Xcel Energy Inc.

Our rating outlook over the next 24 months on Xcel and its subsidiaries is stable. We base the outlook on our expectation that Xcel's management will continue to reach constructive regulatory outcomes to avoid any significant rise in business risk for the regulated utilities. Specifically, our base-case forecast includes adjusted funds from operations (FFO) to debt of 16%-17% and assumes the company will fund its capital investments in a balanced manner to support its capital structure. We could lower the rating on Xcel if: Its financial ratios weaken and consistently reflect adjusted FFO to debt of or below 15%. This would most likely occur if rate-case outcomes are weaker than expected and capital spending materially rises. We could raise the

...Regulatory diversity allows for timely recovery of operating costs. In the eight jurisdictions in which Xcel Energy Inc. (Xcel) operates, most provide for forward test years, fuel recovery mechanisms, and interim rates. Jurisdictions that allow for multiyear rate plans and credit-supportive cost recovery account for 80% of Xcel's EBITDA. Xcel's large customer base helps mitigate economic fluctuations on cash flow. Xcel serves about 5.5 million customers (3.5 million electric and 2 million gas) in eight states. More than 60% of customers are residential and commercial, contributing to stable cash flows. Capital spending contributes to negative discretionary cash flow (DCF). The company is investing in 12 wind generation sites across seven states. These investments provide a low-risk path for Xcel to grow its regulated asset base and produce tax credits that it can use to lower the overall cost of the projects. However, the expected negative DCF will require external funding that we believe...

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