Xcel Energy Earnings Call Insights: Increase in AFUDC and Expense Growth

Xcel Energy Inc (NYSE:XEL) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Increase in AFUDC

Anthony Crowdell – Jefferies & Company: Just two quick questions. One is actually when I compare third quarter ’12 and fourth quarter ’12 interest expense, it looks like interest expense has gone down by $10 million. I think, third quarter, you guys had some maybe principal payments in there, but that was roughly $3 million, could give some more color on the $7 million? The second question is I guess you have had an increase in AFUDC year-over-year; I just wanted to know if you could highlight what projects you have that are building up the CWIP balance?

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Teresa S. Madden – SVP and CFO: Maybe if we start with the AFUDC, in terms of the rate will in part be higher because we have higher CWIP balances this year, so that’s the primary driver in terms of the variance there. Then the interest expense, the changes in that, I mean, we basically refinanced substantial amount of debt during the year, but that was all completed by the end of the third quarter. So the differences are driving that fourth quarter variance.

Anthony Crowdell – Jefferies & Company: Are there any particular projects that are driving the higher CWIP balances?

Teresa S. Madden – SVP and CFO: In Minnesota, we’ve had a lot of spend in CapX 2020. We’ve also had a lot of spend in Clean Air-Clean Jobs in Colorado. So those are the two biggest. Jones 4 also in Texas, so those are the big projects that we are working on right now.

Expense Growth

Neil Mehta – Goldman Sachs: As you mention your guidance embeds on an expense growth of 4% to 5% in 2013, that’s a little higher than the utility average and higher than you came in this year as well. Can you provide more details on what’s driving this and is there flexibility to manage this if (load) disappoints?

Teresa S. Madden – SVP and CFO: Maybe if we just start with 2012 variance to ’11, we only had an increase of 1.7%. So we have relatively low-level that we’re starting from in 2012. So, it is driving somewhat the increase of 4% to 5%, but the drivers in terms of 2013 will start with nuclear. We do have some increases in our nuclear costs. The second piece of that is pension. Pensions we are assuming now of 4% discount rate so we are seeing increases in that. Then we have just across the board some higher insurance, a small amount of bad debt and some chemicals in some of our plant related costs. In the long run, we expect go back to at 3% to 4% overall increase on an annual basis.

Neil Mehta – Goldman Sachs: In Minnesota, obviously a lot of attention on the regulatory front there, do you think there is the possibility of a multi-year rate deal in Minnesota, and if not, should we be thinking about Xcel going back at filing in 2014 for 2015 rate?

Benjamin G.S. Fowke III – Chairman, President and CEO: Well, first of all, I don’t know if I classify it as tension, if I heard you right. As far as the multiyear plans go, I mean the Commission continues to study that and we’ll get the reaction, a formal reaction later in the year. So, that along with some other reasons is the reason why we filed a single test year case this year, and that’s what we’re preceding to march forward with. As far as what we’ll do in 2014 and 2015, we’ll obviously take a look at what the Commission decides on the applicability of a multiyear test years and we’ll file accordingly.

Neil Mehta – Goldman Sachs: Then the last question is in terms of regional trends in terms of demand growth are you continuing to see strength in Texas and relative challenges in Minnesota and what you’ve seen in Colorado?

Benjamin G.S. Fowke III – Chairman, President and CEO: Well everything, overall in the residential site it’s safe to say everything is pretty flat. So, than you move to the C&I side and actually the strongest C&I growth was in Wisconsin this year followed by Texas, I think followed by Colorado which have small growth and then we didn’t grow at all in Minnesota for a number of reasons. That said, the economy definitely saw some signs of improvement in 2012, housing permits were up, job growth was better than the national average, unemployment was equal to or better than the national average. So, I think the economies are in decent shape across all our jurisdictions. It doesn’t necessarily mean it translates to high sales growth, and that’s consistent with our forecast. We are not anticipating that we’re going to see a tremendous rebound in sales even as the economy start to improve at that. I think that’s our new normal, frankly.

A Closer Look: Xcel Energy Earnings Cheat Sheet>>