Saying it was mostly expected as a one-quarter bump in the financial results this year, Minneapolis-based Xcel Energy’s CFO Wednesday outlined various regulatory issues, revenue hits and higher operating costs facing the multi-state utility holding company after reporting decreased first quarter profits — $120 million, or 28 cents/diluted share, for this quarter ended March 31, compared to $151 million, or 36 cents/share, for the same quarter last year.
Ben Fowke, vice president/CFO, told analysts on a conference call he expects earnings for the full year to meet expectations as a number or rate cases in various jurisdictions get resolved and the revenue/cost situation comes more back in balance. In the first quarter just ended, there were “higher nuclear costs associated with the timing of plant outages, lower electric short-term wholesale and trading margins and a higher effective tax rate,” the company said in its earnings announcement.
The regulated utility earnings were down — $139 million, or 32 cents/share vs. $162 million, or 38 cents/share, in the first quarter 2006 — and holding company costs were up to $18 million, or 4 cents/share, compared with costs of $12 million, or 2 cents/share, in the first quarter last year. Natural gas operations, which are a relatively small part of profits compared with the electric utility side, were generally up; power operations were down.
Base retail electric utility margins were flat compared with the prior year, and electric utility revenues increased primarily due to a base rate increase in Colorado that took effect Jan. 1, Fowke said. “The increase was offset by higher regulatory accruals related to potential settlements that are currently being pursued.”
Short-term wholesale and commodity trading margins decreased by approximately $15 million in the first quarter this year, Fowke said. This was caused by retail utility sales growth that cut the amount of generation Xcel had available to sell in the wholesale market. Natural gas margins increased ($186 million for the quarter, compared with $168 million in the first quarter 2006).
Among the outstanding rate cases facing Xcel utilities in Texas, Minnesota, Wisconsin and Colorado, Fowke stressed a recently agreed-to settlement in Texas that removed lingering uncertainty but includes a sizable fuel cost disallowance. In Texas, Xcel’s Southwestern Public Service reached a unanimous settlement providing an annual base rate increase of $23 million, or 3%. It has no stipulated return-on-equity or debt-equity ratio.
“The settlement disallows approximately $27 million of fuel expenses in 2004-05, but importantly it also clarified issues related to fuel cost allocation,” Fowke said. “All of Southwestern’s existing long-term firm and interruptible capacity wholesale sales will be assigned system average cost for purposes of Texas retail ratemaking, except the sales to El Paso Electric, which will be determined separately with disallowances limited to no more than $6.3 million annually.”
Fowke said that while Xcel was “disappointed” with the disallowance, it viewed the Texas settlement as “a first step in resolving the uncertainty and improving the regulatory environment for Southwestern.”
In Minnesota, Xcel’s Northern States Power has a pending natural gas rate increase of $16.8 million, with an interim increase of $15.9 million in place, subject to refund. The interim increase went into effect in January, and a final regulatory decision is expected this summer. In Colorado, Public Service Company of Colorado has a pending gas case asking for a $42 million annual increase; there are no interim increases granted in Colorado, but Fowke said final rates should go into effect in the third quarter.
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