Xcel's Google Data Center Deal: Incremental Progress Amidst Regulatory Uncertainty

What happened

Xcel Energy announced it will power a new Google data center in Pine Island, Minnesota, through an Electric Service Agreement, framing it as a boost to clean energy and the local economy. This aligns with the company's strategy to monetize data-center load growth, as outlined in the DeepValue report, which notes Xcel has contracted over 2 GW and targets 6 GW by 2027. However, the report critically emphasizes that the investment thesis hinges on regulatory approvals, particularly Minnesota's commission order by July 31, 2026, for large-load tariffs to prevent cost shifts to existing customers. The announcement lacks disclosed details on contract terms, deposits, or exit fees, which are essential for mitigating stranded-cost risks and ensuring recoverable investments. Thus, while this news reinforces the growth narrative, it does not resolve the core regulatory and financial dependencies that keep the thesis in a 'WAIT' state.

Implication

For investors, this deal confirms Xcel's ability to secure large-load contracts, aligning with the bull scenario of accelerated data-center conversion toward the 6 GW target. However, without regulatory approval for tariffs, such deals could lead to stranded costs if infrastructure is built ahead of binding agreements, as highlighted in the report's downside risks. Xcel's financial flexibility remains tight, with high leverage, low interest coverage, and reliance on equity issuance, making timely cost recovery critical to avoid dilution. The news does not address ongoing wildfire liabilities, such as the Texas injunction requiring inspections and replacements, which could pressure cash flows and earnings. Consequently, while the stock may see short-term positivity, the core investment case remains unchanged, and maintaining a 'WAIT' stance is prudent until regulatory milestones are met.

Thesis delta

The announcement provides incremental evidence supporting the data-center growth thesis by adding another contract to the pipeline, which could help meet the 6 GW by 2027 target. However, it does not alter the fundamental dependencies on regulatory outcomes, such as Minnesota's commission order by July 31, 2026, or address key risks like wildfire costs and financial leverage. Thus, the thesis remains in a holding pattern, with no material shift in the 'WAIT' rating or conviction level.