埃克西爾能源 (XEL) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Xcel Energy third quarter 2009 earnings conference call. At this time, all participants in a listen-only mode. Following the formal presentation, instructions will be given for the question and answer session. (Operator Instructions). As a reminder, this conference is being recorded, today, Thursday, October 29, 2009.

At this time I would now like to turn the conference over to our host, Paul Johnson, who is the Managing Director for Investor Relations and Assistant Treasurer. Sir, you may begin.

Thank you. Welcome to Xcel Energy's third quarter 2009 earnings release conference call. I'm Paul Johnson. With me today is Ben Fowke, President and Chief Operating Officer; Dave Sparby, Vice President, Chief Financial Officer; Teresa Madden, Vice President and Controller; [Scott Wilensky], Vice President, Regulatory and Resource Planning; and George Tyson, Vice President and Treasurer.

Today, we plan to cover our third quarter results and provide a business update. In addition, we'll provide additional information in our 2009 guidance. Please note that 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 to differ from those anticipated are described in our earnings release and our filing with the SEC. You will also notice that today's press release refers to both GAAP and ongoing earnings. Since there wasn't a material difference between GAAP and ongoing earnings, we'll refer to GAAP earnings during this morning's discussion.

I will now turn the call over to Ben.

Thanks, Paul and good morning, everyone. This morning, we recorded third quarter 2009 earnings of $221 million and $0.48 per share compared to $223 million or $0.51 per share in 2008. In a few moments, Dave Sparby will walk you through the results. I'd like to focus my comments on how we're performing relative to our expectations from the beginning of the year.

Let me begin with sales. Going into 2009, we forecasted weather normalized electric sales would be roughly flat with 2008. As you're well aware, electric sales nationwide have been adversely impacted by the economic downturn. While the impact on our service territory has been less dramatic, year-to-date weather-adjusted electric sales are down 1.7%. As a result, we estimate that the decline in electric sales reduced our year-to-date earnings by a little more than $0.02 per share. However, the decline in electric sales has largely been confined to the C&I class, and the impact has been partially mitigated by demand revenue. On a consolidated basis, our year-to-date residential weather-adjusted sales have actually increased by 0.5%. While the economy has generally been an issue for all companies across the United States, weather and tax issues have been the most significant drivers in the third quarter and year-to-date results for us.

Year-to-date weather has reduced earnings by $0.06 per share with the majority of the impact in the third quarter. In addition, we've experienced a higher than expected effective tax rate which reduced earnings by a little over $0.02 per share year-to-date. To offset the impact of unfavorable weather, lower sales, and higher effective tax rate, we've taken actions throughout the year to reduce expenses in order to deliver earnings within our guidance range. As a result of these actions, we expect our 2009 earnings to be near the mid-point of our guidance range of $1.45 to $1.55 per share. At the same time, we're meeting our financial objectives, we're also providing excellent customer service and reliability to our customers, where we've seen improvements in both customer satisfaction and reliability indicators in 2009.

So with that, I'll turn the call over to Dave Sparby, who'll walk you through the third quarter details and provide a regulatory update.

Thanks. As Ben mentioned, we reported third quarter earnings of $0.48 per share compared to $0.51 per share a year ago. Let's now take a look at the details, starting with a review of the quarterly results at each of our subsidiaries. Third quarter earnings at PSCo were flat. The positive impact of the electric rate increase that went into effect in July was offset by rising costs and unfavorable weather. At NSP-Minnesota, third quarter earnings declined by $0.05 per share. This decline resulted largely from cooler than normal temperatures, higher effective tax rate, and timing of nuclear outage costs. At SPS, earnings increased by $0.03 per share for the quarter. We continue to see improved financial results, due to 2009 electric rate increases in Texas and New Mexico and the resolution of fuel cost issues. At NSP-Wisconsin, earnings were flat compared to third quarter last year.

As we look at the quarter on a consolidated basis, there are lots of ups and downs that explain the $0.03 per share decline. It can really be summarized in two words -- weather and taxes. We experienced very cool temperatures this summer which reduced earnings $0.05 per share when compared to normal temperatures and $0.04 per share when compared to last year. Couple of interesting facts on third quarter weather. In Minneapolis, there were 40% less cooling degree days than normal. While in Denver, there were 26% less cooling degree days than normal. In addition, in both cities, there was less than half the number of days exceeding 90 degrees compared to normal. Which is just all another way of saying it was really cool this summer.

Now, as you read through our earnings release, you may have noticed that our quarterly effective tax rate was 38.4% for 2009, compared with 35.3% for 2008. The impact of a higher effective tax rate reduced earnings by $0.02 per share and was primarily due to the recognition of additional state unitary tax expense and the establishment of a valuation allowance against certain state tax credit carryovers. As a result, we now expect our annual effective tax rate to approach 36%. Next, I'll provide more detail regarding drivers that affect various lines of the income statement during the quarter. Electric margin increased by $85 million during the quarter. This was largely driven by rate increases in Minnesota, Colorado, Texas, New Mexico, and Wisconsin. These rate changes increased electric margin by $98 million. Conservation revenue, nonfuel riders, and the MERP rider all served to increase retail electric margin by total of $27 million. It's important to recognize that these increases in the conservation revenue recovery are largely offset by higher conservation and DSM expense. A couple of factors partially offset these positive results including, cooler summer temperatures, which we reduced margin by $26 million, accruals to record a customer refund of $25 million. This adjustment largely related to a decision in the Minnesota rate case to extend the depreciable life of our Prairie Island nuclear plant. This is offset by lower depreciation expense, and finally, higher capacity costs primarily at SPS, which reduced margins by $11 million.

Turning to expenses, third quarter O&M expenses increased about $44 million or 10% compared with 2008. As we've discussed previously, in the third quarter 2008, the Minnesota commission approved our deferral and amortization accounting recommendation for nuclear refueling outages effective to the beginning of 2008. This decision resulted in a year-to-date reduction of previously expensed outage costs and the deferral of revenue associated with the recovery of the nuclear outage expenses. The timing of this adjustment resulted in an O&M deviation of $27 million for the quarter. In addition, we've experienced rising benefit costs for pension, medical expense, and higher nuclear operating costs. As Ben mentioned, we've taken action to manage our O&M expenses, and we'll continue to do so as we finish the year. While we're taking steps to reduce costs, we will not sacrifice customer service or reliability.

As you look at the quarterly deviations in our annual guidance, you will note that depreciation expense is lower than previously expected. This reflects the recent Minnesota commission decision to extend the depreciable life of Prairie Island by ten years, which reduced both the rate increase and the depreciation expense. Next, I'll touch on some recent regulatory developments in our major jurisdictions. First in Minnesota, the PUC recently approved $91 million of rate relief based on a 10.88% return on equity. The primary difference between our request and the level of approved by the commission was the recognition for ratemaking purposes of a ten-year life extension for our Prairie Island nuclear facilities. This decision lowered both our revenue requirement and our annual depreciation and decommissioning expenses by about $40 million. This adjustment will not affect net income, but it will reduce cash flow. Overall, we view the decision as a constructive outcome.

In Colorado, we have a pending request seeking an electric rate increase of $177 million based on a 2010 forecast test year and an 11.25% return on equity. In September 2009, interveners filed testimony recommending rate increases below our request based on an adjusted historic test year. In mid-October, we filed our rebuttal testimony, which included a proposed earnings test to address intervener concerns regarding the forward test year. Hearings have started and we expect a decision before year end with new rates effective January 2010. While the intervener testimony is disappointing, we remain optimistic we'll reach a constructive outcome in this rate case, much like we've done in the past. In June, we filed a request to increase Wisconsin retail electric rates by $30 million and purpose no change in our natural gas rates. This request is based on an ROE of 10.75% and 2010 forecast test year. Staff recommended a rate increase of $14.5 million based on a 10.75 ROE and a 51.6 equity ratio. About $6.5 million of the staff's recommendation is the result of changes in depreciation for the life of Prairie Island. We expect a decision by year end and new rates effective in January 2010. Also in June, we filed a request to increase South Dakota electric rates by $19 million based on an ROE of 11.25% and a 2008 historic test year with adjustments for known and measurable changes. This is the first rate case we filed in South Dakota since 1992. We expect a decision by year end with new rates effective January 2010.

That concludes my prepared comments. Now I'd like to turn the call back to Ben for some closing remarks.

Thanks, Dave. Historically, we've issued our next year's earnings guidance on our third quarter earnings call. However, due to pending rate cases, we plan to issue 2010 earnings guidance later in the year. Let me give you some insight into 2010. The key driver is clearly the Colorado rate case, where we expect a decision by year end. Rate increases in Wisconsin and South Dakota will also have an impact; however, to a lesser extent. We expect electric sales will bottom in 2009 and grow about 1% in 2010. While we continue to strive to keep cost down, we expect O&M expenses will continue to increase, driven largely by nuclear costs, pension and medical expenses, and plant additions. Depreciation expense will increase, and AFUDC earnings will decrease, due to the completion of major projects like Comanche 3, Fort St. Vrain, and the Riverside repowering. In summary, the combination of cool weather, a higher effective tax rate, and a sluggish economy, have made it a challenging year. That being said, we remain committed to achieving our financial objectives and providing value for our shareholders. We are confident that we will deliver earnings within our guidance range. With that, I will turn it back over to Dave and open it up for questions.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. (Operator Instructions). Our first question does come from the line of Paul Patterson with Glenrock Associates. Please go ahead.

Good morning, guys.

Good morning, Paul.

Just on the tax issue, how should we think of 2010? What's the tax rate that we should be thinking about in 2010?

Paul, we'll provide more guidance later in the year. One of the factors that affected our effective tax rate this year was bonus depreciation, which will expire at the end of the year.

Okay. Then when you talked about Colorado in the four test year and the disappointing intervener testimony as you saw it, what -- is there any possibility of settlement in Colorado, or are we really past that point in time?

Paul there's always the possibility for a settlement up until the time of the commission's decision.

Okay. When we're talking about -- you guys have gone through a large number of rate cases. By the end of this year it looks or by the beginning of next year, most of these things will be completed. How should we think about the regulatory landscape or your plans to go in for additional regulatory relief or when you might need to do so just sort of generally speaking after all that you've accomplished so far? Obviously it depends on what you get from some of of these jurisdictions that haven't come out. Could you give us a little bit of a flavor for that?

Paul, at this time, we're looking at our gas assets here in Minnesota and considering a rate change in this jurisdiction. We're also looking at our wholesale rates in our Colorado jurisdiction, and those are what we're seeing in the near term for rate relief.

Paul this is Ben. I would just say we continue to invest very heavily in our infrastructure and into the environment within all our jurisdictions. I think you can expect that we'll be filing rate cases fairly routinely in all our jurisdictions, but that's what we've been doing obviously over the last few years.

Okay. So routinely, you mean within 12 months or so, we might be seeing new rate cases being filed? I know you guys have a lot of clauses and stuff as well. So we might be seeing more general rate cases coming out of these jurisdictions?

I wouldn't say every 12 months, Paul. One of the helpful things about riders, et cetera, is that it helps minimize how often you have to file rate cases and how large those rate cases are. One of the things I think we've been successful in is not having to ask for double digit kind of increases typically. So --

Just finally, when talking to your industrial customers and your large commercial customers, what is their expectation for the economy in 2010? Do you have any general sense as to what your people in the field are gathering from your discussions with major consumers of electricity?

Our estimates for sales that Ben discussed about 1% reflects generally the consensus of those customers, Paul. We developed our forecast in part based on their expectations together with our modeling of their historic usage and bringing that together with some broader indicators from global insights. And we found in the areas we serve very much a consensus around that 1% figure. So it's a slow recovery.

Thank you very much.

Our next question comes from the line of Dan Jenkins with the State of Wisconsin Investment Board. Please go ahead.

Good morning, Dan.

Good morning. I was curious on the O&M expense, the biggest side of this, nuclear outage costs deferrals and kind of the change and timing of that. I was wondering -- looking forward to 2010, how should we think about that, given the changes that have gone on there? Do you expect that to be basically flat year-over-year or go down based on that schedule, or what should we be thinking there?

Dan, it will vary a little bit, depending on the outage schedule, but as we move through an outage of each of the units this year, we will see that expense become much more normalized from year to year.

Okay. Similarly, given the Comanche plant's supposed to be online in the fourth quarter here, how will that impact O&M in 2010?

It will have an increase in our generation costs for O&M in PSCo.

Do you have a sense of how big of an impact that will be?

Go ahead, Scott Wilensky.

It's around $16 million a year, but that's part of our rate request pending in Colorado right now.

I was wondering if you have the year-to-date through September CapEx and cash flow from operations?

Yes. Cash flow from operations is $1.6 billion and CapEx is $1.3 billion.

Okay. Thank you. That's all I have.

Thank you.

(Operator Instructions). Our next question does come from the line of [Andrew Levi] with Incremental Capital. Please go ahead.

Hi. Good morning, guys.

Good morning.

I just have been watching your rate cases and recommendations, things like that. Is it becoming more difficult environment, do you believe, because this doesn't seem like you're getting the same type of recommendations or increases or ROE's that you were able to get a year or two ago. Is the environment tougher? Is it going to be tougher as you go in for more increases?

Andrew, this is Ben Fowke, I was just at the rate case and testifying at it. I think a lot of people in this room are going to be. I think it's proceeding just the way a typical rate case would. I think historically, we've had some pretty constructive settlements. The last big one was in Minnesota where we settled at 10.88% and had a number of issues I thought constructively resolved as David mentioned on the call. I think one of the things we've done a good job at is continue, even in these troubled economic times, to receive constructive regulatory outcomes. I think a lot of it has to do with the alignment we have with our stakeholders and the state policies that we're implementing. Dave, I don't know if you --

I agree.

I think we're doing pretty well, all things considered.

Thank you.

And at this time, there are no further questions. I would like to turn the conference back over to you, Dave Sparby.

I want to thank you all for participating in our third quarter earnings call this morning. I look forward to meeting with many of you at the EEI Financial Conference next week. In addition, I hope you will join us in New York on December 2nd for our annual investor meeting. This year we plan to introduce some new presenters that will provide unique perspectives on our Company. If you have any follow-up questions, Paul Johnson and the IR team are available to take your calls. Thank you.

Thank you. Ladies and gentlemen, this does conclude the Xcel Energy third quarter 2009 earnings conference call. We do thank you for your participation on today's call. You may now disconnect your lines at this time.