Yahoo Finance How Can Xcel Energy Combat Flat Revenues?
Xcel Energy’s Growth May Perk Up If Regulatory Lag Is Addressed
Revenue headwinds
Xcel Energy (XEL), like many other utilities in North America, is facing revenue headwinds due to negligible load growth. Energy efficiency programs are expected to further dent the power demand growth in the utility sector. The graph below shows the flat growth of revenues Xcel Energy has generated in the last three years. However, it has been posting flat revenues for a long time. In 2015, it reported $11 billion in revenues. In 2008, revenues remained near the same levels.
Revenue drivers
Xcel Energy has been witnessing lower electricity usage per customer for the last several quarters. In 2015, its weather-normalized electric sales declined 0.2% compared to 2014. However, the lower usage per customer was partially offset by an increase in the company’s customer base.
XEL’s operational territories, Minnesota and Texas, experienced better economic conditions mostly in the second half of 2015, which resulted in customer additions of 1% year-over-year. Economic conditions such as growth in employment and the housing sector are expected to remain, which may continue to have a positive effect on XEL’s revenues in the near future.
Operating margins
Xcel Energy’s operating margins slightly improved in 2015 compared to 2014 and 2013 due to lower fuel costs. Its generation mix is dominated by coal and natural gas. Both collectively form nearly 85% of the fuel mix in owned generation. Apart from Xcel, American Electric Power (AEP), Duke Energy (DUK), and Dominion Resources (D) have fuel mixes that are heavily dependent on coal (KOL) and gas.
Regulated utilities such as Xcel Energy generally have better operating margins compared to unregulated utilities (FXU). This is because unregulated utilities have a larger exposure to commodity prices and tend to spend more on purchased power.
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