Xcel Energy Earnings Call Nuggets: O&M Growth Rates, Return On Equity

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

O&M Growth Rates

Neil Mehta – Goldman Sachs: So, your O&M came in at 3.6% as you said versus the 4% to 5% guidance. Are you tracking at the lower end or even below this guidance for this year and how should we think about O&M growth rates after 2013?

Teresa S. Madden – SVP and CFO: Well, (and Travis), we’re still anticipating it to be in the 4% to 5%. We just have some timing and that’s why we’re a little bit lower. But when we look to the longer term, I would say we would look to maybe more a 3% to 4%. In part that 4% to 5% is occurring because we only increased from ’11 to ’12, 1.7%, so ’12 was a little bit low because part of our management initiatives and other things. So I was looking the long-term to more 3% to 4%, and on track to 4% to 5%.

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Neil Mehta – Goldman Sachs: And then on interest, you mentioned the remarkably low interest rates that you’ve done some debt out here in the first quarter. Given the low-interest environment, could there be upside to the $30 million of interest reductions that you outlined for 2013?

Teresa S. Madden – SVP and CFO: That’s consistent with that. We had assumed lower one.

Neil Mehta – Goldman Sachs: And can you provide a little bit more color on the RFPs? Can you confirm that self-build options are available for you for both of them, and any color in terms of the number of bidders if that information is in the public?

Benjamin G.S. Fowke III – Chairman, President and CEO: Neil, this is Ben. Self-build options are available for both. We’re seeing I think some – I would say a wide variety of bidders and opportunities and we’re really just in the preliminary stages of evaluating off the wind and the fossil bids.

Neil Mehta – Goldman Sachs: Okay, but we don’t know the exact numbers out there yet?

Benjamin G.S. Fowke III – Chairman, President and CEO: We’re not disclosing that at this point.

Return On Equity

Travis Miller – Morningstar: In Minnesota, wonder if you could characterize that change in the intervenors testimony especially on the ROE cut from 10.2% to 9.8%. What were some of the drivers there, and how does that relate to potentially changing your requested ROE?

Benjamin G.S. Fowke III – Chairman, President and CEO: Well, Travis, let me take the first part of your question, and I think that was around ROE. I think that’s – typically, they do update their ROE recommendation and analysis, and they looked – it’s a formulaic approach, and frankly, the whole industry is seeing some pretty significant stock appreciation in the last four months. And when you run that through some of the models; that does yield a lower ROE. And that’s what we saw there. It’s very formulaic. And did you have a second part of your question?

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Travis Miller – Morningstar: I was just going to say, would that affect you changing your 10.6% to a lower number?

Benjamin G.S. Fowke III – Chairman, President and CEO: Well, I mean, we filed our surrebuttal testimony, and I guess we’re just where we are now in the group. I don’t know if you want to…?

Teresa S. Madden – SVP and CFO: That’s correct. We’ve vested at the same level. So we have not revised our request at the 10.6%…

Benjamin G.S. Fowke III – Chairman, President and CEO: Typically, Travis, typically the recommendation on ROE plays a very – is listened to very closely by the Commission.

Travis Miller – Morningstar: Then one quick housekeeping you mentioned, that you recognized a liability for that change the difference in your expected and interim. Can you just give me what that number was?

Benjamin G.S. Fowke III – Chairman, President and CEO: I’ll let Teresa take that….

Teresa S. Madden – SVP and CFO: Well, I mean I’d just say we’re assuming that we’re going to have a reasonable regulatory outcome and we went through and looked at all the positions as we do in terms of establishing our guidance and we recognized that amount we thought was reasonable.

Neil Mehta – Goldman Sachs: So, your O&M came in at 3.6% as you said versus the 4% to 5% guidance. Are you tracking at the lower end or even below this guidance for this year and how should we think about O&M growth rates after 2013?

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Teresa S. Madden – SVP and CFO: Well, (and Travis), we’re still anticipating it to be in the 4% to 5%. We just have some timing and that’s why we’re a little bit lower. But when we look to the longer term, I would say we would look to maybe more a 3% to 4%. In part that 4% to 5% is occurring because we only increased from ’11 to ’12, 1.7%, so ’12 was a little bit low because part of our management initiatives and other things. So I was looking the long-term to more 3% to 4%, and on track to 4% to 5%.

Neil Mehta – Goldman Sachs: And then on interest, you mentioned the remarkably low interest rates that you’ve done some debt out here in the first quarter. Given the low-interest environment, could there be upside to the $30 million of interest reductions that you outlined for 2013?

Teresa S. Madden – SVP and CFO: That’s consistent with that. We had assumed lower one.

Neil Mehta – Goldman Sachs: And can you provide a little bit more color on the RFPs? Can you confirm that self-build options are available for you for both of them, and any color in terms of the number of bidders if that information is in the public?

Benjamin G.S. Fowke III – Chairman, President and CEO: Neil, this is Ben. Self-build options are available for both. We’re seeing I think some – I would say a wide variety of bidders and opportunities and we’re really just in the preliminary stages of evaluating off the wind and the fossil bids.

Neil Mehta – Goldman Sachs: Okay, but we don’t know the exact numbers out there yet?

Benjamin G.S. Fowke III – Chairman, President and CEO: We’re not disclosing that at this point.

A Closer Look: Xcel Energy Earnings Cheat Sheet>>