjustments of $14 million and lower
private fuel storage cost of $6 million.
Depreciation and Amortization - Depreciation and amortization
expense increased by approximately $32 million, or 20.4 percent, for
the fourth quarter of 2004, compared with the fourth quarter of 2003.
Depreciation and amortization expense for 2004 decreased by
approximately $21 million, or 2.8 percent, compared with 2003. The
fluctuations are largely due to several regulatory decisions in 2003.
During 2003, the Minnesota Legislature authorized additional spent
nuclear fuel storage at the Prairie Island nuclear plant. In December
2003, the Minnesota Public Utilities Commission (MPUC) extended the
authorized depreciable lives of the two generating units at the
Prairie Island nuclear plant, retroactive to Jan. 1, 2003. The 2003
annual reduction of $22 million was recorded in the fourth quarter of
2003. Also, as a result of a related order, NSP-Minnesota modified its
decommissioning expense recognition, which served to reduce
decommissioning accruals by approximately $18 million when compared
with 2003.
In addition, effective July 1, 2003, the Colorado Public Utilities
Commission (CPUC) lengthened the depreciable lives of certain electric
utility plant at Public Service Company of Colorado (PSCo) as a part
of the general Colorado rate case, reducing annual depreciation
expense by $20 million. PSCo experienced the full impact of the annual
reduction in 2004, resulting in a decrease in depreciation expense of
$10 million for 2004 compared with 2003.
Interest and Other Income - Net of Expense - Interest and other
income - net of expense increased $18.3 million for the fourth quarter
of 2004 compared with the same period in 2003. The increase is due to
interest income related to the finalization of prior period Internal
Revenue Service (IRS) audits of $10.5 million. The increase for the
year 2004, compared with 2003 of $4 million, was due to the IRS audit
interest income. Partially offsetting the increase was the impact of a
Utility Engineering gain on the sale of water rights in 2003, net of
write-offs of certain intangible assets.
Interest Charges and Financing Costs - Interest charges and
financing costs increased approximately $7 million, or 6.0 percent,
for the fourth quarter of 2004 and decreased approximately $16
million, or 3.6 percent, for 2004, compared with the same periods in
2003. The increase for the fourth quarter reflects interest expense
related to the finalization of prior period IRS audits of $9.2
million. The decrease for the year reflects savings from refinancing
higher coupon debt during 2003 and lower credit line fees, partially
offset by interest expense related to IRS audits.
Income Taxes - The effective tax rate was (2.2) percent for the
fourth quarter of 2004, compared with 5.3 percent for the same period
in 2003. The effective tax rate was 23.2 percent for the year 2004,
compared with 24.6 percent for the same period in 2003. Significant
tax benefits were recorded during the fourth quarter in 2004 and 2003
due to the resolution of tax audit issues, largely related to prior
periods, as discussed below.
The significant income tax audit activity that occurred in late
2003 continued in 2004. With the exception of the corporate-owned life
insurance loan interest deductibility, as discussed in Note 6, during
2004, Xcel Energy concluded IRS income tax audit and appeal activities
spanning several examination cycles dating back to 1993. In addition,
the IRS nearly completed the examination cycle ended 2001 and began
its review of Xcel Energy's 2002 and 2003 tax years.
In 2004, income tax benefits of $36 million were recorded in the
fourth quarter, including $24.5 million related to the successful
resolution of various issues and other adjustments to current and
deferred taxes, $4.4 million for the 2003 return-to-actual true-up and
$7.1 million of current tax rate adjustments. Excluding the tax
benefits, the effective rate for the year 2004 would have been 28.5
percent.
In 2003, income tax benefits of $36 million were recorded,
primarily in the fourth quarter, to reflect the resolution of tax
audit issues related to prior years. The tax issues resolved during
2003 included the tax deductibility of certain merger costs associated
with the mergers to form Xcel Energy and New Century Energies and the
deductibility, for state purposes, of certain tax benefit transfer
lease benefits. Excluding these tax benefits, the effective rate for
the year 2003 would have been 29.7 percent.
Note 3. Results from Discontinued Operations
A summary of the earnings-per-share components of discontinued
operations is as follows:
Three months Twelve months
ended ended
Dec. 31, Dec 31,
-----------------------------
2004 2003 2004 2003
------- -------------- ------
Utility segments......................... $0.01 $0.01 $0.01 $0.06
NRG segment.............................. - 0.27 - (0.60)
All other segment........................ (0.03) 0.49 (0.31) 0.77
------- ------ ------- ------
Total discontinued operations.......$(0.02) $0.77 $(0.30) $0.23
======= ====== ======= ======
Seren Innovations, Inc. - All Other Segment - On Sept. 27, 2004,
Xcel Energy's board of directors approved management's plan to pursue
the sale of Seren Innovations, Inc., a wholly-owned broadband
communications services subsidiary. Seren delivers cable television,
high-speed Internet and telephone service over an advanced network to
approximately 45,000 customers in St. Cloud, Minn., and Concord and
Walnut Creek, Calif.
As a result of the decision, Seren is accounted for as
discontinued operations. An after-tax impairment charge, including
disposition costs, of $112 million, or 27 cents per share, was
recorded in the third quarter of 2004 based on an estimated sales
price of $2,400 per customer.
Xcel Energy International, Inc. and e prime, Inc. - All Other
Segment - During 2003, Xcel Energy's board of directors approved
management's plan to exit businesses conducted by e prime, Inc. (e
prime) and Xcel Energy International, Inc. (Xcel Energy
International). e prime ceased conducting business in 2004. Also,
during 2004, Xcel Energy completed the sales of Argentina subsidiaries
of Xcel Energy International. The sales were completed in three
transactions with a total sales price of approximately $31 million,
including certain adjustments that reached finalization in the fourth
quarter of 2004. Approximately $15 million was placed in escrow, which
is expected to remain in place until at least the end of the first
quarter of 2005, to support Xcel Energy's customary indemnity
obligations under the sales agreement. In addition to the sales price,
Xcel Energy also received approximately $21 million at the closing of
one transaction as redemption of its capital investment. The sales
resulted in an after-tax gain of approximately $9 million, including
the realization of approximately $8 million of income tax benefits
realizable upon sale of the Xcel Energy International assets.
Cheyenne Light, Fuel and Power Company - Electric Utility Segment
- During January 2004, Xcel Energy reached an agreement to sell its
regulated electric and natural gas subsidiary Cheyenne Light, Fuel and
Power Company (CLF&P). As a result of this agreement, Xcel Energy is
reporting CLF&P results as a component of discontinued operations for
all periods presented. Black Hills Corp. purchased all the common
stock of CLF&P, including the assumption of outstanding debt of
approximately $25 million, for approximately $90 million, plus a
working capital adjustment to be finalized in the second quarter of
2005. The sale was completed on January 21, 2005.
Other Subsidiaries - Natural Gas Utility Segment - During 2003,
Xcel Energy completed the sale of two subsidiaries in its regulated
natural gas utility segment, Black Mountain Gas (BMG) and Viking Gas
Transmission Co. (Viking), including Viking's interest in Guardian
Pipeline, LLC. As a result, a gain of 5 cents per share was recorded
related to the sale of Viking.
Tax Benefits Related to Investment in NRG - All Other Segment -
With NRG's emergence from bankruptcy in December 2003, Xcel Energy
divested its ownership interest in NRG and reported a loss deduction
in its 2003 tax return. These tax benefits, related to Xcel Energy's
investment in discontinued NRG operations, are also reported as
discontinued operations. In late August 2003, Xcel Energy determined
that the tax basis in NRG was greater than originally estimated and
that additional state tax benefits were available related to its
investment in NRG. Based on revised estimates, Xcel Energy recorded
$105 million, or 25 cents per share, of additional tax benefits in
2003. In the fourth quarter of 2004, when the NRG basis study was
completed, the tax benefits were reduced by $16 million.
NRG - Xcel Energy's share of NRG's results for 2003 and prior
periods are reported as a component of discontinued operations.
Note 4. Xcel Energy Capital Structure
Following is the preliminary capital structure of Xcel Energy at
Dec. 31, 2004:
Percentage of
Balance at Total
Dec. 31, 2004 Capitalization
------------- --------------
(Billions of Dollars)
Current portion of long-term debt........ $0.2 2%
Short-term debt.......................... 0.3 2%
Long-term debt........................... 6.5 52%
------------- --------------
Total debt........................... 7.0 56%
Preferred equity......................... 0.1 1%
Common equity............................ 5.3 43%
------------- --------------
Total equity......................... 5.4 44%
------------- --------------
Total capitalization................. $12.4 100%
------------- --------------
Note 5. Rates and Regulation
NSP-Minnesota Retail Gas Rate Case - On Sept. 17, 2004,
NSP-Minnesota submitted a $9.9-million natural gas general rate
increase request to the MPUC with a requested return on equity of 11.5
percent. An interim rate increase, subject to refund, of approximately
$6.4 million was implemented effective Dec. 1, 2004. The
administrative law judge held a pre-hearing conference and established
the following procedural schedule:
-- Feb. 11, 2005 - Other Parties' Direct Testimony
-- March 1-3, 2005 - Public Hearings
-- March 15, 2005 - Rebuttal Testimony
-- March 31, 2005 - Surrebuttal Testimony
-- April 5-8, 2005 - Evidentiary Hearings
-- May 10, 2005 - Initial Briefs
-- May 24, 2005 - Reply Briefs and Proposed Findings
-- June 22, 2005 - Administrative Law Judge Report PSCo Least-Cost Resource Plan - On April 30, 2004, PSCo filed its
2003 least-cost resource plan (LCRP) with the CPUC. PSCo had
identified that it needs to provide for 3,600 megawatts of capacity
through 2013 to meet load growth and replace expiring contracts. Of
the amount needed, PSCo believes 2,000 megawatts will come from new
resources and 1,600 megawatts will come from entering into new
contracts with existing suppliers whose contracts expire during the
resource acquisition period.
On Dec. 17, 2004, the CPUC approved PSCo's settlement agreement
with many intervening parties concerning the LCRP. A formal written
decision was received in January 2005. The CPUC approved construction
of the proposed 750-megawatt unit at the Comanche Station located near
Pueblo, Colo. The settlement agreement also enables PSCo to acquire
additional resources through an all-source competitive bidding
process. It also pre-approves the transfer of up to 250 megawatts of
capacity from the 750-megawatt unit to Intermountain Rural Electric
Association and Holy Cross Energy, if successful negotiations with
those entities are achieved.
Among other things, the approved settlement agreement includes a
regulatory plan that authorizes PSCo to increase the equity component
of its capital structure to 56 percent in its 2006 rate case to
moderate the debt equivalent value of PSCo's existing purchased power
agreements and to otherwise improve PSCo's financial strength.
Depending upon PSCo's senior unsecured debt rating during its general
rates cases, the settlement permits PSCo to include a portion of
construction work in progress in rate base without offset.
Expenditures includable are those associated with the Comanche 3
generating unit, additional emission controls on the Comanche 1 and 2
generating units and associated transmission.
Electric Department Earnings Test and CPUC Reliability Inquiry -
As a part of PSCo's annual electric earnings test, the CPUC opened a
docket to consider whether PSCo's cost of debt has been adversely
affected by the financial difficulties at NRG and, if so, whether any
adjustments to PSCo's cost of capital are appropriate.
In December 2004, the CPUC approved a comprehensive settlement
resolving the earnings test issues and providing for PSCo's recovery
of the actual cost of its debt. It requires PSCo to spend an
incremental $38 million in capital expenditures over the next three
years to improve system reliability, and to contribute $2 million to
Energy Outreach Colorado, a non-profit energy assistance organization.
PSCo and SPS FERC Transmission Rate Case - On Sept. 2, 2004, Xcel
Energy filed on behalf of PSCo and SPS an application to increase
wholesale transmission service and ancillary service rates within the
Xcel Energy joint open access transmission tariff. PSCo and SPS are
seeking an increase in annual transmission service and ancillary
services revenues of $6.1 million. As a result of a settlement with
certain PSCo wholesale power customers in 2003, their power rates
would be reduced by $1.4 million. The net increase in annual revenues
proposed is $4.7 million. The rate increase application also includes
PSCo and SPS adopting an annual formula rate for transmission service
pricing as previously approved by the FERC for other transmission
providers. In December 2004, the FERC accepted the filing to go into
effect in May 2005, subject to refund, hearing and settlement
procedures.
SPS Texas Retail Fuel Reconciliation Filing (2002 and 2003) - In
May 2004, SPS filed with the Public Utility Commission of Texas (PUCT)
its periodic request for fuel and purchased power cost recovery for
electric generation and fuel management activities for the period from
January 2002 through December 2003. SPS requested approval of
approximately $580 million of Texas-jurisdictional fuel and purchased
power costs for the two-year period. Intervenor and PUCT staff
testimony was filed in October 2004 and hearings were held in December
2004. Intervenor testimony contained objections to SPS' methodology
for assigning average fuel costs to wholesale sales, among other
things. Recovery of $49 million to $86 million of the requested amount
was contested by multiple intervenors. SPS has recorded its best
estimate of any potential liability related to the impact of this
proceeding. In January 2005, SPS filed its post-hearing briefs
disputing the intervenor objections. SPS is pursuing a settlement
agreement with the parties involved. Reply briefs are due on Feb. 15,
2005, the administrative law judge is expected to issue his
recommended proposal for decision by the end of April 2005, and PUCT
action is expected by the end of May 2005.
Note 6. Tax Matters - Corporate-Owned Life Insurance (COLI)
Interest Expense Deductibility - PSCo's wholly owned subsidiary,
PSR Investments, Inc. (PSRI), owns and manages permanent life
insurance policies, known as COLI, on some of PSCo's employees. At
various times, borrowings have been made against the cash values of
these COLI policies and deductions taken on the interest expense on
these borrowings. The IRS has challenged the deductibility of such
interest expense deductions and has disallowed the deductions taken in
tax years 1993 through 1999.
After consultation with tax counsel, Xcel Energy contends that the
IRS determination is not supported by tax law. Based upon this
assessment, management believes that the tax deduction of interest
expense on the COLI policy loans is in full compliance with the law.
Accordingly, PSRI has not recorded any provision for income tax or
related interest or penalties that may be imposed by the IRS and has
continued to take deductions for interest expense related to policy
loans on its income tax returns for subsequent years.
In April 2004, Xcel Energy filed a lawsuit in U.S. District Court
for the District of Minnesota against the IRS to establish its
entitlement to deduct policy loan interest for tax years 1993 and
1994. In December 2004, Xcel Energy filed suit in U.S. Tax Court in
Washington, D.C. for tax years 1995 through 1997. Xcel Energy expects
to request that the tax court stay its petition pending the decision
in the district court litigation. The litigation could require several
years to reach final resolution. Although the ultimate resolution of
this matter is uncertain, it could have a material adverse effect on
Xcel Energy's financial position and results of operations. Defense of
Xcel Energy's position may require significant cash outlays, which may
or may not be recoverable in a court proceeding.
Should the IRS ultimately prevail on this issue, tax and interest
payable through Dec. 31, 2004, would reduce earnings by an estimated
$311 million. In the third quarter of 2004, Xcel Energy received
formal notification that the IRS will seek penalties. If penalties
(plus associated interest) are also included, the total exposure
through Dec. 31, 2004, is approximately $368 million. Xcel Energy
estimates its annual earnings for 2004 would be reduced by $36
million, after tax, which represents 8 cents per share, if COLI
interest expense deductions were no longer available.
Accounting for Uncertain Tax Positions - In July 2004, the
Financial Accounting Standards Board (FASB) discussed potential
changes or clarifications in the criteria for recognition of tax
benefits, which may result in raising the threshold for recognizing
uncertain tax benefits. The FASB has not issued any proposed guidance,
but an exposure draft may be released in the first quarter of 2005.
Xcel Energy is unable to determine the impact or timing of any
potential accounting changes required by the FASB, but such changes
could have a material financial impact.
Note 7. Xcel Energy Earnings Guidance
2005 Earnings Guidance - Xcel Energy's 2005 earnings per share
guidance for continuing operations and key assumptions are detailed in
the following table:
2005 Diluted EPS Range
--------------------------
Utility operations........................ $1.27 - $1.37
Holding company financing costs........... ($0.11)
Other nonregulated subsidiaries........... $0.02
--------------------------
Xcel Energy Continuing Operations....... $1.18 - $1.28
==========================
Key Assumptions for 2005 Earnings Guidance:
-- Seren is held-for-sale and accounted for as discontinued
operations;
-- Normal weather patterns are experienced for 2005;
-- Weather-adjusted retail electric utility sales growth of
approximately 2.0 to 2.4 percent;
-- Weather-adjusted retail natural gas utility sales growth of
approximately 1.0 to 1.3 percent;
-- A successful outcome in the $9.9-million NSP-Minnesota gas
rate case;
-- A successful outcome in the FERC rate case of approximately
$5-million;
-- Capacity costs are projected to increase by $15 million, net
of capacity cost recovery;
-- No additional margin impact associated with the fuel
allocation issue at SPS;
-- 2005 trading and short-term wholesale margins are projected to
decline by approximately $30 million to $55 million from 2004
levels;
-- 2005 utility other operating and maintenance expense is
expected to increase between 2 to 3 percent compared with 2004
levels;
-- 2005 depreciation expense is projected to increase
approximately 7 to 8 percent compared with 2004;
-- 2005 interest expense is projected to increase approximately
$10 million to $15 million compared with 2004 levels;
-- Allowance for funds used during construction-equity is
projected to be relatively flat compared with 2004;
-- Xcel Energy continues to recognize COLI tax benefits of 9
cents per share in 2005;
-- The effective tax rate for continuing operations is expected
to be approximately 28 to 31 percent; and
-- Average common stock and equivalents of approximately 426
million shares in 2005, based on the "If Converted" method for
convertible notes.XCEL ENERGY INC. AND SUBSIDIARIES
UNAUDITED EARNINGS RELEASE SUMMARY
All dollars in thousands, except earnings per share
Three months ended Dec. 31, 2004 2003
---------------------------------------------- ----------- -----------
Operating revenue:
Electric and natural gas utility revenue and
trading margins............................ $2,222,149 $2,027,784
Nonregulated and other revenue.............. 37,212 58,387
----------- -----------
Total revenue................................. 2,259,361 2,086,171
Income from continuing operations............. 126,590 152,929
Income (loss) from discontinued operations.... (8,621) 324,517
----------- -----------
Net income.................................... $117,969 $477,446
Earnings available for common shareholders.... 116,908 476,386
Average shares - common and potentially
dilutive (000's)............................. 423,603 422,086
Segments and Components of Earnings Per Share
- Diluted
----------------------------------------------
Utility earnings - continuing operations...... $0.33 $0.36
Income (loss) from nonregulated subsidiaries
and holding company.......................... (0.02) 0.01
----------- -----------
TOTAL CONTINUING OPERATIONS............... 0.31 0.37
Discontinued operations....................... (0.02) 0.77
----------- -----------
TOTAL EARNINGS PER SHARE.................. $0.29 $1.14
----------- -----------
Twelve months ended Dec. 31, 2004 2003
---------------------------------------------- ----------- -----------
Operating revenue:
Electric and natural gas utility revenue and
trading margins............................ $8,184,464 $7,637,198
Nonregulated and other revenue.............. 160,795 221,807
----------- -----------
Total revenue................................. 8,345,259 7,859,005
Income from continuing operations............. 526,929 525,840
Income (loss) from discontinued operations.... (126,025) 96,552
----------- -----------
Net income.................................... $400,904 $622,392
Earnings available for common shareholders.... 396,663 618,151
Average shares - common and potentially
dilutive (000's)............................. 423,334 418,912
Segments and Components of Earnings Per Share
- Diluted
----------------------------------------------
Utility earnings - continuing operations...... $1.32 $1.34
Loss from nonregulated subsidiaries and
holding company.............................. (0.05) (0.07)
TOTAL CONTINUING OPERATIONS............... 1.27 1.27
Discontinued operations....................... (0.30) 0.23
----------- -----------
TOTAL EARNINGS PER SHARE.................. $0.97 $1.50
----------- -----------
Book value per share.......................... $13.12 $12.95
CONTACT: Xcel Energy Inc., Minneapolis
Investor Relations:
R J Kolkmann, 612-215-4559
or
P A Johnson, 612-215-4535
or
For news media inquiries only:
Xcel Energy media relations, 612-215-5300
Xcel Energy Internet address: www.xcelenergy.com
SOURCE: Xcel Energy Inc.