Xcel Energy Inc. ( XEL)

Q3 2011 Earnings Call

October 27, 2011 11:00 AM ET


Paul Johnson, VP – IR and Financial Management

Ben Fowke – CEO

Teresa Madden – SVP and CFO

Scott Wilensky – SVP and General Counsel


Greg Gordon – ISI Group

Paul Ridzon – Keybanc

Paul Fremont – Jefferies & Company

Carl Seligson – Utility Financial Experts

Justin McCann – S&P Capital

Ali Agha – SunTrust

Leslie Rich – JPMorgan

Sarah Acres – Wells Fargo

Paul Patterson – Glenrock Associates

Dan Jenkins – State of Wisconsin Investment Board



Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Xcel Energy’s Third Quarter 2011 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode, and following the presentation the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, October 27 th, 2011.

And I would now like to turn the conference over to Paul Johnson, Vice President of Investor Relations and Financial Management. Please go ahead, sir.

Paul Johnson

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

Today, we’ll discuss our third quarter results and accomplishments. In addition, we’ll provide an update to our 2011 guidance and introduce 2012 guidance.

Please note that there are slides that accompany the conference call, which are available on our web page. In addition, please note that some of our comments may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and our filings with the SEC.

Today’s press release refers to both GAAP and ongoing earnings. Third quarter 2011 ongoing earnings were $0.69 per share compared with $0.62 per share in 2010. Third quarter 2011 GAAP earnings were also $0.69 per share compared with $0.67 per share in 2010. Last year third quarter GAAP earnings include a non-recurring benefit of $0.05 per share related to the settlement of a law suit. Management believes ongoing earnings provide a more meaningful comparison of results, and are more representative of Xcel Energy’s fundamental earnings power. Therefore we will be discussing ongoing earnings today, during our review of third quarter results. Please see our earnings release for a reconciliation of GAAP to ongoing earnings results.

I’ll now turn the call over to Ben Fowke, who became CEO of Xcel Energy in August of this year.

Ben Fowke

Thank you, Paul, and welcome everyone. Let me just say that I’m truly honored to be CEO of Xcel Energy. We have a great company with a strong balance sheet, a sound strategy, a constructive regulatory environment, a visible pipeline of investment opportunities, engaged employees and a history of delivering on expectations while managing risk. I will build on our great tradition with an emphasis on improving earned returns, while continuing to bright our customers with safe, clean, reliable energy at a reasonable cost. So, with that let me turn to our results.

This morning, we reported third quarter ongoing earnings of $0.69 per share compared with $0.62 per share in 2010. These results represent a continuation of solid performance this year and give us confidence that we will deliver 2011 earnings in the upper half of our guidance range of $1.65 to $1.75 per share, which is consistent with our 5% to 7% earnings growth objective.

Now I’ll brief you on some recent developments, beginning with an update on our regulatory proceedings. This has been a busy one for us with several rate requests pending. As most of you are aware, we arrived at constructive settlements in North Dakota and New Mexico. In North Dakota, the commission recently held hearings on the settlement we reached with staff, which would result in a rate increase of about 14 million in 2011, and an additional spec increase of 2 million in 2012 if approved. This is a black box settlement which was based on a 10.4% ROE. The settlement represents approximately 76% of our requested increase. We also reached a settlement in our electric rate case in New Mexico; the black box settlement is unopposed, resolves all the issues and increases rates by 13.5 million effective January 2012. Here again, the settlement if approved represents approximately 68% of our requested rate increase.

We expect the North Dakota and New Mexico commissions to rule on these settlements by year end. We are also discussing a potential settlement agreement in the Minnesota rate case. While we believe our request in Minnesota is reasonable we think working towards a settlement has the potential to leave to a constructive outcome. Especially in light of the delays the case has experienced and considering the overall economic environment. If our efforts are successful we would expect that an agreement could be sent to the commission by year-end.

These settlements are up our evidence of our ability to effectively manage regulatory risk. The constructive outcomes if approved position us to continue delivering on our financial objectives in 2011 and beyond.

Next, I would like to comment on EPA’s recently issued Cross-State Air Pollution Rule or CSAPR, as you are probably aware CSAPR impacts our operations in Minnesota, Wisconsin and Texas. While we have proactively addressed environmental issues, the late inclusion of Texas and the required compliance by 2012 creates significant issues for SPS.

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