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Xcel Energy Inc. (NYSE:XEL)

Edison Electric Institute Financial Conference Call

November 8, 2011 10:30 ET


Ben Fowke – Chairman, President and CEO

Ben Fowke

Okay, well thanks for attending. I am Ben Fowke, I am the CEO of Xcel Energy and happy to talk about our story in the crowded room. I think there is a few spots upfront, they get a bigger room next year. Before I get started with the presentation, let me just remind you that some of the remarks I make are forward-looking in nature and subject to certain risks as described in our Safe Harbor disclosure.

So, with that, let me get started with just an overview of our strategy. It’s a strategy that really has worked well for us. It’s really straight forward. It starts with making investments for our customers to continue to provide clean, safe, reliable energy. Before we make those investments, we collaborate with various stakeholders and get their consensus and their approval and typically some form of improved regulatory recovery. Then we make those investments we have been doing it on time and on budget demonstrating value to our customers kind of starts the cycle again. And as a result of our track record and our regulatory recovery, we’ve been consistently delivering value to our shareholders getting our EPS growth of 5 to 7, growing the dividend at 2% to 4%, while we keep the balance sheet financially secure.

I think one of the reasons why we have been successful is really just our jurisdictions. They have great jurisdictions. They offer a strong organic growth with stakeholder support. The territories themselves are very diverse from an economic standpoint. We have good customer satisfaction. We have low unemployment – relatively low unemployment in today’s world and we have been successful operating in all the jurisdictions and improving the regulatory compact. Again as a result, we have developed a very sold track record.

Now, let me talk a little about some of the investments we are making. Despite what we are all seeing with sluggish sales and a down economy, these are investments that by and large need to be made as we continue to modernize the infrastructure, whether its transmission to improve great reliability, bring renewables into a load source whether its retiring some of our order less efficient plants, re-parry them to new, modern, and combined cycle plants, operating our nuclear plants and extending their lives for another 20 years or meeting new environmental standards and putting the pollution control equipment on them. These are investments that are going to take place regardless.

In addition, we have some pretty robust renewable portfolio standards in our territories. Wind is very economical for us. I can talk a little more about that later, but it also offers us investment opportunities should we choose to invest in wind and other renewables. So, it’s a great service territory. I mentioned that we are modernizing the infrastructure. We really are and if you look at the product of that, where our energy mix will go from today, and if you look forward to 2020, you see that we use a lot less coal in the future and the coal that we do use will be cleaner and more efficient, think about Comanche 3 in Colorado, a brand new supercritical coal plant that we built just a couple years ago.

We’ll have a little bit more nuclear on our system significantly more renewables and more natural gas, but look at that balanced portfolio of the energy mix, it’s really literally not any one egg in any one basket. So, I think that also diversifies that risk. When you talk about risk, of course, the biggest risk that we have to face every year is regulatory risk. And we have a great track record of managing that risk, improving the regulatory compact, whether it’s moving from historic test years, the forward test years whether or not its pioneering new riders and other recovery mechanisms to handle our increased CapEx, but even despite that due to cost pressures and the amount of CapEx we are spending and the flat sales that I mentioned, I think at the end of the day, we are still seeing regulatory lag. So, we are not satisfied with the existing regulatory compact.

We want to take it to the next level and reduce that regulatory lag and for us that’s really multi-year rate plans. We have legislation pass last year in Minnesota, which allows for multi-year rate cases. We plan to do that next time we file a rate case in Minnesota next year. In Colorado, the commission is open to alternative rate making, so look for us to offer an alternative to our traditional way of rate filing through multi-year approach. And we are looking at similar things in the Dakotas as well. So, if we can go to multi-year rates, I think it’s a win-win for customers. They see the transparency they could budget and we see that reduced lag which should help with our returns.

We have spent a significant amount of capital in the last decade. And we have seen our rates rise. The good news for us is they have risen in lockstep with what’s happened on the national front that we have kept our competitive advantage against other areas of country. One other ways we have done that is because of the investments we have made are being investments that have come on time and on budget taking advantage of that wind resource that I mentioned wind for us really competes on the economic ground. So, I think our average wind portfolio was about $38 a megawatt hour. It’s really in that reasonable zone if you think about it just from an energy basis.

So, we have made investments for our customers. We kept our competitive advantage. And I would argue that the investments we have made have better positioned us in the future, so that our rates won’t rise as much and that’s very important. It’s always important to keep your rates as low as possible obviously for your customers are still living up to your promise of reliable clean safe energy. It’s even more important in today’s market.

If you peel back and look a little bit about our customers, I think you’d be surprised just how resilient our customers are in our jurisdictions. While we have seen unemployment rise like everyone else it’s significantly below the national average. One other things frankly, that I was pleasantly surprised that is that our bad debt expenses actually reduced not increased with the recessionary time. So, I think that says a lot about our process improvements and I think it says a lot about our customer base. And that’s really our customer base if you look at these slides when you can see that is not overly dependent on any particular class of customer or any particular industry. We tend to be very evenly spread out between residential, small C&I, and our large C&I tends to be in industries that are doing quite well, energy oil and gas, mining. So, the diverse customer base again I think offers us a sustained advantage in today’s market.

This is another statistic that I am really pleased about. We have been through a series of rate cases now. And despite that, our customer satisfaction has never been higher. But I think it says a lot when you can provide value to customers, you keep the lights on, you keep the energy, and increasingly cleaner and you do your part, our customers are responding and I think bodes well for us in future rate cases.

Well, I talk a lot about customers, because if you keep your customers happy generally are in a good position to keep your shareholders happy. And you can see by our track record here that we have delivered on our promise. We’ve been growing the EPS 5% to 7% and we have been growing the dividend at 2% to 4%. You can see the actual numbers down and I think we are very well positioned for the future. The stock itself has been a wonderful part of your portfolio it’s been in your portfolio exceeding the broad EEI index and our peer group comparison on those like five, three and one-year basis. In fact, really the only place we are lagging is a little bit this year year-to-date. So, I would contend that, that’s a buying opportunity for you out in the audience there.

The track record we have done I think speaks for itself. I mean, we have achieved earnings guidance every year since 2005. We’ve kept our dividends sustainable. We have a low pay-out ratio that gives us a lot of flexibility or dry powder going forward. Operationally, we’ve put a lot of money into our infrastructure, but I think we have created what I would call operating dry powder as well. Our balance sheet, we run a conservative shop, it’s a strong balance sheet, its well-capitalized, ample liquidity, good credit rating. So, if you look at this, we’ve got a lot of financial strength, we’ve got a credible track record. I really think that we are a great part of – could be a great part of your portfolio for not already.

And so in summary, you start with very good service territories, territories that need investment, stakeholders through public policy and through our own hard work have support that investment and you do the math on that and you can be pretty confident we are going to give you that 10% total return and that’s what we have done year-after-year. And that’s what I think we will continue to do.

So, I want to remind you before take any questions that we have an Analyst Day meeting on December 1. We will talk a little bit more about what our CapEx forecast is going forward, give you a little over more details on some of our operations, talk a little bit more about transmission on some things like that. So, I think you will find it interesting and I hope you all will attend. So, that’s the presentation. I am happy to take any questions you may have.

Question-and-Answer Session

Unidentified Analyst

What’s your sense on the Boulder situation and the outcome and does that pretend any problems in the future for other communities?

Ben Fowke

I mean, that’s a great question. I think Boulder is unique and I don’t think it represents a trend in Colorado or in any of other jurisdictions. We do all narrowly and now they have approved the ability to continue to fund and potentially finance separation from our system. They also have to demonstrate that they can do it on economic terms consistent with what we can offer. The bid outspread has got a huge golf and frankly we have fiduciary obligation to make sure that the customers outside of Boulder don’t pay for Boulder’s municipalisation. So we are going to work hard to make sure that everybody’s interest are protected our customers outside of Boulder and our shareholders as well. So, it’s a longer process. If this thing works if these seeds for completion you are probably talking about five years. So, and at the end of the day, the financial impact would really be neutral at Xcel Energy.

Ben Fowke

Well, our story is transparent and the lack of questions shows that quite clearly, but I appreciate you attending and hope you enjoyed the rest of the conference. Thank you.

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