埃克西爾能源 (XEL) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Excel energy. At this time we're in a listen-only mode. Later we'll conduct a question-and-answer session. If you have a question, press 1 on your touch-tone phone. You may remove yourself from queue at any time by press pound. If you are using a speaker phone please pick up the handset before press the number. If you should require any assistance, press zero star. This conference is being recorded. I would now like to turn the call over to our first speaker, (indiscernible).

Thank you. Welcome to the Excel Energy year end 2002 conference call. I'm the managing Director of Investor Relations with me today are Wayne Brunetti, Chairman, CEO and President of Excel and Dick Kelly, VP and CFO of Excel. In addition, we have several others in the room here with us to help provide answers to your questions. In our announcement of our earnings release and this conference call, we had indicated that we would discuss earnings guidance for 2000 with the under certainly surrounding the resolution of a settlement and restructuring plan for NRG, we have been advised by counsel not to provide 2003 earnings guidance at this time. Wayne will start. Dick Kelly and l will go into some of the details of our 2002 results. Wayne will they will have some concluding remarks and then we'll open the phone lines for questions from analysts. We request that you ask only one question at a time so that we will be able to respond to as many people as possible. Some of the comments that will be made contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in compel energy and NRG NRG feelings with the Securities and Exchange Commission. Now I will turn the call over to Wayne Brunetti.

Thank you. In understanding 2002 earnings and the outlook for the future, I think there are three major elements to consider. First is our traditional regulated utility business, that's the heart of our company. Next is our trading and marketing operation, whose objective is to support and augment our regulated business. And lastly, is NRG. Our traditional regulated businesses are continuing to perform well if you discount the higher-than-normal trading profitability in 2001 and the share dilution, you will conclude this our franchise electric and gas business delivered strong financial results in 2002. The company's running well. The plants are running well. For instance, the forced outage rate at our fleet of plants is about 2.8 percent the lowest it's been. When the national data becomes available we think, for instance, our forced outage rate will put us in the best performing quartile in the industry. The regional economy in our service territory continue to grow. Even through 2002, has been a difficult over for many parts of the country. Service territory realized and overall job growth rate of 2.1 percent. The bottom line is that our core earnings driver is doing well.

We expect our regulated operations to deliver good results in 2003. Our trading and marketing operation also executed well this year and its gross margin is comparable to what we expected. We knew at the outset in 2002 and had told everyone that the trading and marketing would not be able to replicate its 2001 contribution. 2001 was a one-time event. The decline in the earnings from 2001 to 2002 is explainable in large part by the decline in pool power prices and less favorable market conditions. We expect the 2003 on going margin contribution from trading and marketing will be similar to last year's results. Progress is going along reaching a settlement with NRG's creditor but it's been a little bit slower than we hoped. Power as I think you can appreciate there are a large number of parties involved. It's extremely complex issues. And the financial stakes are large. But the point is he would can continue to make progress. Over the past several weeks, we have continued to work with NRG's creditors on the tax alternatives of various restructuring strategies. This is a major step forward. By working together, we hope to improve the overall tax benefit. We recently reviewed the options and financial preliminary -- implication with Excel's Board of Directors and have presented NRG's creditors with a new proposal. I know all of you are probably interested in this. But we have not disclosed and don't intend to disclose that proposal at this time. I would now like to turn over the microphone to Dick Kelly who will go over some detailed results of 2002.

Thank you, Wayne. You'll notice the new presentation in some of our tables this quarter. We think we have always done a good job of disclosing GAAP earnings and pro forma numbers and providing the detail to go between the two. However, just to make sure there is no doubt that we comply with the intent of the SEC's disclosure initiatives, we have made a few changes in the way we report our information. We have provided a lot of detail on the financial release so I'm not going to walk you through it item by item. Overall for Xcel or a GAAP basis we recorded a loss of $25 of 35.26 per share in 2002. The losses is a result of the 3.2 Buffalo losses at NRG due to asset impairments, restructuring charges, and declining power prices. This loss was partially offset by a tax benefit of $676 million. Excluding NRG on a pro forma basis Xcel recorded earnings of $1.38 per share in 2002. Included in our performance earnings are a net of 5 cents per share for one-time charges. These are composed of a loss of 5 cents per share at Xcel international for [INAUDIBLE] and disposal loss a charge 26 cents per share for the redemption of temporary financing at the holding company and a gain of 2 cents per share for the sale of contracts at Planergy.

Apart from the operating results from NRG, the primary factors depressing 2002 earnings were a decline in trading margins, dilution from stock issuance, higher interest expense from refinancing commercial paper with long-term debt at higher rates, and generally poorer-than-anticipated performance from our other non-regular laid subsidiaries. Our digital regulated utilities performed well. Last year, we saw electric customer growth of 1.2 percent and retail sales growth of 1.8 percent. Gas customer growth was a strong 2.7 percent and with continuing gas conservation, we expect sales growth to average about 1.5 percent per year. Earlier in the year, we established guidance for our utility operations at $1.57 to $1.65 per share. We delivered on that target with utility earnings of $1.59 per share. In comparison to last year, our 2002 utility earnings were 31 cents per share lower than in 2001. As expected, lower trading mar generals reduced utility earnings by 33 cents per share. We expect 2003 trading margins to to be comparable with 2002. During 2002, we issued common stock and the additional shares outstanding reduced utility earnings by approximately 16 cents per share in comparison to 2001. Our goal is no equity [INAUDIBLE] wants in 2003 except to cover our dividend reinvestment and customer stock purchase plan.

Another pressure point on 2002 earnings was our loss of access to the commercial paper market. During the summer, our utility operating companies refinanced approximately $1.4 billion of short-term debt with long-term debt with an average interest rate of approximately 8 percent. This obviously increased our interest expense. Generally the performance of our other non-regulated subsidiaries excluding NRG did not meet our objectives. For 2002, our other non-regulated subsidiaries including holding company financing costs lost 22 cents per share compared with 18 cents per share loss in 2001. Included in this total is a 5 cents per shear charge for asset impairments and disposal of Xcel International. Over time we will continue to reduce our exposure to operations that are not closely aligned with our core utility business. As evident by the table in the earnings release, we have significantly improved our liquidity at both the holding company level and at the operating companies. With the cash proceeds from the Viking Gas sale and the term loan from Perry capital and King street capital, we have approximately $300 million in liquidity at the holding company. We will continue to work in improving our cash flow and liquidity. One aspect of that is managing our capital expenditure level. As we disclosed previously we expect utility capital expenditures to be approximately $900 million this year which is slightly down from last year and 2001. Let me assure you, we are not compromising service or safety with the lower expenditure level.

We had a few large nonrecurring expenditures in 2002 and 2001. In 2002, we completed the conversion and upgrade of our black dog plant from coal to natural gas. That project was started in 2001. In 2001, we installed additional turbines at our (indiscernible) facility and completed a significant transmission expansion. Our 2003 capital expenditure program is adequate to fund our ongoing customer growth and normal refurbishment of the system. At the holding company, we do not have any debt or credit facilities maturing until 2005. At the operating companies we have modest financing requirements this over and next which we expect to be able to either pay down with cash on hand or we will refinance. The results for NRG as record are our best estimate at this time, however they are preliminary, consequently it would be inappropriate for to us discuss the specific details behind the NRG information contained in the news release. As you are probably away, NRG's earnings are highly seasonal with the highest profitability in the third quarter followed by the second quarter. First and fourth quarter earnings are typically the lowest of the year. With only one sent of earnings contribution in the third quarter it would have been reasonable to expect NRG would report a significant operating loss in the fourth quarter. Continued lower power prices and spark spreads along with restructuring costs combine to cause NRG to report a loss for the fourth quarter of 2002. As we have previously said, NRG has several areas of regional strength. Even though NRG in total reported an operating loss, several regions delivered positive results prior to the allocation of corporate interest. We believe NRG's creditors recognize that NRG has some valuable assets and that is one of the reasons we are able to continue productive discussions with them.

As we plan for 2003, it's clear that it will be another challenging year as we work to mitigate the effects of NRG. We believe we have a realistic perspective on what we need to accomplish. I can assure that you our entire management team understands the importance of delivering good financial results. Uhm... before we open for questions, I want to address one we frequently hear. Do you think the rating agencies will downgrade Xcel? I think we've made sure that our regulated operations in the holding companies insulated from what happens at NRG. Our utilities and the holding company are investment grade and our goal is to improve their ratings once NRG's resolved. Clearly, we cannot speak for the rating agencies, but I will tell that you we have been and will continue to work very closely with them. We have solicited their perspective before we decide on a course of action. Our actions have been structured to avoid a downgrade and we do not intend to deviate from that.

We were pleased with the comment by S&P in a January 20 report where they said the ratings on Xcel and et cetera utilities subsidiaries remain on credit watch with developing implications reflecting the uncertainties surrounding the outcome of NRG's creditors' negotiations. If successful, the settlement will not impair Xcel's credit profile and the outlook would be changed to stable. If the two companies are separated entirely, the ratings would again be based solely on the merits of the regulated public utilities. I would now like to turn it over to Wayne for the final comments.

Thanks, Dick. Reflecting on 2002, I think it goes without saying that it was the most difficult year of my working career. We continue to work our way through a set of quite complex issues of massive significance to this company. Through it all we have acted honestly and with integrity in the best interests of our shareholders employees and customers. There is much that remains to be completed to transform Xcel Energy without NRG. But I believe we are well on our way in achieving that objective. Our message to you is that Xcel Energy's core business is strong, we're working diligently to a fair and prompt agreement on resolution of NRG, we have legalistic expectations and we're committed to deliver them. At Xcel Energy we always begin the year with a so the of goals. My priorities for the year are, a set resolution of NRG, successful completion of the Colorado rate proceedings, to work on improving our bond rating, deliver good financial performance in 2003, and deliver a high level of service to our customers.

Once again, if you do have a question or comment, please press the 1 on your touch-tone phone. Also, please limit yourself to one question. Our first question today comes from the line of Elizabeth from Merrill Lynch.

Thank you. Could you talk about the O&M, utility O&M expectations for '03? You had an increase in the fourth quarter, but it was flat for the year. Relative to that 1 1/2 billion for '02, how should we be thinking about '03? And if you could also address something you've talked about earlier which is the lower level of pension credits for '03? Uhm, is that included in there or does that factor in somewhere else? If you could just go through those expense items.

Let me start, you know, year end we're slightly down on O&M. We had some fourth quarter catch-up charges that Dick will cover with you.

Yeah, Elizabeth, we expect that the O&M will be as Wayne said roughly the same, up slightly your question about the pension credits, yes, that is in the O&M. -- line.

So, a lower level of pension credits, but a total O&M that is flat up to slightly in '03 versus '02?

Yeah, up around 2 percent for '03 over '02.

Reflecting a lower 40 million pension credit?

That's correct.

Okay. Thank you.

Our next question comes from the line of Terry Shu with J.P. Morgan. Please go ahead.

Yeah, hi, can you talk about the whole dividend issue, what you need to do in terms of getting a waiver from the SEC and what are the risks there and if you can just talk about it overall?

The issue with the dividend with the SEC is under the Public Utility Holding Company Act you have to have positive retained earnings to declare dividends. We have positive retained earnings at the end of the year. We expect to continue to have positive retained earnings based on what we know today. We have asked the SEC for permission for a short period of time if retained earnings would go negative permission to pay dividends out of paid-in capital.

Is there any issue with respect to dividend payment when it comes to the NRG negotiations or rating agencies, et cetera?

No, not -- no, there has not been any.

That issue has never come up?

That's correct.

So -- and if I could just follow up with one last question, so are there risks -- if there are risks, what are they in terms of payment of the dividend?

The only risk as I said and we're trying to mitigate that is that we're not as I said earlier, the NRG audit is not completed. Should there be any additional charges NRG that we are unaware of. -- it could, you know, be -- will be booked to retained earnings and could cause a problem.

What might those be, though?

What might the charges be?

Yeah.

We're not aware of any so I really don't know what they would be.

Thank you.

Does that answer your question?

Uhm, yes.

Our next question comes from the line of Loomis Management. Please go ahead.

Hi, guys. Thanks for the time this afternoon. Just had a question around some of the non-core assets or businesses such as Seren and Planergy. You made the comment that you would over time look to divest non-core businesses and I was wondering if these two in particular since they are I think causing a drag of 9 cents at least for '02, if you would consider divesting those?

Yeah, the answer to the question is yes, we would consider it, and, yes, we've taken some steps to look at those things.

Okay. Great. Thank you so much.

Our next question is from the line of Tom O'Neill please go ahead with Lehman Brothers.

Good afternoon. Did you -- I'm not sure if I have been able to find it but did you provide balance sheet ratios for the year end?

For the end of '02.

Yes, for the consolidated companies?

No, we did not.

Is that something that you can provide or --.

Yeah. It is 24 -- approximately 24 percent at the end of the year our equity ratio.

Okay. Great. And you're still in the process of seeking extensions from the SEC past the March 31 date?

No, we have not asked for an extension past March 31st for that. As we've disclosed, the filing talks to the SEC about a number of other things but that's not one of them.

Okay. And then the only other question is, I understand the reason for not providing 2003 earnings guidance, but given that it's prot not related to the utility would you be willing to provide 2003 utility guidance?

Not at this time we're not, no.

Okay. Thank you.

Our next question is from the line of Paul from Value Line. Please go ahead.

Hi. In the NRG results for the fourth quarter, how much discontinued is included in the 33 loss from operations?

Would you repeat the last part? I didn't catch it all.

In the 3 months loss from NRG, there is a line that says operations including discontinued.

Right.

How much of that 33 is on going and how much is from discontinued?

A very, very small amount is from discontinued. Three cents. Three cents is from discontinued.

Do you have the figure for the full year?

No, we don't.

All right. Thank you.

Our next question is from the line of Jay [INAUDIBLE] from Forest Investment Management. Please go ahead.

Yes. Can you just give everybody a refresher on why it is that you even have to negotiate with NRG creditors? If you not a a consolidated company, if you're two different companies, what is it that you hope to gain in this process as opposed to going to court?

Yeah. Let me start and Wayne can jump in and give you some more, but, uhm, obviously, if we can reach some kind of a settlement out of court that would release Xcel from all liabilities or exposure to NRG, even though as we said we feel we are in very good shape as far as the claims people have made and any claims they might have on Xcel through NRG, whenever there is any uncertainty, it's always best to get some kind of a settlement where we can be more certain about the final outcomes. Just, you know, in the -- -- settlement is better than litigation. Litigation could potentially drag this out for a very long period of time. We would like to see as quickly as possible settled with the creditors so that NRG can get on with its business and Xcel can get on with its business.

Okay and can you give us an idea of how you would finance a settlement with NRG? I know what your liquidity is right now, 300 million as you said. Let's say that the settlement were more than that hypothetically. How would you finance it? Would it be through the tax refund or would it over time or would it be through an immediate, you know, bond offering or --

I mean, it's very difficult to answer your question. The things you came up with are all, yes to all those answers. Depending on what -- with the amount of the settlement, when we settle up, when we would have to put the money up. But our intention would be to fund it through either the tax refund or the cash we have on hand. And that's where we think we'll be.

Okay. Thanks a lot.

Our next question comes from the line of Jake Mercer with U.S. Bank Corp Piper Jaffray. Please go ahead.

Thanks, guys. If we go back to your comments on the rating agencies, what's currently the collateral requirements if one or two of the rating agencies went non-investment grade for you guys?

If we went non-investment grade it's 215 or $216 million. I think $216 million.

That's all cash?

Yes.

Okay. Thanks.

We have a question from the line of Eugene with Sutton Capital Management. Please go ahead.

Yeah. I know you guys aren't giving any guidance for 2003. So I guess the question is, looking at the pro forma results that you guys have provided if you exclude NRG, you guys did 27 cents for the fourth quarter. Is there anything about those pro forma results in a we shouldn't be using in trying to project results going forward?

No. The fourth quarter results pretty much have all the effect to the two stock deals and the interest expense. So, no, there is nothing unusual about the fourth quarter.

And would there be anything wrong with sort of anualizing that and getting to a number a little over a dollar?

Yeah. Our earnings are obviously subject to weather and other things and they varies throughout the year so no, you just can't annualize that to get to the number.

And how is the weather for this quarter versus the rest of the, you know, for expectations I guess?

In the table, I think, it was normal, very close to normal. Page 4 of our news release we talk about that.

Okay. Thank you.

Ladies and gentlemen, if there are any additional questions or comments, complete press the 1. And our next question is from the line of Teresa Ho with Banc of America Securities. Please go ahead.

Yes. Thank you. Could you give us an update on the status of the tran. A option of 50 million that was part of the Citadel convert deal?

The 50 percent tran. Was part of the first deal that was eliminated.

I thought [INAUDIBLE] was not eliminated.

It was.

It was eliminated?

Yes, it was eliminated.

And that -- so in terms of Citadel interest, is that now at what percent?

They have 25 percent -- 25 percent. -- of the $230 million issue.

Okay. And then could you update us in terms of the cash balance at NRG?

The cash balance? No, I don't have the information, the cash balance at NRG.

Okay. And, uhm, in terms of the -- I know you are not providing outlook in terms of earnings for '03. But in terms of the operating cash flow for the utility, is that still at 1.4 billion?

That's what we have in there that's what we have disclosed because of the things we have talked about the interest expense it might be slightly less than that. But we have disclosed the 1.4 billion.

Okay. Thank you.

Mm-hm.

Our next question comes from the line of Phillis Gray with Asset Management. Please go ahead.

Good afternoon. I was wondering if you could give us an update on the operating status of the Batesville plant.

On the Batesville plant.

Yes, thank you.

No, I can't. I'm not able to do that now. We'll try and get back to you if we can.

That would be great. Thank you.

Okay. If you can give your name -- If you would call Investor Relations... 612-215-4559. We'll get back to you on that.

Thank you.

Our next question comes from the line of Greg Schultz. Please go ahead with [INAUDIBLE] Capital.

Good afternoon.

Hi.

Hey, uhm, two quick questions. One just to confirm in Q4 the unusual charges at the holding company were a penny for NRG restructuring, two cents for the redemption of the Citadel note, 3 cents for I guess asset impairments, and then offset by 2-cent gain on sale? 4 cents net.

Right.

Unusual charges in Q4?

Right.

Okay. And at the holding or the utility level nothing unusual?

That's correct.

Okay. And then not to beat a dead horse and I'm sure it's not that big of a deal, but on the approval you need from SEC to pave dividends out of the capital surplus.

Right.

When will they get backing to you?

What we're at right now is that they've noticed it and the notice period has expired and there have been no interventions. So we expect to have an ongoing conversation with them.

Is there an official deadline?

No.

Where they approve [INAUDIBLE]. Unfortunately, with the SEC, there are no deadlines just whenever. But we talk to them on a regular basis so we're feeling pretty good about it? Okay. Thanks.

Sure.

Our next question is from the line of Danielle Sits from Salomon Smith Barney. Please go ahead.

Hello. Just a couple of numbers. (indiscernible) [ heavy accent (indiscernible) ] How much is the DRIP per year? Do you know?

I think it's about 50 million.

And can we make some assumption that is actually because of higher power prices in the west right now, you could have better numbers in terms of [INDISCERNIBLE]?

The trading margin we're estimating that they will approximate last year.

Same?

Yes. About the same.

Okay. Just in case in round numbers, how much is the total utility debt right now?

What is the total utility debt?

Yeah. -- round numbers.

We'll get back to you on that Danielle.

Okay. Thanks.

Our next question is from the line of Terry Shu with J.P. Morgan. Please go ahead. Okay. Moving along. Our next question is from the lean of Elizabeth Perella with Merrill Lynch. Please go ahead.

A follow-up. It sounded from your comments that you've actually made this counterproposal to the creditors. I know your press release talked about it being, you know, extended no later than today. Could you talk a little bit about whether it was to all the creditors at once and is there some expected time frame for the creditors or groups of creditors to respond?

Elizabeth, you know that there's groups of creditors. There is a bank Steering Committee and there's a couple of bondholder groups. The proposals as we speak I think the last proposal to one of the bondholder groups should be completed today. There is no, you know, deadline for them to answer. We have encouraged them to look at our offer seriously and respond to us as quickly as possible but it should -- you know, as I said, as we seek the last group of bondholders, the proposal is being made to them now.

Okay. Thank you.

I think we have time for one more question.

And we have a follow-up question from the line of (indiscernible) were Loomis Management. Please go ahead.

Just a follow-up on some liquidity stuff. Did someone see the number that [INAUDIBLE] from the utilities would be around 1400? Less a little bit from interest?

That's correct. 1.4 billion?

Yes, I'm sorry. And then assuming working cap is zero and then the utility Cap Ex is 900. Is it total Cap Ex for the company or just for the utilities?

That's for everything excluding NRG.

Okay. Great. So that's come down a little bit. And then I assume the dividend is still at 150 for the year roughly.

It's 735 cents, not $1.50.

Is that what you're referring to?

No, of the 150 million total. Yes. That's correct.

Okay. And one final question.

No, no. It's 300 million. It's 300 million for the year for the dividends. Sorry.

I knew something was wrong. I just couldn't quite figure it out.

I got the flu right now. I apologize.

Are the proceeds for Viking in the cash numbers or should I add another, you know, chunk of change?

That's in the cash numbers we gave you.

Okay. Great. And then on the tax issues, when do you think you might be able to get the $676 million from the tax settlement?

It all depends on how we resolve the negotiations with the creditors. If we take a worthless stock doe ducks for 2002, it would be taken when we file our 2002 tax return which would be sometime in September. If it's in 2003, it would be when we file our tax return sometime in the year 2004, probably the spring of 2004.

Thank you so much. And good luck and congratulations.

Thank you.

Yes, what I'd like to do now is thank you on behalf of the Xcel management team for participating in our 2002 earnings conference call. If there are any follow-up questions from a.m. lists or investors, you can contact Paul Johnson or myself. The phone numbers are listed at the bottom of the release. Thank you again for participating.

Ladies and gentlemen, this conference will be available for replay after 6:45 p.m. today until February 4 at mid might. You may access the AT&T Executive Playback Service at anytime by dialing 1-800-475-67301 and entering the access code of 669813. International participants may dial 1-320-365-3844. Again, those numbers are 1-800-475-67301, and international participants, 1-320-365-3844. And the access code is 669813. That does conclude our conference for today. Thank you for your participation and for using AT&T's executive teleconference service. You may now disconnect.