埃克西爾能源 (XEL) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by. Welcome to the Xcel Energy 2007 year-end earnings conference call. During today's presentation all parties will be in a listen-only mode. And following the presentation the conference will be open for questions. As a reminder this conference is being recorded Wednesday, January 30, 2008.

I would now like to turn the call over to Paul Johnson, Managing Director of Investor Relations. Please go ahead, sir.

Thank you, and welcome to Xcel Energy's 2007 year-end earnings release conference call. I'm Paul Johnson, Managing Director of Investor Relations. With me today is Ben Fowke, Vice President and Chief Financial Officer of Xcel Energy and several others who are here to help answer your questions. Today we plan to cover our 2007 year-end results and accomplishments. Please note there are slides that accompany the conference call, which are available on our web page. Let me remind you, that some of our comments may contain forward-looking information significant factors that could cause results differ from those anticipated are described in our earnings release and in our filings with the SEC. Today our discussion will focus on ongoing results which we believe represents the fundamental earnings power of Xcel Energy. Before I turn the call over to Ben, I'll cover our overall financial results and how we calculate ongoing earnings.

We are pleased to report that 2007 ongoing earnings per share, which exclude the impact of our discontinued company-owned Life Insurance program, or COLI, came in at $1.43 per share which compares with ongoing earnings of $1.30 per share for 2006. In 2007, we reached a settlement resolving our dispute with the IRS regarding our COLI program. As a result, we surrendered our COLI policies last year and don't expect any further tax benefits or costs associated with COLI in the future. The net impact of the COLI settlement and earnings associated with the program $0.08 per share reduction in 2007 GAAP earnings. In contrast, the COLI program contributed earnings of $0.05 per share to 2006 GAAP earnings. In addition, in 2006, we had $0.01 of earnings from discontinued operations due to a true-up of reserves for cost estimates. Our GAAP earnings, which include the impact of COLI and discontinued operations were $1.35 per share in 2007 compared to $1.36 per share for 2006. With that, I'll turn the call over to Ben.

Thanks, and welcome, everyone. As Paul mentioned, our 2007 ongoing earnings per share were $1.43, which exceeded our earnings guidance range of $1.38 to $1.42 per share. This compares with ongoing earnings of $1.30 per share in 2006. The $0.13 per share increase is largely due to higher electric retail margins, which increased earnings by $0.31 per share and higher natural gas margins which increased earnings by $0.08 per share. These positive factors were offset by higher utility O&M expenses, which decreased earnings by $0.14 per share, higher financing costs which decreased earnings by $0.04 per share, lower short-term wholesale margins which decreased earnings by $0.02 per share and other items including higher depreciation and a higher effective tax rate which reduced earnings by $0.06 per share. Well that summarizes the year-end results.

So let's walk through some of the details starting at the top of the income statement. I retail electric utility margins increased by $219 million or $0.31 per share for the year largely driven by rate increases and sales growth. Electric margin grew by $141 million from various rate increases including $112 million from the electric rate increase in Colorado and $29 million from the MERP rider. We also had strong sales, with weather-adjusted electric sales growth of 1.7%, which increased electric margin by $49 million. Weather also had a positive impact, with warmer summer temperatures increasing electric sales and margin by $16 million. These positive components were slightly offset by a few items, most notably increased capacity costs, reduced electric margin by $27 million. For more information, please refer to the electric margin table in our earnings release.

Higher natural gas margins which increase $53 million or $0.08 per share also had a positive impact. The most significant factors on the natural gas side were rate increases in Colorado, Minnesota, and North Dakota, which increased margin by $21 million. In addition, colder winter temperatures increased gas margins by $16 million compared with 2006. Sales growth, transportation margins and other miscellaneous items increased natural gas margins by a total of $16 million. As I mentioned, weather was a positive driver for both electric and gas margin. Actual temperatures in 2007 increased gas and electric earnings by a total of $0.06 per share compared with normal weather or $0.04 per share compared with 2006. The positive weather impacts help to offset over $30 million of reserves and disallowances that we experienced at SPS in 2007.

Turning to operating expenses. O&M expenses increased $100 million or 5.7% in 2007, largely driven by higher operating costs at our generating plants, higher labor and contracting costs, an increase in our conservation programs and donations, both of which have revenue offsets. In addition, we had some one-time credits which reduced O&M expenses in 2006, such as the reversal of a regulatory reserve for nuclear private fuel storage costs that are now recovered from customers. In addition, gains on sales of assets also reduced O&M expenses in 2006. As you may have noticed, our O&M expenses came in a bit higher than our guidance range. As we've done in the past, we took advantage of the increased earnings from weather to spend additional O&M dollars. This allowed us to deliver strong earnings while maintaining our systems. We expect expenses to increase by 2% to 3%.

Moving on, depreciation expense was relatively flat, increasing only $5 million in 2007, but this isn't indicative of a trend. Normal depreciation increases were largely offset by the Minnesota Commission's approval of our filing to extend the depreciable life of our Monticello nuclear plant by 20 years and by adjustments to depreciable lives from the Texas rate case settlement, both of which combine to reduce depreciation expense by approximately $45 million for the year. We anticipate depreciation expense will increase $60 million to $70 million in 2008, reflecting our growing capital investment program. Finally, let me touch on taxes. Our effective tax rate for 2007, based on GAAP results, was 33.8% compared with 24.2% in 2006. Part of the difference is due to COLI. In addition, in 2006, we recognized approximately $30 million of tax benefits relating to the utilization of capital loss carry forwards and the reversal of a regulatory tax reserve. So that's a more detailed look at our financial results.

Next, I'd like to summarize some of our significant 2007 accomplishments. Well, let's start with COLI. In 2007, we reached a settlement that resolved our long-standing COLI dispute with the IRS in a positive manner. The COLI situation presented a significant financial risk that we're happy to say we've eliminated. On the regulatory front, we completed rate cases that provided more than $100 million of rate relief, including electric cases in Texas and Wisconsin, and natural gas cases in Colorado, Minnesota, North Dakota, and Wisconsin. As many of you know, our SPS operating company has underperformed financially for several years. In 2007, we were able to resolve fuel disputes in Texas and have settlements pending approval in New Mexico and with our largest wholesale customer at the FERC. While we still have issues with other wholesale customers at the FERC, we have reduced our exposure and have set the stage for improved financial performance at SPS. We also filed a couple of other cases in 2007 that'll have an impact in 2008, including a request to increase electric rates by about $20 million in North Dakota and a request to increase electric rates in New Mexico by about $17 million.

In 2007, we also filed resource plans in both Colorado and Minnesota that provide the foundation for our strategic initiatives over the next decade. In general, the plans demonstrate how we can meet energy demand and legislative requirements while reducing overall carbon emissions in a cost-effective manner. For example, our resource plant in Minnesota would reduce carbon emissions by 22% in 2020 from 2005 levels. It would add 2,600 megawatts of new wind generation by 2020. It would extend the lives of our nuclear plants and expand capacity by 230 megawatts. It would increase the capacity of our Sherco plant by 80 megawatts, while making significant reductions in overall sulfur dioxide, nitrogen oxide and mercury emissions from the facility, and finally the plan would add approximately 2,300 megawatts of new natural gas fired generation.

In Colorado, our resource plan would reduce carbon emissions by at least 10% by 2017 and put (inaudible) on a path to reduce CO2 emissions by up to 20% by 2020. The plan would increase wind resources by 800 megawatts by 2015. It would acquire approximately 25 megawatts from a central solar facility with plans to bring in a plan of up to 200 megawatts as technology develops. And finally it would replace four coal-burning units with a highly efficient natural gas generating facility reducing carbon emissions by 1.4 million tons each year. Both resource plans in Minnesota and Colorado increase our use of renewable energy, and not only reduce carbon emissions, but also reduce our reliance on coal and natural gas. The plans also reflect our desire to own a larger percentage of the incremental generation coming on to our system which we think will benefit both customers and shareholders. With that in mind, we moved forward on the ownership front in 2007. In Minnesota, we signed a contract to build 100 megawatt wind farm. All of the permits are in place for the wind farm and it should be completed this year. The project is recoverable through a proposed renewable rider in Minnesota. We also recently issued an RFP in Minnesota for an additional 500 to 750 megawatts of wind generation with potential ownership of up to 500 megawatts.

In Colorado, we expect to issue an RFP this quarter. In the meantime, we filed to expand our Fort St. Vrain facility to include two natural gas combustion turbines. This project will replace the PPA and increase capacity by almost 300 megawatts. Another significant accomplishment in 2007 was the progress we made on our major construction projects including our emission reduction effort in Minnesota and our Comanche Three construction in Colorado. We completed the first stage of the Minnesota effort with a [king] plan upgrade while construction of the Comanche Three project is more than 40% complete. Both projects remain on track and very close to their original budgets.

In 2007, we saw improvement in our credit ratings, despite volatility in the credit and housing markets. Credit quality, strong balance sheet and conservative financial management have always been important to us, even when they weren't in vogue. Today, those qualities are critical. Last September, S&P upgraded the credit ratings of Xcel Energy and its subsidiaries by one notch, citing our strengthening business profile and supportive regulation in our key states as the basis for the upgrade.

Of course financing is more difficult in the current environment. For that reason, I'm pleased to say we completed a very successful issuance of a $400 million retail hybrid security that receives partial equity treatment from the rating agencies. The timing, structure and size of the deal gives us great flexibility in 2008, and keeps us on track to execute our financing plan. In spite of the slowdown in the national housing market and the potential for a recession, we continue to forecast sales electric growth at 1.8% to 2.2% in 2008. We're fortunate to have an economic diversity across our service territories. For example, we've experienced growth in the energy and agricultural sectors that offsets the slowdown in the general economy.

In summary, 2007 was another outstanding year. In addition to delivering earnings results above the high end of our guidance range and increasing the dividend, Xcel Energy enjoyed many successes during the year that positioned the company for continued profitable growth in 2008 and beyond. We continue to project long-term earnings growth of 5% to 7%, and we are reaffirming our 2008 earnings guidance range of $1.45 to $1.55 per share. With that, let's open it up for questions.

Thank you, sir. (OPERATOR INSTRUCTIONS) One moment, please, for the first question. The first question comes from the line of Danielle Seitz with Dahlman Rose. Please go ahead.

Hi. Thank you. Congratulations. And I just was wondering of -- most of the plans and RFPs that you have already started considering your phase two of the construction business -- program. Is that agreed upon by all the jurisdictions already? And do you anticipate to actually recover those costs in the same way you have recovered the first series of projects?

Well, yes. The twist -- you're referring to the RFPs?

Yes.

With wind generation?

Right.

Yes. Well, we do expect favorable recovery. In the past, most of that wind generation was recovered through capacity costs recovery. And since we are now looking at ownership, that'll be a different recovery mechanism. In Minnesota that's a forward-looking rider recovery. The RFP's been issued. We've received a good response to that. It's very similar to the recovery -- by the way is very similar to the CapEx 2020 program, and in Colorado, where the RFP's yet to be issued, we expect it will come out the first half of this year. That recovery will be based upon legislation that was passed that encourages the commission to give us favorable recovery, similar to recovery that we have already received for transmission in Colorado. Does that help you?

Yes, it does. And in terms of the next -- to recover the complete cost of the coal plant of Comanche Three, when do you think that this major rate case will come through?

Well, our plans right now are to file a rate case in Colorado this year. We'll look for a forward test year. We already have established, Danielle, that for the coal plant -- as recovered on a forward-looking basis when we follow general rate case, so we already know how we'll receive that recovery when we file the rate case. Then we'll also look for forward recovery on the other capital expenditures that we're making that are not already covered by some form of enhanced recovery.

Will the plant be almost completely recovered by the time you get the rate increase, or will you need another --

It'll -- yes. It'll be very, very close because if we -- on a forward basis, that would take you through '09. And that's about when the plant comes online.

Great. Thanks.

Thank you. (OPERATOR INSTRUCTIONS) Next question comes from the line of Dan Jenkins with the State of Wisconsin Investment. Please go ahead, sir.

Hi, Dan.

Hi, good morning. First of all, I was wondering if you could comment on -- you mentioned a little bit that you're seeing favorable you results in energy and agriculture sectors. And I was wondering if you could talk about seeing anything else from the economic slowdown that we're seeing in the nationwide economy in your service areas.

Yes, Dan, we are seeing some slowdown, particularly on the residential and construction sectors, lower housing starts, that sort of thing. But by and large, the slack created there has been taken out by the energy sector. It's very strong and at SPS it's very strong at PSCo. Agriculture sector's very strong in Minnesota. We're also seeing, I think perhaps because of the weaker dollar, more increases in some of our larger C&I customers related to exports, paper mills for example which are not an insignificant business within the NSP region. So that seems to be taking up that slack. We are fortunate, as I mentioned in our prepared remarks, that we really do have a lot of economic diversity across our service territories, and we have good economies. Many Fortune 500 companies, for example, up here in Minnesota, that -- I think that are -- that create a nice diverse C&I class for us. Now, all of that said, we will continue to monitor sales as we always do, as the nation and we're no exception to that, seeing how the recession may or may not play out.

Okay. Also, I was wondering -- I haven't had a chance to go all the way through the release, so maybe it's in there, but did you lay out what your CapEx budget's going to be for '08?

We've laid that out previously. It's about $2.1 billion. There really hasn't been any change to that, Dan, since we updated you last -- on the third quarter, and then we had an analyst day that basically didn't change anything other than move in 2008 the Fort St. Vrain project from potential CapEx into committed CapEx.

Okay. Then the last thing I was wondering is, you mentioned you did that hybrid financing. What kind of financing do you expect, say, for the first and -- half of the year? Are you going to need to come to markets again, or --

Well, I think -- we have George Tyson, our Treasurer, here. Let me -- I believe the next one is NSP Minnesota. Overall for the year, Dan, we're looking at about $600 million of debt retirements and probably new issuance is of $1.2 billion to $1.4 billion. George, is NSP Min the next one up?

Yes that's correct. We've planned on doing that prior to the end of the first quarter.

Thank you. And the next question comes from the line of Reza Hatefi with Polygon Investments. Please go ahead.

Thank you. Hi, guys.

How are you doing?

Good. I'm sorry if I missed this earlier. But your current plan is still to file a Colorado rate case in the summer to be effective in '09. And the current -- and my second question is, I guess how the process is going, maybe a little more detail on potentially having a forward test here?

Well, Reza, first of all, I think it's later in the year, probably more towards the fourth quarter. Progress -- we've been working on this for quite a while now. So we're feeling very comfortable that from a technical data quality perspective we'll have what we need there, the -- we've had multiple dialogues with the staff regarding their requirements and reasons why a forward test year's so important, particularly when you're growing rate base. So not too much new to report there other than I think we just continue to make steady progress and we recognize how important it is. And I think the commission realizes that it's important as well.

Are you the first and only company that's seeking a forward test here in the state?

Well, we're by far the largest utility in the state of Colorado, so I believe we will be the first one to seek that.

And what has been sort of their commentary in terms of pluses and minuses as far as letting the forward test year be the new standard? Is it just the fact that they historically haven't used one and thus they need to get comfortable with it?

Well, I think that's generally the case. We are asking for a change in precedent, but I think that's very good reasons. We've got Scott Wilensky here, who's our VP of Regulatory Affairs. I think you met Scott at the analyst day. Scott, do you want to add some color to that?

I think that's a fair characterization. It's been -- it's a change in precedent. It's not the norm. That means there has to be confidence that the data that we provide is accurate, give them assurance that it's a reasonable forecast of our costs going forward. That's what we've spent a lot of time trying to work with folks on and make sure that they can get comfortable not just with the concept, but also with the quality of the data that supports it.

Appreciate that. Just lastly, in Minnesota, the new rates you'll file at the beginning of '09 and the new rates will be effective January 1st, 2009, interim rates that is?

Well, yes. That would be the plan, but I think the interim rate filing needs to an proved as well. Is that correct, Scott?

Not in Colorado.

He said Minnesota.

Yes. That would be correct

Okay. Is that right, Reza? You were talking Minnesota?

Right, Minnesota.

All right.

Reza, the way it works in Minnesota is you make the filing, and then 60 days after the filing, interim rates are eligible to be put in place.

Okay, great. Thank you very much.

Thank you. The next question comes from the line of Travis Miller with Morning Star. Please go ahead.

Good morning.

Hi, Travis.

Hi. Quick question, again, about these rate cases. If we continue in this period of the low interest rate environment that we've been in for the last couple of years, what impact do you think that could have on both your outstanding rate cases and future, next year or two, rate cases that you plan to file?

Well, we've been in a low interest rate environment for several years now and we've had pretty good success in getting constructive outcomes in our filings. So a low interest rate environment is not something that's new to us. I think the other thing I would keep in mind specifically this time period, which as we all know can change on a dime is, the -- while the treasury rates are low, the credit spreads are significantly wider than where they've been. So I don't think that's been much of a change in what the actual corporate kind of rate is. So, Travis, it's something that if we -- if rates continue to fall that, yes, I think that could put some pressure on us, but I really have to tell you, we have filed rate cases with treasury rates a lot lower than they are now and have come out pretty good.

Okay. Great. Thanks a lot.

Thank you. At this time, there are no further questions. Please go ahead.

Well, okay. If there's no further questions, I appreciate everybody attending the call. If you do have any questions, do not hesitate to call Paul in the IR team and they'll get you some answers. Thanks, everyone.

Thank you. Ladies and gentlemen, this does conclude the Xcel Energy 2007 year-end earnings conference call. You may now disconnect, and thank you for using AT&T Teleconferencing.