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Xcel Energy to Increase Rate

XEL AEP

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Xcel Energy Inc. (XEL - Analyst Report) got a nod from The Minnesota Public Utilities Commission to hike its electricity prices by 2.7%, according to media reports.

However, the increase is less than half of what the company had filed for. Therefore, Xcel Energy will have to pay back its customers about $30 as it has been charging them higher over the last 15 months. Nevertheless, the customers’ burden will increase from what they have paid in 2010.

Xcel Energy also stated that burden on electricity bills of residential customers will reduce by $2 from May while the burden will lower by 2% for commercial-industrial customers.

Xcel Energy also has been trying to lower the electricity cost burden on its customers across the states in which it provides electricity. Recently, Public Utility Commission of Texas had approved Xcel Energy’s lowering of Texas residential bills of 1,000 kilowatt-hours by $3.53 beginning April 1. The cost burden will further decrease with summer rates to be implemented form June 1.  Residential bills of 1,000 kilowatt-hours will then be lowered by $4.81.

Xcel Energy posted fourth quarter earnings of 29 cents per share, a penny below the Zacks Consensus Estimate while fiscal 2011 earnings came in at $1.72 per share, 3 cents above the Zacks Consensus Estimate. The results reflect higher electric margins due to weather and rate increases in various states. However, these were partially offset by expected increases in operating and maintenance expenses, depreciation, interest expense and property taxes.

The Zacks Consensus Estimate for first quarter 2012 is 39 cents per share. For full years 2012 and 2013, the Zacks Consensus Estimates are $1.84 and $2.17 per share, respectively.

We like the continued growth in Xcel’s renewable energy portfolio and the development of its transmission line projects. Furthermore, the company aims to improve regulatory recovery by adopting multi-year rate plans in all its jurisdictions. However, we do not find any near-term catalyst, thus leaving little room for further upside.

We retain our Neutral recommendation on Xcel Energy Inc. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates slight downward pressure on the stock over the near term.

Based in Minneapolis, Minnesota, Xcel Energy is an electricity and natural gas company, with operations in eight Western and Midwestern states. The company competes with peers like American Electric Power Co. (AEP - Analyst Report).

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