埃克西爾能源 (XEL) 2015 Q2 法說會逐字稿

Good day and welcome to the Xcel Energy second-quarter 2015 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Paul Johnson, Vice President of Investor Relations.

Please go ahead.

Good morning and welcome to Xcel Energy's 2015 second-quarter earnings release conference call. Joining me today are Ben Fowke, Chairman, President and Chief Executive Officer; and Teresa Madden, Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team in the room to answer your questions.

This morning, we will update you on recent legislative, regulatory, and business developments; review our 2015 second-quarter results; and reaffirm our 2015 earnings guidance range. Slides that accompany today's call are available on our webpage. Please note we have updated our slides to provide more information. In addition, we will post a video on our website of Teresa 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 from those anticipated are described in our earnings release and our filings with the SEC.

I will now turn the call over to Ben.

Today I am going to provide a business update and discuss our recent legislative efforts in Minnesota and Texas. Later, Teresa will provide more detail on some of our recent regulatory decisions and financial drivers.

We reported $0.39 for the quarter, flat with last year. Overall we have had a solid first half of 2015, with results generally in line with our expectations. While we have had some challenges from lower-than-expected sales, unfavorable weather, and additional adjustments from the Monticello proceeding, we fully expect to deliver 2015 ongoing earnings within our guidance range of $2 to $2.15 per share.

I want to start by saying how pleased I am with the Company's response to recent storms across our Minnesota and Wisconsin service territories. Two weekends ago, intense winds, with speeds between 70 to 80 miles per hour, knocked out service for 250,000 customers. Our employees in the field responded quickly and effectively, restoring 75% of our customers within 12 hours and 98% within 45 hours. All of our customers were restored to power within three days. This event is yet another reminder of the Company's top-tier storm restoration efforts and illustrates the value of building a resilient system.

We also hit several additional operational milestones during the quarter that I wanted to share with you. Beginning with our Monticello nuclear facility, we are very happy to report that this month we received NRC concurrence and reached 671 megawatts of generation. The facility is now fully in service, operating at designed capacity, and meets all the requirements of the Minnesota Commission to be considered used and useful.

Finally, our Cherokee combined-cycle natural gas plant in Colorado successfully completed its first fire on gas, and is on time and on budget.

Last year, we spoke to you about our refocused strategic plan with a key tenet being improving the performance of our utilities and reducing the ROE gap. Our approach was to target the jurisdiction where the gap was the greatest and seek legislation in those states to improve the timeliness and method of cost recovery.

Beginning with Minnesota, last month the Governor signed into law a bill that contained several notable enhancements to the regulatory framework. The legislation expands the length of multi-year plans to up to five years; allows for a more formulaic approach to recovering capital investments; provides for the recovery of O&M expense based on an industry index; and allows rider recovery of distribution costs that facilitate grid modernization. We are now considering how to include these improved mechanisms in our Minnesota rate-case filings scheduled for later this year.

In Texas we, along with several other non-ERCOT utilities, sponsored legislation that will reduce regulatory lag and provides for improved inclusion of post-test year capital additions; more timely implementation of new rates; and greater flexibility and more timely recovery of new natural gas plant investments. The Governor signed the bill last month. And while this does not eliminate all regulatory lag in Texas, it does represent an important incremental step towards improvement. We feel the legislation in both Minnesota and Texas strengthens the regulatory compact, helps to close the ROE gap and enhances our ability to meet our long-term earning growth objectives.

Moving to Colorado, we anticipate that the Colorado Commission will be scheduling informational meetings to examine the long-term supply of natural gas and approaches to managing prices, including the rate basing of natural gas reserves. We continue to see the value of these types of investments for our customers, particularly when considering the current low-priced commodity environment.

After the information meetings are held, we plan to make a regulatory filing before year end that will establish a formal framework that incorporates feedback from the meetings. Following the Commission's decision on a preferred framework, we anticipate filing for the approval of potential investments during the second half of 2016.

In Minnesota, we were pleased to see the Minnesota Commission supported our settlement with smaller solar developers, which limits the size of proposed solar gardens to no more than 5 megawatts. This important policy settlement ensures that Minnesota has one of the largest community solar gardens in the country, but also minimizes the impact of the program on our customers' bills. Xcel Energy continues to be a major advocate of solar, and we view it as an important and growing component of our resource mix. However, we want to ensure that it is done at the most attractive price point for our customers.

A couple of recent studies confirm that utility scale solar is far more cost-effective for consumers than smaller applications. And we think it is important that policy be based on these sound economics. While solar gardens and rooftop solar have a place in our portfolio as an option for consumers, because they require heavy subsidization from non-participants you will continue to see us advocate that the primary focus be on utility scale solar so that we can keep energy costs affordable for consumers as we move to cleaner energy sources.

I think we have made significant progress during the first half of the year. We look forward to implementing some of these new mechanisms and policies in the coming months.

And with that, I will turn it over to Teresa.

Thanks, Ben.

Today we reported ongoing earnings for the second quarter of $0.39 per share, flat with last year. The most significant drivers in the quarter were improved electric margin, which increased earnings by $0.06 per share, largely due to new rates and higher rider revenue driven by infrastructure investments that provide long-term value to our customers. These incremental revenues were partially offset by unfavorable weather and lower sales.

Additionally, offsetting the higher electric margin was increased depreciation, higher property taxes, and lower AFUDC. Each of these items separately had a negative $0.02 per share impact on earnings.

Turning to sales, our year-to-date weather normalized electric sales were down 0.4%, driven primarily by declines in the residential class, partially offset by modest growth in the C&I class. Regardless, we continue to experience healthy economies in our service territories, with an average unemployment rate of 4% compared to a national rate of 5.5%. Our customer additions remain solid at about 1%.

The decline in residential sales is driven by lower customer usage. We believe this trend is due to a combination of factors including appliance efficiency, conservation efforts, and an increase in multi-unit dwellings.

We have adjusted our annual electric sales guidance to reflect year-to-date results, which lowers our expected growth rate for 2015 to about 0.5%. We will continue to monitor sales and customer usage, and will take appropriate management action if we determine this represents a long-term trend. It is important to note that we will be implementing decoupling for the residential and small C&I class in Minnesota in 2016, which will offset any declining customer usage trend.

Next I will provide an update on several regulatory proceedings. Additional details are included in our earnings release.

Earlier this month, we received decisions on several outstanding items under reconsideration in our Minnesota electric rate case and our Monticello prudence proceeding. The Commission allowed NSP-Minnesota to recover its 2015 rate increase beginning in early March, and determined that the Monticello extended power upgrade investment was not used and useful until certain NRC conditions were met. These conditions were met in early July. While we believe that the Commission should have concluded differently related to the in-service date of the Monticello project, we will review the written order to determine our next steps.

In Colorado, last month we received intervenor testimony in our PSCo multi-year natural gas rate case. The staff recommended a rate decrease, while the Office of Consumer Council recommended a modest rate increase. Primary differences between the Company and other parties were driven by ROE, capital structure, and whether to use a historical test year in the establishment of base rates. The positions recommended by the staff and the OCC were consistent with past positions, and we remain confident we will reach a constructive outcome in the case.

Finally, I wanted to address our rate case in New Mexico. After another utility in the state had its case dismissed, the New Mexico Commission determined our filing also did not comply with their new interpretation of the statute regarding forward test years and the timing of rate case submissions. As a result, the Commission dismissed our case as well.

We believe our filing was consistent with the requirements of the New Mexico legislation that allows for a forward test year and have appealed to the State Supreme Court. While the timing of resolution is uncertain, we plan to refile the case later this year.

This morning we are reaffirming our 2015 ongoing earnings guidance range of $2 to $2.15 per share. We are confident in our ability to deliver earnings in our guidance range, due to the timing of O&M expenses and revenue recognition from the Minnesota rate case, both of which will provide for a more favorable comparison in the second half of the year. Our guidance range is based on several key assumptions as described in our earnings release. Please note that some of the assumptions have changed. With that, I will wrap up my comments.

We are very pleased with the legislation that was passed in Minnesota and Texas during the quarter. The new legislation provides a framework that will allow us to reduce regulatory lag and streamline the regulatory process. As a result, we are confident that we will achieve our goal of reducing the ROE gap by 50 basis points by 2018.

Growth projects, like the Courtenay Wind Farm, are on schedule. We remain on track to limit increases in O&M to 0% to 2% for 2015. The Company is well-positioned to deliver an attractive total return to our shareholders by growing earnings 4% to 6% annually and our dividend at 5% to 7%. And finally, we are reaffirming our 2015 ongoing earnings guidance range of $2 to $2.15 per share.

Operator, we will now take questions.

(Operator Instructions) Michael Weinstein, UBS.

Good morning.

Good morning.

Considering the legislation in Texas and the legislation in Minnesota and you are now very confident of increasing or reducing the regulatory lag by 50 BPs by 2018. I am wondering, at what point would you consider increasing your long-term growth rate commensurate with the improvement in ROEs?

I think that what we are focused on is closing that gap. If we close that gap by 50 basis points that will get us on the upper end of those growth objectives. You would have to start to exceed that and see some other things before we would be comfortable doing that, Michael.

Would you say that it would require a wait and see after the results of the rate filing in Texas?

We need to implement it. We are working the plan. This is the legislation, while it was not essential to close that gap, it is certainly helpful. And now we need to execute on that and let things play out.

Okay. Thank you very much.

You are welcome.

Travis Miller, Morningstar.

On the Minnesota legislation, I was wondering if you could lay out a more detailed timeline in terms of, I know it's obviously one of your lower spreads -- or a wider spread between allowed and earned right now. How do you go about closing that and taking advantage of the legislative items?

You are absolutely right that we have been under-earning in Minnesota. If you are looking at the charts, by the way, that were attached, keep in mind that that's a little bit distorted due to some revenue recognition. But you are right, it has been in the mid 8s and we need to improve that.

Take a look at what we did in Colorado. When you get into a multi-year plan, I think you've got a much better shot at closing that ROE gap. You are getting all of your capital recovery, you are getting your O&M potentially recovered.

Travis, the other thing that I think is so important about entering into these multi-year plans is it gives you an opportunity to communicate more frequently with your commissions around important policy decisions, resource plan decisions, where we want to go with our portfolio generation et cetera. So you don't get disconnects.

I think if you look at why we've under-earned, we have had a lot of CapEx going through a funnel. We had to re-license our nuclear plants. We had some challenges there, as everyone in the industry did. And we did not have a lot of forums to communicate some of those challenges. It is not only the mechanisms associated with the legislation and the multi-year plan, it is what that frees you up to do. I am really optimistic that we will make good progress next year and the years to come.

Do you think this is something you could do in one cycle for your multi-year plan or is this, closing up the gap, would that take two rate cases or two cycles? Is this something that you can close quickly?

The multi-year plan, as you know, the legislation allows for up to five years and it allows a number of other things. The regulatory team is busy right now assessing how we put those tools to work, what alternatives we want to present to the department and ultimately the commission. And we will figure out -- we'll use the tools that we can and do it in a pragmatic approach.

Now, depending on how you structure that, do you get it all in one year? Not necessarily. But do you get it over the time frame of the filing? Yes, that would be the plan.

Great; thanks so much. Appreciate it.

Paul Ridzon, KeyBanc.

Good morning. Have you indicated when you are going to refile in New Mexico?

We have just indicated that we will refile before the end of the year.

It seems as though the commission has said we want a do over with PNM. How does that play into the timing?

Are you talking about the appeal? Right now the commission has taken the rule back and is trying to maybe understand their own interpretation of the rule. So we recognize that there might be some time lag with that, Paul. So we will re-file a case that we think will meet their current interpretation of the rules by year end so we can get this started while we are trying to sort through what the future test year rule and legislation really means from an administrative standpoint.

Right. We obviously think that the legislation allows for the forward test year, as we had previously interpreted and that's why we re-filed with the Supreme Court in terms of an appeal.

Did I answer your question Paul?

Yes, you did. Thank you. Walk down the growth numbers. Where are you seeing the most weakness?

Seeing the most what?

Weakness. Well -- and Teresa, jump in here, but it's really been on the residential side. We are seeing good growth, Paul. We are seeing about 1% customer growth. But what is happening, we believe, is you have got energy efficiency, some of that we are driving of course. And what we are thinking some of the growth is, is in more multi-unit dwellings, which inherently use less electricity. So those two factors combined are offsetting growth with lower usage per household.

Right. Just to supplement that, in the multi-units we think they use about 50% what a standard, stand-alone dwelling or home would use. You get the customer growth, but just not at the same pace in terms of adding to our growth.

Have you seen efficiency start to plateau with a lot of the light bulbs have already been switched out and a lot of the appliances have been switched out? Where are we in that cycle?

That is a really good question, Paul. I think if you look at technology, it's going to continue to get more efficient. Will the pace of that efficiency slow down? I don't know if I have a crisp answer for you at this point.

But I wouldn't think that it's going to plateau and just level off. I think you're going to continue to see more efficiencies, you're going to continue to start to see as we get to, ultimately, the Internet of Things, even more efficiency. I think we are a few years away from that.

But the gas business has been on a long-term efficiency cycle and I think we will see that on the electric side. That is not necessarily a bad thing. It does mean though, back to the earlier comment, that we have to start rethinking rate design and what the 21st century regulatory compact and offerings to our consumers look like. That is one of the reasons, again, why we think it is so important to have longer-term regulatory compacts, so you can have these dialogues with your policymakers.

Thank you very much for your time.

Anthony Crowdell, Jefferies.

I just wanted to focus on Minnesota. You were successful at getting the legislation for potentially a five-year deal. But I think previously you had the ability to file for three-year deals, but I think maybe you filed for two.

Is there reluctance on the regulator for granting a longer-term deal? Some states you'd see regulators push back on longer-term deals. I wonder what's your feeling or view of that in Minnesota?

Keep in mind that prior to this legislation, the multi-year compact was not really comprehensive. When we filed we were able to file for larger step-in type capital programs.

This legislation was passed with input from a lot of important parties, including the department and certainly the Governor's office and it was passed and it was supported. That said, I think to your point this could be transformative, it's change. And I think our team has to work with the department and make sure that they are comfortable with the pace of what we are doing. That's what we are trying to assess right now, so your question is a good one.

I think the policymakers support it. I think there is a number of reasons why the business community would want this and it is good for our customers and it could be tremendously more efficient than how we process rate cases today. I am optimistic we are going to use the majority of those tools and come out with something far more comprehensive than we had prior to this legislation.

And on your next filing, you would attempt to get the full five years?

We are going to incorporate a number of the tools. We'll figure out -- I would anticipate that we will look at the five years, figure out how that could be done. But I also anticipate that we will present the commission with different alternatives.

The key is get something comprehensive, make use of the tools and close that regulatory gap. That is always the first and foremost in mind. And again, we want something that frees up space to have a time frame that we can work with the commission on other important policy decisions.

Great; thanks for taking my question.

David Paz, Wolfe Research.

Good morning. On the Minnesota filing, when would you expect a final decision? On the November filing.

On the pending case that we haven't filed yet?

Sorry, yes; on the November filing.

It could take either late in 2016. Depending on the schedule, other cases that we know are going to be filed, we could go into 2017. But I think the key thing that is important is we have interim rates and we are anticipating that those will start just as they always have. That is still part of the new compact that we have starting January 1, 2016. So I think that is really the key thing to be focused on.

Great; okay. Separately, did you update your capital plan for the Courtenay wind farm?

We have not updated it yet. We plan later this year, I mean we will do a more comprehensive update. We have disclosed the cost is about $300 million. Again, we will do a more comprehensive look later this year.

That project is moving along very well. We expect that the commission is going to probably rule on -- the commission in North Dakota and in Minnesota will rule on that in August.

Okay; great. Then just last, I think your projected rate base growth over the period you have outlined is about -- just shy of 5%.

Right.

That's correct.

And so it looks like Courtenay will be added. Any other potential upside to that growth? I know, Teresa, you said you guys will do a new look soon. But anything we should think about?

You mentioned gas rate base, other type of renewables. Just anything else that we might be missing, particularly as the carbon rules get, at some point, finalized?

Yes. We're going to look at all of those opportunities you mentioned. They are not included in the CapEx forecast right now. Maybe there's more opportunities for Courtenay wind type projects, like the Calpine projects that we have done in the past. We have got a great backyard and I think there is a number of opportunities that we think make sense and are in keeping with our low-risk profile that we are going to pursue.

We are conservative. We are not going to increase our forecast for things that you can't touch. But we are certainly going to go after all the opportunities that make sense for us and you hit on a couple of them.

Okay; great. Thank you.

Felix Carmen, Visium Asset Management.

Can you just remind us in which states you will have de-coupling in, in 2016?

We'll have it in Minnesota. There is an open docket in Colorado, but it has not been acted on for quite some time. But for sure we will have it in Minnesota.

Is the expectation that we will achieve the de-coupling in Colorado or no?

I would think -- We are under a multi-year plan there, so no, we don't anticipate that we are going to have de-coupling during the current multi-year plan that we have. That said, as you know, we've actually exceeded our authorized return in Colorado. So I think, barring some major drop-off, there is no reason to really be concerned in Colorado.

I agree.

Okay. Thank you.

That does conclude our question-and-answer session. I would like to turn the call back over to Teresa Madden, Chief Financial Officer, for any additional or closing remarks.

Thank you all for participating in our earnings call this morning. Please contact Paul Johnson and the IR team with any follow-up questions. Thanks again.

Thank you, everyone.

This does conclude today's conference. Thank you for your participation.