埃克西爾能源 (XEL) 2010 Q2 法說會逐字稿

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Xcel Energy second quarter 2010 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). This conference is being recorded today, Thursday, July 29, 2010.

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 2010 earnings release conference call. I am Paul Johnson. With me are Ben Fowke, President and Chief Operating Officer, Dave Sparby, Vice President and 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 second quarter results and provide a general business update. 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 evenings release and our filings with the SEC. Today's press release refers to both GAAP and ongoing earnings. GAAP earnings for 2010 include a $0.01 per share benefit from discontinued operations, largely due to the recognition of previously unrecognized tax benefits. Our comments this morning will focus on ongoing earnings, which do not include discontinued operations. The reconciliation of ongoing earnings per share to GAAP earnings per share is available in our press release. With that, I will now turn the call over to Ben Fowke.

Thanks Paul, and welcome everyone. This morning we reported second quarter ongoing earnings of $0.29 per share, compared with $0.25 per share in 2009. In a few moments Dave will walk you through the details of our quarterly results, but I would like to start by saying that after two strong quarters, we remain on track to deliver ongoing earnings within our 2010 earnings guidance range of $1.55 to $1.65 per share.

Now let me bring you up to date on some recent developments. In Colorado, I am pleased to report that Comanche 3 went into service in May and achieved commercial operation earlier this month. The plant is certified at 802 net megawatts, which is above the expected output before 750 megawatts. I am also pleased to note we continue to make solid progress on our CapX 2020 transmission project with construction now underway at our Monticello substation. In July, we received two of the five route permits needed in Minnesota for the project. The Minnesota Commission approved our application for the first segment of the Fargo line, and for all but one section of the Brookings line associated with the river crossing. We believe that we will be able to reach an agreement regarding this section, soon. Obviously, it takes a long time to build transmission lines, and we have been very successful in all aspects of the process. It is really exciting to see construction actually begin.

Another development that promises to benefit our customers is our plan to acquire two natural gas plants from Calpine for approximately $739 million. In May, we filed a request with the Colorado Commission seeking approval of the acquisition and interim rate recovery of the revenue requirements associated with the plants. In July we received FERC regulatory approval of the transaction, and the order imposes no conditions or modifications, other than routine requirements for post closing reports and filings. We have also received clearance into the Hart-Scott-Rodino Act. The Colorado Commission assigned an administrative law judge to our case, and developed a procedural schedule, which assumes a initial decision by the end of October. This is consistent with our request, and puts us on track for a December closing.

One more update from Colorado. The Clean Air, Clean Jobs Act was signed into law, in April. The bill establishes a timeline and a regulatory framework for Gasco to retrofit, retire or replace 900 megawatts or more of older and less efficient coal fire generation. The provisions of the bill are very similar to the successful Merck project we finished last year in Minnesota.

We will file our plan with the Colorado PUC in mid August, and the commission will rule on the plan by year-end. Our plan will include several potential alternatives, and our recommended solution. In light of the recent EPA proposals recording coal fired generation, the Colorado legislation is just another example of our ability to work with key stakeholders to arrive at a creative solution to reduce emissions while ensuring timely recovery of costs. I will now turn the call over to Dave, who will walk you through our second quarter results, discuss our financing plans, and provide a regulatory update.

Thanks, Ben. Let's start by reviewing second quarter results at each of our subsidiaries. Earnings at PSCo increased $0.04 per share, largely due to the rate increases in electric sales growth. Keep in mind, PSCo's 2010 earnings for both the quarter and year to date periods reflect rate increases from both 2009 and 2010 electric rate cases. New rates associated with the 2009 rate case went into effect in July 2009. As a result, improvement in PSCo's earnings in the second half of the year will be driven primarily from the 2010 rate increase.

At NSP Minnesota, earnings decreased by $0.02 per share, largely due to higher O&M costs, which offset electric sales growth. At SPS, earnings increased $0.02 per share due to the resolution fuel cost allocation issues, new rates that went into effect in New Mexico in July 2009 and electric sales growth. Finally, earnings were flat for the quarter for NSP Wisconsin.

Now, I would like to discuss the drivers that affected various lines of the income statement, beginning with retail electric margin. Electric margin increased $118 million for the quarter, largely driven by rate increases in Colorado, and to a lesser extent, South Dakota, New Mexico and Wisconsin. Together, these rate increases improved electric margin by $70 million. In addition to rate increases, other factors that improved second quarter electric margin included conservation revenue, which increased by $14 million, but is largely offset by higher conservation and DSM expense, $11 million associated with the reversal of the fuel cost allocation regulatory reserves at SPS, $10 million from warmer than normal weather, $8 million from retail sales increases, excluding the impact of weather, and other factors, which are detailed in our earnings release. Now in addition, I am pleased to note that our weather adjusted electric sales increased 1.5% year-to-date. This is fairly consistent with our expectations.

Turning to our natural gas business, margins increased $2 million for the quarter. Driven primarily by conservation revenue, which is largely offset by conservation and DSM expenses. Offsetting some of the improvement in margins, second quarter O&M expenses increased $44 million or 9.4%. Factors driving this second quarter increase in O&M expenses included $13 million of higher employee benefit costs related to performance-based incentive compensation and pension costs, $12 million of increased nuclear outage and plant operation costs, $7 million of higher labor costs, $6 million of higher plant generation costs, and other factors totaling an increase of $6 million. Through the first half of the year, O&M expenses increased 5.6%. We continue to project annual O&M costs to increase approximately 6% to 7% in 2010.

Let's move on to our financing plans. Our financing plans for the balance of the year are unchanged. In May, we issued $550 million of 10 year unsecured notes at 4.7% at the Xcel Energy Holding Company. At NSP Minnesota, we plan to issue approximately $500 million of first mortgage bonds early in the third quarter. At PSCo we plan to issue approximately $400 million of first mortgage bonds in the fourth quarter.

Finally, we plan to issue approximately $400 million of equity in 2010, or 2011. The timing of our equity offering will take several factors into account, including market conditions, the timing of the Calpine asset acquisition, capital expenditures, cash generation and overall liquidity. We have flexibility on the timing, and we will be opportunistic regarding our stock price.

The proceeds of the transaction 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, we will use a portion of the proceeds from the holding company transactions to infuse equity into our utility subsidiaries. Our financing plan will enable us to maintain a solid balance sheet, and strong credit metrics. As I am sure you can appreciate, our financing plans are subject to change depending on the timing of our capital expenditures, internal cash generation, market conditions, and other factors.

Given the number of investment opportunities we have, strong credit ratings are critical to support our strategy. We recently received positive news that Standard & Poors upgraded the corporate credit rating on Xcel Energy, NSP Minnesota, PSCo and SPS to A-minus from BBB-plus. They also affirmed the A-minus corporate credit raining on NSP Wisconsin. S&P stated that the rating upgrades reflected our successful execution of our strategy to invest in our regulated utilities, and recover costs in our regulatory jurisdictions, most of which they consider to be credit supportive. In addition, Fitch recently reaffirmed Xcel Energy's credit ratings.

Now let me give you a quick update on our pending and planned rate cases. In Colorado, we recently reached settlements but all but one of our wholesale customers. New rates, reflecting an electric rate increase of approximately $17 million for these customers, will be effective in July, subject to FERC approval of the settlement. In Minnesota we completed hearings in our gas rate case. Our request has been modified to a rate increase of about $10 million based on an ROE of 10.6%. The Office of Energy Security is currently recommending a rate increase of approximately $7.5 million, we anticipate a Commission decision this fall.

In May we filed for a $62 million electric rate increase in Texas. The request include an 11.35% ROE, and an equity ratio of 51%. On a net basis, the request seeks to increase customer bills by approximately $53.5 million, or 7%. Intervener testimony for this case is scheduled to be filed in September, and we anticipate final rates going into effect in early 2011. Looking ahead, we plan to file a limited reopener in Wisconsin next month. In addition, we anticipate the need to file an electric rate case in Minnesota later this year.

Finally, we're pleased to put our discontinued corporate owned life insurance program, or COLI, behind us for good. In July we reached a settlement with Provident Life and Accident Insurance Company, related to all our claims regarding our discontinued COLI program. Under the terms of the settlement, we received $25 million earlier this month. The settlement of $25 million or approximately $0.05 of non-reoccurring earnings per share will be recorded during the third quarter.

In summary, it has been a very good quarter. Comanche 3 came on line. We received route permits from two of our CapX 2020 projects. We reached a settlement in our COLI lawsuit. We continue to make good progress on various regulatory fronts, and we received an important credit rating from S&P, which recognizes the successful execution of our business strategy.

Year-to-date, our ongoing earnings are $0.07 ahead of last year. In addition, July weather has been warmer than normal. As a result, we're very comfortable reaffirming our ongoing earnings guidance of $1.55 to $1.65 per share. That concludes my prepared remarks. We're now ready for your questions.

Thank you, sir. (Operator Instructions). Our first question from the line of Ashar Khan with Visium Asset Management. Please go ahead.

Just wanted to check in. Could you just remind us when you come up with your Colorado environmental plan? When is that expected?

We expect to file that August 13.

August 13.

Yes.

And then just on your financing, if I could understand it, you said you could be opportunistic, with your stock at a 52-week high, and then you said it depended upon the timing of the Calpine acquisition. I was just trying to get a better sense as to, if you wanted could you dew point something in the immediate future, or do you have to wait for some more nods on the Calpine acquisition?

Ashar I'm really not going to elaborate beyond the prepared remarks in our script this morning on our equity issuance.

Okay. Okay. Thank you.

Our next question comes from the line of Daniele Seitz with Dudack Research Group.

Thank you. I was just wondering, could you explain the Minnesota reopener and also the regulatory decisions that will be made regarding CapX 2020 just from the point of view of how does it go into rate base, et cetera?

Sure, Daniele. What we have seen is the approval of our certificate of need, of our major lines here. In the CapX projects. Now we're currently relieving the cost of those projects through a rider mechanism, and also as Ben spoke to, we have received two of the very significant route permits that we were looking for, with one segment of one of those lines, we have to yet clear up, and also, some of those certificates of need have been appealed, and those appeals have been resolved, so we continue to advance on all fronts from a regulatory perspective and a cost recovery perspective.

Great. And also, I was wondering if you could elaborate on the Wicor pipeline and storage and what is the outlook at this junction?

It continues to operate this year, very much as planned with storage and transportation and we have been very please with what we have seen to date.

With some expansion expected in the future? What are your plans there?

I'm sorry Daniele --

Do you see any expansion in the future?

No, no, not at this point.

Okay, thank you.

Our next question comes are the line of Ali Agha with SunTrust Robinson Humphrey. Please go ahead.

Thank you, good morning.

Good morning, Ali.

David, given where you ended up through the first half and your comments that July obviously is trending harder as well, is it fair to assume that you're probably more comfortable on the higher end of the range that you have laid out for us for this year?

Ali, I think you need to go back and look at that guidance, and understand that some of those lines of expenditures are not proportional to the quarter. And, especially in northern utilities, O&M expenses are tilted a little bit more towards the third quarter, for example,. Also, you go back and take a look at where we are on interest and depreciation, and you see some back-end waiting. So, we have had lesser expense in the first half. You will see us catch up a little bit in the second half of the year. We remain very comfortable with the guidance range though.

Okay. Among your larger utilities, going into this year it appeared that Colorado Electric was the one that appeared to be underearning relative to other ROEs. Given the rate increases you have had full year of 2009 and the 2010 increase, is it fair to say that Colorado will pretty much be earning its authorized return this year?

We should get close to earning our authorized return.

Okay. And last question. Whether David, you or Ben would like to comment, you folks are obviously fairly active with EEI activities, so any recent read on how you are thinking things are shaping up out of Washington, whether in regards to the dividend, tax, or the EPA regulations, any thoughts from your perspective?

Ali, this is Ben. We're cautiously optimistic on the dividend, it will obviously come down to an overall tax bill and, hopefully, we can get that. As we all know, that is very important for the business.

As far as EPA goes, it is one of the reasons why we have tried to as an industry group get some comprehensive Federal legislation regarding climate change because we don't think the EPA approach is the right approach. And I think you have probably seen as we all have the death by a thousand cuts or regulations that is out there with EPA. I mean, it is not great. As a company we're positioned pretty well for what came out just recently but nevertheless, it is not the right way to go, but I think you're basically going to see gridlock on anything around that, for the foreseeable future. Hopefully, we won't see the same for the opportunity to reduce the dividend tax.

From a CapEx perspective, then, can we expect any changes for 2011 or even 2012, what you're currently budgeting?

I will let Dave give you the details but I think the short answer is no.

Yes, the answer is no.

Okay I will leave it at that, thanks.

Thank you. Our next question comes from the line of Leslie Rich with JPMorgan. Go ahead.

Hi, how are you?

Good morning.

You discussed in Wisconsin that you might file for a limited reopener, and I wondered if you could just elaborate on the magnitude of that and what items you're looking to address.

I will let Scott Wilensky, who is in charge of our regulatory area and is managing that filing speak to that.

Hi. That is going to address the capital costs for production and transmission that we have planned to incur in 2011, as well as an update of our fuel expenses. We're going to be in the neighborhood of a relatively modest increase in the 3% to 6% range. We're still obviously finalizing things.

Okay and you said you would be doing that in the third quarter?

Early in August, yes.

Okay. And that would be decided how quickly?

We're hopeful we will get a decision by the end of the year.

Okay great. Thank you.

Thank you. Our next question comes from the line of Dan Jenkins with State of Wisconsin Investment.

Good morning.

Good morning, Dan.

I was wondering if you could give us any insights on what you're seeing economically in your service territories, are you seeing some pickup in activity, or what's the read in Colorado and Minnesota and in the Southwest?

Sure, Dan, we have seen some pickup but it has not been across the board. When we talked to you last quarter, what we were seeing was some sectors who have continued to be strong, like energy, and other sectors continuing to be weak, like services, agriculture, and food. What we have seen more of in the second quarter is a pick up in some segments of manufacturing. Things like mining, some steel, some industries that make parts for automobiles. All pick up a little bit. But the increase in production and manufacturing has not been broad-based and that's why we have a bit more cautious outlook than maybe others do.

Okay. And then I was curious, on your break down of the electric margin. You have one item is the retail sales increase and then the other is sales mix and demand revenues. What is the distinction kind of between those two items?

What we see from time to time is a change in demand, Dan. And that's often reflective of customers moving between classes, the particular tariffs into effect and how they are affected by ratchets and other items.

Okay. Then the last thing I was curious, part of the increase in the O&M was related to line outages and nuclear outages. Just kind of what's the schedule going forward, how do you expect that to compare, say, in the second half?

With respect to the outage schedule, it will stay strong as I talked about earlier. This is a point in the year when a fair amount of that is done. I think it is important to keep in mind when you look year-over-year, this is a lot more normal summer for us. There was some things that we didn't have to do last year because it was much cooler. This year, the maintenance schedule, as particularly we bat maintenance that is key to the run hours and the starts of a lot of units, is going to look much more like our historic spend pattern.

As far as the nuke utilities, what is that? Are there any outages planned in the second half and --

There is just one outage this year, Dan.

And Dan, just a point to remember, is that we have a deferral and amortization method for our nuclear outages. As a result of that, what you see is a fairly levelized cost. Now obviously if nuclear outages increase in cost, that cost would be reflected. And there is a little bit of a pickup in 2010 because this is probably the last year of the step increase of making the accounting change.

Okay. Thanks.

(Operator Instructions). Our next question comes from the line of Rudy Valentino with Morgan Stanley. Please go ahead.

Kind of as a follow-up to Dan's question, was there a part of the country in your service territory that had higher load increases than others? Was Minnesota stronger than Texas or Colorado? If you could give a little color on that?

Sure, Rudy. What we saw in first quarter was as we moved from South to North, and from West To East, we went from seeing recovery being above average, to recovery being much closer to average. So we saw recovery, and, in fact, the downturn being very slight in Texas. We have seen Colorado with an above average recovery, and what we have seen in Minnesota and Wisconsin parallels very much the national recovery.

Okay and then, speaking of Texas, I know you said in the Texas rate case, 11.35 ROE and 51% equity ratios, which send a release as far as what you asked for. What is it currently?

Yes, Scott do you want to address that?

Our last two rate cases in Texas have been achieved through black box settlements, where those items have not been identified specifically. There really isn't an authorized ROE at this point.

Okay so I guess that isn't known. Okay. That's all the questions I had thank you.

Thank you.

Our next question comes as a follow-up from the line of Daniele Seitz with Dudack Research Group. Please go ahead.

Thank you. In your August filing in Colorado, will that also include assuming your plan is adopted, riders associated to different projects and will that also include the two gas plants that you just purchased are or are the gas plants separate in terms of rate consideration?

Daniele, the answer to that question is yes it will, the plan will include a regulatory recovery component.

Okay and the gas plants will be part of it? Or are they -- the new gas plants that you just purchased? Or are they going to be considered separately from the plan?

If you're referring to the Calpine plants --

Yes.

That is proceeding under a different docket, and that is one that is to be resolved in October.

Okay. And that will include the rate consideration as well?

Yes.

Okay, thank you very much.

Thank you, our next question comes from the line of Timothy Yee with KeyBanc Capital Markets. Please go ahead.

Hi. Do you have any sense of when you might get that third route permit on CapX 2020 for that third line? I think it is the Hampton to Rochester, to Lacrosse?

Scott do you have an answer?

We're expecting that in the third quarter.

Okay and then I guess just a follow-up to that is, any sense of the, I guess what happens after the route permit as to when the construction begins for each of these lines, and the timing of the investments, for those lines?

We begin all of the -- the classic construction process, acquire land for lay down yards. Acquire any land that remains to be acquired and begin construction.

This is Ben. I think the lion's -- the ramp up, though, probably occurs a couple of years from now really when it relates to CapX 2020 and continues --

Sure the spend. If that's your question.

So kind of looking for a couple years from now when the ramp up begins.

Transmission will be a very big part of our capital profile as you get to the middle and latter part of the decade, and it's a result of all the years of effort we have already put into a project like CapX 2020. It takes a very long time to get these things done.

Great, thank you.

Thank you, and at this time there are no further questions in queue. I would like to turn the call back over to management for closing remarks.

I want to thank everyone for attending our second quarter conference call. We look forward to seeing many of you on the road over the next several weeks, and if there are any follow-up questions, Paul Johnson and the IR team are available to take your calls. Thank you.

Thank you. And ladies and gentlemen, this concludes the Xcel Energy second quarter 2010 earnings conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 800-406-7325 and enter the access code 432-4981. ACT would like to thank you for your participation, and you may now disconnect.