Fitch Ratings has assigned a 'BBB+' rating to Xcel Energy Inc.'s
(Xcel) $500 million issuance of senior notes, composed of two $250
million tranches. The 1.2%, two-year notes maturing June 1, 2017
and the 3.3%, 10-year notes maturing June 1, 2025 are both
unsecured and will rank pari passu with Xcel's existing unsecured
notes.
The Rating Outlook is Stable.
Net proceeds will be used for the repayment of short-term debt
and other general corporate purposes.
KEY RATING DRIVERS
Conservative Business Model: XEL's ratings reflect the
relatively stable operating cash flows of its operating
subsidiaries and the financial support it receives from them in the
form of dividends for the payment of corporate expenses, debt
service obligations, and dividends to common shareholders. For the
most part, XEL's low-risk regulated utility subsidiaries benefit
from relatively constructive regulatory frameworks across multiple
jurisdictions and exhibit limited fuel and commodity price risk due
to the ability to recover fuel and purchased power via separate
cost trackers. XEL provides equity funding to its subsidiaries to
support their long-term growth and to optimize their capital mix
within a target range. XEL's strategy continues to be focused on
successfully managing rate cases and reducing regulatory lag.
Recent Rate Order in Minnesota: Fitch's rating concerns for XEL
include the recent rate order for Northern States Power-Minnesota
(NSP-M). The Minnesota Public Utilities Commission's (MPUC) May 8
order was based on a 9.72% return on equity, which is slightly
below the nationwide average authorized return for electric
utilities. The MPUC also disallowed a return on significant cost
overruns ($333 million) for an uprate and life extension project at
NSP-M's Monticello nuclear plant. Although these regulatory actions
will somewhat weaken NSP-M's credit metrics, Fitch does not expect
a material impact on XEL's consolidated credit metrics.
Generally Constructive Rate Outcomes: With the exception of
NSP-M's recent Minnesota rate order, XEL's utility subsidiaries
have received relatively constructive regulatory decisions in the
latest series of rate cases. Of note, in February 2015 the Colorado
Public Utilities Commission (CPUC) approved a settlement with
Public Service Company of Colorado (PSCo), including the
implementation of a forward-looking Clean Air Clean Jobs Act
(CACJA) rider of $97 million for 2015, with step increases of $17.7
million and $14.5 million in 2016 and 2017, respectively. In
addition, PSCo received a forward-looking transmission cost
adjustment rider of $15.6 million and tracking mechanisms for
pension expense and property taxes.
Elevated Capex: Consolidated capex remains elevated over the
forecast period. Capex is projected to amount to approximately
$14.5 billion over 2015-2019. Management expects about 68% to be
allocated to NSP-M and PSCo, earmarked primarily for transmission
and generation, representing approximately 31% and 23% of
consolidated capex, respectively. The projected $14.5 billion of
consolidated capex spending does not include any Transco-related
investments.
Stable Credit Metrics: For the last 12 months ended March 31,
2015, FFO-fixed charge coverage was 5.9x, FFO lease-adjusted
leverage was 3.5x, and adjusted debt/EBITDAR was 4.4x. Fitch
forecasts credit metrics to remain supportive of credit quality,
with FFO-fixed charge coverage averaging 5x, FFO-lease adjusted
leverage 4.2x, and adjusted debt/EBITDAR 4.3x, through 2017. FFO
metrics are bolstered by tax benefits stemming from the utilization
of net operating losses (NOLs) at XEL.
Standard Notching: There is a moderate-to-strong linkage between
the Issuer Default Ratings (IDRs) of XEL and each of its
subsidiaries. The linkages originate primarily from strategic
drivers. Each subsidiary is important to XEL, and the parent
financially supports its subsidiaries when warranted via equity
infusions and funding the inter-company money pool. Fitch considers
a one- to two-notch differential between the IDRs of XEL and its
subsidiaries to be appropriate.
KEY ASSUMPTIONS
--Electricity sales growth averaging 0.5%-1.0%;
--O&M expense growing at 2%-3%;
--Rate case outcomes consistent with historical rate orders.
RATING SENSITIVITIES
Positive: The negative impacts from the recent Minnesota rate
order and disallowance of costs at the Monticello plant, and
funding of a large multi-year capital investment plan limit the
prospects for a positive rating action in the near term.
Negative: Future developments that may, individually or
collectively, lead to a negative rating action include:
--A further deterioration in the regulatory compact of Minnesota
that results in an inability to successfully execute and adequately
recover large capital investments;
--Adjusted debt/EBITDAR weakening to 4.6x on a sustained
basis;
--A more aggressive dividend policy adopted by management that
results in parent-level incremental leverage or a reduction in
parental equity support to the utilities in the midst of heavy
capex. Fitch notes that XEL's dividend payout ratio is below
industry average.
Date of Relevant Rating Committee: April 21, 2015
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and
Parent and Subsidiary Linkage (pub. 28 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Recovery Ratings and Notching Criteria for Utilities (pub. 05
Mar 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863298
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985623
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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Fitch RatingsMedia RelationsAlyssa Castelli, New YorkTel: +1
(212) 908 0540Email: alyssa.castelli@fitchratings.comorFitch
RatingsMedia RelationsElizabeth Fogerty, New YorkTel: +1 (212) 908
0526Email: elizabeth.fogerty@fitchratings.comorPrimary AnalystKevin
L. Beicke, CFADirectorFitch Ratings, Inc.+1-212-908-061833
Whitehall St.New York, NY 10004orSecondary AnalystPhilippe
BeardDirector+1-212-908-0242orCommittee ChairpersonMichael
WeaverManaging Director+1-312-368-3156