埃克西爾能源 (XEL) 2014 Q3 法說會逐字稿

Good day and welcome to the Xcel Energy third quarter 2014 earnings conference call. Please note, today's call is being recorded. At this time I would like to turn the conference over to Mr. Paul Johnson. Please go ahead, sir.

Good morning. Welcome to Xcel Energy's 2014 third 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, Group President and President and CEO of NSP Minnesota, Scott Wilensky, Senior Vice President and General Counsel, George Tyson, Vice President and Treasurer, Jeff Savage, Vice President and Controller.

This morning we will review our third quarter results, discuss our strategic plan, update you on recent business developments and regulatory developments, discuss our 2014 and 2015 guidance and our updated capital plan. Slides that accompany today's call are available on our web page. In addition, we will post a brief video, on our website, of Teresa Madden summarizing our financial results.

As a reminder some of the comments during today's conference call may contain forward-looking information. Significant factors that could cause results to differ and those anticipated are described in our earnings release and our filings with the SEC. I'll now turn the call over to Ben.

Well, thank you, Paul, and good morning. I'm going to start by highlighting some of the key takeaways from the quarter and then Teresa will provide more detail on some of these items. Overall we had a solid quarter with ongoing earnings of $0.73 per share compared with $0.77 per share last year.

Weather was the biggest driver for the quarter with an adverse impact of $0.07 per share. Based on our year to date performance we're on track to achieve our 2014 ongoing earnings guidance and we're tightening our range to $1.95 to $2.05 per share. In addition, we're positioned to meet our objective of limiting O and M increases to 2% to 3% for 2014.

We're also introducing our 2015 EPS guidance range of $2.00 to $2.15 per share, solidly within our 4% to 6% earnings growth objective. Our guidance ranges are based on several key assumptions as described in our earnings release, including constructive outcomes in our regulatory proceedings.

We're also providing you with our new five year capital plan which totals $14.5 billion. Our updated capital forecast drives right based growth by about 4.7% using 2014 as the new base. So with nine months of 2014 completed, we're on track to deliver earnings within our guidance range for the tenth consecutive year.

Beyond 2014, we're confident that our strategic plan will continue to grow EPS and our dividend at 4% to 6% annually. And that plan begins with a robust capital investment program, coupled with an improving regulatory environment. Today, as you know, we're not currently earning our authorized ROEs.

This is especially true in NSP Minnesota and SPS. We believe we can close that gap over the next several years. To this end, we're formally introducing a goal of reducing overall regulatory lag by 50 basis points by 2018.

In addition, we're establishing a goal of deriving 75% of our revenue from multiyear plans by 2017. So in Minnesota, along with working to resolve the current rate case, we are collaborating with stakeholders on ideas for a longer term more performance based rate compact, and we're discussing alternatives to filing a 2016 rate case. And we're looking ahead to the legislative session when some of these ideas may surface.

At SPS we're working with stakeholders and planning to introduce legislation that would reduce regulatory lag and allow us to continue to make investments that will support the tremendous growth we're experiencing in the region. We continue to make significant investments at SPS and we are planning to file a Texas retail rate case in December of this year.

While constructive regulatory frameworks are important keys to our success, we also recognize that we need to diligently manage our cost. Our O and M objective is to keep our cost increases in line with expected sales growth. Now this will be achieved by continued standardization and streamlining of our work processes. We made significant improvements in the last few years and we're beginning to reap those results.

We're also implementing new systems that will leverage and expand those results while also meeting both the challenge and the opportunity associated with transitioning our retiring workforce. Those efforts, combined with stabilization of nuclear and pension costs, will position us well to limit O and M increases to 0% to 2% annually.

I also believe we have some upside opportunity to expand our capital investments beyond the $14.5 billion we just announced. We have fantastic opportunities right in our backyard and I've challenged my team to pursue them. Look for us to expand our regional presence in the disciplined and thoughtful manner you've come to expect from us.

Our plans focus on transmission and natural gas. We have extensive experience in these areas and both offer the opportunity for placing assets under federal regulation. With respect to transmission, we've recently achieved milestones in the development of our transcos with the filing of our federal applications.

At the same time, we are pursuing new projects through our operating companies in states that offer a right of first refusal or other favorable frameworks. This two prong strategy give us the flexibility to pursue projects in the way that makes the most sense for the situation, offering advantages as we compete for the right to construct under FERC Order 1,000.

While we're in the early days of pursuing growth in natural gas, we see great opportunities for new infrastructure and increased use of our existing assets. We have a solid track record in our natural gas business that we plan to leverage and expand. Look for us to build natural gas infrastructure in our regions and consider new upstream investments.

In addition, we are preparing to explore, with our regulators, the possibly of rate basing natural gas reserves to take advantage of the current low prices for our customers while also creating a new investment opportunity. So in addition to being on track for the year, we have plans in place to deliver solid earnings growth for the years ahead. So with that, I'll turn the call over to Teresa.

Thanks, Ben, and good morning. We are pleased to report another solid quarter with ongoing earnings of $0.73 per share compared with 2013 third quarter earnings of $0.77 per share. The biggest driver of the different was weather.

2013 third quarter results included a positive weather impact of about $0.05 per share compared with cooler than normal weather in 2014 that resulted in a negative impact of $0.02 per share. Other drivers include improved electric and gas margins resulting from rate filings in several jurisdictions as well as higher rider revenues. Partial offsets were higher property taxes and depreciation expense.

These cost increases were expected and are consistent with our financial plan. Let me start by providing an update on sales and the economies in our local service territories. We continue to experience positive year to date sales trends with weather normalized retail electric sales increasing 1.4% and firm natural gas sales up 4.8% through September.

While the third quarter has some variations, year to date sales continue to exceed our original expectations for the year. Let me provide a little more detail on the sales growth by Company.

Beginning with SPS, year to date weather adjusted retail electric sales increased 2.3%, driven by growth in the C and I class. Oil and gas exploration in the Permian Basin continues to benefit the service territory.

Sales at NSP Wisconsin increased 3.3% due to strength in the C and I sales that resulted from a large pipeline customer that has been operating at full capacity this year and continued growth in the sand mining industry. PSCo sales increased 1.3%, which was primarily attributable to strength in the C and I class resulting from a new food manufacturing company and growth in the energy sector.

Finally, NSP Minnesota sales increased [seven-tenths of a percent], driven by growth in the number of residential and small C and I customers and increased usage by the small C and I class. Economic conditions are generally stronger across the Xcel Energy region, compared with the nation as a whole.

The consolidated unemployment rate in our service territory of 3.7% remains well below the national average of 5.7%. In addition, the number of jobs in our region grew 2.3% year to date compared with 1.9% for the nation.

We are pleased with the better than expected sales growth but continue to maintain a relatively conservative forecast and are assuming electric weather adjusted sales growth of about 1% for both 2014 and 2015. Focusing more specifically on third quarter earnings, ongoing electric margin increased $8 million for the quarter.

Key drivers included implementation of final and interim rates, which increased margin by $39 million, non fuel riders increased margin by $13 million and improved wholesale results increased margin by $7 million.

These positive factors were partially offset by an unfavorable quarterly weather variance of $56 million, as well as other items. The electric margin results reflect an estimated reserve for the Minnesota rate case and an estimated customer refund liability to capture the impact of sharing earnings above the authorized ROE at PSCo.

Turning to the natural gas side of the business, margin increased by $8 million. This was largely due to revenue from our pipeline, Integrity rider, which is designed to recover our ongoing gas infrastructure investment. O and M expenses decreased $7 million, or 1.2%, primarily driven by lower employee benefit costs and moderating nuclear costs.

For the year O and M is up 2.8% within our original guidance assumption of an increase of 2% to 3%. It is worth noting that O and M was highest in the fourth quarter of 2013 due to incremental spending on our system after a hot summer.

As a result, we expect that our 2014 fourth quarter O and M will come in lower than last year. More importantly, we are introducing 2015 O and M guidance of 0% to 2%, consistent with our long term objective. Finally, other taxes increased about $13 million or 12%. Largely driven by higher property taxes in Minnesota and Colorado.

Next I'll comment on several regulatory proceedings. Additional details are included in our earnings release. In Minnesota we completed hearings for our electric rate case in August and successfully narrowed the differences on several key issues between the Company and the Department of Commerce, the primary intervener.

The important take away is that we continue to make progress and have limited the material remaining issues to ROE, certain labor and benefit expenses as well as depreciation expense in 2015. As a result, we have revised our two year request to $248 million. The remaining key dates are the ALJ report, due in late December, with deliberations and a commission decision scheduled for March of 2015.

We also completed hearings in the Monticello Prudence Review and believe that we presented a strong case focused on key themes, including the investment [was prudent], it was essential that the work be done right and we made reasonable decisions during the course of the project.

Importantly, the surrounding communities and our customers have a largely rebuilt, safe and efficient source of carbon free low cost power for many years to come. We look forward to the ALJ's order in late December with deliberations and a commission decision scheduled for March of next year.

We remain confident that we will reach a constructive outcome in both the Minnesota rate case and the Monticello Prudence Review. In our Colorado electric rate case, we are seeking an increase in annual revenue of approximately $136 million or 4.8%. In addition, we have introduced a Clean Air, Clean Jobs investment rider that would cover 2016 and 2017.

Our objective is to establish a multiyear regulatory plan that provides certainty for PSCo and its customers. Key dates are staff and intervener testimony on November 7th, rebuttal testimony on December 17th, hearings in late January and interim rates will be effective in mid February with a final commission decision in the second quarter of 2015.

In Texas, we reached a settlement, which will increase annual revenue by $37 million or 3.5%. The Texas commission is expected to rule on the settlement later this year. In Wisconsin we reached an agreement with the commission staff that resolved all contested issues and provides for a revenue increase of $16 million.

ROE, capital structure, and rate base are not issues that were being considered in this case. We expect a final commission order by year end. It is still early in the South Dakota rate case process and there is no news to report. However we continue to anticipate resolution early next year.

Finally, as we continue to invest in reliability and new infrastructure in our Colorado gas business, it is important that we recover these investments in a timely manner. As a result, we are planning to file a natural gas case early next year.

This morning, we are narrowing our 2014 ongoing earnings guidance to $1.95 to $2.05 per share and are introducing our 2015 earning guidance of $2.00 to $2.15 per share. Our guidance ranges are based on several key assumptions, as described in our earnings release, including constructive outcomes in our regulatory proceedings.

It is worth noting that our 2015 guidance assumptions include sales growth of about 1% and O and M growth of 0% to 2%. In addition, we are introducing our refreshed five year capital-based plan of $14.5 billion, an increase of $400 million from our last plan.

Our capital forecast includes $4.5 billion for transmission investment, which has a high level of certainty. This base plan drives an overall rate based compound average growth rate of about 4.7% from 2014 to 2019. Our projected transmission investment drives rate based growth of about 10% during this five year period.

It's important to note, as Ben indicated, that our forecast doesn't include any potential incremental growth investments in natural gas assets and doesn't assume success in any competitive transmission RFPs that are expected to be issued over the next five years. On the financing front, we recently amended our credit facility.

While the basic terms and conditions didn't materially change, we extended the maturity until 2019 and increased the overall borrowing limits by $300 million to $2.75 billion. Looking forward, we are planning to issue $1.85 billion of debt in 2015. We have debt issuances planned for each operating company and at the holding company.

The details are included in our earnings release. As a reminder, we don't plan to issue any equity beyond our DRIP and benefit plan through 2019. Finally, we are pleased with the recently approved ten year franchise agreement and the Clean Energy Partnership with the city of Minneapolis.

These agreements enhance our long standing partnership with the city and [it] demonstrates our commitment to environmental leadership by providing our customers with more options. With that, I'll wrap up my comments. With 2014 coming to a close, we are pleased to narrow our guidance range and are on track to deliver earnings within our range for the 10th consecutive year.

Our 2015 guidance of $2.00 to $2.15 per share is solidly within our 4% to 6% earnings per share growth objective and is supported by our $14.5 billion capital plan. We continue to experience better than expected sales growth, with year to date weather adjusted retail electric sales growth of 1.4% and weather adjusted firm natural gas sales growth of 4.8%.

We are making progress on the regulatory front and expect to reach constructive outcomes in our major jurisdictions in the coming months. We continue to expect 2014 O and M expense to grow 2% to 3% and 2015 O and M to be flat to up to 2%, consistent with our original guidance assumption.

And, finally, we are well positioned to deliver an attractive long term value to our shareholders by growing earnings and our dividend 4% to 6% annually. So, operator, with that, we'll now take questions.

Thank you so much, Ma'am. (Operator Instructions). We'll take our first question from Julian Dumoulin-Smith with UBS.

Good morning.

Good morning, Julian.

Good morning, Julian.

So I just wanted to follow up here. Firstly, on the oil and gas side, if you could expand a little bit, what service inventories would this potentially include? And how big of a program are we talking about, just if you could give us a little bit of a sense here for the timeline and magnitude?

Well, it's really -- We're -- This has been, Julian -- We're focused in our footprint. And, as you know, we're on the periphery of the Dakotas and the Bakken. And we're well in the oil patch in New Mexico and Texas. And, of course, there's the DJ in Colorado.

So all of those have infrastructure needs. We're focused on the gas side. We're focused on the ability to work our existing assets harder than we work them today and being more of a regional player.

And, as I said, on the call, it's early days. So, really, what I've asked my team to do is just explore those possibilities, be more proactive, try to leverage our buying power. We buy about $1.2 billion to $1.5 billion of natural gas every year. So, I think there's opportunities there. And we're going to look for them. None of that's in our forecast, as Teresa mentioned.

Right. Absolutely. And then, secondly, going back to Minnesota, if you don't mind, on the rate recovery potentials. Could you elaborate a little bit more on the timeline and, ultimately, what kinds of mechanisms you'd specifically be looking for to improve the [compact]?

You mean with the alternatives that we're talking about?

Yes, exactly. Just kind of lay out the timeline for each one, to what extent one might have impacted the other, just from an implementation time perspective?

I think they're wrapped around moving toward a longer multiyear compact, recognizing that the peak for our investment cycle is in 2015 and then it starts -- the need for rate release starts to levelize off. So the longer the rate compact, the more we can implement rate mitigation tools that would smooth that impact.

So that would be the focus, along with discussing longer term with the commission the overall policy goals that the state has, particularly on the environmental side, along with some opportunities that we have that we believe that [we] could be more creative and drive value both for customers, and reduce rates, and also value for the shareholders.

So -- And, as you might know, Julian, there's work groups, the e21 work team, for example, in Minnesota, that are looking at the same thing. We've got these goals in the future and our utility, Xcel Energy, needs to play a big part of that. And, of course, alternative regulation, then, is a natural byproduct of that.

Absolutely. And then, lastly, could you elaborate a little bit on [load] growth trends and what we could see out of the IRP in, I suppose, early next year? I'm kind of thinking here about the decision with Black Dog to kind of kick that down the road a little bit. What's the thought process?

Well, I think the last thing you want to do is throw a party and nobody comes, right? So, we're seeing an increase in sales but, the fact of the matter is, if you look at plans for solar and other aspects of our business, you want to be careful about adding any more generation to your system.

And we're just seeing that need's been pushed out and we need to be thoughtful about it. And we're in good shape today and so let's -- So Black Dog is still on the table, as are the other programs, but, increasingly, it looks like it's further out in the future.

Got you. Okay. No real surprises out of the IRP in many regards?

No. No. No real surprises. And, of course everybody, including us, is waiting for the final EPA rules to come out, too. So there's a lot -- there's a lot of things that are swirling around and I think time is on our side to get clarity on those things.

Great. Well, thank you very much for the time.

You're welcome.

And we'll take our next question from Ali Agha with SunTrust.

Thank you. Good morning.

Hi, Ali.

Hi, Ali.

Ben or Teresa. Putting the context, the 50 basis point improvement challenge that you've given the team, give us some context, in terms of as we stand here today, how big is the regulatory lag in your system? And also remind us that 50 basis point improvement would have led to how much in terms of incremental earnings on an annual basis?

Do you want to answer it?

Yes. Sure. Ali, we generally are running at 75 basis points to 100 basis points in terms of the gap. And, as you know, it varies by -- it varies by company. If we would achieve our -- assuming when we, ultimately, because it is our target, to achieve the 50 basis points, it could improve our earnings growth by about 75 basis points to 80 basis points.

Okay. Because, as you point out, the CAGR on the rate base is 4.7%. So to get higher or even to the higher end of your range, obviously, regulatory lag reduction has to be a key component, mathematically, to get there

And that's exactly why we're focusing on that.

Yes. Second question. On load growth, if I look at the trend that you reported to us for Xcel, as a whole, weather normalized, there's been actually a slowing down in the growth rate in each of the last three quarters. 2% in the first quarter, 1.4% and now 0.9%. Can you talk a little bit more about that in terms of what's happening to cause that load growth to slow down as we've gone through the year?

Well, Ali, why don't I start and then Ben can jump in. Early, if we focus first on 2014 -- And we've talked about this before. Early in the year we had extreme cold weather and we're concerned that early on in our weather normalized growth that we, potentially, have still a little weather trapped in there.

We all know that that process of estimating is not perfect. If we look at this quarter, in terms of the electric residential, it looks like we have declines in three of our four systems. If we go to last year, we had very hot weather when we picked up the $0.05 and we think, potentially, in that period, we had some weather, potentially, trapped in our weather normalized growth.

So when we look at them period over period, we could -- we think that's partly driving those declines in the quarter. So long and the short of it, we're seeing some weather variations that we think could be causing this but if we turn to our electric and commercial and industrial growth, we see that still is very solid across our system. And it's different reasons for each system.

Ali, I would just -- And I think Teresa captured it. I think you have to focus on year to date and year to date is it ahead of our expectations. We're also seeing what we believe is household formation. In both Minnesota and Colorado, we saw customer growth of just under 1%.

So, that's a really good trend in our mind. So, again, I think we're in good shape with sales. Sales -- It's a different world, obviously, than where we would have been a decade ago. But good customer growth, good economies, diversified economies, that all bodes well for the future, I believe.

Yes. And then, Ben, your comment about focusing more on the gas side of the business and looking for growth there, could that also include potential acquisitions of other LDCs out there that may be complementary to your system? Is that one of the strategies as well?

Well, we don't really comment on M and A. And what I would tell you is that things are pretty pricey out there. So I think the team is going to focus on what I would call taking our own organic presence, what we have, our growth, our customer needs, and trying to make sure that we work those opportunities harder. And so you're looking at pipelines.

You're looking at storage. You're looking at what's happening in our region as coal plants retire and get closed and gas plants get built. Those are the kinds of opportunities that I think will drive value for us, Ali. And, again, we're going to be very disciplined about it. We've got $14.5 billion of identified opportunities. So we can be pretty picky.

My last question, Ben. On the Minnesota rate case, when you look at where the differences currently lie between where you are and where the DOC is right now, can you just quantify for us how much dollar terms are those differences? And if you took ROE out of the equation, how much of a gap that would equate to?

Well, I think we've narrowed the gap. And, as Teresa mentioned, it's just in a few areas now. [Might get] some differences in labor and pension and --

Yes. They're not significant --

Sales.

Right.

I think it's important to recognize that, while we have a sales difference, that we've got a true-up mechanism. So it's pretty neutral.

Yes.

And, Ali, there is a schedule in the earnings release that details our position and the DOC position by line so you can look through that.

Okay. I'll look at that in more detail. Yes. Thank you.

Thank you.

Thanks, Ali.

And next we'll move on to Angie Storozynski with Macquarie.

Hi, Angie.

Thank you. I actually have just one question. So given the formulaic nature of your ROE in Minnesota and the fact that the rate case is still pending and that the (inaudible) [yield] is, again, below 2.3%, are we risking another downward adjustment to the ROE?

Well, I think the testimony has all been filed. So I think the opportunities to reopen that are pretty limited. I'm looking at my regulatory team and they're nodding their heads yes. (Inaudible) that is true.

So the downward (inaudible) a [9.64].

And it's also been [briefed]. So we're pretty well down that schedule.

Yes.

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

Thank you.

Thanks, Angie.

And next we'll move on to Travis Miller with Morningstar.

Good morning. Thanks.

Hi, Travis.

Hi. I wonder if you could discuss a little bit about how any kind of political changes next week might affect pending regulations, pending programs that you're looking in several states? Just anything along those lines that might be material depending on outcomes [in your two states].

There's an election happening next week? I didn't realize that.

No. In all seriousness, we've got some pretty tight elections. The race for governor in Colorado is pretty tight. If the Republican candidate wins, you probably could anticipate some changes to the commission. Nothing near term.

The other thing that we'll look for in Colorado is it's possible that the Senate, which is now Democratic, might go Republican. And if that happens, of course, you just -- Any legislation that comes out would be more bipartisan. In Minnesota, I don't think it's too much of an election, as far as the governor's race goes.

But it is possible that the House could go Republican. And, again, that would have [impact] any kind of legislation that comes out. Again, it'd be more bipartisan in nature. Clearly, there's some big Senate races, particularly in Colorado. But, by and large, I don't think you'd see any immediate impacts. And, as you know, I think we've got a great track record of working with both sides of the aisle.

Sure. Can you remind me what's the Colorado regulatory commission turnover or that relationship there with the governor that you mentioned?

Okay. Well, there's three commissions. The governor gets to report those. Are you talking about Colorado, Travis?

Colorado, yes.

Yes. And so you have a Republican in [Vod] and then you have two Democrats. And I don't -- Dave or Scott, I don't think that either of them are up for election. [Vod], potentially, has some confirmation issues but that would be about it.

Commissioner Powell would be the next commissioner up in 2015.

In 2015?

Yes.

Yes.

Okay, it's a staggered type of --?

Yes.

Okay. Great. Thanks a lot. That's all.

Thanks.

And we'll take our next question from Paul Fremont with Jefferies.

Thank you. I guess my first question is if you take the 4.7% and the opportunities that are not included in that, what do you think the 4.7% could move to? Could it move up 100 basis points or just -- What type of incremental do you see as potential opportunity?

You know, Paul, at this point I think it's just early on. We're just starting to investigate and pursue these. So I think it would be premature for us to give a number at this point. But we, clearly, do think there's opportunity.

Okay. And I guess there was a recent piece out by Moody's on REITs. And, I guess, also in the AEP earnings call they indicated that they had looked pretty hard at a REIT structure. And I think they elaborated a number of obstacles or problems that they found with the structure. Have you guys taken a look at REITs and come to any conclusions?

Well, I think we're a little bit more early days on those sorts of things. We're interested in any structure that could be a win for customers and shareholders. But our focus right now is primarily on getting those transcos formed and making sure that we obtain rights to build the transmission that's in our region, either through the opco structure or transco structure. Where it goes from there is way early for us.

That's right. We would agree the REIT structure is complex and the first step is getting the transcos off the ground.

And then my last question. You've talked about dividend growth of 4% to 6%, EPS growth of 4% to 6%. I think previously you talked about sort of a targeted shareholder return level of 10%. Is that 10% still part of your broad target?

That's been a while since we talked about the 10%. We, overall, think we provide an attractive return to our shareholders. But it's been a while since we've been, probably about 18 months, or even [past on that] about --

It's been couple years, Paul. Obviously, the stock prices moved up, the dividend yield has declined, which makes it a little bit more difficult to get to a 10% total return based on 4% to 6% growth. So it's really more of a math situation.

Okay. Thank you very much.

Thank you.

And we'll take our next question from Chris Turnure with JPMorgan.

Good morning, guys. Can you talk a little bit about the nature of deciding to pull forward some CapEx or at least increase CapEx in the near term in 2015 and 2016, in particular, and kind of what was behind that? And then also could you give us a little bit more granularity, if you could, on catching up on lag?

You mentioned that the 50 basis points is your goal by 2018. But kind of how do we get from here to there? Is it lumpy? Is it consistent? What are we looking for?

Let me take that second question and I'll let Teresa address the first. The -- It's going to be more -- it's not going to be next year. It takes time for these things to get traction. But you get the traction by having multiyear plans in place and we want to have all of our major jurisdictions with multiyear compacts in place.

And then disciplined cost control. And if you put those two together and I think we've got both of those in motion then you're going to reduce regulatory lag significantly. And that's really what the plan is.

In terms of just variations in the near term, we have increased our estimates, in terms of electric and distribution, investment spend. And some of that is really being driven by higher levels of new customer growth. So those are the primary variations.

Okay. And then my follow up is on the Minnesota cases for next year. You have a $0.15 range in your EPS guidance. I understand that some of that range is going to be due to Minnesota, obviously.

It's not just a point estimate that you have internally. Could you give us any kind of indication that would allow us to figure out the EPS change that's attributable to that alone?

I think it'd be better to say it's not just the Minnesota. Because Colorado, we also have a pending case that's relatively large there. So between the two of them, that's creating the range. So I think we would just prefer to leave it at that for right now.

Okay. But the range is -- or the bulk of the range can be attributed to regulatory situations?

Yes.

Okay, great. Thank you.

And our next question comes from Greg Gordon with ISI.

Hi, Greg.

Hi, Greg.

Good morning.

How are you?

My question is who's worse, the Vikings or the Jets?

Oh, it has to be the Jets, for sure.

I think you're right.

You'll see that on December 7th, by the way.

Yes, we'll actually find out the answer to that question, won't we?

Hi, Greg. I wanted to tell you, I really enjoy your morning [joke], by the way.

Thanks. Thank you very much. I appreciate that. The -- My question is on the dividend. I know that you raised the dividend above the long term 4% to 6% aspiration earlier this year. Your payout ratio is still below what I would consider the peer group average, although, obviously, you could slot different companies in and out of that.

And your cash profile looks pretty good relative to the way you've portrayed it in your -- even in your updated release today. Is there still a possibility, over the next several years, that we might get one or more sort of out of trend line dividend increases as you try to move back to an industry average payout?

Well, I -- The objective is a long term objective. So you can always have some lumpiness. And we recognize we have financial flexibility, Greg. But I really think when you do your modeling you ought to just stick with what we're telling you, and it's [4%] to [6%].

Yes. Agree.

Okay. Thanks. All my other questions were already answered. Take care.

Thanks, Greg.

Thank you.

And next we'll go on to Paul Ridzon with KeyBanc.

Good morning.

Good morning.

Your $14.5 billion does not include net gas reserves or FERC 1000 opportunity, correct?

That's correct.

And what do you have in there as far as place holder for EPA regs yet to be determined?

We don't have -- In the end of the period we do have some dollars but not necessarily what, ultimately could come out from the 111D regulation once it's finalized. So more to come on that. So there is more opportunity for investment spend depending on how those rules come out.

Yes. I think, that said, we've been working an environmental plan with our states. Clean Air, Clean Jobs is a great example of that. So we've been kind of planning for these regulations in our CapEx. Fundamental CapEx reflects the fact that we're moving to a more carbon light world. In fact, as you know, we'll have reduced carbon from an [2005] baseline by 30% by 2020.

What's your annual net gas procurement? And what percent might you want to have locked in through reserves?

Well, I think we -- between the LDC and the electric operations, it's somewhere around 400 Bcf.

That's correct.

So you can do the math on that. As far as what we'd want to see, that's too early to tell. If -- I think if you can smooth volatility, if you can lock in good pricing, if the commission get comfortable with the approach, we'll do as much as they would like to see us do.

And we'll do as well as they want to see us do, as well. But I think it's -- I think the pricing and timing is pretty opportunistic right now. So we want to definitely have those conversations.

Where are you in that conversation? Has it started yet or just very preliminary?

Well, we're beginning -- I would say preliminary, is how much I would categorize it.

Okay. Thank you very much.

You're welcome.

And next we'll move on to Michael Lapides with Goldman Sachs.

Hi, guys. A couple of questions. One on Colorado. I'm struggling a little bit to understand the electric rate case process, really, and your electric rate case increase request, and meshing that with what's happening in the annual earnings test.

Meaning, you've given the $46 million refund obligation from the 2013 test and now you're recognizing an estimate or an accrual for $52 million. It almost seems that, and maybe I'm misunderstanding it or maybe it's just due to something like abnormal weather, you're earning a pretty good return there, even above authorized, according to these earnings tests.

And yet you're coming in and asking for a decent-sized rate increase to go along with that. Help me kind of true those up, if you don't mind.

Teresa, help me out here. But there's two key drivers to why we're filing the rate cases. The capital recovery of the Clean Air, Clean Jobs Act and there's property taxes. So those are -- And part of that is, I think, a reversal of some things we've been deferring under the multiyear plan that we're under.

So those are the two drivers, Michael. And if we can get those -- that recovery then I think we could be positioned to do a settlement.

Right. Michael when you think about just the timing of the infrastructure build in Colorado, it's in the process of being completed. It has to be done by 2017. So it's going in service. So, therefore, we need the rate increase. Up to this point, we've had [AFCD] offsets. So that's causing the driver, and just as Ben indicated, along with property taxes.

Got it. And speaking of property taxes, you talked about -- in your 2015 guidance -- about a sizable increase, almost $80 million at the midpoint in property taxes. Where's the bulk of that happening? That's like a 15% year over year increase.

Well, it's exactly what Ben was talking about in the 2012 through 2014 settlement in Colorado. We had a mechanism where we deferred. And then we're starting to amortize. But it's every year -- We start an amortization (inaudible) year. So the numbers have grown and we're seeing a peak in that. So that, again, is driving that -- one of the drivers of that rate increase.

Along with just increased rate base and the associated taxes that go with that. So you get a -- It's a twofold thing.

Sure.

Okay. But it's not just -- Colorado's got the reversal of the amortization but the other jurisdictions just kind of have a normal taxes other than income tax and property tax growth rate?

Right. Yes.

Yes.

Got. And, finally, in the Minnesota rate case, we're in late October right now, second to last day. How much -- If I remember correctly, so you asked for roughly $142 million for 2014. How much of that is already in rates? So if they give you the $142 million for 2014, what's the real step up versus what's actually in rates today?

What's in rates right now is we're collecting. At the interim rate level it's actually $127 million. So we've gone through and assessed where we think we're at on the various issues, and, basically, set up some reserves related to that. But it's still early because we're not done with the case.

But if you get the $142 million, what it effectively means it it's a $15 million step up from what's currently, effectively, the run rate you've had in revenues in Minnesota year to date?

I'm not sure I'm quite following your question, Michael.

I can -- I'll follow up with Paul off line. I appreciate it, guys. Thank you for answering my questions.

Is he talking about the [15] step in? Well, anyway, we'll follow up [with him].

Yes.

Okay.

And next we'll move on to Steven Fleischman with Wolfe Research.

Yes. Hi. Good morning.

Hi, Steve.

Hi. So I have a couple questions. First on the 50 basis point ROE improvement that you're targeting. Is that something that we should consider as part of your 4% to 6% growth plan, and to achieve that? Or is that something that could allow you to do better?

Well, as Teresa said, it's 75 basis points to 80 basis points and so that certainly is going to -- All things equal, would move us up -- If you combine that with the rate base that would move us up in that range.

Right. But not -- If your question is outside, likely not. Yes. It just puts --

Okay. And then the other target in terms of kind of the multiyear plan, could you repeat, Ben, specifically what your objective there is? And when we think about Minnesota, is this something that could be resolved within the context of the current case?

Or is this something -- You mentioned something about legislation. I'm trying to kind of understand the timeline for -- I know we have a two year plan, potentially, in Minnesota but it seemed like you were talking even more than that.

Yes. Well, first of all, the goal would be to continue the multiyear approach in Colorado. Then in Minnesota, to work with the commission to go into a longer term plan. We do believe we have some flexibility to go longer. And the legislative side of that, that I mentioned, would be to provide the commission some additional support and guidance.

And also take that broader approach to where the state wants to head as far as its own energy policy. So did that give you some --

No, that's helpful. I guess my question then would be is that something that can be done in time by the legislature in context of this current pending case or something kind of later on?

Well, I think you could introduce it as part of the -- when the commission hears this current case. So it's not directly related but it can be correlated, if you will. Yes.

Okay. Okay. And then just in the -- One thing that has been an improvement from when you laid out this plan last year is the -- I think you have a reduced amount of equity issuance --

Correct.

-- Than you had. So in the context of your 4% to 6% and the like, is that -- Maybe that just changed you within the range but is there offsets to that that are negatives that you're still in the 4% to 6%? It didn't really seem to kind of change you within that range, I guess is my question.

I would say it keeps us within the range. I don't think there's necessarily offsets that you're suggesting.

Okay.

Look, we do everything we can to -- We, obviously, want to be at the top of that range, if everything goes right. Of course, you can always be outside of it. But, as we all know, you always get thrown curve balls, too. And we still have a little bit of dilution through our DRIP plans.

That's pretty minor these days but it's still there. So solid execution of all these things we talked about, including the incremental cap spend. That would be icing on the cake. It would certainly be positive for our growth rate.

Okay. Great. Thanks for clarifying that.

Thank you.

And our next question comes from Paul Patterson with Glenrock Associates.

Hi. Can you hear me?

Yes, Paul.

Good morning.

Good morning. Just to -- I'm sorry if I'm a little slow this but I'm not completely clear as to what -- You guys have been trying to reduce regulatory lag for some time. And what is it that makes you guys feel more confident about it? Is it because of the legislative efforts you might be making?

Is it because you're getting a better response, in terms of people seeing things your way on the regulatory side? What is it, just if you could break it down? Or just, simply, what do you think it is that's going to be making this more successful, in terms of the efforts you've already made?

Sure. Well, let's look at why we've had regulatory lag. I think that's probably a good place to start. And we've had a lot of capital spend, as you know. And most of that spend has not been recovered through a multiyear compact.

So that puts natural pressure on you. There's been a recession. Sales have been flat. That's put pressure on you. We've had a higher pension expenses as we worked out those market losses, from an accounting perspective. That puts pressure on you.

And so all of that has created lag. And then you look forward and you realize we have a multiyear compact in Colorado. We're hoping to renew that. We want to enter into a similar type of arrangement in Minnesota. You combine that with the fact that post 2015, while we still have a good pipeline of opportunities, the acceleration smoothes out. So the capital spend and the associated recovery smoothes out a bit.

Our own internal efforts to manage cost and still achieve the reliability and safety goals we have through standardization, they're starting to take hold. So you combine what's happened in the past and then you look towards the future when it looks like sales are rebounding, as well. So you put all those factors together and I think that puts us in pretty good shape. Perhaps not right away but within fairly short order to start closing that gap.

Great. That's very helpful. And then just to clarify a few things. The upstream rate based opportunities, when do you think you might be able to tell us more about it? I know you guys are in preliminary discussions. When do you think we might learn more about how those discussions are going?

I would love to give you a timeframe but that would -- I don't have that because, again, we're in early days. So as the opportunities arise and as the [math] pans out then we'll talk about it.

Okay. And just to clarify, are you guys -- You guys are not interested in upstream non rate based opportunities, is that right? Or are you perhaps --

Well, it could be -- I'm sorry to cut you [off]. It could be a FERC rate base. But we're not interested in merchant type --

You're not interested in being an [EP] company?

Right.

No.

Okay. I just want to make sure. And then the RFPs in the FERC Order 1,000. Again, when might we hear more about what you guys might be involved in there? Any sense as to -- Just sort of a rough timeframe as to when we might hear more about that?

Well, the RFPs and [STP] are -- They're going to issue them early next year. So we're anticipating a 90 day bid process. And then those who choose to participate, they will be evaluated by the [STP] at that time. So mid to later next year.

Yes. As you know, the Integrated Transmission Plan 10 came out. It was about -- I think it was 40 odd projects about, roughly estimate, $450 million. The next step will be the near term plans that come out.

And then what we anticipate, as Teresa mentioned, probably later in 2015, is another Integrated Transmission Plan ten year look, which would incorporate some of the considerations under the 111D rules. I think that's what the timeframe is.

Okay. I appreciate it. Thanks a lot.

Okay.

And our next question comes from Ashar Khan.

Hi, Ashar.

Hi, Ashar.

Hi. How are you guys doing?

Good.

I just wanted to get a little bit sense -- When at the midpoint, if I'm right -- When we started off this year it was, like, [197], [198]. And the midpoint, if I'm right, is around [2.7], [2.8], which is, like, $0.10 increase. If I'm doing my math correct, around 5% increase in EPS.

But then when I look up your last slide where you gave us the rate base, which was at the Wolfe Conference, the rate base for [2015] was estimated at [22.4]. For [2014], was at [20.7]. So that was, like, nearly an 8%, 8.2% increase in rate base. It was the strongest rate base growth in the horizon of the five year forecast.

So what I'm trying to equate is what is happening that we're losing -- If rate based numbers are still correct and they haven't changed, why is the 8.2% increase in rate base, [2015] versus [2014], getting diluted to a 5% increase in EPS during the two years?

Well, Ashar, I would say our rate based growth, it is moderating because we're coming through some major spend. Our nuclear spend is essentially completed so we are expecting it to moderate back. So you are seeing some of the past rate base growth.

But, as we look forward, we talked about what we would anticipate going forward, which would align with our earnings growth that we're talking about.

I would say we'd probably -- It would have to go through a lot of the timing expectations and everything else.

Exactly.

But it'd probably be better to do that off line.

Well, and, plus, Ashar, it does reflect the timing of rate cases and what we request in rate cases. Clearly, in Minnesota, we've got a step increase for 2015 but it doesn't cover all the capital that's being spent. So things like that are what drive that. We think we've issued a 2015 guidance that is realistic for us and that's what we've put out there.

Okay. I'll try to come off line and try to discuss it. Because I just thought it was -- When you have a higher rate base growth and you have equity needs. You have kind of toned down since the last time that I just don't understand why the growth rate is not higher in 2015 versus 2014, in commensurate to the rate base.

Okay. We can talk about it off-line.

Okay.

And we'll take our next question from Andy Levi with Avon Capital Advisors.

Hi. Good morning.

Hi, Andy.

Hi, Andy.

I guess most questions have been asked. I guess if you get to the top end of your range, though, then it's back on an [assurance] question. And you're kind close to that kind much growth rate, [215]. But, anyway, just on the 4% to 6%.

It just seems, I guess, with all the things that have occurred, whether it's lack of issuing shares and all the other things that you've outlined over the last several months, including today, would it be fair to say that you're a lot more confident about being able to achieve the top end of your range over the next few years?

Andy, we have a range and we're within the range, and we're confident we'll achieve within the range.

But no difference of being able to be more confident on the top end?

Well, we're going to do everything to be on the top end but I think Teresa said it. We're keeping with the 4% to 6% growth in both the dividend and EPS.

Okay. Appreciate it.

Thanks, Andy.

And we have a follow up question from Paul Ridzon with KeyBanc.

I just want to make sure I understand the impact of the lag reduction. If we start with a ballpark 10% ROE and you [reduce] lag by 50 basis points, that's 5% improvement. So is that 75 basis points to 80 basis points just that compounding over five years to get to 5%? Is that the right way to look at it?

Well, maybe -- If we start, I wouldn't start with the 10%. I'd start with -- The regulated utilities are earning more around 9%, at that level. So I think that would change your math, your starting point, which would follow -- would fall out from that.

So the 75 basis points to 80 basis points is, potentially, incremental to the 4% to 6%? Or gets you firmly within the 4% to 6% and then, by year five, you've probably maxed out the opportunity?

We would be close. Assuming whatever our [authorized] are, we're holding our authorized at the same level right now.

Right. Right. Okay. Thank you very much.

Thanks.

And our next question comes from Kit Konolige with BGC.

Good morning, guys.

Hi, Kit.

Hi, Kit.

I just wanted to inquire what your major states are doing or what you're doing with the regulators and legislators there on the response to 111D? Are you working closely with them to propose responses? Can you give us any sense of --

Obviously, it's early in the process but any sense of where things might be headed and, in particular, the possible impact on your operations?

We are definitely working close with our all of our stakeholders in all of our key states. And our goal, and our senators and our governors are very much on board with this, is that, as was mentioned in the preamble, 111D, Xcel Energy's the model utility on how things get done, achieving environmental objectives and keeping costs affordable for consumers. But we're disappointed that we're not getting the credit we believe we deserve for the early action that we've taken.

So there's lobbying on their end. We're lobbying through the industry groups. We're doing outreach ourselves with the EPA. And we're going to work as hard as we can to get the final rules shaped in a way that I think is more equitable to those companies and those states that have been out front in moving towards where the EPA wants to take us. So very much engaged, all the way down the line.

And do you have any clarity, at this point, on the potential for shutting down some of the coal plants, et cetera, in addition to the ones that, obviously, previous EPA rules have impacted?

Yes. I think you really got to wait for those final rules. As you know, the EPA came out with, what is it, a notice of data availability yesterday or the day before that suggests that maybe there's -- Some of the interim targets, the 2020 targets, maybe there's a glide path there. Maybe there's some flexibility on the base here. But not much more clarity than that.

Thank you.

Thank you.

And we have a follow up question from Ali Agha with SunTrust.

Just one clarification, Ben or Teresa. The 4% to 6% EPS growth, say, let's say over the next five years, does that continue to resume a 1% growth in weather normalized electric sales? Or do you have a different growth number going forward?

No. That's basically what we're assuming. That's correct, Ali.

Okay. Thank you.

Thank you.

And that will conclude today's question and answer session. At this time, I would like to turn the conference back over to our speakers for any additional or closing remarks.

Well, thank you all for participating in our earnings call this morning. And please contact Paul Johnson and the IR team with any follow up questions.

Thank you.

Thank you.

And this will conclude today's conference. We thank you for your participation.