2006 Annual Meeting: “Working For You”

Note: this is not a transcript; the text below is the copy Dick Kelly and Ben Fowke spoke from at the 2006 Xcel Energy Annual Shareholders Meeting May 17 in Denver. As such, it refers to various short video presentations and does not include Wayne Brunetti's opening remarks or the question and answer session at the end. An archived Webcast of the meeting is available; it runs approximately 1 hour. The videos are not available.

Xcel Energy 2006 shareholder annual meeting
“Working For You”
Dick Kelly
Ben Fowke
May 17, 2006
Denver, Colorado

Dick Kelly

Thanks again for joining us. It’s good to see all of you.

This is my first annual meeting as Chairman and CEO, and I’d like to begin by saying I’m proud to lead what I think is one of the finest utilities in the nation. Having spent my entire career in the energy business, this is truly an honor for me.

Without a doubt, I feel good about Xcel Energy:

• Our strategy for growing the company is working.
• Our service territory is thriving.
• Our environmental record is second to none; and
• Our commitment to the communities we serve is strong.

Most important — as you saw in the video — our employees are talented, hardworking and focused on building value for you.

With that in mind, I’m pleased to announce that our board voted today to increase your annual dividend rate by 3 cents effective with the July dividend.

That’s a 3.5% increase. And based on yesterday’s closing stock price, that equals a dividend yield of 4.8%.

Our goal is to increase the dividend annually in the range of 2% to 4%.

To ensure we deliver the results you expect, one of the first things I did in my new job was reorganize Xcel Energy around its four operating companies. I wanted greater accountability for financial results at that level and named four executives who now have that responsibility.

I’d like to introduce them to you, along with the rest of my executive team, and have them stand and remain standing. Please hold your applause until I’ve introduced them all.

Pat Vincent is President and CEO of Public Service Company of Colorado. PSCo has a long and proud tradition in this state, and I don’t have to tell you that Colorado a great place to live and do business. In fact, at 2.2%, our PSCo service area had the highest job growth last year.

Cyndi Lesher is President and CEO of Northern States Power Company-Minnesota, North Dakota and South Dakota. Our NSP-Minnesota service area is home to 19 Fortune 500 companies, and benefits from a diverse and dynamic economy. Health care is the largest private sector driver.

Mike Swenson is President and CEO of Northern States Company-Wisconsin. Our territory in Wisconsin has a strong manufacturing base, but continues to diversify. Job growth over the past year was slightly more than 2%.

Finally, Gary Gibson is President and CEO of Southwestern Public Service Company. The Texas panhandle is the cattle-feeding capital of the nation and that area — along with our territory in New Mexico — is benefiting from increased oil and gas drilling. As a result, that region claims our lowest unemployment rate — at 3.9%.

Each operating company is unique, and we take advantage of their individual strengths. But we also want to keep the efficiencies we’ve gained as a merged corporation.

To maintain that benefit, the operating companies report to

Paul Bonavia, President-Utilities Group. Paul is also responsible for guiding our regulatory and legislative strategies.

Rounding out the executive team are:

Ray Gogel, Vice President-Customer and Enterprise Solutions and Chief Administrative Officer. Ray oversees information technology, human resources and customer care.

David Wilks, President-Energy Supply. David is responsible for our fleet of power plants and our environmental record, which as I mentioned is outstanding.

Cathy Hart, Vice President-Corporate Services and Corporate Secretary, is our representative for shareholders and a liaison to our board of directors. She’s also responsible for Xcel Energy’s compliance and ethical conduct.

Gary Johnson, Vice President and General Counsel, steers us through a variety of legal challenges and triumphs.

Ben Fowke, Vice President and Chief Financial Officer, is responsible for executing our financial strategy.

Dave Sparby, Vice President, Government and Regulatory Affairs, guides our regulatory efforts.

Teresa Madden, Vice President and Controller, ensures our financial reporting and forecasting are accurate.

And George Tyson, Vice President and Treasurer, is responsible for our financing plan and pension trust.

These are experienced executives who share my vision of a strong and growing Xcel Energy. I expect a lot of them and they deliver. I couldn’t ask for a better leadership team.

Please acknowledge them with your applause.

I’d like to call on Ben Fowke at this point to review financial results and explain our financial strategy. Our goal is to let you know exactly where we stand, where we want to be and how we’re going to get there. Ben.

Ben Fowke

Thanks Dick.

As you saw in our annual report, year-end results for 2005 were in the range we expected based on our initial guidance of $1.18 to $1.28 per share. Earnings from continuing operations were $499 million, or $1.20 per share on a diluted basis, in 2005, compared with $522 million, or $1.26 per share, in 2004.

Although we had higher operating margins in 2005, they were offset by:

• higher operating and maintenance expenses related to nuclear plant outages;
• employee benefit costs;
• uncollectible receivable expenses; and
• higher depreciation expenses.

The year-to-year comparison was also impacted by the fact that we recorded greater tax benefits in 2004.

We’re off to a strong start in 2006 — thanks in large part to increased sales growth and the impact of rate increases in Wisconsin and Colorado and an interim rate increase in Minnesota.

Earnings from continuing operations were $150 million, or 36 cents per share on a diluted basis, for the first quarter of 2006, compared with $124 million, or 30 cents per share, for first quarter 2005.

Total earnings for the quarter, which include the impact of discontinued operations, were $151 million, or 36 cents per share, compared with $121 million, or 29 cents per share, in first quarter 2005.

Looking ahead to the end of the year, we expect to earn $1.25 to $1.35 per share in 2006, which is up from the $1.20 we earned last year.

Our strong first-quarter results absolutely indicate that our strategy is working. Dick is going to update you on the strategy in just a moment, but this is how I look at it — and it’s pretty straightforward:

• We start by running solid utilities.
• We invest in our utilities to meet customer needs.
• We know how and when we’re going to get recovery on those investments because we’ve done an excellent job of getting the right regulatory mechanisms in place. That keeps our risk profile low.
• And all of it works together to keep our balance sheet strong and our credit ratings solid.

What does that mean to you? Let me explain our value proposition.

It begins with our dividend — because we understand how much you depend on that dividend, and we respect that. I’m proud to say that over that past 3 years, Xcel Energy’s dividend has grown from 75 cents a share to 89 cents a share. That’s an increase of almost 20% and represents a yield of 4.8%.

Going forward, as Dick mentioned, our goal is to grow the dividend in a sustainable, predictable manner at 2 to 4% a year.

On top of a solid dividend, we also want to grow earnings at 5 to 7% — and, again, do it in a way that doesn’t stretch the balance sheet.

In the end, we deliver to you a total return of 10 to 12%.

You might wonder what Wall Street thinks of our plan. Well, one way to answer that question — and to evaluate our performance — is to look at our stock return.

From year-end 2002 — about the time we launched our strategy — to year-end 2005, Xcel Energy’s stock produced an average total return of 24.4% per year.

That performance puts us in the top 25% of the utility industry — and I think that’s great.

In fact, as far as I’m concerned, we are right where we want to be, with:

• excellent operations;
• a strategy that’s working;
• a dependable dividend; and
• solid returns.

Dick.

Dick Kelly

Thanks Ben.

As you just heard, our corporate strategy — which we call Building the Core — is working. Again, it’s a simple and straightforward plan to:

• Invest in our core electric and natural gas businesses; and
• Earn a return on that investment.

We’ve been executing it for several years and are beginning to see the fruits of that effort, which — as Ben said — were evident in our first quarter results.

Let’s look at our investments. Over the next 4 years, we’re going to put well over $5 billion into our core operations:

• Every project is designed to meet a growing need for energy;
• Every project has a strong environmental component; and
• Many of the large projects have regulatory certainty regarding revenue recovery.

Together, they represent the biggest building boom we’ve experienced since the 1980s.

Right here in Colorado, we’re making great strides on Comanche 3, a 750-megawatt coal-fired unit at our Comanche facility in Pueblo:

• We broke ground at the end of last year with a celebration that included Gov. Bill Owens. I’m happy to say that everything is on schedule and on budget.
• We’ve awarded the vast majority of the contracts, and have more than 120 workers on site. We just conducted our second job fair to ensure we’re hiring as many local workers as possible.

Comanche 3 will help us meet Colorado’s need for 3,400 megawatts of electricity by 2013, and we’re able to recover the cost of the new unit as we build it.

But there’s also a great environmental story here.

Despite the fact that we will more than double the capacity of the Comanche facility, overall sulfur dioxide and nitrogen oxide emissions will decline significantly. That’s because we’re fitting all three generating units with advanced emission-reduction equipment.

In Minnesota, we are spending $1 billion to convert two coal plants to natural gas and refurbish a third with advanced emission-control equipment:

• Construction is in full swing at the King plant;
• Just beginning at the High Bridge facility; and
• Scheduled for early summer at the Riverside plant.

The projects will come on line between 2007 and 2009.

This is a voluntary effort on our part that will reduce sulfur dioxide and nitrogen oxide emission by more than 90 percent, and mercury by almost 80 percent. It also will help us meet Minnesota’s need for 3,100 megawatts of power by 2019. Like the regulators in Colorado, the Minnesota Commission approved recovery of the projects before any ground was broken.

In another Minnesota effort, we worked with legislators and the Governor on a plan to aggressively reduce mercury from major coal-burning plants, including our King and Sherco facilities. Governor Pawlenty signed that bill this month.

To get our power to market, we’re making significant investments to build and upgrade transmission lines:

• In Colorado, we completed a $43 million project that included replacing 70 miles of line with double-circuit, higher-voltage capability.
• In Minnesota, we have a project under way that includes 200 miles of new and upgraded transmission line and several new substations. That effort will enable us to deliver more wind power from the Buffalo Ridge area of the state.

Last year, lawmakers in Minnesota and Texas allowed us to recover transmission investments without filing a general rate case. This year, South Dakota legislators did the same.

So the investment component of our strategy is solid.

On the regulatory side, we’re moving right along with:

• Completed natural gas rate cases in Wisconsin, Minnesota and Colorado;
• An electric case in Wisconsin; and
• Interim rates from an electric case in Minnesota.

Last month, we filed for an electric rate increase in Colorado to recover investment and purchased power costs. We also filed for a decrease that reflects a drop in our cost of generating fuel.

So with construction projects in full swing and the beginning of rate relief, our strategy is working — and other commitments are just as strong.

When I said Xcel Energy’s environmental record was second to none, I meant it:

• We start by complying with all of the environmental rules and regulations, which is a big job.
• Then we go above and beyond with voluntary efforts such as our plan to reduce carbon dioxide from our resource portfolio.
• We also support renewable energy and explore new technologies.

In the end, it’s a balancing act between meeting energy needs, protecting the environment and keeping our rates competitive — and I think we do it as well as anyone.

But here’s the frosting on the cake. Our commitment to renewable energy distinguishes us as a leader:

• At 1,048 megawatts, Xcel Energy was the No. 1 purchaser of wind power in the nation at the end of 2005, according to the American Wind Energy Association.
  
  Looking ahead, we plan to buy an additional 775 megawatts of wind power for our Colorado system by 2007. System-wide, we hope to have 2,500 megawatts installed by the end of next year.
• We also operate Windsource, which is the nation’s largest green power program, according the National Renewable Energy Lab. Today, more than 50,000 customers are supporting wind power by paying a little more on their energy bills each month.

This is exciting stuff — and there’s more. To stay on the cutting edge, we take a serious look at new environmental technologies:

• One is a clean-coal process that turns coal into a gas that’s burned to generate electricity. We are actively pursuing the possibility of building a demonstration plant to determine whether the technology will work with western coal at high altitudes.
• We also are partnering with the National Renewable Energy Lab to investigate using wind energy to create hydrogen. The hydrogen could be stored and used to generate electricity when the wind isn’t blowing — or used as a transportation fuel.

Another renewable effort under way is our plan to build the largest solar facility in Colorado. Construction should start this year in the San Luis Valley, with the plant on line by the end of 2007.

Finally, one of our most important environmental efforts is our work to help customers conserve energy and manage its use. Since 1992, our customers have avoided the necessity of building eight 250-megawatt power plants. We expanded our conservation work in Colorado last year by launching new programs for both residential and business customers.

Working with customers is a top priority. This year in particular we were very concerned about the price of energy — and took strong action to assist those who were having trouble paying their heating bills:

• In Colorado, we donated $2 million to Energy Outreach Colorado and matched customer contributions up to $1 million;
• In Minnesota, we made a $1 million donation to the Salvation Army’s HeatShare program and matched customer contributions up to $500,000.
• In total, we donated more than $5.5 million across our service territory.

Although we’ve come to the end of the heating season, the price of energy continues to be an issue. Natural gas prices in particular have been volatile over the past few years — and it doesn’t look like it’s going to get better any time soon.

Here’s the problem: demand is high and supply is short. To get to the root of that dilemma, we support initiatives to increase supply, and we’d also like to see more regulatory support for long-term contracting and hedging techniques.

In the meantime, we continue to support energy assistance and promote conservation. And, of course, it’s important to remember that we don’t benefit from high natural gas prices. We simply pass them through.

Obviously, we’re concerned for our customers — but also for the strength of our communities.

The vitality of our service territory is important to us, and I’m happy to say we’ve developed strong working relationships with the communities we serve.

Just last month, we reached a franchise agreement with the city of Denver that will benefit the company and the city for years to come. The agreement allows us to make investments in Denver to ensure reliability, and it also benefits low-income customers and encourages conservation and renewable energy.

The city council will review the agreement and vote on it by June 5. Then it goes to the residents of Denver for a vote in the primary election on August 8.

We also contribute to the strength of our service territory with corporate donations and the volunteer efforts of our employees and retirees.

In 2005, those contributions, including donations from the Xcel Energy Foundation, were valued at more than $12 million.

To get the full story, I encourage you to pick up a copy of our Triple Bottom Line Report as you leave today. It describes our performance in connection with social responsibility, environmental stewardship and the economic impact we make on the community. Xcel Energy does well in every category.

What’s especially gratifying to me is the energy that our employees and retirees direct toward the community. They are outstanding volunteers, working for Habitat for Humanity or Meals on Wheels or mentoring kids. And last year they pledged more than $2 million to support local United Way efforts, which the Xcel Energy Foundation matched.

They also came through with Katrina relief, and helped victims of the Southeast Asia tsunami.

Maybe it’s the nature of our business — but our employees shine in any kind of natural disaster, and I think we’ve seen it all lately: from hurricanes to fires to ice storms to floods.

I’d like to wrap things up today with the video about the wildfires that our crews have been battling in Texas. It clearly illustrates what they’re up against and what they’re made of.

(video)

Isn’t that something? I’m proud to work with such dedicated employees. And, as I keep saying, the same dedication is directed at building value for you.

Here’s what I hope you walk away with today:

• Our strategy is working, and we’re on a straight and solid course for the future.
• Your investment is sound, with our low-risk, sustainable financial strategy.
• And this company cares: for customers, the environment and you.

Thank you for your continued confidence in us.