埃克西爾能源 (XEL) 2011 Q4 法說會逐字稿

Good morning ladies and gentlemen, thank you for standing by. Welcome to the Xcel Energy Fourth Quarter 2011 Earnings Conference Call. During today's presentation all parties will be in a listen only mode, and following the presentation the conference will be open for questions. (Operator Instructions).

This conference is being recorded today, February 2, 2012. I would now like to turn the conference over to Paul Johnson, Vice President of Investor Relations and Financial Management. Please go ahead.

Thank you and welcome to Xcel Energy's year-end 2011 earnings release conference call. I am Paul Johnson. With me today are Ben Fowke, Chairman, President and Chief Executive Officer; Teresa Madden, Senior Vice President and Chief Financial Officer; Dave Sparby, Senior Vice President and Group President; Scott Wilensky, Senior Vice President and General Counsel; and George Tyson, Vice President and Treasurer.

Today we will discuss our 2011 results, provide you with our recent business and regulatory developments, and review our 2012 earnings guidance. Please note that there are slides that accompany the conference call and are available on our webpage.

Before we begin, 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 the earnings release and our filings with the SEC. I will now turn the call over to Ben Fowke.

Thanks, Paul, and good morning. I am pleased to announce that Xcel Energy enjoyed another successful year. I will review some of the highlights from 2011 and also comment on some of the challenges we face in 2012. Teresa will then discuss our 2011 results in greater detail.

As you probably read in this morning's press release, we reported 2011 earnings of $1.72 per share compared with $1.62 per share in 2010, representing a 6% increase. We feel good about delivering earnings results in the upper half of our 2011 earnings guidance range of $1.65 to $1.75 per share. This marks the seventh consecutive year that we have met or exceeded our annual earnings objective.

We were also successful in meeting our other financial objectives. We raised the annual dividend $0.03 per share or 3% to $1.04 per share, and we maintained our strong credit ratings.

Continuing to meet our financial objectives is certainly important. However, I'm equally proud that we delivered a high level of system reliability in a year that clearly presented us with some weather-related challenges. In addition to a hot summer throughout our service territory, we experienced some rather noteworthy storms in 2011, including a tornado in a densely populated Minneapolis neighborhood and early season snow storms in the Denver area.

All of these storms resulted in significant damage and widespread power outages. I commend our employees for how rapidly and thoroughly they responded to these challenging events, restoring service in all situations in record time.

Delivering value to our customers has led to a record customer satisfaction rating of 93% in 2011, slightly above the 92% rating we received in 2009 and 2010. We had some significant operational successes in 2011 that should position us to continue to provide a high level of service to our customers for many years to come. To name a few, the NRC renewed the operating license for our Prairie Island plant, authorizing the units to generate emission-free baseload generation for another 20 years.

In Texas, we put the Jones 3 combustion turbine into service one year early and substantially under budget. At NSP, the MISO board approved multivalue project status for the Brookings Hampton line, with a projected investment by Xcel Energy of $480 million. And we had the first segments of SB 100, Power for the Plains and the CapX2020 transmission projects, which totaled over 180 miles going to service.

In addition Xcel Energy was named to the 2011/2012 Dow Jones Sustainability Index. This is the fifth year we earned a place on the Index, which includes companies considered to be best in class in terms of economic, environmental and social performance. Xcel Energy also ranked second out of 2500 publicly traded companies on Trust Across America's 2011 list of Most Trustworthy Companies in the United States.

Another positive event occurred in late 2011 when the DC Circuit Courts suspended the order on CSAPR. This is great news for our customers, particularly in Texas. The unexpected inclusion of Texas under CSAPR created significant issues for SBS.

With limited options to comply by 2012, our plan was to alter the dispatching of our plants in Texas by simultaneously reducing the energy output of our coal plants while increasing the operation of our natural gas plants. The stay allows us to defer to the real significant cost increases in potential reliability problems which would have affected our customers at SPS. We are hopeful that the Court's decision on the merits of the rule, expected later this year, will enable us to comply in a more reasonable, cost-effective manner.

Our five-year capital forecast includes about $470 million for CSAPR. While it's possible the timing and the total investment may change, we don't plan to revise our forecast until there is more clarity surrounding the Court's final determination on the rule.

So 2011 was a good year. Unfortunately, 2012 is not beginning as we had anticipated. As we noted in mid-January, the Colorado Commission's decision to deny our request for interim rate increase of $100 million poses a challenge for us as we start the year.

In addition, our fourth-quarter weather-normalized electric sales declined slightly, something we haven't experienced since 2009. As a result, our annual weather-adjusted sales growth was only 0.06% in 2011. This leads us to believe that sales growth in 2012 could potentially be weaker than we originally forecasted.

Compounding the negative sales trends, the winter has been relatively mild thus far. We estimate that the mild weather in January will reduce first-quarter earnings by approximately $0.02 per share.

Finally, we received our property tax statements in December and they were higher than we anticipated for both 2011 and 2012. The combination of these factors creates some headwinds for us. Fortunately it's early in the year, so we have time to take action. And we are.

While we are facing some challenges as we begin 2012, I believe our long-term prospects remain very favorable. Specifically, I believe the recent setback in Colorado was not indicative of an erosion in the regulatory compact. While the Colorado Commission did not authorize interim rates, they did approve an accounting order that will allow us to establish a regulatory asset to offset the impact of the exploration of the Black Hills contract. This decision represents about $0.02 per share to our projected 2012 earnings.

Additionally, we are implementing actions to reduce O&M expenses which are expected to partially offset the impact of the headwinds I mentioned. We have established a solid track record of delivering on our financial objectives, and we intend to do so in 2012.

Now I would like to turn the call over to Teresa Madden.

Thanks, and good morning. Today I will discuss our year-end results, pending rate cases, and 2012 earnings guidance. Let's begin with a review of 2011 results at each of our operating companies.

PSCo earnings decreased $0.04 per share for the year. The decrease was due to the implementation of seasonal rates in June 2010, higher O&M expenses, depreciation expense, and property taxes, partially offset by the impact of warmer weather last summer.

At NSP Minnesota, earnings increased $0.13 per share largely due to interim electric rates in Minnesota and North Dakota and conservation incentives, partially offset by higher O&M expenses, depreciation and property taxes.

Earnings at SPS increased $0.01 per share largely due to an electric rate increase in Texas and higher sales, driven again by record-breaking hot summer weather. These positive items were also partially offset by higher O&M, property taxes and depreciation expense.

Finally, 2011 and NSP Wisconsin earnings increased $0.01 per share. The positive impact of new electric rates was partially offset by higher O&M and depreciation expense.

I will now discuss some of the primary drivers on the income statement, beginning with retail electric margin. In 2011 retail electric margin increased by $334 million. Significant drivers include $102 million increase from interim and final rates in multiple states; $124 million increase in revenue, requirements reflecting the acquisition of two natural gas power plants in Colorado in late 2010. This margin impact is partially offset by higher O&M, depreciation, property taxes and financing costs associated with these facilities.

Finally, we met or exceeded our conservation and DSM targets, which resulted in a $45 million increase from higher conservation and DSM revenue and incentives.

For the year, natural gas margin increased by a modest $28 million, driven primarily by conservation and DSM revenue as well as weather. Partially offsetting the improvement in our electric and natural gas margins were increases in a few expense categories.

O&M expenses increased $83 million or 4% largely driven by increased plant generation, labor, and employee benefit costs. Our O&M expenses came in largely in line with our expectations for the year.

Depreciation expense also offset some of the improvement in margin, increasing $32 million or 3.7%. The increase was driven by incremental capital investments representing an additional 1800 MW of generation, including several larger projects that went into service, such as a portion of the Monticello nuclear power upgrade; Comanche 3; the Minnesota Nobles wind project; two natural gas plants in Colorado that we acquired from Kal Pine; and our SPS Jones 3 unit addition.

However, the annual increase in depreciation expense was reduced by $30 million due to depreciation life changes agreed to in the settlement with various parties in the pending Minnesota electric rate case.

As Ben mentioned, we experienced higher property taxes primarily in Colorado and Minnesota, which led to a $43 million or 12.9% increase in taxes other than income.

Last year was another busy and largely constructive year for us on the regulatory front. In addition to completing several rate cases that I will detail in a few moments, it's also important to recognize some new mechanism were approved that are designed to reduce regulatory lag.

For example, in Colorado we received approval for a new rider to recover costs associated with the natural gas pipeline Integrity Management Program. In Texas we received legislative approval to implement a distribution rider, and in Minnesota, we gained legislative approval for a multiyear rate plan.

I will now touch on some of our recently completed rate cases.

In December the New Mexico Commission approved our settlement agreement to increase electric rates by $13.5 million effective in January 2012. In Wisconsin the Commission approved a $12.2 million rate increase and a $2.9 million natural gas increase, both effective last month. We reached settlement agreements in our Minnesota and North Dakota electric rate cases last year and expect decisions by the respective commissions during the first quarter of 2012.

As you might remember, interim rates for both states were effective in January 2011 and settlement agreements include step increases in 2012.

In South Dakota we implemented an interim rate increase of $12.7 million last month. We continue to anticipate the Commission will decide this case in the first half of the year.

We'll continue to pursue regulatory -- constructive regulatory outcomes in 2012. Of course, our pending Colorado electric case will be of great significance during the first half of the year.

We have requested a $142 million increase and anticipate the final rates will be effective in the July/August timeframe. We are optimistic the commission will support the use of forecast test year, which our request is based upon. In addition we continue to explore the potential of multiyear rate plans with key stakeholders to determine whether this approach can be achieved through a settlement.

Other expected rate cases to be filed in 2012 include a 2013 Wisconsin rate case, and in Minnesota we continue to proceed with plans to file a 2013 electric case in November. This request may include a multiyear plan. Finally, we will consider filing rate cases in some of our other jurisdictions.

Turning to our outlook for 2012, Ben already highlighted some of the challenges. I will reiterate it is early in the year, and we are taking steps to mitigate the impact of the decision by the Colorado Commission to deny our interim rate request.

As a result, we now forecast 2012 earnings per share to be in the lower half of the $1.75 to $1.85 range. Achieving 2012 earnings in the lower half of the range would be consistent with our 5% to 7% earnings growth objective. Using 2009 as the base year, the lower half of 2012 guidance range represents 5% to 6% compounded earnings growth.

Certain events entering 2012 were unique. Looking ahead, you shouldn't anticipate that we will provide future quarterly updates or color regarding where we expect to end up in the guidance range.

As noted in today's release, we've updated some of the guidance assumptions. We lowered our expected increase in O&M expenses to reflect the management actions we have implemented. We also added an assumption related to the increase in property taxes.

It's important to recognize that we requested a deferral of the 2012 increase in property taxes in Minnesota, consistent with our settlement in the rate case. The guidance range assumes a favorable outcome with respect to that request.

In summary, 2011 was another great year for Xcel Energy. We delivered on our financial objectives, we exceeded our energy efficiency and conservation program targets, we anticipated and responded to adverse weather events in a timely and responsible manner, and as a result, we improved our historically high levels of customer service.

Our efforts were also reflected in our stock price, which rose more than 17% in 2011 and hit a nine-year high during the last day of December. We delivered a total return in excess of 22%.

Looking ahead, we've outlined some challenges we face in 2012. But as our track record demonstrates, we are committed to delivering on our financial objectives while providing excellent service and value to our customers. I am confident we will deliver on those commitments again this year.

That concludes my prepared remarks. Operator, we will now take questions.

(Operator Instructions) Travis Miller, MorningStar.

Thanks, good morning. On all the regulatory activity that you guys have in process and you expect over the next year or 1.5 years, how concerned are you about ROE cuts that could come under 10%, rather, given where interest rates are and some other rate case decisions we're seeing across the US?

I think it is a concern, Travis, and we've talked about it before that the trend is to see lower authorized ROEs. I'd certainly hope we don't go below 10%. But as you also have heard us all talk about before, you know, I think we have upside even in a falling authorized ROE environment if we can close that regulatory lag that we talk about, through things like multiyear and riders the that Teresa talked about. So that we actually can make up more ground than we might lose on the authorized basis.

Okay, what did you earn in 2010 across -- 2011, rather, across your service territories?

Correct me if I am wrong, Teresa, but on a consolidated basis I think we earned about 10%. But remember that reflects a little bit of debt at the Holding Company so I would say on average ROE earned at the at the OpCo, which was probably in the low 9%'s.

They were -- ranged 9% to 10% or just that, except for SPS was slightly lower.

Yes, so aggregate's probably about low 9%'s think, I would think.

Ali Agha, SunTrust.

Thank you, good morning. (multiple speakers) To be clear on the Colorado situation, as I recall, after they denied your interim request you went back with another interim request at a lower amount. Where do we stand on that? And is that still possible they could run that?

Well, they denied that too, at the same time that they suggested that we look at the accounting order approach, which as you know we took them up on that suggestion, and they did approve that just recently here. And that has, as I mentioned on my prepared remarks, about a $0.02 positive impact and helps to mitigate the denial of the interim rates.

Okay, and as you mentioned low 9% ROEs at the OpCo level in 2011, what is embedded in the 2012 guidance? As you mentioned, you end up in that lower end of the range. What should be corresponding of OpCo ROE roughly there?

I think I'll the some of the things we talked about, like multiyear plans, etc. would -- certainly are going to help. I think that impact would be more evident in 2013 than 2012. I mean, we had to step back on the interim rates as we entered this year. So I suspect that we will probably have about the same kind of ROE at the consolidated level in 2012 that we have in 2011.

Consolidated and also at the OpCo as well, same thing?

Yes, I mean it will be variance but (multiple speakers)

Yes. It will range in the 9%'s up to 10% amongst the OpCos. Generally they range, whoever has a rate case in that period might earn a little higher. So if we look at 2011, Minnesota is slightly higher than Colorado and then it will flip around. So it's somewhat driven by -- but they are all within that range (multiple speakers) new rates.

And Teresa if I heard you correctly earlier, is it fair to say when you look at lag across the system, SPS, does that have the largest lag between authorized and earned right now? Or how would you categorize your biggest lag really at this point?

Yes, I would say this is the largest. The rates are set on a historical test year so we can see the largest lag, and we have less riders in Texas as well.

Keep in mind, though, that SPS has made some pretty significant improvements, as we all know, from where we were just a few years ago. We continue to I think improve the regulatory compact there and look to do that in future years as well.

And also, one other clarification. Teresa, I think you mentioned the property tax deferral in Minnesota. You asked for that. You will assume you will get it. Can you remind us how big of an amount that is?

It's about $28 million. And it's for both electric and gas. So even though it's -- it came out of the electric case, it's for both businesses.

Okay. Last question, given your assumptions and guidance, fair to assume you're not looking at any scenario that would cause you to issue equity in 2012, or could that change depending on stock price performance, etc.?

Well, I think as we have indicated before we are not planning to issue any equity in 2012. But we will be opportunistic, and if we see conditions that would warrant that, we would consider entering into a forward transaction. So, we're still in the same position and consistent with what we've previously indicated.

Angie Storozynski, Macquarie Research.

Thank you, I have two questions. The first one is about the retail sales and whether or (inaudible) load growth. You mentioned that it was a bit disappointing in the fourth quarter, and I'm just wondering is this just purely the economic slowdown? Or is this a sustainable conservation?

Angie, we were disappointed I think in the last quarter of 2011 which drove the overall year to just a little over half of -- or 0.06%. You know it's a little bit perplexing because while we are not -- haven't been immune to the recession, generally our states of done very well. Lower unemployment, were seeing jobs growth and we didn't lose as many jobs.

So, you know, where we're seeing a lot of the fall off is in the residential and small C&I. You know I wish I had a better explanation for you, but you know -- outside of our DSM programs, which probably account for about 0.07% of the fall off, and as you know we're compensated for that, it's a little harder to explain.

There's clearly a trend that we're seeing across the country. And pretty much every single utility for now says it has nothing to do with conservation. It's [more the] economy. And yet, you know, at least the macroeconomic indicators seem to be at least mixed and maybe slightly even positive. And so it's just hard to believe that pretty much every single region has seen flattish weather-normalized power sales.

Well, I will -- you know, just typically, you can add 70 basis points back to whatever our sales are because of our DSM program. So I definitely see our DSM programs are having the intended effect. But once you get past that, whether it's efficiencies we don't know about or changing consumer behaviors or -- there is a lot of different theories, household consolidation, etc., we are not quite sure. But we're certainly seeing it and we're going to have to continue to monitor it.

Okay. My second question is about CSAPR. I recall you guys mentioned that if CSAPR was in fact implemented on January 1, you would have ran your gas plants more, which in turn would increase your O&M expenses. Now that CSAPR has stayed, you don't have this pickup in expenses. Shouldn't that be helping your 2012 guidance?

Well Angie, the biggest impact of having to basically turn our dispatch order upside down was the increasing fuel expense. So, not the O&M expense. Not too much of a delta on the O&M there.

Okay. That's fine, thank you very much.

Paul Fremont, Jefferies & Co.

Thanks. I guess when the interim rate relief was originally denied and you guys talked about earning at the low end of the guidance range, the impact of that seems to be on the order of magnitude of about a nickel. And it looks like you have got $0.025 back obviously, based on your ability to defer Black Hills contract.

So I'm just wondering, since you are still sort of projecting low end of your guidance range, did something happen between then and now that is making you more concerned about other parts of your operation, be it slower load growth, more difficulty potentially in cutting O&M?

No, I mean I think the original request would have had about -- I think we would have had it more like $0.06 if we had everything we asked for, which we typically don't. And then we had the accounting order, to your point, which knocks off $0.02 of that. So it is a setback.

It's certainly helpful. I think we have a much better opportunity to work our way up towards the middle of the range now as a result. But we continue to have some of the other headwinds that I talked about. We just talked about sales.

This has been, I think, the fourth warmest winter on record in Minnesota. And I don't have the results for Colorado, but I wouldn't be surprised if they are not similar. And that is impacting us $0.02. And frankly, February is starting out pretty warm, too.

So those are the things, along with property taxes that we will have to concentrate on. We do have plans to mitigate that through some O&M reductions and that will help, too. So, the order I think was a definite improvement, and again, if we get a few breaks we will push it back towards the middle.

So based on what you just said, the weather impact so far your -- you would calculate it as about $0.02 negative for the first quarter?

Through January it was $0.02 negative roughly.

Dan Jenkins, State of Wisconsin Investment Board.

Good morning. First thing I was wanting to ask about was on -- you lay out your CapEx on page 11 of the release, and you put a note in there related to the CSAPR. I was just wondering if you could give us a little more color on -- if the stay were removed what that -- would CapEx you've laid out there for CSAPR stay the same? Or would that have to be moved in some way? (inaudible)

Well, I mean you are kind of hitting on it. There's three outcomes. It could be reinstated. I don't think that's high likelihood, but it's certainly possible. It could be repealed completely, which I do think is a possibility. Or the courts could remand it back to the EPA and ask that they modify it in some way.

We currently have $474 million I think or $470 million in there for CapEx. If it was reinstated, well, we will spend about that amount. If it's repealed we might not have to spend anything, at least in the near-term. I think some other rules eventually might catch us.

But it certainly would be very favorable, and then, you know, somewhere in between if it is remanded. So I mean obviously that's about $0.5 billion swing, but that is where we are right now.

Okay. And if the current rules were enforced, would that impact any of your plans as far as being retired?

No. You're saying if the court came back and just basically restated everything?

Right.

We would be back to plan we entered the year with. And we would be looking at different dispatches, hopefully find some allowances in the market. We haven't had a lot of success, as you know, and we talked about that. And we would plan to put the CapEx in. So hopefully that doesn't happen, at least not with an extension of the compliance date.

Okay. And then another thing I had was on your pending rate cases, your ongoing rate cases, you know, where you don't have the settlements and especially in Colorado Electric and South Dakota Electric. I was wondering what the last authorized ROE is versus what you have requested. I think you laid out what the requested ROE is, and I was curious how those compare with what the last authorize ROE's were?

The last authorized ROE in Colorado was 10.5%.

How about in South Dakota?

(multiple speakers) 10% for South Dakota.

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

(Operator Instructions) Neil Kalton, Wells Fargo.

Just a quick question on the interim rate and the setback there. And this may be speculative in nature, but do you think that has any implications for the appetite of multiyear plans in the state? Is there any read through there at all?

No. There's two ways to get a multiyear -- through settlement or through the commission deciding. And I don't think it really probably impacts it very much, Neil. You know, as I said in my remarks, we were obviously disappointed by not getting the interim rates.

Our interpretation of the Clean Air-Clean Jobs legislation certainly would indicate that we were very much eligible for it. But the commission looked more at a historical precedent, which is a much tougher bar to meet. So, you know, it's disappointing.

But I think it's more of an anomaly given the accounting order. I still think you have a commission there that wants to be constructive and understands that what we are trying to accomplish in Colorado is good for the state and good for our customers.

You know, Neil, just as a point of reference, too, during the hearings the commission at the end of it also indicated they would like to see us work towards a multiyear settlement if the parties are interested. They clearly gave us the signal they were open and thought it was a positive thing.

There are no further questions in queue. I'd like to turn the call back over to Teresa Madden.

Thank you for participating in our year-end earnings conference call. If you have any follow-up questions please contact Paul Johnson and the IR team. Thanks a lot.

Thank you ladies and gentlemen. That does conclude our conference for today. 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 450-2443. We would like to thank you for your participation and you may now disconnect.