Xcel Energy Inc (XEL) — Q2 2025 Earnings Call Transcript

Thank you, George. Good morning, and welcome to Xcel Energy's Second Quarter 2025 Earnings Call. Joining me today are Bob Frenzel, Chairman, President and Chief Executive Officer; and Brian Van Abel, Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team in the room to answer your questions if needed. This morning, we will review our second quarter 2025 results and highlights, provide updated 2025 assumptions and share recent business and regulatory updates. Slides that accompany today's call are available on our website. Some comments during today's call may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and SEC filings. Today, we will discuss certain metrics that are non-GAAP measures. Information on the comparable GAAP measures and reconciliations are included in our earnings release. I will now turn the call over to Bob.

Thank you, Roopesh, and good morning, everyone. In the second quarter of 2025, Xcel Energy reaffirmed our commitment to our customers, investors, and communities to improve energy services. We reported strong earnings of $0.75 per share and invested $2.6 billion in robust and reliable energy infrastructure. We successfully navigated an evolving energy policy landscape to continue providing safe, clean, reliable, and affordable electric and natural gas services. Our efforts to reduce wildfire risks are aimed at fostering safer and more resilient communities. Based on our performance in the first half of the year, we remain optimistic about achieving our earnings guidance for the 21st consecutive year, which is among the best records in our industry. We believe we are at the forefront of an infrastructure investment cycle in the United States that could shape numerous sectors for years to come, not just the anticipated AI boom but also investments in onshoring and reshoring of manufacturing and energy-intensive industries. With our strong reliability, cost efficiency, and sustainability, we expect to attract these sectors. We are observing significant investments in oil and gas and energy infrastructure, especially in our SPS region, which powers large parts of the Permian and Delaware basins. The demand for energy is rising due to the electrification of transportation, manufacturing, and home heating. Xcel Energy is ready to rise to the occasion for our customers. Last fall, we set a 5-year capital plan, projecting a $45 billion investment in infrastructure to meet heightened energy demand and strengthen our transmission and distribution systems. We now believe that an additional $15 billion in capital investment will likely be necessary to address our customers' needs, primarily within our existing 5-year forecast and some beyond. Several factors are driving this increased requirement. In June, we submitted a generation plan to support the growing energy needs in Texas and New Mexico, proposing nearly 5,200 megawatts of generation storage to be operational by 2030. Over 4,500 megawatts is expected to be company-owned and operated, comprising 1,300 megawatts of wind, 700 megawatts of solar, 2,100 megawatts of natural gas combustion turbines, and 500 megawatts of storage. We plan to file for regulatory approval for these projects later this year, anticipating commission decisions in 2026. Additionally, we will issue a second request for proposals later this year for more resource needs in that area. In the Upper Midwest, we received approval in Minnesota for two firm dispatchment projects totaling 720 megawatts and at least another 2,800 megawatts of company-owned wind, which will utilize our new Minnesota Energy Connection transmission line set to be operational in 2029. We are currently pursuing requests for proposals for additional generation projects required to meet customer demand and ensure grid reliability, with expected commission decisions in 2026. We anticipate investing an additional $3 billion to $4 billion in regional transmission projects to support reliability and regional growth, including two 765 kV lines, one from the MISO tranche 2.1 and another from the Southwest Power Pool ITP portfolio. Beyond the $15 billion incremental need, we are actively working through resource planning in Colorado, which will likely require between 5 and 14 gigawatts of new generation to meet reliability and customer demand through 2031. We continue to navigate the necessary regulatory approvals for several projects and will provide updates as they become available. We intend to formally revise our 5-year forecast through 2030 during our third-quarter earnings update. As we work to build the generation and transmission infrastructure needed to support growth and reliability, we are also addressing a rapidly changing energy policy environment. While we mainly focus on resource plans and transitions at the state level, we are also closely monitoring federal legislation affecting tax credits and permitting that influence customer outcomes. On July 4, the budget reconciliation bill was enacted into law. While there were some challenges for wind and solar tax credits, there were also positive developments for customers in the bill, such as lower corporate tax rates leading to reduced energy bills and benefits from accelerated capital depreciation and credit transferability. These factors, along with incentives for qualifying energy storage and carbon-free dispatch resources like advanced geothermal, nuclear generation, and carbon sequestration, are advantageous for customers and the country's energy future. Renewable tax credits were a central topic in the discussion surrounding this legislation, and we anticipated constraints on credits as Congress sought to address a significant budget shortfall. For several years, we have engaged with our state commissions and stakeholders regarding the substantial generation necessary in our operating regions to satisfy the reliability and growth requirements of our customers. Overall, we estimate needing between 15 and 29 gigawatts of new generation by 2031, which is a considerable amount that could be supplied by wind and solar. We have already invested significant capital and initiated construction on the clean energy resources outlined in our base capital plan, as well as what we deem necessary for our incremental investment pipeline to cater to the needs of data centers and electrification. We will keep monitoring and adjusting our approach in response to recent executive orders, agency rulemaking, and trade actions as we progress in developing the necessary energy assets in our regions. Additionally, we have secured 19 gas turbine reservations to meet our customers' reliability needs. Our service areas include some of the country’s most resource-rich regions, and by combining wind and solar with energy storage and gas backup, we can provide clean, reliable, and affordable energy promptly. Xcel Energy is also making headway in mitigating risks from wildfires and extreme weather by investing in advanced camera and weather station technologies, enhancing power line safety installations, conducting pole inspections and replacements, and implementing operational measures like wildfire safety operations and public safety power shutoffs. We have gained strong support from our commissions and states for investments aimed at wildfire risk reduction. In June, the Colorado PUC approved our consensus settlement for our $1.9 billion Wildfire Mitigation Plan, which incorporates a partial securitization to manage customer bill impacts and an extension of our excess liability insurance deferral. In July, the Texas Commission endorsed our $500 million system resiliency plan, both of which enhance the reliability and resilience of our systems to address the challenges posed by changing weather patterns. On the legislative front, constructive wildfire legislation was enacted in both Texas and North Dakota. In North Dakota, the law stipulates that utilities adhering to an approved Wildfire Mitigation Plan will be considered to have met a reasonable standard of care. Similarly, Texas passed legislation ensuring that electric utilities cannot be held liable for damages from wildfires as long as they are not negligent and comply with an approved wildfire mitigation plan. Lastly, I would like to express my gratitude to our dedicated line workers and other employees who have been working diligently under challenging conditions to restore power for our customers after two major storm events in the Upper Midwest. Approximately 200,000 customers experienced outages from storms Sunday and Monday nights, primarily in Minnesota, Wisconsin, and South Dakota. Over 2,000 crew members participated in restoration efforts, including teams from our Colorado and Texas areas, as well as contractors and mutual aid partners. Their unwavering commitment to serving our customers during difficult times is truly commendable, and I am proud of all they have achieved in the past few days. Now, I will hand it over to Brian.

Thanks, Bob. Good morning, everyone. Starting with our financial results. Xcel Energy delivered earnings of $0.75 per share for the second quarter of 2025 compared to earnings of $0.54 per share in the second quarter of 2024. Most significant earnings drivers for the quarter included the following: higher revenue from electric and natural gas service reflecting rate case outcomes and sales growth, increased earnings by $0.24 per share and higher AFUDC increased earnings by $0.07 per share. Offsetting these positive drivers, higher interest charges decreased earnings by $0.04, reflecting higher debt levels and interest rates. Higher depreciation and amortization decreased earnings by $0.03, driven by increased system investment, and increased O&M decreased earnings by $0.02 per share. Turning to sales. Weather-normalized electric sales increased 3.5% for the second quarter, driven by strong sales growth across segments in SPS and PSCo. For the full year, we continue to forecast 3% weather-normalized growth. Shifting to rate case activity. In South Dakota, we filed an electric rate case requesting a $44 million increase based on a 10.3% ROE and a 52.9% equity ratio. Looking forward, we are evaluating options to file an electric rate case in New Mexico, a natural gas rate case in Minnesota, and rate cases in Colorado later this year. Moving to data centers. We are making solid progress on our target pipeline and are in active negotiations on several ESAs. We remain on track to meet our goal of contracting our toll base plan by the end of this year, as we have spoken about before. We also continue to make strong progress on the Smokehouse Creek wildfire claims process. We've resolved 187 of the 253 submitted claims, which we continue to view as constructive. In addition, we have settled or dismissed 11 of 27 lawsuits. We have committed to $176 million in settlement agreements, of which $123 million has been paid through the second quarter of 2025. Based on current information and the settlement activity, we are reaffirming the low end of our estimated liability of $290 million, which remains well below our insurance coverage of approximately $500 million as we described in our earnings disclosure. Regarding the Marshall trial, we are preparing for trial starting September 25 and expect it to conclude by mid- to late November. Please see our earnings release and slides for additional disclosure on Marshall and Smokehouse Creek. Moving to guidance. We are reaffirming our 2025 guidance range of $3.75 to $3.85 per share. We remain confident in our ability to deliver long-term earnings growth in the upper half of our 6% to 8% target range. Updates to key assumptions are included in our slides and earnings release. With that, I'll wrap up with a quick summary. Xcel Energy posted strong second quarter 2025 earnings of $0.75 per share. We continue to lead the clean energy transition, while ensuring safe, clean, and reliable service and keeping customer bills as low as possible. We now have visibility to $15-plus billion of opportunity in our investment pipeline. We continue to make investments to reduce risk to our system and communities from extreme weather, alongside constructive support from our states. We maintain a strong balance sheet and credit metrics using a balance of debt and equity to fund accretive growth. And finally, we reaffirm our 2025 EPS guidance of $3.75 to $3.85. We remain confident in our ability to deliver long-term earnings growth in the upper half of our 6% to 8% target range. This concludes our prepared remarks. Operator, we will now take questions.

Maybe to start on the line of sight to the CapEx upside moving from that $8 billion up to $15 billion. I guess how should we be thinking about the potential conversion of that upside into the base capital plan next quarter? Is there a spend that could fall outside from a timing perspective or any regulatory considerations that could keep dollars out of the base plan update? Just any color there would be helpful.

Carly, yes, I'll try and keep this somewhat succinct. But when we think about it, the SPS RFP, we're relatively early in that process. We'll be filing with the New Mexico and Texas commissions here in August and expect decisions on those certificates of need in the first half of next year. Minnesota, we continue to work through the RFPs and then we have the big transmission in SPP and MISO. A lot of that will be in the kind of '26 to 2030 timeframe with a little bit falling out. But as I think about it, we're generally conservative with what we view from a regulatory perspective. So we'll be really clear and transparent on Q3 in terms of what's in our base plan and what's outside of it. But overall, I think we feel really good about this. What we now change the $15 billion-plus line of sight in terms of the progress we've made both in Minnesota and in SPS. I think we have one of the best growth prospects in the industry, and we'll be really clear on how we lay that out in Q3.

Just to add on to what Brian said, I agree with everything. Look, these projects are largely generation and transmission-related in the incremental need category. While a lot of it is driven by reliability needs of the existing footprint, some of it's driven by growth as well. And we know as a company, as an industry, there's tremendous need for electricity in this country right now to meet growing demand from all the things I mentioned in my prepared remarks. So we think that this incremental need is real. It's going to materialize, and whether it's in the front 5, 6, or 7, it's definitely coming towards our territories to support reliability and to support growth.

Yes. And I think about the Colorado resource plan that we're working through right now and expect a commission decision here in Q3. That spend, the commercial operations for those projects, is through 2031. So that's going to be in this 5-year and in kind of that incremental CapEx for longer.

Great. I appreciate all that color; super helpful. And then maybe just on the SPS resource plan, as you pointed to that in your previous answer. Just could you remind us on your turbine procurement position just as we think about executing on the gas generation included in that plan? If I recall, when you initially filed it, it was supposed to come into service by kind of the 2030 timeframe. So could you just lay out the details on that front?

Sure. Happy to, Carly. In the prepared remarks, I said that we had 19 turbine reservation slots to support either projects that we already know are coming or we will need them for. I think the SPS portfolio requires 9 of those 19. And so I think we're largely ready to supply those on time.

Yes, Carly. We consider our overall scale and relationships with our OEMs as well as the demand for gas generation across our operations. We reserve turbine slots for the '27-'28 timeframe in advance of market needs to ensure we can deliver these projects, as there is a significant requirement for gas generation in all our operating companies to integrate renewables and maintain reliability. This positions us well from both the EPC and OEM perspectives, especially given the demand for EPCs and the construction of gas units nationwide.

I wanted to discuss OBB, particularly the treasury order expected in the coming weeks. It appears that your interest in expanding renewable energy remains strong now that we have moved past previous challenges. However, if the safe harbor window is reduced, how do you envision that impacting your plans? I recall that you utilized a considerable amount of safe harbor during the original 45, so I just wanted to confirm that you don’t anticipate any negative effects on the outcomes. I'll let you elaborate.

Yes, there are several aspects to your question. If I miss any points, please remind me. Looking at our $45 billion base plan, we have initiated physical construction on multiple projects last year and continued that progress in the first half of this year. We are confident about delivering on our base plan as well as the additional projects valued at over $15 billion that we are currently considering. Overall, we believe we are well positioned to meet our customers' generation needs and advance our projects effectively.

Okay. And then just with the $15 billion of CapEx upside becoming more of a reality now, just that should boost pressure higher on rate base growth. Your cash flow profile is already improving from the investments you're making today? And then you kind of talked about the depreciation benefits of OBBB and we could have sales growth later in the plan as well. So just as we kind of think about getting further out in the plan, how should EPS growth kind of track against rate base growth? Should we be kind of expecting similar types of equity issuance? Or is that kind of improving in your view?

If I think about it, I'll take that in a couple of different ways, again, really excited about the growth prospects and delivering for our customers here as we see the demand growth increase. From an equity perspective, no, we've always been managing a strong balance sheet. We do a balanced mix of debt and equity. If you look at our earnings release in our Q, we issued over $1 billion of equity via ATM in Q2. Our base plan had $4.5 billion of equity, and we already accomplished $2.5 billion between before late last year and this ATM issuance. So we're in a really good place, and we'll continue to do that. We do see the incremental capital as we always said coming with a balanced mix of debt and equity. The roughly rule of thumb we've always given is that 40% equity, and we view that ATM as our plan to be, but we'll also look at other products, mandatory converts as our equity needs to grow to fund our accretive growth. As I think about that translating from rate base growth to EPS growth, obviously, we'll provide a holistic update in Q3 around our new 5-year capital plan, our incremental pipeline, our sales growth, and rate base growth. Even what we said last year when we moved to 6% to 8%, we talked about being above the high end at times, and I think that's a good way to think about it.

Okay. Very fair. And just one last one on Marshall. I know that trial is in September; I think mediation deadline was today, but just is settlement of that fully off the table for now? Or is there still an opportunity to do that into trial and just taking your temperature there?

Nick, it's Bob. Thanks for the question. Look, so technically, the court order mediation concluded at the end of July, but that doesn't mean the parties don't continue to talk. As we step back and think about the trial broadly in the fire, we continue to maintain that our equipment didn't start the second ignition in the wildfire, and we're prepared to go to court, as Brian indicated in his prepared remarks at the end of September, and that trial is likely to last through mid- to late November. Between now and then, you're probably going to see some filings back and forth from plaintiffs and us around pre-trial briefs and things like that. But we're planning to go to trial. We're always open to settlement discussions, but we have to start with the idea that our equipment didn't cause that second ignition, and we maintain that.

I was just wondering if you could turn to the competitive transmission opportunities. How do you think about incorporating them into your plan? Do you probability weight the chance of winning contracts here? Or do you include them kind of on a binary basis?

Jeremy, I can speak broadly about it. We don't include them in our capital plan unless they're one. We're very disciplined on the competitive side. You don't see us bidding on projects generally outside of our service territories. So, pretty disciplined. I mean, we look at all of our growth capital that we have within our service territories, the transmission we need to build in SPP, MISO longer term in Colorado and all the generation. You don't expect us to be chasing competitively bid transmission projects kind of outside of our service areas.

Got it. Understood. And I just want to, I guess, turn to the data centers a little bit more. What is your contracting progress on the base data center assumption here? And can you provide any more color on the counterparty type, long-term ramp for the portion of your base forecast currently contracted?

Jeremy, let me start. This is Bob, and then I'll kick it over to Brian. As a company, we're very excited about the opportunity to serve this type of critical infrastructure. We have about 1.1 gigawatts of data centers under construction and under contract. Our plan is for the balance of the year to hit another sort of gig of data centers ultimately hitting about 2.5% by the 2030 timeframe. We've got a really robust pipeline behind that high-quality stuff that we're working on right now of 7 or so gigs that I would talk about as maybe Tier 2 opportunities, and then there's even Tier 3 and beyond stuff beyond that total. So really excited as I sit and think about our business, we have interest in all parts of our 3 operating areas, the upper Midwest, Colorado, and the Desert Southwest and for different reasons. Each of those regions are very attractive to our data center counterparts, whether you're a hyperscaler or a data center developer. With specific contract stuff, I'll kick it over to Brian to tell the ramp profile. But big picture, I think we see this as a real growth opportunity, a real opportunity to grow sales on our system, bring rates down for all of our customers and be beneficial for both hyperscalers as well as our existing customer base.

Yes. To add a bit more detail, we continue to make significant progress in our ESA negotiations with various counterparties, including one in Minnesota, one in Wisconsin, and one in Colorado. Some of these are expected hyperscalers, and the discussions are advancing well. In terms of progress, they have conducted their system impact studies and facility studies, and we are now moving on to discussing the agreement terms. Additionally, we have a new opportunity in Amarillo, Texas, that we are currently pursuing. However, we do not anticipate updating our data center slide every quarter. Our pipeline remains strong, as Bob mentioned, and we are excited about executing the agreements we have discussed for the remainder of the year and moving forward with them.

Got it. Very helpful there. And just a quick last one, if I could. If you could speak a bit more on the gain on debt repurchases there? And was this contemplated or the plan or any other color there?

Yes, Jeremy. No, it wasn't part of our plan. What we saw is we used it opportunistically. It's a great tool. When you think about it, we saw some headwinds in our venture capital investments related to clean energy. And you know this is a challenging market for clean energy. So you saw some negative mark-to-market this year in the first half, and we just used that to offset that. So not an earnings driver at all.

Bob, let me ask you this. I mean, you say at times, we can do the math. But if I heard you right earlier in the call, I mean, it seems like you might actually be doing the math for us here, at least as it pertains to the third quarter update. I mean, are you guys actually going to refresh the full suite of guidance in a more affordable way with that roll forward?

Yes. So I think, as always, our third quarter update has a full and comprehensive update on all of the assumptions, whether it's sales or capital deployment, rate base growth, earnings growth, financing needs, et cetera, and we plan to do a full roll forward on the third quarter call.

Going back to your return on equity in the PSCo backdrop, you have the distribution rider in place. How do you view the potential improvement in earned returns there, as this might be a significant factor affecting the relationship between rate base and earnings in the medium term? What are your thoughts on that, especially considering the 7.8?

Yes. Julien, I can take that one. Yes, you're talking a rolling 12-month average of 7.8%. The distribution rider has been a good mechanism. We have a lot of investments on the distribution systems that deliver for our customers, both from a resiliency perspective and a growing capacity perspective. The rider this year was capped. So it's kind of partially implemented this year then full implementation next year. That 7.8% we do expect improvement through the balance of the year and then continued improvement next year. We are working on that and the distribution rate once fully implemented should help address some of that next year.

Yes. I also think Brian mentioned in his prepared remarks, we were looking at potential cases in Colorado at the end of the year. And that's a composite ROE. We've done a lot of work to improve the electric side of that ROE, and the gas still has lagged in some of its mechanisms. If you think about the preponderance of the capital in that company going forward, it's largely electric. As Brian mentioned, whether it's a distribution rider, a renewable energy rider, a transmission rider, or a new rate case, we expect the electric side of that ROE to continue to improve.

Yes. So next question is coming from Steve Fleishman, Wolfe Research. I think we lost our operator.

Well, that might be me. I thought I lost the call. So just a follow-up on the question regarding the kind of OBBB and executive orders. How do we need to be concerned at all about the federal land issue with respect to your renewable projects?

Steve, I can take that one. We don't have any projects on federal land, just to make it an easy answer.

Okay. I prefer simple answers. Regarding the Marshall Fire, Bob, you mentioned that you don't believe you caused a second ignition. Your slides also indicate that much of the damage was already occurring from the first ignition. I assume that still plays a part in your court case as well?

Yes, absolutely, Steve. When I think about the trial broadly, the share report identifies that the start of the fire was on property owned by the 12 tribes. That first ignition was subject to almost 100-mile-an-hour winds for over an hour and 20 minutes, causing a fire spread theory where we see the propagation of that fire into the towns in Colorado. At some point, there's a purported second condition. We believe that, again, on a trial basis, we have to have been found to have started a second ignition that we were negligent in the maintenance and operations of our lines. We feel very good about the facts and circumstances of our trial and are prepared to go there.

Okay. And then there is still an opportunity to kind of settle if you deem that it makes sense.

Sure. There’s no prevention from a settlement proposal. We've got probably 2 months before the trial begins. You could settle even during the pendency of the trial. So there are lots of opportunities there. But again, we feel very good about our facts, and we're prepared to go to trial.

I have a follow-up on the trial. Could you remind us if there was any sort of range of estimate on the damages? I know that ultimately that will be decided at the second trial, but what are the estimates that are currently being contemplated?

Sophie, it's Bob. I think you got it right. The structure of the trial is such that we look at liability in the first trial, and the second trial would be any damages if we get that far. We don't have an aggregate estimate of damage claims. What we do believe is that from the insurance companies, there was about $2 billion worth of property damage that they paid off in their claim process.

Got it. My second question is about the growth opportunities you have ahead. It seems likely that you'll need some equity to pursue these, and I believe your current valuation doesn't reflect these growth opportunities. Have you considered, or are you likely to consider, alternatives to raising equity, such as selling some noncore assets or those you view as less essential to your electric operations? How should we be thinking about this?

Sophie, I can address that. I've shared some insights on the ATM and our plans, and we will evaluate mandatory and converts. We have a solid balance sheet and are comfortable issuing equity to support that growth. I want to reiterate that we are not particularly interested in selling minority interests. We consider our assets to be core. If we were to make any moves, it would be for strategic purposes rather than to finance necessary investments, and we have maintained discipline in our strategic approach for the past 20 years.

Can you hear me?

You're breaking up again. So next question is Paul Patterson with Glenrock Associates.

Hello? Can you hear me?

Thank you all for participating in our earnings call this morning. Please contact our Investor Relations team with any follow-up questions.