Xcel Energy Provides Business Plan - Analyst Blog

At an investor meeting on June 18, Xcel Energy Inc. (XEL) provided details of its future operations, business plans and earnings guidance.
 
Xcel Energy’s long-term plan is to produce more power from renewable sources, and it is consistently working toward that aim. Xcel Energy expects to generate 19% of its total production in 2017 from renewable sources, which reflects a 5% increase from the 2009 level. Two wind projects of Xcel Energy (the Noble Wind, a 201 megawatt (MW) project, and Merricourt Wind, a 150 MW project) are expected to be operational in 2010 and 2011, respectively, boosting the renewable portfolio of the company. 
 
Apart from increasing capacity through commissioning new plants, Xcel Energy intends to increase the production capacity through acquisitions. The company signed an agreement with Calpine Corporation (CPN) to acquire two natural gas plants. The power plants, expected to close in December 2010 subject to regulatory approvals, will add 931 MW to the company’s portfolio and will cost $739 million. Xcel Energy will enjoy the financial benefits from the acquisition from 2011.
 
Xcel Energy also provided capital expenditure details at its investors meeting for the next few years. The company intends to spend $2,975 million in 2010, $2,290 million in 2011, $2,125 million in 2012 and $2,675 million in 2013. The major investment will be in Electric Transmission, which is expected to increase from $465 million in 2010 to $915 million in 2013. The company continues to invest in Transmission to improve upon its delivery system, thus ensuring the most efficient delivery and maximizing reliability. Investment in Generation is expected to increase from $345 million in 2010 to $570 million in 2013.
 
Xcel Energy also outlined financial plans to meet fund requirements in the upcoming years. The company issued 4.7% $550 million 10-year bonds and is also planning to issue $400 million in equity in 2010 or 2011. Northern States Power Co. Minnesota (NSP-MN), a unit of Xcel Energy, has plans to issue first mortgage bonds worth $500 million in the third quarter of 2010. Public Service Company of Colorado (PSCo), another unit of Xcel Energy, intends to issue first mortgage bonds worth $400 million in the fourth quarter of 2010. In case of further requirement, the company may also issue short-term debts to meet its fund requirements.
 
Xcel Energy maintained its earnings outlook for 2010 of $1.55 to $1.65 per share. The company expects to improve earnings by 5% to 7% annually. The company presently pays an annualized dividend of $1.01 per share and is planning to increase the dividend by 2% to 4% annually in upcoming years.
 
Xcel Energy offers a wide-ranging portfolio of energy-related products and services in the United States. We believe the company’s favorable geographic, regulatory, environmental and financial position have already been factored in by the market, leaving little room for further upside in the near term. Hence, we retain our Neutral rating on the stock. Xcel Energy’s major competitors are ALLETE Incorporation (ALE), American Electric Power Company (AEP) and CenterPoint Energy Incorporation (CNP).