Xcel Energy: Colorado Energy Resource Plan Key to Achieving Growth Target

We are reaffirming our $59 per share fair value estimate for Xcel Energy XEL after the company presented Colorado regulators with a detailed long-term energy resources plan on Sept. 18. We are reaffirming our narrow moat rating.

The outcome of negotiations with Colorado regulators in the coming months related to the Colorado Resource Plan will impact whether Xcel can achieve our 6% annual earnings growth outlook. Colorado is Xcel’s second-largest territory and an area with a lot of growth investment potential in renewable energy and electric transmission. We expect Xcel will invest $12 billion in Colorado in 2023-27, part of the company’s five-year $29.5 billion capital investment plan.

Xcel’s proposed plan includes $7.9 billion to build 4.8 gigawatts of new renewable energy, energy storage, and natural gas generation. It also includes $2.9 billion of transmission investments. We expect this could add $1 billion or more to Xcel’s current investment plan, if regulators approve Xcel’s proposal. This would give us more confidence Xcel will hit our 6% earnings growth forecast and might push it to the top end of management’s 5%-7% target.

The Colorado plan, which includes closing all its coal plants in the state by 2030, also impacts Xcel’s net-zero emissions goal. If Colorado regulators approve Xcel’s plan and Texas regulators sign off on the Tolk coal plant closure, Xcel will have no more coal generation across all eight states it serves. We expect a decision in Texas early next year.

We consider Colorado one of the more challenging regulatory environments in the U.S. Xcel’s most recent electric rate settlement includes a $95 million rate increase, less than one third of Xcel’s request. New rates are based on a 9.3% allowed return on equity, lower than most other utilities’ allowed ROE. We continue to forecast 2023 earnings slightly below the midpoint of management’s $3.30-$3.40 EPS guidance range.