Angie Storozynski - Macquarie Capital

Dan Jenkins - State of Wisconsin Investment Board Michael Grayson –Robert W. Baird Paul Ridzon – KeyBanc Capital Markets.

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the fourth quarter 2008 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday January 29, 2009. Now I’d like to turn the conference over to Mr. Paul Johnson, Managing Director of Investor Relations and Assistant Treasurer. Please go ahead, sir.

Thank you, and welcome to Xcel Energy's year end 2008 earnings release conference call. I’m Paul Johnson. With me is Ben Fowke, Executive Vice President and Chief Financial Officer of Xcel Energy, and several others who can help answer your questions. Today we plan to cover our 2008 results and accomplishments. Please note that there are slides that accompany the conference call, which are available on our website. Let me remind you that some of the comments may contain forward-looking information. Significant factors that could cause differences from those anticipated are described in our earnings release and our filings with the SEC. Today’s discussion will focus on ongoing results which we believe represents the fundamental earnings power of Xcel Energy. Please refer to our earnings release for a reconciliation of non-GAAP earnings. Before I turn the call over to Ben, I will cover our overall financial results and how we calculate ongoing earnings. 2008 GAAP earnings were $646 million or $1.46 per share, compared with $577 million or $1.35 per share in 2007. As you may recall in 2007 we reached a settlement resolving our dispute with the IRS regarding our COLI program. As a result, our 2007 GAAP earnings include an $0.08 per share charge for the resolution of this dispute. Our 2008 GAAP earnings include a $0.01 benefit from the discontinued COLI program. This morning's discussion will focus on ongoing earnings, which exclude the impact of COLI on our results. Ongoing earnings for 2008 were $1.45 per share compared with the $1.43 per share last year. With that, I’ll turn the call over to Ben.

Thanks Paul and welcome everyone. As Paul just mentioned our 2008 ongoing earnings were $1.45 per share. This is at the low end of our guidance range and compares with earnings of $1.43 per share in 2007. The increase is primarily due to higher natural gas margins, which increased earnings by $0.06 per share higher AFUDC earnings, which increased earnings by $0.06 per share. Higher electric margins, which increased earnings by $0.03 per share and lower O&M expense, which increased earnings by $0.02 per share. These positive factors were offset by higher financing cost, which decreased earnings by $0.05 per share. Higher depreciation, which decreased earnings by $0.03 per share. Conservation in non-fuel riders contributed $28 million and the MERP rider added $23 million. These drivers were partially offset by a couple of key items, most notably cool weather during this summer reduced electric margin by $49 million. In addition, purchase capacity cost reduced electric margin by $30 million. We are also experiencing slower sales growth in 2008. On a weather-adjusted basis, retail sales grew by about 1.7%. However, weather-adjusted residential sales were flat for the year. As many of you know, residential sales provide higher margin than the C&I class. The combination of lower sales growth and the change in sales mix resulted in only $22 million or about $0.03 per share of electric margin for the year. Normally, we would have expected sales growth to contribute $0.08 to $0.10 of earnings per share. So this represents an opportunity cost of $0.05 to $0.07 per share for the year and was an important factor in pushing earnings to the low end of our guidance range. The 2009 earnings guidance assumption assumes relatively flat sales growth. This is a key assumption and we will need to monitor sales trends closely…

). :

Thanks good – good morning.

Hi Greg.

Yeah, you guys just got the interim rates in Minnesota, and that was the earlier in the year than I would have expected, so that’s positive. So when I look at the guidance range that you have outlined for us, I know that there is a baseline assumption vis-à-vis sales expectations in terms of kilowatt hour sales growth or lack here off. Could you tell us what if your, the baseline you’ve given us in the sort of summary of drivers represent to the mid-point and what the high and the low, all things equal, might represent in terms of sensitivities and then in the context that what you are actually seeing vis-à-vis demand? I know it’s early in a year.

Yeah, Greg. I mean, good question. We typically put our assumptions and we add it all up and take the expected values that would put us about in the middle of the range. A penny either way. That’s where we typically try to set guidance and this year has been no exception. And I mean I think the key things for us to track were obviously the regulatory outcomes, that’s a big part of our success next year, but we need to monitor sales trends. We saw, as you know flat sales full year for 2008. The fourth quarter, we actually saw some improvement on the residential side here in Minnesota and so a little bit of weakness in PSCO. So, we continue to really look at this closely. We think our assumptions are right. We’re prepared to react if it’s not. Love to see sales improve, but at this point I think assuming flat sales is probably the right way to go.

Okay. Thank you.

Thank you sir. And our next question comes from the line of Angie Storozynski with Macquarie Capital. Please go ahead.

Thank you. I’m going to go back to the assumptions for 2009 guidance and then I have a question about pensions, when you look at your 2008 electric sales growth for retail they are actually up 1.7% to either flat sales only for residential. And then gas was up on an weather normalized basis, well, almost 2%, 1.9%, which is kind of surprising at least for me. If you assume flat year-over-year electric sales and gas sales you simply assume that the pattern from ’09, for ’08 will be retained, which would be surprising for me given the weakness in industrials and commercials and that’s what drove your growth in electric demand in 2008. So how could you reconcile these numbers? And secondly, if you could talk me through your pension accounting, I understand the funding requirement for ’09 and ’10 but if you could tell me what the earnings impact is going to be and why I was seeing higher impacts for 2010 from the funding perspective then for ’09 and what kind of assumption do you have for returns for the pension plans in ’09. Macquarie Capital.: Thank you. I’m going to go back to the assumptions for 2009 guidance and then I have a question about pensions, when you look at your 2008 electric sales growth for retail they are actually up 1.7% to either flat sales only for residential. And then gas was up on an weather normalized basis, well, almost 2%, 1.9%, which is kind of surprising at least for me. If you assume flat year-over-year electric sales and gas sales you simply assume that the pattern from ’09, for ’08 will be retained, which would be surprising for me given the weakness in industrials and commercials and that’s what drove your growth in electric demand in 2008. So how could you reconcile these numbers? And secondly, if you could talk me through your pension accounting, I understand the funding requirement for ’09 and ’10 but if you could tell me what the earnings impact is going to be and why I was seeing higher impacts for 2010 from the funding perspective then for ’09 and what kind of assumption do you have for returns for the pension plans in ’09.

All right. Iif I forget one the questions, remind me. I think you wanted to talk about funding, the pension assumption, the pension expense, and why basically don’t see more of a reduction in the C&I class next year?

That’s correct. I mean it’s surprisingly strong. I mean, the results for the annualized results for ’08.

Yeah

On a whether normalized basis seems very strong compared to..

Yeah let me shed some light on that for you. I mean, if you break it up by jurisdiction by far the biggest positive increase in C&I was at SPS, which it was largely driven by the energy service field and I would say also that that is largely driven by the large C&I customers which is I reported to you before. We typically don’t have the same margin of profitability, particularly with large C&I. Its not as energy megawatt sensitive as it is more capacity type charges. So while you see the sales pick up, we didn’t see a lot of margin for it, which is why the sales mix didn’t come in as it usually does. So if you look at our other jurisdictions, NSP Min for full year just under 1%, PSCO was about 1.8%. So, I mean, we looked at those trends and assess the economies that we are operating in which while they have been impacted by, what’s happening in the general economy, they have faired a little bit better than the actual average. And so we remain comfortable with that.

How about gas, how about gas?

You know gas, yeah, you asked that question and gas we really saw, a pick up at PSCO, not so much NSP Min and as you probably know PSCO is the by far the largest gas operation that we have. I don’t have a really good answer why it pick up so much, it surprised us too, other than I would say, gas prices did modulate particularly in the Rockies this year and perhaps our customers were little less price sensitive. Does that answer your sales questions?

Yeah, that’s okay. Lets move on to pension plans.

Yeah, lets move on to pension. Lets start with the funding assumptions. I said in my prepared remarks that I think we are using conservative assumption let’s shed some light on that. I mean, we are making, our actuarial assumptions long-term or that the assets perform at 8.75% and we have a discount rate on the liabilities side of 6.75% what we did for our funding calculation is assume that this year we have basically flat assets performance. So I think that’s hopefully a big conservative. We also if you get into the details of pension, not so much accounting but the PPA rules, there are elections you can make to either keep assets at market or smooth them. Currently, we are at market we like that, we're contemplating and will probably make the election to smooth assets, that will give us quite a lot of relief and with all things equal, pushes on the low-end of that $150 to $250 range that I mentioned for 2010. Think I misspoke before the asset assumption is 8.5%, not 8.75% by the way, but we brought it down from where it was in ’07. So, no asset return basically in 2009. And a range that assumes the difference between the assets smoothing election or not for 2010. And, I think that should put us I hope in a conservative light for 2010. Post 2010 the funding requirements will decline. So that’s the funding side. I think you had a question about expense too.

That’s true. On the expense side.:

Okay on the expense side, we did see an increase in pension expense this year, in the $12 to $14 million range. Last year we actually had a negative pension expense. This year I think it’s a $12 million, is that right Teresa? Well, so, that would give about a $14 million swing. We will see that kind of expense increase over the next couple of years about at that same range as you know pension accounting is very much has a smoothing impact. So pension expense will tick up a little bit over the next three years it’s not going to it will be gradual and in this kind of ranges that I’ve described to you. Angie Storozynski – Macquarie Capital: And it is accounted for in your O&M projections, right? So, you will be basically able to offset any pension increase, pension cost increase by reductions in O&M expenses and other O&Million?

Yeah well, Let me answer the question, between pension and medical we are assuming a $25 million increase in 2009 over 2008. Part of that is the pension expenses that I mentioned, part of it’s medical, part of it’s retiree medical for the other piece. Angie Storozynski – Macquarie Capital: This is for 2010?

In 2010, you’d probably see that I can’t speak to the medical side at this point. I don’t have it in front of me, but on the pension side, you’d probably see that increased about $12 million all for that. And that clearly is baked into our guidance.

Okay. Thank you.

Thank you.

Thank you ma’am. And our next question comes from the line of Mark Siegel with Canaccord Adams. Please go ahead

Yeah, hi good morning. I was wondering if you could just provide a brief update on your smart grid programs where that the status of those might be in your anticipated plans in the future?

The project is well underway. As you know that’s a pilot program in Boulder where we are taking all Boulder and really we call it smart grid city where we are not only putting in two-way metering, but monitoring devices at the customer’s election behind the meter. So they can monitor energy consumption or they can do it remotely. And then what we are also doing is even before you get to the meter, putting in software and basically digitizing an analog system, so that we get a better read of transformers and can be more proactive in anticipating failures. I think we are little more than halfway through, probably little more than that, the rollout and what our plan is to, finish the project, assess the various technologies that we are researching, and come up with conclusions on what makes sense to perhaps rollout more deeply within our jurisdictions. Obviously, share that with our Commissions and the learnings and then take it forward from there.:

Okay, any sense on the timing if you do decide to move forward on any of those initiatives what timeframe you might be looking at?

No I mean, the first step is to get the results and the second step is to share it with our Commissions. And then we’ll take it from there.

Okay, thanks very much.

Thanks.

Thank you. And our next question comes from the line of Dan Jenkins with the State of Wisconsin Investment Board. Please go ahead.

Hey Dan.

Hi good morning. First of all, I was wondering, have you made any revisions to your CapEx budget that you presented at EEI given the economic changes since then?

Well, I think you might have been at the Analyst Day. We haven't changed our CapEx forecast since then. That CapEx forecast reflected a reduction and how much wind ownership we were going to pursue as I mentioned. Originally we thought we’d get ahead of the RPS standards. Now we are pretty much staying on track with those RPS standards.

Okay. You mentioned in the release your debt financing plans $400 million of FMBs for both NSP-Minnesota.

Dan, can you speak up a little bit?

Yeah in your press release you mentioned your financing plans of $400 million for both NSP-Minnesota and Public Service Colorado. I was wondering do you have any sense of the timing of those?

George, when are we going to do that? Second and third quarter Dan and, that represents a I think that’s about $350 million of incremental debt, it’s some of which is to retire maturing debt.

Okay and then I want to get a little more feel for your for C&I sales. They seem a little bit higher than what we are seeing in other parts of the country. Just, can you give me like a sense of what the distribution is industrial-wise that would make maybe your sales look a little better than the national average or are you hearing anything about any layoffs or plant closures or whatever in any of you service territories that might impact that?

You listen, our territories I think are fairing better than the national average, but they are not immune. I mean, we just heard that Target for example was having layoffs here just yesterday. I mean, so yeah there are layoffs that are happening. And again as I said before I think the results of our C&I sales results are little bit skewed by what happened at SPS where for full year the C&I class grew by 6.7%. Again, that’s largely with big C&I customers, which we really don’t make much of a margin on the energy sales, the margins typically made on the demand charge.

Dan, the other thing I might add is as, we look in 2009 we expect to see in our numbers as we expect to see a quite a bit softness in small C&I class, which obviously the retail is going to be affected there. So, that is reflected, so while did have strong C&I sales in 2008 we do expect some moderation of that as we move forward into 2009.

Okay, thank you.

Thank you. And our next question comes from the line of Michael Runay with Robert W. Baird. Please go ahead. Michael Grayson –Robert W. Baird: Good morning it’s Michael Grayson that is.

Hi. Michael Grayson –Robert W. Baird: In relation to the rate cases for Minnesota and in Colorado, just wondering what your assumptions within those rate filings were relative to some of the key items that you talked about like for lower weather-adjusted sales growth than the higher pension expenses in terms of competition and alike?

Well, basically, all of those assumptions are embedded in those rate cases. Michael Grayson –Robert W. Baird: Okay, so there has been no, let’s say deterioration in your outlook since then that would cause those rate cases not to fully reflect your current expectations?

There has been a bit of deterioration for example in the pension expense and those sorts of things and a couple of things I’d say about that. We will have an opportunity to introduce any changes positive and negative in rebuttal. So we can do that, and I would also point out that just like we did it last year in 2008, we certainly have contingency plans to adapt to the economy, to adapt to whatever comes our way. One of the things we did at the very beginning of this year is decided that we would give no raises to the executive for senior managers of the company and that we would defer merit raises to later this year. So, I think we are certainly reacting to what’s happening in the economy, since we filed the rate case. So, I don’t know if I got to answered your question but… Michael Grayson –Robert W. Baird: Yeah that helps, thank you.

Thank you sir. And our next question is from the line of Danielle Sykes with Sykes Research. Please go ahead

Hi, Danielle how are you.

My questions have been answered. Thanks.

Good.

Thanks ma’am. And our next question is from the line of Paul Ridzon with KeyBanc. Please go ahead.

Hi Paul. Paul Ridzon – KeyBanc Capital Markets: Hey Ben, how are you?

Good. Paul Ridzon – KeyBanc Capital Markets: What you are seeing in Washington and what your expectations about the timing of Carbon legislation?

Climate legislation?

Carbon, climate same things yes?

Yeah well, obviously it's front and center and we are seeing some of that addressed with some of the energy policies addressed through this stimulus bill that was passed by the House yesterday and we certainly like seeing the PDCs extended. As for as climate goes, that’s hard to say when we’ll get Climate legislation. I think the over under is beyond ’09. Although we believe that certainly its realistic to think we might see something on a national RPS standard in 2009. So that’s kind of how I would handicap it Paul.

If you built and are continuing to build a pretty decent footprint from the renewable standard and given the way to world is changing in the direction its going into, I mean and are you getting approached by any companies who might marry that type of a footprint just a diversified what might be a large carbon concentration?

Well, I mean as you know, we don’t really comment on M&A. And I think that’s what you are referring to. I think what we are seeing is people wanting to partner with us to build renewable plants and look at other technologies and what the renewable leadership position we have has helped us help shape the rules. Not only in the state but increasingly, I think we are getting recognized at the Federal level. So, I guess people envy that, but we are in a unique position Paul, that the renewable generation that we have right in our backyard is reasonably economical. We have solar resources in the South and people should envy us. I think we are in pretty good shape to address what’s coming.

Okay, that's fair enough. Thank you.

Thank you sir. And I have no further questions in the queue. I would like to turn the call back over to management for any closing remarks.

Thanks everyone for participating today. If you have any further questions, please don’t hesitate to give Paul Johnson and rest of the IR team a call. Thank you

Ladies and gentleman, this concludes the Xcel Energy fourth quarter 2008 earnings conference call. This conference will be available for replay after 1o’ clock central time today through Saturday, January 31 at midnight. You may access the replay systems at anytime by dialing 303-590-3000 or 800-405-2236 and entering the access code number of 11123303. Thank you for your participation. You may now disconnect.