Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Xcel Energy, Inc. (NYSE:XEL)

Deutsche Bank Clean Tech, Utilities and Power Conference

May 14, 2012 2:55 p.m. ET

Executives

Dave Sparby - Sr. Vice President and Group President

Analysts

Jonathon Arnold - Deutsche Bank

Jonathon Arnold - Deutsche Bank

We are going to get started again with our final utility of day one which is Xcel Energy. We are delighted to have Dave Sparby here with us today. Dave, many of you know was CFO for a while and is now basically President and sitting on top of all of the utilities which gives him a unique perspective of what's going on. And if my historical facts are correct, Xcel is still the largest buyer of wind power in the country and therefore it’s great to have you at our Clean Tech Conference.

Dave Sparby

Thanks, Jonathon, it’s good to be here. Well, today's remarks will include some forward-looking statements subject to both some risks and uncertainties.

Now this afternoon I will touch on some of the key characteristics that make Xcel and attractive investment. They include our diversified business portfolio, our strong environmental record, constructive regulation, and positioning to deliver 10% total return to our shareholders.

Now a quick look at our company for those who are not familiar with it. In includes 3.4 million electric customers, 1.9 million gas customer throughout eight states. And being in eight states helps us diversify the risk of weather, regulatory decisions or regional economies. The largest operations of course are in Minnesota and Colorado.

Xcel also has a strong governance that it brings to its operations. It has an independent Lead Director, annual election of directors and independent outside directors. Our executive comp is very much aligned with our shareholder interest.

As most of you are aware and Jonathon hinted, we are an environmental leader. We have 4,000 megawatts on wind on our system. Wind of course reduces our air emissions and diversifies our generation mix. And the progress we have made from 2005 to 2011 and where we intend to be in 2020.

Now adding renewables, of course when combined with other strategies like repowering some of our older plants has dramatically reduced our environmental risk at Xcel. Our efforts have allowed us to meet local, state and federal policy initiatives. And looking ahead, our Clean Air Clean Jobs project in Colorado will take that progress to a whole new level over the next few years.

And in addition to a strong environmental record we have also been able to deliver operational excellence in terms of increasing reliability and better service. These beneficial trends were actually earned last year during a time when we had tornados in Minneapolis, ice storms in Denver and wild fires in Texas. So it’s been a great year operationally for as well.

Now in addition to keeping the lights on, we have also been able to keep the rates very competitive. This has been done largely by bringing on our capital projects on time and on budget. Now this chart reflects that our rates in our major cities are competitive with rates around the U.S. for cities of a comparable size.

Now, one of the ways we have been able to create value for our customers is to offer a customer choice. Now we have been able to develop some of the most cost efficient DSM and conversation programs at Xcel. In fact we have saved our customers over 3200 megawatts of power since the inception of these programs. Last year we earned $71 million as an incentive for our performance. We have also been able to offer green energy programs like Windsource and Solar*Rewards. Our Windsource of course is one of the most heavily subscribed green energy programs.

And of course competitive rates, environmental operations -- environmentally sound operations, have resulted in good strong customer satisfaction for us at Xcel. Since 2007, customer satisfaction has improved steadily through 2011, and in fact we have seen almost a 48% reduction in customer complaints over that same period of time. And this is over a several year period where we have asked for several rate changes. So the positive impacts become very noticeable to us as well as our regulators.

Now looking ahead, we have a continued opportunity for significant capital investment in our system as we move ahead with our plans to invest more than $13 billion across the service territory. With respect to the generation share of the wedge, a good portion of that is our Clean Air, Clean Jobs program in Colorado where we are changing out some of our older coal and substituting new gas fired generation across the Denver Metro area. And the transmission component of that wedge s largely the CapEx program in Minnesota where we have very good returns for that investment.

Now this slide shows that spend by year and by function with transmission being the largest segment of that in 2013. Where, again, we will have a forward-looking rider to recover much of that transmission cost. And, of course, cost recovery is critical to success with a large capital budget. Now, we have worked very efficiently I think over the last few years to create favorable -- the fact this month we were able to reach a comprehensive settlement with the Colorado Commission adopting a multiyear plan in that state.

Now the multiyear plan provides both revenue and regulatory certainty for us there. And it also serves to reduce our regulator lag over a very important three-year construction cycle in that state. Although Colorado is behind us, our capital program because it stretches across eight states will require several rate changes we have this year. You can see we are off to a good start. We still have a couple of rate issues yet to resolve in South Dakota and Minnesota however. And while we have been off to an encouraging start in 2012, we do anticipate several rate changes to be effective in 2013.

We plan to file for a Wisconsin change in June. In the second half of the year we will file for North Dakota, South Dakota, Texas, and in Minnesota we will file for a multiyear plan as we did in Colorado.

While good service and a strong pipeline of investments have allowed us to deliver on our financial objectives, using 2009 as a base year for the mid-point of guidance, we project EPS to grow over 6% and we currently have a dividend yield of about 4%. Consequently, we are well positioned at Xcel to continue our earnings growth in that 5% to 7% range with dividend growth in that 2% to 4% through 2013. After that, should sales moderate, our low payout ratio and strong cash flows will allows us to maintain our 10% return objective.

That’s the story, Jonathon, and I will be glad to answer any questions.

Question-and-Answer Session

Jonathon Arnold - Deutsche Bank

So, Dave, can we start with, one of the big themes of the Analyst Day that you guys did in December was narrowing the gap in terms of earned and allowed ROEs. Can you just -- what you have achieved between now and then and the settlement, etcetera. Can you just talk about where you feel you are in that process and just give a sort of six-months on update on narrowing the gap in the game plan?

Dave Sparby

Yes, I can, Jonathon, and thanks for asking the question. You know I think our progress is most evident in Colorado where the commission had been looking at a high-bled future test year as well as historic test year. And what we are able to do with the help of all the interveners and staff was to arrive at a three-year plan, which allowed us to know what the revenue increases were going to be for three years out. Also gives us a chance to plan our expenses for the next three years so to stand a much better chance operationally of continuing to match our expense and our revenue over this very ambitious construction cycle. I think it was a very constructive settlement and brings us a long way to meeting our objective.

But that wasn’t the only place where we brought some new tools to the table. In Minnesota of course we had a step increase approved. In North Dakota we had a step increase approved. In Wisconsin we have been able to go back for off-cycle rate changes. So we have been able to, as a company, match our expenditures and our revenues much more closely than we have in the past over this last six month period.

Jonathon Arnold - Deutsche Bank

Okay. Here and then Jerry.

Unidentified Speaker

Thanks, Dave. I know Xcel has been at the forefront in terms of its development of renewable energy portfolio and I am wondering if you could comment on the extent to which you think that’s been a factor in the sort of relatively smooth process that you have gone through to get this multiyear regulatory approval in Colorado. And then continuing on that, if there is a plan to include that -- expand that renewable energy in some of the upcoming rate cases as part of the settlement.

Dave Sparby

Well, certainly, the renewable portion of our portfolio has been treated very favorably by regulators and our customers as you can see on their response to programs like our Windsource program. In Colorado, we have recovered that through purchase power agreements so they weren’t part of the traditional rate case that most people are familiar with. But as we move forward, Paul, to Minnesota and Colorado, we are very well positioned. We are ahead of the state requirements are. So we can wait and see what happens with the PTC as well as with the price of wind and ensure we get the best price points for our customer as we have in the past, because we have really been good at hitting that market just right. So we’ve got a very low embedded cost to win and when you combine that with great capacity factor, it’s really made sense for us.

Unidentified Speaker

When do you think in terms of CapEx that you might be able to grow your dividends closer to the rate of earnings?

Dave Sparby

Well, what we have said is that you know we have got very robust capital program through ’13, certainly you saw over $3 billion. Now after that point, CapEx starts to moderate a little bit. If in fact we continue to see a very modest sales growth over that period of time, we do have the opportunity at that point with the good cash flows that we anticipate to take a look at increasing that dividend.

Unidentified Speaker

Can you tell us more about the transaction you had with Anadarko about shale gas contract? Any details on that and how important that is, can you do more of it in the future? What are your plans on that?

Dave Sparby

Just to see if I heard it -- what are our plans for gas contract?

Unidentified Speaker

I guess, yes, one of the issues I guess that you are not able to really rely or have very long-term contract based on shale gas, and correct me, I mean didn’t you a month ago have -- almost a month ago had a deal with Anadarko in Colorado. But I know that a lot of the details were not public like how long was the contract, the pricing? What can you tell us more about this and I am hoping or you tell us could this become like you know more prevalent in the future? I guess the bottom line is how are you going to take advantage of cheap shale gas prices? Is that ever going to happen?

Dave Sparby

Well, let me start out and say we are taking advantage of cheap shale gas prices, you know. I don’t know a single jurisdiction that we serve today, that on average we have customers paying more than we did last year. And that goes even for the rate changes that we put in place this year. So our customers are seeing it. Certainly like everyone else we are wondering how long the $2 gas will prevail. But in all of our resource plans like all of our surrounding companies, I mean we are taking a very close look at what our options are with gas. Especially, as we look to additions on the coal side of the fleet.

So we will continue to study that. Today we are a beneficiary of it. It’s still as hard to see the ability to opt into that long-term, since especially when gas is $2 and how will it be economic. But we continue to explore ways to lock as much value for our customers as we can.

Jonathon Arnold - Deutsche Bank

Dave, can I just clarify one thing on this. I mean I recall this Anadarko contract being sometime ago, not recently.

Dave Sparby

Yeah, it’s not recent.

Jonathon Arnold - Deutsche Bank

Is that something new that you have done? Is that something new that’s recently being done?

Dave Sparby

No, no. I should have added on to that. No, that contract is a couple of years old at this point. It is a contract that we had special legislative approval to enter into to prevent a regulatory look-back. And we filed the process, we went through in order to put that in place and had some legislation pass that protected that process. But there really hasn’t been anything new on that contract.

Jonathon Arnold - Deutsche Bank

Good. Can I just ask one on CSAPR. You obviously have, your plan at the moment seems to be, you know as I am certain as to what's going to happen with CSAPR, so we will go ahead and spend this money anyway. What happens if, let’s say that some kind of delay, or Texas delay, should we think about that as something that could free up some free cash flow and accelerate the dividend decisions. Or am I right that you are just -- you might just move forward anyway, from time wise?

Dave Sparby

And we are talking about the impact of the CSAPR investments exclusively in Texas?

Jonathon Arnold - Deutsche Bank

Yeah, let’s say it’s all of $0.5 billion or so...?

Dave Sparby

Yeah. Currently there is $470 million in our CapEx budget. And I should say, Jonathon, for us I view this is as simply a matter of timing. I mean we have that in the budget longer term to comply with what we saw as some movement at the end of the five-year planning period for EPA as it moves forward with MATS and some other rules. When we saw the CSAPR rule of course gain traction, we moved that expense up. If in fact we see those judges pass on this, I would imagine that same dry sorbent injection and SCRs will once again most likely be required in that ’15,’16,’17 timeframe. So the capital would remain but the timing would be different.

Unidentified Speaker

Can I ask on the Minnesota rate case, you mentioned you would be filing. Your original filing you planned to kind of put forward a multi-year rate plan.

Dave Sparby

Yeah.

Unidentified Speaker

Which differs a little bit from Colorado. Can you talk about kind of the feedback you have had from other parties in the state on that so far. And then also if you could comment on potential timing for the rate case, kind of whether your deferred accounting request for pension -- or for property taxes, sorry, gets approved or not?

Dave Sparby

Sure. Those were good questions. With respect to the, is there interest by other parties? Yes, there is. Is there anything that I would call a consensus yet, about either how or when to go forward, I can't say that there is. But clearly there is interest and that’s why we started in Colorado with a very successful campaign. With respect to timing, of course, we had very much anticipated filing that case in the fall. The timing was pretty much surrounding the eventual in-service of the Monticello op rate, and life extension with, of course, the interim rates going into effect January 1.

In the event that the commission doesn’t approve our deferred property tax request, we would step back and take another close look at the timing of that case.

Unidentified Speaker

Dave, can you comment a little on what you have been seeing in sales in your territories? You obviously cover a lot of places, lot of different places. And it seems like the recovery, particularly in usage in the residential segment is not quite well as one would have thought. Is that just weather model is doing kind of find it hard to deal with tail risk weather events or what do you think the underlying trends are now and how does that change your plan potentially?

Dave Sparby

The sales trends indicators look mildly positive. You know as I personally look to gross metro product amongst our large metro areas industrial production, housing and unemployment, all the numbers are better than they were last year. And in fact they are better than they were at the start of first quarter. Now we really haven’t seen that translate into megawatt hours at this point. And we really haven’t seen it take hold in the small C&I segment. We have seen some better results large C&I, we have seen residential hold their own but that bakeries, the butcher’s shop, the drycleaner are still using considerably less energy than they were even last year.

So we remain modestly hopeful to see that sales growth pickup. Now, talking about sales growth of course does give me the opportunity to remind people that have we not had our conservation programs we would have seen nine-tenths of a percent of growth. In Minnesota we saved more than a percent of energy for our customers, just with our load programs, and earned more than $50 million in terms of incentives for accomplishing that. So on the one hand that we have had that we had some slower growth, now much slower than many companies. We have been rewarded for -- we’ve demonstrated to the commission that is all good from our conservation programs.

Unidentified Speaker

Can I just ask about Sherco 3? It’s something you guys talked about in your analyst meeting that it was down for repairs. Can you just kind of update us on how that’s going and costs of that and potential recovery of those repairs?

Dave Sparby

I am not sure that I could update you much further. Certainly, we remain very focused on putting that unit back in service at early as possible date. There has been a considerable amount of work in that regard and focus. I am not sure if I could provide any better information at this day, exactly when it would return to service.

Unidentified Speaker

Dave, as we come up to the election year cycle, which jurisdictions should we be watching in your territory for potential sort of utility-relevant change.

Dave Sparby

You know, I think that all of our states have shown considerate balance in their legislative and administrative approaches. I don’t think we have any jurisdictions at this point that are dominated by one party or the other. I am not anticipating that any state will continue to move in the direction either being more conservative or liberal in that regard. So I think both Minnesota and Colorado primarily will stay very much centrist in this regard. So don’t anticipate much in terms of policy changes at this point in time.

Jonathon Arnold - Deutsche Bank

Anyone else, or we'll release David a little early. Okay. Well, thank you very much. Thanks for your time. Thanks for taking so many questions.

Dave Sparby

Yes, thank you, Jonathon, I appreciate it.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Xcel Energy's Management Presents at Deutsche Bank Clean Tech, Utilities and Power Conference (Transcript)
This Transcript
All Transcripts