埃克西爾能源 (XEL) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Xcel Energy first quarter 2008 earnings conference call. (OPERATOR INSTRUCTIONS) This conference is being recorded today, May 1st, 2008.

I would now like to turn the conference over to Mr. Paul Johnson, Managing Director of Investor Relations and Assistant Treasurer. Please go ahead sir.

Thank you and welcome to Xcel Energy's first quarter 2008 earnings release. I'm Paul Johnson. With me today is Ben Fowke, Vice President and Chief Financial Officer for Xcel Energy and several others who can help answer your questions. Today, we plan to cover our first quarter results and provide a general business update. Please note that there are slides that accompany this 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 to differ from those anticipated are described in our earnings release and 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 will cover our overall results and how we calculate ongoing earnings.

We are pleased to report that first quarter 2008 GAAP earnings were $153 million or $0.35 per share compared with $120 million or $0.28 per share in 2007. As you recall, during the second half of 2007, we reached a settlement resolving our dispute with the IRS regarding our COLI program.

Our 2008 first quarter earnings results do not include any material impact from the discontinued COLI program. However, our [2000] first quarter results included earnings of $0.01 cent per share associated with the COLI program. This morning's discussion will focus on ongoing earnings which exclude the impact of COLI on our results. Ongoing earnings for the first quarter of 2008 were $0.35 per share versus $0.27 last year.

With that, I'll turn the call over to Ben.

Thanks, Paul, and welcome everyone. As Paul just mentioned, this morning we reported ongoing earnings of $0.35 per share, compared to $0.27 per share a year ago. As you look into the details, you will notice that some of the 30% increase in quarterly earnings is due to timing. It will also be clear that we're off to a great start.

Let's take a closer look at the details. First quarter 2008 ongoing earnings increased by $0.08 compared to the same period last year, largely due to higher electric margins which increased earnings by $0.07 per share and higher natural gas margins which increased earnings by $0.03 per share. These positive items were slightly offset by higher O&M expense which reduced earnings by $0.02 per share.

Starting with the top of the income statement, Electric margin increased by about $49 million due to several factors. We experienced normalized electric sales growth of 2.1% which increased margin by $10 million. In addition to normalized sales growth, an extra day of sales from the leap year increased margin by $9 million and cooler weather this year increased margin by $3 million.

An electric rate increase in Wisconsin and interim rate increase in North Dakota and various riders combined to increase Electric margin by $23 million for this quarter. For more information on the other items that had an impact on Electric margin for the quarter, please refer to the table in our earnings release.

Turning to Natural Gas margins, rate increases in Colorado and Wisconsin, cooler weather, and other items combined to increase Natural Gas margins by $25 million. A few items partially offset the increases in Electric and Natural Gas margins that I just discussed. Let's look at those partial effects, starting with operating expenses.

First quarter O&M expenses increased approximately $15 million or 3.3%. Several items contributed to the increase including higher plant operating costs, timing of nuclear outages, and increases in contract labor and consulting costs. In addition we had increased spending on conservation programs. Our conservation program costs are recovered in revenue and expenses are offset with increased margin. A positive trend we saw in the quarter were lower benefit costs, which were largely due to improved employee health care experience and a change to a high deductible health care plan.

Moving on, first quarter depreciation and amortization expense increased $6 million or 2.8%, driven by normal system expansion. As you develop your quarterly models, keep in mind that in the third quarter of 2007 the Minnesota Commission approved our depreciation [light] filing and we recorded a year-to-date trueup that reduced depreciation expense. As a result, depreciation was higher in the first half of 2007 and then lower in the second half of the year. That explains the significant quarterly deviations.

Now let me give you a quick regulatory update. The cases that we have filed are not expected to have a material impact on 2008 but will contribute in 2009 and demonstrates our focus on earning our authorized return in each of our jurisdictions. Last July, SPS filed to increase electric rates by about $17 million in New Mexico. The request is based on an historic test year and includes an ROE of 11%, rate base of $307 million and an equity ratio of about 51%. Intervenor testimony was filed in March.

The staff recommended an $8 million increase, based on 9.1% ROE. While the Attorney General recommended a $2 million decrease based on a 9.2% ROE and a consolidated tax adjustment. Hearings were held in April. We anticipate a decision later this summer.

In December 2007, NSP Minnesota filed to increase North Dakota electric rates by just over $20 million based on an equity ratio of 51.8%, an ROE of 11.5% and rate base of approximately $242 million. Interim rates of $17.2 million went into effect in early February 2008. We reached a stipulation with the staff for an ROE of 10.75% and this stipulation is subject to approval by the Commission. The staff will file testimony on all other issues in May and we expect a decision later this summer.

During the first quarter, we filed two wholesale rate cases. In February, PESCO requested a $12.5 million increase in wholesale rates based on an ROE of 11.5%. The request was composed of an $8.8 million of traditional base rate recovery and $3.7 million of quick recovery of Comanche 3 and Fort St. Vrain.

In March, PESCO reached agreements which resolved all issues and increased annual revenue by $6.6 million with AFUDC continuing for Comanche and Fort St. Vrain. The agreement will allow us to expedite the implementation of new rates by several months. It also allows us to implement new rates in a more timely fashion when Comanche 3 comes into service in 2009. The agreements are pending a FERC decision and rates could go into effect in May.

In March, SPS also filed a wholesale case seeking an annual rate increase of almost $15 million based on a requested ROE of 12.2%. A decision by FERC is expected later in 2008.

In April, we received a FERC order in the 2004 SPS wholesale customer complaint case. The FERC approved a settlement agreement with Golden Spread and Oxidental. The order also addressed base rates and fuel disputes. In the base rate case, we were disappointed that the FERC approved a 9.3% ROE but the effect is limited to the 18-month period from January 2005 through June 2006. We have since entered into more favorable settlement with all our wholesale customers for the subsequent period.

In the fuel dispute, the FERC found that incremental costs should be assigned to most of our market-based sales, but determined that the new methodology be applied as of January 1, 2005 rather than back through 1999 as recommended by the ALJ. The order is subject to some interpretation but we don't expect that the fuel refunds to our full requirement customers will exceed $11 million, which we have fully reserved for. More importantly, through this decision and pending approval of other settlements, we are bringing closure to this last piece of the system average fuel dispute that has had an adverse impact on SPS since 2005.

We also took regulatory action to extend and increase the output of our nuclear power plants. This is a key component of our plans to meet our customers' growing demand for energy while reducing CO2 emissions in a cost-effective manner. During the first quarter, NSP Minnesota filed an application with the Minnesota Commission to increase the capacity at our Monocellar nuclear facility by 70 megawatts. The cost of the project is estimated at between $100 million to $135 million, which represents a cost of less than 2000 a kw even at the high side of the estimate.

In April, NSP Minnesota filed with the NRC to extend the operating life of its two nuclear reactors at Prairie Island. We are in the process of finalizing a certificate of need application, which will be filed later this spring with the Minnesota Commission. This application will seek to increase the number of spent fuel storage containers at Prairie Island to support the license extensions. We also intend to seek approval to increase the output of Prairie Island by 160 megawatts.

As most of you are aware, last year we filed resource plans in both Colorado and Minnesota that provide the foundation of our strategic initiatives over the next decade. These plans demonstrate how we can meet increasing customer demands for energy while reducing overall carbon emissions in a cost-effective manner. We are currently in the discovery phases of the process. We expect that hearings will occur in the second half of the year and we should have a decision in both states by the end of 2008 or in early 2009.

Now I'd like to quickly update you on our construction projects which are being managed very well. We continue to make significant progress with our emission reduction effort in Minnesota. So far we spent approximately $900 million which represents approximately 85% of the total capital expenditures related to MERP.

Construction on the High Bridge combined cycle project is nearly complete. The plant should be online this month and is forecasted to be significantly under budget. Construction on the Riverside combined cycle project is about 40% complete and is scheduled to be operational in May of 2009. With significant portions of the project either completed or under contract, we expect to earn an ROE of about 10.7% on the project through a MERP rider.

In Colorado, Comanche 3 construction is approximately 50% complete and we've spent approximately $585 million, which represents about 55% of the estimated total cost. All major contracts are signed and a vast majority of the engineering and procurement is complete. Comanche 3 remains on track and budget.

Another way to look at the success of the project is based on installed cost. The cost of Comanche 3 is under 1500 per kw when you consider just the cost of the plant itself. The [all-in] cost of Comanche 3 is just under 1900 per kw if you include the cost of transmission and environmental retrofits at Units 1 & 2. This is significantly below the cost of building a new coal plant and it further highlights the significant value Comanche 3 will provide her customers when it comes online in 2009.

In summary, we're very pleased with our first quarter results and accomplishments. In addition, during the first quarter, we raised $900 million at favorable terms despite market volatility to help efficiently fund our build the core strategy. With a good start to the year, we are reaffirming our annual earnings guidance range of $1.45 to $1.55 per share.

So with that, let's open it up for questions.

Ladies and gentlemen we will now begin the question-and-answer session for members of the investment community only. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Dan Jenkins, State of Wisconsin Investment Board. Please go ahead.

Good morning.

Hey, Dan. How are you?

Very good. I was wondering on your rate filing in North Dakota where you stipulated on the ROE, what's the revenue impact of what you filed versus using the new ROE? How much does that take the rate request down?

The overall rate request was for just over $20 million. Interim rates went into effect at $17 million. The 10.75% ROE agreement -- what is it -- ?

It would be less than $1 million.

Very minimal. And there's some other issues, Dan, that they'll have to decide as well. And that's what they're filing testimony on but we do expect to get a decision by the end of -- or in the summer.

Okay. And then just kind of a status in Minnesota. Do you see any need in this calendar year to do any rate proceedings in Minnesota at all?

You mean a general rate case?

Right. Or what's you kind of -- your ROE [earning] versus what you were allowed in Minnesota.

In Minnesota it will continue to track how the performance of this year and what the forecast of performance of next year will be. And if we need to file a rate case, we will, but we haven't made any determination on that yet.

The last thing I was wondering about is you talked about the lower employee benefit expenses in the first quarter. Do you expect that level to be sustained? Or were there unusual items that caused the first quarter to be lower than maybe what you'll have going forward? Do you have a feel for that?

I don't know if you can commit to taking a quarterly trend and taking it through a full year. But we are happy to see the lower experience rates. I think that has a lot to do with the change in rate plan design. Perhaps it has -- it's showing some of the benefits of some of our more proactive health awareness programs. And I think based upon the rate plan designs, employees are taking more ownership of their health care costs and dollars. And so I think we'll continue to see a benefit from it. I just couldn't tell you if the trend line will continue.

Thank you.

Thanks, Dan.

Our next question comes from the line of Paul Ridzon of Keybanc Capital Markets. Please go ahead.

Hey Ben, how are you? Talk about timing issues. Was that just a depreciation? And could you go through that again? Sorry.

The primary timing issue was depreciation, which you remember, as I said in my prepared remarks, we made a depreciation life extension last year that was approved by the Minnesota Commission. We did a catch-up entry since it was retroed back to the beginning of the year. But that entry didn't happen till the third quarter of last year. So you're going to have a little bit of variance there.

Okay, and I noticed in your modeling assumptions, you've ratcheted up the share account we ought to be using. How do you plan to raise that equity?

I'm not sure what you're talking about.

The fourth quarter release said to use 433 million diluted shares and now that's at 438.

Well, the 438, Paul, that relates to -- that assumption has been for 2008 since the fourth quarter. The 434 was a 2007 assumption and the increase in the share count captures the (inaudible) program -- the benefit programs that we have that are equity-based.

Paul, keep in mind that we issued DRFT and other benefit plan equity that ranges between $[50] million and $70 million a year.

I was just looking at your fourth quarter release and it kind of -- unless I grabbed the wrong release real quick this morning. . Okay, I'll talk to you offline on

That sounds good.

(OPERATOR INSTRUCTIONS) At this time, this will conclude our question-and-answer session. I will turn the conference back to management for closing remarks.

Thanks, everyone, for participating in our call this morning. We'll probably see many of you next week at the AGA Conference in Miami. In the meantime, if you have any follow-up questions, please call Paul Johnson or the IR team, and we'll take your calls. Thanks again, and we look forward to seeing many of you soon.

Ladies and gentlemen, this concludes the Xcel Energy first quarter 2008 earnings release conference call. If you'd like to listen to a replay of today's conference, please dial 303-590-3000 or 1-800-405-2236. The passcode for today's conference is 11112267#. ACT would like to thank you for your participation. You may now disconnect and please have a pleasant day.