埃克西爾能源 (XEL) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Xcel Energy second quarter 2008 earnings conference call. During today's presentation, all participants are in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS). This conference call is being recorded today, Thursday, July 31st, of 2008. I would now like to turn the conference over to Paul Johnson, Managing Director of Investor Relations and Assistant Treasurer. Please go ahead, sir.

Thank you, and welcome to Xcel Energy's second quarter 2008 earnings release conference call. I'm Paul Johnson, Managing Director of Investor Relations and Assistant Treasurer. With me is Ben Fowke, Vice President and CFO of Xcel Energy and several others who can answer your questions. Today we plan to provide second 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 the comments that we may make may contain forward-looking information. Significant factors that could cause results to differ from thos anticipated are describe in our earnings release and our filing with the SEC. Today's discussion will focus on ongoing results, which we believe represent the fundamental earnings call of Xcel Energy. Please refer our earning release for a reconciliation of non-GAAP earnings. Before I turn the call over to Ben, I'll cover our overall results and how we calculate ongoing earnings. Second quarter 2008 GAAP earnings were 106 million or $0.24 per share compared to 69 million or $0.16 per share in 2007.

As you may recall, in 2007 we reached a settlement resolving our dispute with the IRS regarding our COLI program. Our 2008 second quarter earnings results do not include any material impacts from the discontinued COLI program. However, our 2007 second quarter GAAP earnings include a loss of $0.11 per share associated with the resolution of this dispute. This morning's discussion will focus on ongoing earnings, which exclude the impact of COLI from our results. Ongoing earnings for the second quarter of 2008 were $0.24 per share versus $0.27 per share for last year. With that, I will turn the call over to Ben.

Well, thanks, Paul and welcome, everyone. As Paul just mentioned, our ongoing earnings were $0.24 per share for the second quarter of 2008, compared with $0.27 per share a year ago. While our ongoing results for the quarter declined, our year to date results are ahead of last year. For the first six months of the year, ongoing earning were $0.59 per share, which is up $0.05 from last year. As a result, we expect to deliver earnings within our guidance range of $1.45 to $1.55 per share. Now let's take a closer look at the details.

Second quarter 2008 ongoing earnings decreased by $0.03 compared to the same period last year, largely due to higher OEM expense which reduced earnings by $0.04 per share, and lower electric utility margins which reduced earnings by $0.01 per share. These negative items were slightly offset by higher natural gas margins which increased earnings by $0.02 per share. Starting with the top of the income statement, electric margin decreased by about 6 million due a combination of factors. On a positive side, an electric rate increase in Wisconsin and an interim rate increase in North Dakota and the MERP rider combined to increase electric margin by 14 million this quarter. Next , in light of current economic conditions, we are encouraged that our well diversified mix of electric customers generated normalized sales growth of 2.5% during the quarter, driven largely by a 3.2% increase in commercial and industrial sales. This increase in C&I sales is related primarily to strength in energy and agricultural-based industries, particularly at PSCo and SPS. Based on sales growth of 2.5%, we estimate that our margin increased by 12 million.

However, because of a greater portion of our sales which are the C&I class, we saw lower levels of margin contribution as compared to residential customers. In addition, we also experienced some adverse impact in rate design between energy and demand charges. The combination of these factors, which we refer to as sales mix in our margin table, reduced electric margin by 13 million for the quarter. Finally, as previously mentioned, we experienced cooler weather than last year, which reduced electric utility margins by 19 million. For more information on 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 13 million. Moving on to O&M expenses, second quarter O&M increased 29 million or 6.9%. Several items contributed to the second quarter increase, including higher plant operating costs, which reflects an increase in both planned and unplanned outages. In addition, we also experienced higher labor costs due to general cost increases and additional employees to support our growth initiatives.

As we discussed at our analyst meeting in December, we have filed a request with the Minnesota Commission to change how we account for nuclear refueling costs. Under the proposed plan, the refueling costs would be deferred and amortized between refueling outages such as opposed to expensed as the costs are incurred. Our request is pending, and we expect the Minnesota Commission to rule on it before the end of September. Assuming we are successful in our pending request, we expect our annual O&M expense to increase by 2 to 3%, in line with our guidance. Next, second quarter depreciation and amortization expense decreased 1 million or .7%. This decrease is primarily due to timing associated with Commission approval of NSP Minnesota's remaining (inaudible) depreciation filing in the third quarter 2007. As you develop your quarterly models, keep in mind that we recorded a year to date true up that reduced depreciation expense by approximately 31 million during the third quarter of 2007. As a result, depreciation expense was higher in the first half of 2007 and then lower in the second half of last year.

Overall for the full year, we expect depreciation to increase 55 to 65 million, in line with our annual guidance. That explains significant quarterly deviations. Let me give you a brief regulatory update. Let me start with NSP Minnesota. We have filed a rate request to increase electric rates in North Dakota by 17.9 million based on an equity ratio of 51.8%, an ROE of 10.75% and rate base of approximately 242 million. Interim rates of about 17 million went into effect in early February 2008. The North Dakota staff is currently recommending a rate increase of approximately 4.9 million. We expect the Commission's decision later this fall. At SPS, we have filed a rate case to increase electric rates by 16.6 million in New Mexico. The request is based on an historical test year and includes an ROE of 10.7%, rate base of 307 million and an equity ratio of about 51%.

In July, the Hearing Examiner recommended a rate increase of 12.6 million based on an ROE of 10.14%. We expect a Commission decision in August. In March 2008, SPS filed a wholesale case seeking an annual rate of increase of almost 15 million based on a requested ROE of 12.2%. On May 30, 2008, the Court conditionally accepted and suspended the rates on established hearing and settlement procedures. The Commission granted a one-day suspension of rates instead of 180 days. The base rate, based on a 10.25% ROE, will become effective with the in-service date of the [lead] power project. In June 2008, SPS filed a rate case with the Public Utility Commission of Texas seeking a net annual rate increase of approximately 61 million. The rate filing includes a requested ROE of 11.25%, and electric rate base of 989 million, and an equity ratio of 51%. In SPS's last Texas rate case, the parties agreed that SPS seek in this rate filing interim rate relief of 18 million per year for the [lead] power purchase agreement. The interim rates are proposed to go into effect when [lead] power comes online in 2008. We are still in the early stages of this case. We expect final rates to go into effect in early 2009.

As most of your aware, last year we filed resource plans in both Colorado and Minnesota. These plans demonstrate how we can meet increasing customer demands for energy while reducing overall carbon emissions in a cost-effective manner. Hearings in Colorado have concluded. We expect the Commission to rule on the first phase of the Colorado resource plan in the third quarter. In Minnesota, the process is going well and we should have a decision by the end of 2008. In both states, we remain confident that we will receive constructive decisions which allow to us make the investments to deliver on our environmental initiatives. In summary, while our results declined for the quarter, our year to date ongoing earnings are $0.05 ahead of last year. We are confident we can deliver earnings within our annual earnings guidance range of $1.45 to $1.55 per share. So with that, let's open it up

(OPERATOR INSTRUCTIONS). The first question come from the line of Paul Ridzon with KeyBanc. Please go ahead.

Hey, Paul.

Mr. Ridzon, your line is open. Please go ahead.

I'm sorry, it was on mute. I had a question on smoothing out the new (inaudible) fuel costs.

Yes.

When do you expect a decision, is that an '08 issue to watch?

Yes, we expect a decision in September. Assuming we are successful, that will reduce O&M within the Minnesota jurisdiction by about 25 million. So that's why Paul, we are optimistic about the outcome and that should get us right back in line with our annual O&M guidance.

So your guidance is contingent upon getting that regulatory approval?

It was -- we assumed successful outcome of that approval when we developed the 2 to 3% guidance range last year.

Okay. Thank you.

Thank you. Your next question comes from the line of Dave Parker with Robert W. Baird. Please go ahead.

Hi, Dave.

Good morning. Just a question on the -- what you term sort of the shift or the rate design issue. Could you just provide a little more color on that?

Yes. There's a couple of things that are happening, Dave. I mean, as I mentioned, we are seeing, I think, pretty strong sales growth. Let me break it down for you in a couple of different ways. In Colorado, we are actually seeing pretty good growth in both residential and the C&I class. At SPS, it's primarily a large C&I; at NSP Minnesota, a little bit of a decline from what we expected coming into the year. Now, within those classes we are seeing far more sales from C&I than residential. And C&I has a lower unit margin contribution associated with it. ,In addition within the C&I class we are actually seeing more sales come from larger C&I customers, basically energy-intensive -- energy services customers than some of the smaller C&I classes. So they also have a smaller margin contribution per (inaudible) sale. The rate design issues that I referred to had to do with the fact that we did implement new rates in Colorado and SPS, and we shifted around some of the components of demand in energy in Colorado. And in SPS, we actually implemented seasonal rates that we implemented last year. So you have lower winter rates and higher summer rates. So we are seeing some of the effect of that. Overall, Dave, while this was obviously something that happened within the quarter and some people monitor going forward, we don't necessarily think that this a trend at all; and in fact, we are pretty pleased that our economies are showing the resiliency that they seem to have as evidenced by overall sales coming in strong.

Yes, you're unique. Most people are explaining sales off across all customer classes. Your C&I, the sales pick up, is that because -- I think you mentioned earlier the E&P segments going well? Obviously in Texas, but at other places as well?

Yes, very much Texas; but also in Colorado, which is having a resurgence and that's becoming an energy state, not only in oil and gas but also in the commodities side with mining, so we are seeing a lot of that. And even the residential side in Colorado is coming through okay. It is a bit flat up here, Dave, in Minnesota and Wisconsin.

Okay. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of [Annie Powell] with Alliance Bernstein. Please go ahead.

Hi, Annie.

Hi, good morning -- good afternoon, actually. Two questions I have. On the income statement that you have a conversation by management expenses rose about 44% in the quarter. Can you kind of go through what's in it? And then what kind of trends do you see going forward? And the second question has to do with your accounts receivable and bad debt. Can you clarify how bad it is since you have some headline moves about shutting off some of the services?

Let's -- okay, let's address the first one, demand side management and the various conservation programs we have. We have -- we are implementing state policy. We've always been, I think, on the forefront of demand side management. We are stepping that up, Annie, as our states have asked us to do. Those -- so the expenses for things for saver switches and various interruptible programs and all the other things do you to conserve energy, which we think are very important, those expenses are increasing. We get very timing recovery of those as well. So if you look at the margin table, you will see some increases in what we are picking up in margin as a result of those programs. So that's -- that's the -- I hope the explanation you were looking for on the conservation programs. Turning to accounts receivable and bad debt, while you've read those headlines, the reality is our bad debt is tracking just like it has been over the last couple of years. So there's been some shutoffs, et cetera, but bad debt is -- we are forecasting bad debt to be right on top of where it was in '07, which is about where it was in '06. And I take that as a sign of just how much more disciplined we've become in our collection processes, in our rate design; and you may remember that in Colorado we didn't have a late fee until the late rate case per residential customer. So all of those things combined, I think, are preventing the bad debt from rising out of control.

Thank you.

Thank you.

Thank you. Next question comes from the line of Ashar Khan with SAC Capital. Please go ahead.

Hey, Ashar.

Hey, how are you doing? If I understood correctly, you said if you get this ruling on the O&M you'll be able to reverse certain expenses. Am I right, if I understand it correctly?

Yes, I mean, what we are looking to do is amortize those refueling costs over the full refueling period -- typically 18 months -- it depends on the plan. This is the year that you recall that we have two outages, versus last year we had one. The filing itself asked for that accounting change, which we think is a best practice, to be effective at the beginning of the year, and we filed this quite some time ago. It's a bit backed up because of the number of dockets that the staff is working through. If we're successful, that should reduce O&M expense by about 25 million or roughly, Ashar, what one refueling outage costs typically.

Okay. And so if it comes in September, you book it in the third quarter, correct?

That's correct.

And if it's after September it will get booked in the fourth quarter?

It would get booked in the fourth quarter; and again, we are asking for treatment effective beginning of the year.

And what's the plan with the Colorado rate case -- the timing and the test year?

Well, it will be a forward test year. The timing of that we are still working through as we make sure that the filing incorporates Comanche 3 and when that is anticipated to come online. So we are working through the final details there, but we will be filing a rate case in Colorado. Timing will be subject to the things I just described.

Okay, but this year or no?

It should be this year, possibly the very beginning of next year; and again, Ashar, that would be basically our assessment of what makes sense to incorporate the various projects that are coming into service during that time frame.

Okay. And then could you just talk -- could you give us some ROE information on the different subs, what they are earning right now on an LTM basis?

You know, I would -- I would say that by and large most of the -- SPS continues to struggle, as you might imagine. Colorado and Minnesota are probably slightly under earnings based upon their authorized returns. Wisconsin is in a similar situation. So, does that give you a little bit of color, Ashar?

Yes, that's fine. Thank you.

(OPERATOR INSTRUCTIONS). Our next question come from the line of Danielle Seitz with Seitz Research. Please go ahead.

Hey, Danielle.

Hi. I just was wondering if from the hearings that have been taking place regarding resource plans in those states, is there anything that would assume some changes in your -- potential changes in your CapEx schedule, or most of it is pretty much in line so far?

I would say probably most of it's in line, Danielle. I mean, you recall that when we issued our CapEx forecast last year, we had a pretty large amount of CapEx in what we call potential. If I recall right, it was I think anywhere between 800 to 1.4 billion -- depending upon how these resource plans come out. what opportunities we find to invest, what the Commissions decide they would like to us invest in versus continue to purchase. We are working through those. A little too early to tell but, again, I think we'll get outcomes that allow to us make the kind of investment we want to make. We have a 500-megawatt RFP out here in Minnesota for basically turn key win. Those bids, we've been very happy with the quality of the bids we've seen and we think that will give us some good opportunities. But stay tuned. We'll know a lot more by the end of the year.

Thank you.

Okay.

Thank you. And management, I am showing that there are no further questions. I will turn it back to you for closing comments.

Well, I appreciate your questions and your interest; and if you have any more follow up questions, as always, contact Paul Johnson or the rest of the IR team, and I look forward to seeing you soon in the various course we all attend. Thank you.

Ladies and gentlemen, that will conclude the Xcel Energy second quarter 2008 earnings results conference call. We do thank you again for your participation; and at this time, you may disconnect and have a nice day.