Xcel Energy Memorandum

From: Alexander Grupp, Research and Development

To: Clark Hansen, CEO

Subject: Xcel Energy: Possible Investment Opportunity for AMDP

Date: March 6, 2016

In the last week, I have been closely following a few organizations for potential investments. The most exciting of which is a utility company known as Xcel Energy. After some time of research into Xcel, I found a few reasons as to why AMDP should invest with them:

1.    Xcel Energy has achieved the status of being Climate Registered

2.   Xcel is currently partnering with Panasonic in a project to turn Denver into a ‘smart city’

3.   They have worked to reduce carbon dioxide emissions by over 20% since 2005 (2)

Xcel’s latest project, involving the partnership with Panasonic and the city of Denver, describes the installation of a solar energy collection and battery storage carport system. According to Alice K. Jackson (a regional vice president at Xcel Energy), this will be “the most comprehensive project of this type in Colorado history and the first with actual customer participation in a real world environment.”(10)

Why is Xcel Energy so Exciting?

Founded in 1909 and developed in Minneapolis, Xcel Energy now serves over 3.5 million electricity and 2 million natural gas customers with one of the top portfolios relating to renewable resources. XE has been a very successful company for many years now with both a satisfied customer base and loyal employee force. In fact, “94 percent of customers surveyed are satisfied with Xcel Energy” (1). This along with the estimated 30 percent carbon footprint by 2020 fits the goals that Xcel strives for in their mission: “We provide our customers the safe, clean, reliable energy services they want and value at a competitive price” (1). XE goes even further than just making a profit and putting smaller levels of harm on the environment; they also make an effort to benefit the communities that they serve. They are also striving to one day (very long in the future) eliminate their carbon footprint entirely. For the last seven years the company has tracked and reported its emissions and environmental damage to The Climate Registry, which earned Xcel Energy the title of being Climate Registered.

 Xcel Energy and the Triple Bottom Line

When you hired me to bring you new investment opportunities, you encouraged me greatly to seek out those using a Triple Bottom Line as their accounting framework. This accounting style is very important to any organization trying to be socially and environmentally responsible as it goes beyond the traditional measures of profit, return on investment, and shareholder value to include considerations for the environment and community said company resides in. These organizations can be non-profit, for-profit, or government sectors. The TBL is rapidly becoming the top tool for businesses and organizations to evaluate their performance and sustainability. Now the question is, how does Xcel Energy compare in terms of the 3 P’s (people, planet, and profit)?

Every year, the Xcel Energy is making efforts to reduce their carbon footprint in the interest of protecting the planet from further environmental harm. An organization’s carbon footprint consists of measuring the amount of carbon—this will generally be measured in tonnes—and the level of demand that this impact places on the resources of our planet. Too much of this carbon will overrun Earth’s natural process rate of recycling carbon back into the environment from the CO₂ form. "Xcel Energy's VP for policy and strategy Frank Prager says the company has already scheduled certain coal plant retirements that it considered economic with or without carbon policy assumptions, but continues to utilize an internal price on carbon for proxy planning purposes to reduce future carbon risk faced by the company and its consumers" (8).  

Even though the calculated TBL allows for maintaining the use of coal plants and still being sustainable, XE decided that they would rather just eliminate them all together to move toward the use of renewable energies alone. From their actions, I believe that Xcel Ecergy is making an excellent effort towards having corporate social responsibility (CSR).

 What is Corporate Social Responsibility?

A company with CSR achieves and then will surpass the requirements set out by environmental protection groups or other regulators. These companies will also form “initiatives to assess and take responsibility for the company’s effects on environmental and social wellbeing” (4). Through their Xcel Energy Foundation, XE donates around $13 million each year back to the communities it serves. Over the next five years, XE also plans to invest $14.5 billion into their electric and natural gas businesses towards continually providing reliable and affordable energy to communities with a lessened environmental impact. Xcel Energy clearly strives to protect the planet and give back to the people who have supported them for their excellent service. This is a company that will show continuous growth for years to come and will support the community with jobs and safe, eco-friendly energy. I would definitely consider Xcel Energy to have corporate social responsibility as we search for here at AMDP.

You mentioned that you love Social Enterprise…

I remembered that you really enjoy company’s that can fit the description of a social enterprise. As you know, a social enterprise is an organization with two main goals:

1.    To achieve social, cultural, community economic and/or environmental outcomes

2.   To earn revenue

For these companies, the mission of the organization is the goal and focus of the business. Income generation plays a very important role in supporting these goals with a financial backing. “Xcel Energy contributed more than $45 million to communities in 2014 through a combination of foundation giving, volunteer contributions, energy assistance and support for economic development” (7). They also have over 11,000 full-time employees—many of which are military veterans. Xcel Energy feeds much of the profits the company earns back into the Xcel Energy Foundation that I mentioned earlier. This is a common strategy used by social enterprises to fulfill more of its social mission through entrepreneurial methods.

Xcel Energy has been more Profitable than ever for Investors

In addition to the company’s many successful years of growth, the last decade has seen rises in stock value to almost double what was seen in 2006. Xcel’s value is also the highest that it has ever been since being founded. With projections to remain on the rise in the coming years, Xcel Energy’s growth is showing benefits to the customers that switch to Xcel for their energy needs. Recently, the company has seen an increase of about 1,100 new customers that will be saving money on their monthly energy bills by switching. This customer acquisition projects an “increase [in] annual revenue by about $600,000” (1). This money will eventually go back into the businesses to improve services for customers while attracting new ones.

The following link will show you the stock history for Xcel Energy on Google Finance:

http://www.google.com/finance?cid=665164

The Verdict

Should AMDP invest in Xcel Energy Inc? Absolutely. They follow all of the ideas behind what we search for in companies and Xcel is one of the top competitors in the market with high levels of recent growth. In a 2014 Ceres report, we see that Xcel had 18.1% of 2012 retail electric sales—that’s #2 in the market! (9) They are also #5 in Cumulative Annual Energy Efficiency. Xcel Energy proves itself as an organization deserving of being in the top U.S. utilities for renewable energies and energy efficiency. In addition, the company has seen steady growth since this report (again, nearly doubling since 2006). AMDP should not pass up an opportunity like Xcel Energy, the only complaint that you will have is that you didn’t invest sooner and with more money.

Works Cited

1.             “CRR2014: Our Company”. XcelEnergy. 2015. <xcelenergy.com/staticfiles/ xe/Corporate/CRR2014/company/index.html>

2.            Hardcastle, Jessica Lyons. “Xcel Energy ‘On Track’ to 30% Carbon Footprint reduction by 2020”. Environmental Leader. 2015. <environmentalleader.com/2015/08/28/xcel-energy-on-track-to-30-carbon-footprint-reduction-by-2020/>

3.            Hall, Tanya J. and Timothy F. Slaper, Ph.D. “The Triple Bottom Line: What Is It and How Does It Work?”. Indiana Business Review. 2011.<ibrc.indiana.edu/ibr/2011/ spring/article2.html>

4.            “Corporate Social Responsibility”.  Investopedia. 2016. <investopedia.com/ terms/c/corp-social-responsibility.asp>

5.             “What is Social Enterprise?”. BC Center for Social Enterprise. 2016. <centreforsocialenterprise.com/what-is-social-enterprise/>

6.            “Carbon Footprint”.  Global Footprint Network. 2015.  <footprintnetwork.org/ en/index.php/GFN/page/carbon_footprint/>

7.            “CRR2014: Providing Community Value”. XcelEnergy. 2015. <xcelenergy.com/ staticfiles/xe/Corporate/CRR2014/community/index.html>

8.            Hardcastle, Jessica Lyons. “How Carbon Pricing Can Boost the Bottom Line”. Environmental Leader. 2014. <environmentalleader.com/2014/06/27/how-carbon-pricing-can-boost-the-bottom-line/>

9.            Fleming, Peyton and Meg Wilcox. “First-of-its-Kind Report Ranks U.S. Utility Companies’ Renewable Energy, Energy Efficiency Performance”. Ceres. 2014.  http://www.ceres.org/press/press-releases/first-of-its-kind-report-ranks-u.s.-electric-utility-companies2019-renewable-energy-energy-efficiency-performance>

10.         Hardcastle, Jessica Lyons. “How Carbon Pricing Can Boost the Bottom Line”. Environmental Leader. 2016. <environmentalleader.com/2016/01/05/panasonic-provides-smart-city-technologies-to-denver/>