埃克西爾能源 (XEL) 2013 Q1 法說會逐字稿

Good day ladies and gentleman and thank you for standing by. Welcome to the first quarter 2013 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)

This conference is being recorded today, May 2, 2013. I would now like to turn the conference over to Paul Johnson, Vice President of Investor Relations and Business Development. Please go ahead, sir.

Thank you and welcome to Xcel Energy's 2013 first quarter earnings release conference call. Joining 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 Revenue Group President; Scott Wilensky, Senior Vice President and General Counsel; George Tyson, Vice President and Treasurer; and Jeff Savage, Vice President and Controller. This morning we will review our first quarter results, update you on recent business and regulatory developments, and reiterate our 2013 guidance.

There are slides that accompany today's call which are available on our webpage. We will also post a brief video of Teresa summarizing our financial results on our website. As a reminder, some of the comments during this morning's conference call 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. Today we reported first quarter earnings of $0.48 per share compared with $0.38 per share in 2012. First quarter results reflect colder than normal weather, increased electric and gas margins on various rate cases and lower interest expense. Teresa will discuss our quarterly results and earnings guidance in greater detail in a few moments. Our first quarter results are a good start 2013. However, there are challenges ahead. I will now provide you with a few updates beginning with the review of some key regulatory developments.

As you know, it is important to receive timely constructive recovery of the substantial investments we make in our utility businesses. That said we were disappointed with the SIR rebuttal testimony filed by various parties in our Minnesota electric rate case. While we understand this case has some unique circumstances, for example around our Sherco plan, we thought we provided good support for our cause as well as rate making alternatives that balance the interest of various parties. Clearly the recommended level of recovery is not commensurate with over $5 billion of investment that is planned over the next five years.

We will work with parties to narrow issues where we can and we will ask the Commission to resolve our differences in a way that allows us to continue providing high-quality service to our customers over the long run. We remain cautiously optimistic that we can achieve a constructive outcomes in this case. Our earnings guidance assumes constructive outcomes in all rate case and regulatory proceedings. We do not consider the current recommendations from the [intervenors] to be constructive and should the Commission approve a rate increase at these levels, our ability to deliver earnings within our 2013's guidance range would be much more challenging.

Looking ahead, initial briefs are due May 15, the ALJ Report is due July 3, and we continue to anticipate a Minnesota PUC decision in September. We also received disappointing recommendations from intervenors in our proposed multi-year natural gas rate case in Colorado. Notably, the staff recommended a rate reduction of $14.4 million based on a historic test year an ROE of 9% and an equity ratio of 52%. The office of Consumer Council recommended a rate increase of a $0.5 million based on a historic test year an ROE of 9% and an equity ratio of 51%.

Earlier this week we filed rebuttal testimony and reduced our requested increase from $70 million to $65 million over three years which largely reflects lowering the requested ROE to 10.3%. This initial wide range between the bid and ask on this case is not unusual in Colorado. We continue to work towards a constructive outcome either through settlement or through the normal proceedings. Looking ahead the case will be heard by the ALJ later this month. On the positive note, I'm pleased that we've already reached settlements in our Texas and South Dakota rate cases.

In Texas, our settlement agreement which is pending Commission approval calls for a $37 million annual increase effective in May and a step increase of approximately $14 million in September of this year. It also allows us to implement interim rates for our next transmission cost recovery rider in January of 2014 accelerating recovery by several months. Now every settlement is a compromise and this one is no different. While the agreed-upon rate increase falls short of our requested amount, we believe we're making continued progress in Texas. In addition to the interim rates agreed on, one of the other positives of this settlement is that both sides are very interested in achieving constructive rate making outcomes and are interested in discussing alternatives such as a multi-year rate plan prior to our next filing. The Commission will act on this settlement later this year.

In South Dakota we had requested a $19.4 million electric rate increase in April; the Commission approved the settlement agreement which we've reached with staff. New rates include an $11.6 million base rate increase plus the implementation of a new rider to recover an additional $3.7 million that began on May 1. Similar to Texas, this settlement is a compromise which represents a step in the right direction to improving earned returns in South Dakota. However, we are making -- while we are making progress however, we are not earning an acceptable return in South Dakota, and need to continue to take steps to improve this jurisdictions returns. We will continue to work with regulators and legislators to improve the earned ROE.

Turning to our resource plans we've recently issued RFPs in both Minnesota and Colorado. In Minnesota we are seeking potential additions of up to 200-megawatts of wind generation. This could be in the form of a PTA or an ownership option. Since we are ahead of the renewable portfolio standard in Minnesota, we will only add incremental wind generation if it is at an attractive price point for our customers. There's also an RFP for 500-megawatts of thermal generation in Minnesota which could also lead to be a PTA or self build option. As part of this RFP we have proposed to build up to three combustion turbines to meet our customer needs. We have requested that these investments include rider recovery with a sharing mechanism. Other independent parties have also bid projects into the process.

Regulators in Minnesota and North Dakota will review our proposal and proposals from other parties to determine which offering presents the best deal for customers. We expect a decision later this year. In Colorado we also have an RFP for 250-megawatts of generation which could also either be at PTA or self build option. Bids are due later in May and we expect a Commission decision later this year. It remains to be seen whether an ownership bid will be the best option for our customers. However, it is important to note that an ownership option would be incremental to our capital forecast.

Let me touch on a few other highlights of the quarter. Once again Xcel Energy was recognized as the number one wind provider by AWEA, this is our ninth year in which we have earned this distinction. This underscores our proactive approach to environmental leadership. In Texas, we are nearing completion of the Jones 4 combustion turbine. This additional capacity is needed to meet growth at SPS. This project is coming in on time and under budget. We also continue to make good progress in our transmission investments.

One of our key projects is the CapX 2020 plan. In February, Xcel Energy and four other utility started construction on the estimated $500 million, 150 mile Hampton-Rochester-LaCrosse 345 kV project. Now this line will enhance system reliability and allow for future growth and economic development. At SPS, the final segment of the Texas North transmission portfolio project was placed into service in March. Work began in 2008 on this $150 million multi-project portfolio to service new load into Texas and Oklahoma Panhandle areas. These projects also maintain area of service reliability and meet NERC compliance.

Also at SPS, I think it is important to highlight how our transmission construction and renewal efforts paid off during the Texas Panhandle blizzard. In February a portion of our service territory that stretched from west of Lubbock to Perryton received over two feet of snow and experienced 65 to 75 mile per hour winds. During the storm we experienced only two momentary outages and no sustained outages on our transmission system. Over the past five years we've replace 5,200 cross arms and 820 poles in the area covered by the blizzard and we rebuilt over 100 miles of transmission lines. These efforts were credited for our system resiliency during the blizzard. I'd like to take this opportunity to commend our transmission employees for jobs well done.

Our storm restoration capabilities were put to yet another test earlier this month in South Dakota. On April 9, the worst ice storm in decades hit Southeastern, South Dakota. Sioux Falls the city of 150,000 in Minnehaha County was especially hard-hit, with almost 90,000 outages. By April 11, we had more than a tenfold increase over normal staffing in place to complete the restoration. Shortly thereafter, Xcel Energy was recognized by the county for the extraordinary efforts of its employees to restore power and in keeping citizens safe. With that, I'll turn the call over to Teresa.

Thanks, Ben and good morning. Today I will discuss first quarter results, our 2013 financing plans and our 2013 earnings guidance. I'll begin with a review of first quarter results. As you might recall, last year we experienced a very warm first quarter which reduced our earnings by about $0.05 per share. This year we experienced slightly colder than normal temperatures across most of our service territories. As a result, first quarter earnings benefited from a $0.06 per share improvement in weather. For the quarter, earnings at PSCo increased by $0.05 per share primarily due to the multi-year electric rate increase as well as higher electric and gas sales due to cooler winter weather.

At NSP Minnesota, earnings increased by $0.05 per share due to interim rate increases in Minnesota and North Dakota and an electric rate increase in South Dakota. Quarterly results also benefited from cooler weather and lower interest charges as a result of a 2012 debt refinancing. Earnings at NSP, Wisconsin increased $0.01 per share due to new electric and gas rates implemented in Colorado -- or January (laughter) in cooler weather. Earnings at SPS were flat for the quarter.

Let's now take a look at the drivers that affected various lines of the income statement beginning with retail electric margins. Our first quarter electric margin increased $94 million. Primary drivers of the higher margin were $75 million from retail rates increases in Colorado, Wisconsin and South Dakota as well as interim rate increases in Minnesota and North Dakota, and $22 million from cooler weather. These positive items were partially offset by smaller negative factors including the 2012 Leap Day impact.

Weather normalized retail electric sales decreased 0.6%, however the comparable period a year ago included the benefit of an extra day of sales due to Leap Day. Adjusting for Leap Day, weather normalized retail electric sales increased 0.5% which is consistent with our 2013 forecast. A higher electric sales were driven by 1.3% increases in both PSCo and SPS partially offset by 0.5% sales decline in Minnesota. Natural gas margins increased $28 million in the first quarter primarily due to cooler weather.

Turning to expenses, first quarter O&M expense increased $18.5 million or 3.6%. The primary drivers of this increase were higher employee benefit cost, nuclear outage amortization and nuclear plant operation cost. We continue to forecast that our 2013 expenses will increase in the 4% to 5% range for the year. Depreciation and amortization increased $20 million or 8.8% due to normal system expansion and additional rate case amortization. Other taxes increased approximately $7.8 million or 7.4% largely due to increased property taxes in Minnesota. This is a significant driver in our Minnesota electric rate case as approximately $40 million of our rate request is to recover higher property taxes.

Higher property taxes in Colorado related to our electric retail businesses are deferred as part of the multi-year settlement approved by the Colorado Commission in 2012. The effective income tax rate for the first quarter was 33.4% compared to 29.1% during the comparable period a year ago. Recall that last year; we recognized a discrete tax benefit during the first quarter which lowered our overall effective rate for that period. For the year we continue to forecast our 2013 effective tax rate will be in the range from 34% to 36%.

During the first quarter we completed two financing in March we issued $500 million of first mortgage bonds at PSCo and two tranches of $250 million each. The 10-year tranche was priced at 2.5% and the 30-year tranche was priced at 3.95%. Also in March we announced an at-the-market or ATM equity program of up to $400 million. During March we sold $7.7 million shares of common stock resulting in a net proceed of $223 million. As you recall, our five-year CapEx forecast requires $400 million of external equity financing.

Completing a portion of our planned equity financing in March, allowed us to call the $400 million of 7.6% junior subordinated notes or hybrid security that we issued in 2008. This transaction lowers our overall cost of capital and simplifies our capital structure. Financing plans for the remainder of 2013 include plans to issue $400 million of first mortgage bonds at NSP Minnesota and $100 million of first mortgage bonds at SPS. In addition, we also plan to issue $400 million of unsecured debt at the Holding Company during the second quarter. Our financing plans are subject to change based on a variety of factors including changes in our capital investment plan, and financial market conditions.

Before we take your questions I will comment on or 2013 earnings guidance. Good first quarter results, timely financing, and resolution to several rate cases have positioned us well to once again meet our annual financial objectives. While we continue to forecast 2013 EPS to be in the range of $1.85 to $1.95 we highlight the importance of reaching constructive outcomes in our pending rate cases in order to meet this objective. That concludes my prepared remarks. Operator, we will now take questions.

Thank you.

(Operator Instructions)

Neil Mehta with Goldman Sachs.

Good morning.

Hi Neil how are you?

I'm doing well thank you. So your O&M came in at 3.6% as you said versus the 4% to 5% guidance. Are you tracking at the lower end or even below this guidance for this year and how should we think about O&M growth rates after 2013?

Travis and, we are still anticipated to be in the 4% to 5%. We just have some timing and that's why we're a little bit lower. But when we look to the longer-term I would say we would look to maybe more a 3% to 4% in part the 4% to 5% is occurring because we only increased from ['11 to '12] 1.7%, so '12 is a little bit low because it is part of our management initiatives and other things, so I would look in the long-term to more 3% to 4%. And on track to 4% to 5%.

Got it. And then on interest you mentioned the remarkable low interest rates that you've done some debt out here in the first quarter. Given the low interest environment could there be upside to the $30 million of interest reduction that you outlined for 2013?

That's consistent with that.

Okay.

We had --

Can you provide a little bit more color on the RFPs can you confirm that self build options are available for you for both of them? And any color in terms of the number of bidders if that information is in the public?

Neil, this is Ben. Self build options are available for both. We've seen I think some I would say some wide variety of bidders and opportunities and we're really just in the preliminary stages of evaluating both the wind and the fossil bids.

Okay, but we don't know the exact numbers out there yet?

Well we're not disclosing that at this point.

Fair enough. Okay, thank you very much.

Thanks.

Thank you. Travis Miller with Morningstar.

Good morning. Thanks. I wonder if you could -- in Minnesota, wonder if you could characterize that change in the intervener's testimony especially on the ROE cut from 10.2% to 9.8%, what were some of the drivers their? And how does that relate to potentially changing your requested ROE?

Travis, let me take the first part of your question and I think that was around ROE. I think that's just typically they do update their ROE recommendation and analysis and they -- it's a formulaic approach and frankly the whole industry is seeing some pretty significant stock appreciation in the last four months. When you run that through some of the models that does yield a lower ROE and that's what we saw there. It is very formulaic. Did you have a second part of your question?

I was just going to say would that affect you changing your 10.6% to a lower number?

Well we filed our SIR rebuttal testimony and I guess we are just where we are now group I don't know --

That's correct we've left it at the same level. We have not revised a request at the 10.6%.

Okay --

Typically, Travis, typically the recommendation on ROE plays a very -- is listened to very closely by the Commission.

Okay. One quick housekeeping. You mention you recognized a liability for that change in the difference in you are expected and interim, can you just give me what that number was?

I will let Teresa take.

I would just say, we're assuming that we're going to have a reasonable regulatory outcome and we went through and looked at all the positions as we do in terms of establishing our guidance, and we recognize that amount that we thought was reasonable.

What was that amount?

Well we're not going to give you the specific amount, but it's what we would assume is a reasonable outcome.

Travis, we typically, we actually did a little bit earlier than we normally would were we would recognize any kind of refund based upon where we are, but given where we are, it's what we're assuming in the accrual that we're not going to disclose the number, but that it is going to be less than our interim rates, but still at what we would consider a constructive level. So hopefully that helps you frame it a little bit.

It does, thank you very much for the details.

Andy Levi with Avon Capital.

Andy.

Hi, how are you?

Good.

Actually, Travis asked my question, I guess the only other question I have so just on the equity so you did what was it $227 correctly?

We had a net proceed of $223 million.

$223 excuse me, I apologize. Okay, so you're more than halfway there, I guess

Correct.

Equity and that would take you do what year? Absent any new projects? Once you do the $400?

We had previously indicated that we had intended to do $400 between '13 and '14.

Okay. And that would take you through what year once you get that $400 done, through '14 or through '15 --

Yes, and it's for the next five years. We don't have any --

Next five years, right okay. Unless of course I guess you have some of these new projects that could change?

Yes, that's correct, I mean we would reevaluate that.

Okay. That's it, thank you. Thanks.

Thank you.

(Operator Instructions)

I'm showing no further questions. I will turn the call back to Teresa Madden for closing remarks.

I want to thank you all for participating in our first quarter earnings call this morning. I look forward to meeting with many of you at AJA and at the Deutsche Bank conference in the coming weeks. So, please contact Paul Johnson and the IR team with any follow-up questions.

Ladies and gentlemen this concludes our confidence for today. We thank you for your participation. You may now disconnect.