埃克西爾能源 (XEL) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2010 earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) The conference is being recorded today, Thursday, April 29th, 2010.

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

Thank you and welcome to Xcel Energy's first quarter 2010 earnings release conference call. I'm Paul Johnson. With me today are 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 first quarter results and accomplishments. In addition, we are reiterating our annual guidance of $1.55 to $1.65 per share. Please note there are slides that accompany the conference call which are available on our web page. I want to remind everyone 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 in our filings with the SEC. You will notice that today's press release refers to both GAAP and ongoing earnings.

The difference between first quarter 2010 ongoing and GAAP earnings is related to nonrecurring items which I will explain in a moment. First quarter ongoing earnings were $0.42 per share in 2010 compared with $0.38 per share in 2009. GAAP earnings were $0.36 per share in 2010 compared with $0.38 per share in 2009. The $0.06 variance is due to the following items. In March of 2010 the Patient Protection and Affordable Care Act was signed into law. One of the provisions of the act reduces deductibility of retiree healthcare costs. Based on this provision, Xcel Energy is subject to additional tax and is required to reverse previously recorded tax benefits. As a result, we expensed $17 million or $0.04 per share of previously recognized tax benefits related to Medicare, part D subsidies in first quarter of 2010.

In addition, after reaching an agreement in principle with the IRS during the first quarter, Xcel Energy record an adjustment of $0.02 per share for interest and taxes associated with the completion of the comprehensive tax reconciliation related to Xcel Energy's discontinued company owned life insurance program. We do not consider either of these two items to be part of ongoing earnings as they are not expected to reoccur in the future. Management believes ongoing earnings which removes the impact of nonreoccurring items provides a more meaningful comparison. As a result, we will discuss ongoing earnings during the remainder of this call. Please see our first quarter earning release for a reconciliation of GAAP to ongoing earnings. With that, I'll now turn the call over to Ben Fowke.

Thanks, Paul, and welcome everyone.

As Paul mentioned, this morning we reported first quarter ongoing earnings of $0.42 per share compared with $0.38 per share in 2009. This is a positive start to the year. Dave Sparby will discuss quarterly results in more detail.

I'm focus my comments on some recent developments in Colorado. We recently announced an agreement to acquire two natural gas plants from Cal Pine for $739 million. These generation facilities currently provide power to our customers in Colorado through purchase power agreements. Acquiring these assets will provide long term cost savings to our customers. We believe that owning these plants is important, as we strive to meet Colorado's new 30% renewable portfolio standard by 2020.

In addition, we expect the transaction will be accretive in 2011, and will drive earnings growth for shareholders. The acquisition is subject to state and federal regulatory approvals. In May we will make a filing with the Colorado Commission seeking approval of the acquisition and interim rate recovery of the revenue requirements associated with the plants. We anticipate that this acquisition will have a small impact on customer bills as the rate increase will be offset by savings in capacity payments under the current PPAs. The transaction is expected to close in December, 2010.

In April, the Clean Air Clean Jobs Act Was signed into law by Governor Ritter of Colorado. The bill establishes a timeline and regulatory framework for PSCO to develop a plan to potentially retrofit, retire or replace 900 megawatts or more of older and less efficient coal fire generation. PSCO may retrofit its existing coal-fired plants with emission controls or retire and replace the plants with natural gas fire generation or other low emitting resources. We will file our plan with the Colorado PUC by mid-August and the commission will rule on the bran by year-end. The law allows for right of recovery investments associated with this bill. The bill also allows for interim rates and helps with achieving forward test years in general rate cases. This is another great example of our ability to work with key stakeholders to arrive at a creative solution to reduce emissions while ensuring timely recovery of costs.

Finally, we continue to make progress putting Comanche 3 into commercial operation. During our recent testing phase, the plant delivered output of approximately 800 megawatts which is above the expected output of 750 megawatts. Comanche 3 is currently offline to prepare the unit for final full load, performance tuning and testing. A number of punch list repairs associated with the plant will be completed and we will also install baffles to address a noise issue that was caused by the new induced draft fans. We now plan to bring the plant into service in early May. While we've had a few startup issues to work through, we are very confident this plant will deliver strong value to our customers.

With that I'll turn the call over to Dave who will walk you through our first quarter results, discuss our financing plans and provide a regulatory update.

Thanks, Ben. Now let's take a look of the details of our first quarter results starting with a review of each of our subsidiaries. For the quarter, earnings at PSCO increased $0.06 per share. largely due to the rate increases that went into effect in July, 2009 and January, 2010. At NSP Minnesota. earnings decreased by $0.02 per share due to warm winter weather and higher O&M costs. At NSP Wisconsin earnings declined by $0.01 per share due to fuel recovery, sluggish sales and higher O&M costs.

Higher electric rates effective January 2010 offset some of these negative factors. At SPS, earnings were flat for the quarter as higher operating costs offset new rates that went into effect in February and July of 2009. Next, I'll discuss the drivers that affected various lines of the income statement beginning with retail electric margin. Electric margin increased by $46 million for the first quarter of 2010. The increase was largely driven by rate increases in Colorado, Texas, Wisconsin and New Mexico, which improved electric margin by $57 million.

Conservation revenue increased by $13 million. However, this revenue is largely offset by higher conservation and DSM expense. Retail sales increases excluding the impact of weather increased electric margin by $6 million. These positive factors were partially offset by a variety of smaller items which are detailed in our earnings release. We also had strong gas margins which increased $12 million in the first quarter. The increase was largely due to an interim rate increase in Minnesota, the impact of weather and higher weather normalized sales.

Turning to expenses, first quarter O&M expenses increased about $9 million or about 2%. While we did a nice job of keeping cost increases to a minimal level for the quarter, some of this reflects expense timing as we expect that annual O&M costs will increase approximately 6 to 7% for the year. Next I'll provide you with an update on our financing plans. We have updated our plans as a result of our agreement to acquire two natural gas generation plants from Cal Pine. The acquisition was not included in our previous capital expenditure forecast. In addition to periodic issuance and repayment of short term debt, we plan to issue the following securities at the holding company. We plan to issue approximately $500 million of long term debt during the second quarter of 2010.

In addition, we plan to issue approximately 400 million of equity in 2010 or 2011. At NSP Minnesota our financing plans have not changed. We plan to issue approximately $500 million of first mortgage bonds in the third quarter of 2010. We also now plan to issue approximately $400 million of first mortgage bonds at PSCO in the fourth quarter of 2010.

Generally speaking, the proceeds from these transactions will be used to fund our capital investment program, term out our short term debt, fund 2010 bond maturities and for general corporate purposes. In addition, a portion of the proceeds from the holding company transactions will be used to infuse equity into our utility subsidiaries. Our financing plan will enable us to maintain a solid balance sheet and strong credit metrics. As you're probably aware, our financing plans are subject to change depending on capital expenditures, internal cash generation, market conditions and other factors. Lastly, we have a fairly light regulatory schedule, but let me give you a quick update on our pending and planned rate cases.

In November we filed a request with the commission to increase Minnesota gas rates by $16 million for 2010. The request is based on an ROE of 11% and equity ratio of 52.5% and a rate base of $441 million. The interim rates of $11.1 million went into effect in January and we expect a decision late this year. In 2009 PSCO filed to increase Colorado wholesale rates by $30 million based on a 12.5% ROE, a 58% equity ratio and a rate base of $315 million. We are in settlement discussions with our wholesale customers and expect rates to go into effect later in 2010.

Finally in the coming months we plan to file a Texas retail case in May and a Wisconsin reopener later this summer. We expect final rates from both cases to go into effect in 2011. This concludes my prepared remarks. Operator, we can now take questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) . And our first question comes from Ali Agha with SunTrust Robinson and Humphrey. Please go

Thank you, good morning.

Good morning. Ali.

When you talked about the Cal Pine asset acquisition, you said it would be accretive in 2011. Could you give us some sense of the magnitude of that accretion?

Sure. And it, of course, depends on the regulatory timing of approvals and other factors, Ali, but I think if you used a $0.02 to $0.03 cent benchmark, that would be pretty close.

Okay. Second question, Dave you talked about the expenses and how they were lining up for the year. Could you also give a sense on load growth and the assumption that you baked in for your full year guidance. So far are expenses and the load growth that you're seeing pretty much following the assumptions that you guys had made for the year?

Yes. We forecast about 1% load growth. We're still on track and this is on the electric side to see that. So far expenses are on track. So first quarter's following plan.

Okay. And my last question, also you alluded to the light regulatory calendar currently and a couple of filings later this year, but as you look into 2011 and beyond, you've come from a very packed regulatory agenda last several years. Where should we expect pickup on the regulatory agenda looking out the next couple of years?

Well, we continue to evaluate 2011 very closely. We have both some increasing rate base as well as increasing pension costs. So we're continuing to look closely at our larger jurisdictions, especially here in Minnesota, Ali.

I see. Thank you.

(Operator Instructions). As a reminder, if you're using speaker equipment, you will need to lift the handset before making your selection. And our next question comes from the line of Nathan Judge with Atlantic Equities. Please go ahead.

Good afternoon. Quick question. What's your sensitivity to every 1% change in demand growth for this year and next?

It depends a little bit on the company, Nathan, and a little bit on the class that's affected, but if you look to impact of both demand and energy change together would be about $30 million.

And that would be net income, not EBIT. Is that right?

Yes.

Nathan, that's pre-tax, pre-tax margin.

$30 million that's assuming that there is a pretty comparable change across --

Right. Because each of the companies, Nathan, have different margins and, of course, the classes have different margins and then there's seasonal rate differences, also.

Nathan, you remember -- this is Ben -- you remember last year we were addressing this question and we kind of used that $30 million rule of thumb, but the impact wasn't as severe because we were seeing declines in places that have more demand-based revenue than variable recovery. So to Dave's point it really depends, but that's just a real rough rule of thumb.

Just to add to that, if we weren't seeing a change in demand just looking at the change in energy it would be closer to $20 million, but again that's a very general rule of thumb.

Great. And just to confirm, because you mentioned that your expectations were being met with demand growth, I just know that you're expecting to grow at 1%, but your demand growth in the first quarter was well above that on a normalized basis. I guess could you give us further details on how you're seeing demand play out this year as there does seem to be some fairly robust recovery in demand across the nation and in your service area?

Well we're, of course, measuring from a very low point last year, Nathan. We had seen significant dropoff in sales first quarter last year. So quarter to quarter it looks a little greater, but you shouldn't think of that as necessarily representative of what you'll see in the later quarters and although this past quarter we have seen some nice pickup in Colorado and SPS, frankly, we haven't seen it at NSP Minnesota or NSP Wisconsin. So we're cautiously optimistic, but we're not at the point of saying we're going to beat that 1%.

Great. Thank you and just on -- I know you've got -- but could you give us an idea where you are with your coal inventories and anything you see in that market. Thank you.

We're at about 44 days. We're just a little bit ahead of target or above target, better said.

Thank you.

Thank you. And our next question comes from line of Timothy Yee with KeyBanc. Please go ahead.

Morning. Could you just give us a little more detail as to I guess what to expect as far as the Colorado approval for the acquisition and the timing of the interim rates like when that might go into effect?

Sure. We'd expect the Commission to give us a decision before year-end and I think realistically you'd expect some type of rider recovery to begin in January, 2011.

And then I guess just, you know, looking at your financing with, you know, the mention of the equity and I'm just trying to reconcile that with no change in your guidance assumption for shares outstanding this year, would be it fair to say you might still be opportunistic with the timing of any equity issuances in 2010 or is that --

That's a fair interpretation. I mean we obviously there's a time frame that we provided in 2010 or 2011 with respect to when we'll issue that. So you shouldn't read into our guidance that we've made a decision other than that.

Okay. Thank you very much.

Thank you.

Thank you. And our next question come from line of Mark Barnett with Morningstar. Please go ahead.

Morning, guys.

Good morning, Mark.

Just heard from some of your peers about some recovering industrial demand, particularly in the southeast and I'm wondering, you know, you guys are a relatively dispersed across the US. What sort of numbers are you seeing and if there are any trends that you think are worth noting.

Well, Mark, I'll say that, you know, we are seeing that trend that the large industrial customers are recovering and they're recovering first, but just like as demand declined, they were the first to decline and we saw the smaller C&I customers decline later. On the recovery we're seeing the large C&I, especially those affected by the stimulus bill, for example, those that manufacture parts for the automobile industry recover first, but our C&I sales altogether are still being anchored by small C&I which haven't seen the benefits of recovery get to them yet.

And is there any particular region? I mean have you seen a sort of disparity?

Yes, yes. Clearly Colorado and SPS have seen more of a net recovery in that regard. Large C&I offset the slow recovery of C&I. Here we haven't seen that yet. We've seen large C&I recovered, but slow C&I continues to lag them.

Okay. Thanks a lot. Appreciate it.

(Operator Instructions). One moment, please. And our next question comes from the line of Sarah Akers with Wells Fargo. Please go ahead.

Good morning. You mentioned in the K and proposal in Minnesota to eliminate the interim rates. I was wondering if you could give us an updates on that and anything else we should keep our eye on on the legislative front.

Yes. That proposal never made it out of committee. So it's no longer being considered in legislature. There is a bill reflecting some reporting requirements that are already pretty much incorporated into the state's regulatory framework. So there really isn't anything of any significance pending at this point.

Thank you.

And management, I show no further questions in queue at this time.

All right. Well, thank you, everyone, for participating in our first quarter call. If there's any additional questions, please call Paul Johnson in our IR team.

Ladies and gentlemen, this concludes the first quarter 2010 earnings conference call. If you'd like to listen to a replay of today's conference, please dial 1-800-406-7325 and for international participants please dial 1-303-590-3030 followed by the access code 428-0031 followed by the pound key. The replay will be available until April 30th, 2010. Thank you for your participation. You may now disconnect.