康涅狄格電力 (ES) 2006 Q1 法說會逐字稿

Welcome to the Northeast Utilities first quarter earnings conference call. [OPERATOR INSTRUCTIONS.] Your host for today's call is Mr. Jeff Kotkin, Vice President of Investor Relations.

Mr. Kotkin, you may begin.

Thank you very much.

Good afternoon, and thank you for joining us today.

My name is Jeff Kotkin and I am the new Vice President of Investor Relations.

Speaking to you this afternoon will be Chuck Shivery, NU's Chairman, President, and Chief Executive Officer;

David McHale, our Senior Vice President and Chief Financial Officer;

Cheryl Gris, NU Executive Vice President and head of our distribution and regulated generated operation; and Lee Olivier, NU Executive Vice President and head of our transmission operation.

Also joining us for Q&A is John Stack, our corporate controller.

Comments made during this earnings call may include statements concerning NU's expectation, plans objectives, future financial performance, and other statements that are not historical facts.

These statements are forward-looking statements within the meaning of the Private Litigation Reform Act of 1995.

In some cases the listener can identify these forward-looking statements by words such as "estimate". "expect", "anticipate", "intend", "plan", "believe", "forecast", "should", "could", and similar expressions.

Forward-looking statements involve risks and uncertainties that may cause actual results or outcomes to different materially from those included in the forward-looking statements.

Factors that may cause actual results to differ materially from thoughts included in the forward-looking statements, include but are not limited to: actions by state and regulatory bodies, competition in industry restructuring, changes in economic conditions, changes in weather patterns, changes in laws, regulations or regulatory policies, expiration or initiation of significant energy supply contracts, changes in levels of capital expenditures, development in legal or public policy doctrine, technological development, volatility in electric or natural gas commodity markets, effectiveness of our risk management policies and procedures, changes in accounting standards and financial reporting regulations, fluctuations in the value of electricity positions, the methods, timings, and results of the disposition of competitive businesses, actions of rating agencies, terrorist attacks on domestic energy facilities, and other presently unknown or unforeseen factors.

Other risk factors are detailed from time to time in our reports to the SEC.

We undertake no obligation to update the information contained in any forward-looking statements to reflect developments or circumstances occurring after the statement is made.

Now let me turn over the call to Chuck.

Thank you, Jeff.

And thank you for joining us this afternoon.

We realize that with the AGA conference beginning Sunday there have been a number of earnings call today and we appreciate you joining us for ours.

As we noted in today's news release there are three key areas of accomplishments over the first four months of 2006.

The accomplishments in these areas are consistent with the strategic transformation of NU we announced in November.

First we continue to make considerable progress in divesting our competitive businesses.

Specifically reaching an agreement with Amerada Hess Corporation to sell our retail marketing business.

We expect this transaction-- action to close by June 1st of this year.

Second, we are making significant progress in building the infrastructure that New England needs to address it's very specific energy-related challenges, especially those associated with ensuring a reliable electricity transmission system.

And third, we are pleased with the results from our regulated businesses.

Earnings were somewhat higher in the first quarter of 2006, compared with the same period of 2005, despite much warmer weather this year.

David will provide you with more details, but as of today we have now divested our New England wholesale marketing book, reached an agreement to sell our retail marketing business, and sold Woods Electric.

The Woods sales leaves us with two energy services businesses.

In April we also sold for $6.7 million in cash a small investment we had a telecommunication company.

With respect to the initiative to sell our competitive generation, we have received indicative bids which, though non-binding appear attractive.

We continue to target the end of the year for full divestiture of our competitive energy businesses.

We will discuss the quarter's financial results in some depth in a moment.

But given the weather we faired reasonably well overall.

The benefits of our transmission investments are now showing in each quarter's results.

Earnings in our transmission business rose to 12.7 million in the first quarter of 2006, compared with 8.4 million in the same period of 2005.

Much of that increase was driven by line construction of our Bethel and Norwalk project which began early last year and is now about 80% complete.

Unlike our transmission business our distribution earnings are highly impacted by changes in retail sales.

As you can imagine a very mild January resulted in first quarter regulated electric sales that were down 3.5% from the same quarter last year and a 13.5% decline in firm regulated natural gas sales.

As Cheryl will discuss, our distribution businesses also will being negatively impacted by customer reaction to higher energy prices.

The latter factor alone which higher operations and capital cost is a major reason that our regulated distribution companies will require rate relief over the coming year.

Thus far we have field for a temporary rate increase at Public Service of New Hampshire to be effective July 1, but we expect to require rate relief in our other rate regulated jurisdictions as well.

Lee and Cheryl will update you on our transmission, regulated generation, and LNG projects already underway.

Those projects are on schedule and on budget.

Cheryl will also discuss with you the legislative initiatives we've pursued in New Hampshire and Connecticut this spring.

Not only would these initiatives produce investments that would provide long-term benefits to our customers. who need more stable and more diversified electric energy and capacity in this region, it would also benefit our shareholders.

Now I will turn the call over to David McHale.

Thank you, Chuck.

I will start by discussing the financial results of our regulated businesses.

Overall they earned $54.6 million in the first quarter of 2006, up slightly from $53.6 million in the same quarter 2005.

As Chuck mentioned earnings at our transmission business were 12.7 million in the first quarter of 2006, up about 50% from the first quarter of 2005 and 17% from the fourth quarter of 2005.

These increases in year to year and quarter to quarter results are indicative of the growth of our investments in our transmission facilities.

It also illustrates that earnings produced under our FERC approved tariffs are investment dependant and not seasonal or weather dependant.

We expect our transmission earnings to rise because our overall transmission investment to benefit the region's reliability is rising.

In the first quarter of 2006 we invested $93 million in our transmission system, compared with $38 million in the same period of '05.

At the end of 2000 with the Bethel Norwalk line due to be in service we estimate our transmission rate base will total about $1 billion compared with $610 million at the end of 2005 and $470 million at the end of 2004.

Results at our distribution businesses varied when compared with the first quarter of 2005.

CL&P and LAMECO both posted increases in distribution results despite sales declines.

CL&P earned $23.4 million in the first quarter of 2006, compared with $19.4 million in the same period of 2005.

Due to the effects of an 11.9 million annualized rate increase that took effect January 1 of this year, timelier pass through of transmission costs and a $4.9 million benefit from a favorable income tax settlement.

These factors offset a 4.2% decline in retail sales and increased depreciation expense on an increased level of plan and service.

Western Mass.

Electric earnings rose slightly due in part to a $3 million annualized rate increase that effect on January 1st.

That helped offset a 4.9% decline in sales in higher interest expense.

The mild weather in the region was most difficult for Yankee Gas where earnings totaled $11.8 million in the first quarter of 2006, compared with $14.9 million in the same period last year.

DS&H earnings fell to $2.5 million in the first quarter of '06 from $6.9 million in the same quarter of 2005 due to a number of factors including about $1 million of lower earnings on stranded costs, higher transmission costs which are not yet tracked, a higher effective tax rate, increased operating costs and a 0.8% decline in 2006 retail sales compared with '05.

Overall our regulated electric sales fell 3.5% in the quarter. due mostly to the mild weather.

Weather adjusted sales fell 0.9%, which we believe illustrated an ongoing customer reaction to hire commodity driven electricity prices.

Our parent company lost $2.1 million in the quarter, compared with a loss of $3.9 million in the first quarter of 2005.

This year in 2006 we benefited from interest income the parent company earned on the cash we raised during last December's $439 million equity offering.

Turning to the competitive businesses overall those businesses lost $62.6 million in the first quarter compared with losses of $167.4 million in the first quarter of 2005.

The improvement was primarily due to charges we recorded last year when we marked our wholesale contract to market and when we took an additional $25.3 million after-tax impairment on our energy services businesses.

This year we recorded $69.8 million of losses at the retail business that we announced yesterday we are selling to Amerada Hess.

There are two main drivers that caused that lost.

As we discussed in the past we are no longer using our own conventional hydro and coal generation to serve our New England retail contract.

In turn that should create additional value at our generating units as they are freed up to sell forward at higher prices.

However, as a result the retail business bought power at market prices and above the retail revenue stream associated with those contracts.

That accounted for much of the $37 million operating loss.

Also we recorded a $39.1 million charge related to the $44 million cash payment we will make Hess to purchase the retail business including the retail contractual obligations.

We expect a much more modest loss in the retail business in the second quarter mostly to reflect the fact we'll continue to own the business through the end of May, but after the second quarter we expect no meaningful impact from the divestiture.

Although we have not yet reached any additional agreements to terminate our wholesale contracts some of our obligations to PJM are declining quickly due to the terms of the contract.

When we announced in March of 2005 that we were divesting our wholesale business, we had about 16 million megawatt hours in our PJM book.

Now that are down to half that amount and by the end of this year we'll be down to 4 million megawatt hours and all of those sales obligations are essentially hedged and expire in 2008.

A separate New York municipal contract extends another 7.5 years.

We have successfully hedged portions of that contract but remain focused on completely divesting that obligation.

You'll notice that we have changed the way we are reflecting the wholesale generation and service company results in our earnings release.

We have combined these businesses into one single line item in the earnings summary table.

Collectively those businesses earned $11.1 million in the quarter compared to a loss of $138.9 million in the same quarter of 2005.

The primary source of those earnings was our 1400 megawatts of merchant generation.

The generating units has reasonably good performance in the first quarter despite a lack of winter rainfall that reduced conventional hydroelectrical output.

Our coal fire meltdown plant has a capacity factor of 86.8% and generated about 250,000 megawatt hours.

This month meltdown will complete the installation of a $14 million SCR system that will allow it meet and state [KNOX] standards and operate with fewer restrictions than it has in the past.

Our conventional hydroelectric units generated about 220,000 megawatt hours in the first quarter of '06 our 1080 megawatt Northfield Mountain pump storage facility had a 95.7% availability factor and generated approximately 200,000 megawatt hours as well.

Picking up on Chuck's discussion earlier we are now in the process of very detailed due diligence with the bidders who made it in the second round of the bidding process on our generation.

That process is being managed by JP Morgan.

We are not in a position at this time to provide specific comments on the level of bids but we are very pleased with the level of indications to-date as well as the traffic of bidders.

As Chuck mentioned we did monetize our invest in the telecommunications company Globix shares of which we received through our former investment in Neon Communications.

In addition to the $6.7 million we received from the sale of stock we will receive nearly $2 million in tax benefits later this year.

Lastly, concerning the competitive businesses we have previously made the statement that considering cash payments, cash proceeds, and tax benefits associated with selling our businesses in [AGROGET] we expect a net cash positive in the neighborhood of $200 million.

Given the resent developments concerning the sale of our retail to Hess the hedging and rolling-off of our marketing contracts, and our developing views around the value of our generating business, we continue to expect that we can net at least that.

Turning to our first quarter 2006 financial measure ours CapEx totaled $204 million in the first quarter of 2006, compared with approximately $167 million in the same period of 2005.

This was due primarily to the construction of the Bethel Norwalk line where we spent about $53 million this past quarter, compared with only $12 million in the same quarter of 2005.

When it comes to financing these expenditures we continue to target 55% leverage at our regulated companies.

This year we will issue debt at the regulated companies particularly at CL&P and use equity as needed to maintain our targeted capitalization ratios.

In the first quarter NU parent contributed $45 million of equity to the regulated businesses.

At this time we only project one regulated company long-term debt issue in 2006.

About $250 million of secured debt at CL&P as early as net month.

Our cash flows from operations were significantly lower this quarter due to the timing of federal income tax payments and the timing of refunds of 2005 over-recoveries of CL&P's competitive transition assessment charges.

Cash flows will improve over the balance of 2006, since Connecticut's Department of Public Utility Control decided to refund nearly $70 million of those over-collections in the first quarter of this year to offset higher energy rates that were effective January 1, 2006.

DTA refunds will decline to less that $30 million a quarter over the balance of the year.

Let me close by touching on rating agency actions over the past few months.

There was good news for NU and CL&P [inaudible] raised it's outlook to stable and Moody's reaffirmed its BAA2 rating on NU's unsecured debt in its A-3 rating CNLP bonds.

The news was less positive for PSNH where Moody's placed the company under review for a downgrade.

We consider Moody's review to be a consequence of lower cash flow we had projected would occur when PSNH this year completes its recovery of part three stranded costs.

After any review is complete we expect that Moody's rating on PSNH will remain at least comparable if not better than the two remaining rating agencies.

Now at this point I would like to turn the call over to Cheryl Gris.

Thank you, David and good afternoon everyone.

As Chuck noted earlier 2006 is proving to be an extremely active year for us on both the legislative and regulatory front.

Starting with Connecticut, the regular legislative session ended about 16 hours ago.

Although we, along with others, had advocated for a comprehensive proposal requiring better energy planning and immediate construction by utilities of much needed peaking generation.

In the end the Connecticut legislature did not take any action on energy matters before adjourning.

This was largely attributable to a lack of time in this short legislative session to address the complexities associated with energy policy, while at the same time other important policy matters were also pending before the legislature.

We continue to believe that Connecticut needs comprehensive energy planning and that utilities must play a broader roll in providing solutions to Connecticut's energy challenges.

To that end we will continue to work with Connecticut policy makers and other interested parties to address these important issues.

In New Hampshire we have closely monitored 2 pieces of legislation both dealing with generation.

On April 20th the New Hampshire senate passed a forwarded to Governor Lynch for signature a bill that called for an 80% reduction of Mercury emission from PSNH's coal fired generating stations by mid 2013.

We supported that bill and its call for PSNH to install wet scrubber technology at our 433 megawatt Merrimack Generating Station, which is expected to reduce Merrimack's sulfur emissions by about 90%.

We expect Governor Lynch will sign the bill and we will begin making regulatory applications next year to implement it.

We estimate that the cost of the project will have a minimal impact on customer bills, since once built, the wet scrubber will significant decrease PSNH's need to buy sulfur allowances.

Due to the regulatory requirements however, construction on this project probably won't begin for more than 3 years.

Also in New Hampshire the senate has considered a bill which would allow us to construct a new wood fire plant in northern New Hampshire, where a large pulp mill is about to shut down.

There is a very high level of interest in such a project as a way to help keep the wood industry viable in northern New Hampshire.

It's too early to tell whether this bill or modifications of it will pass the legislature during the current session.

I am pleased to report that the Northern Wood Project at Schiller Station in Portsmouth, New Hampshire, remains on it's $75 million budget and on schedule to commence commercial operations late in the third quarter of this year.

On April 17 the unit shut down to tie in the seam line controls and other equipment and systems from the new wood fired boiler to the existing 50 megawatt turban Overall our New Hampshire generation performed well in the first quarter of the year, generating about 1.37 million megawatt hours or about 65% of PSNH's retail requirement.

Our 5 base-load coal fired units that Merrimack and Schiller had a weighted average capacity factor of 90%.

On the distribution side of the business the primary challenges we face are retail sales and rate cases.

As David mentioned earlier the first quarter of the year was not kind to our distribution businesses.

A combination of mild weather and customer reaction to high energy prices resulted in an overall decline of 3.5% in retail electric sales. 0.9% when adjusted for the weather.

Actual residential sales were down 5.7% from the first quarter of 2005.

Commercial sales were off 1.6%.

And industrial sales were down 1.9%.

At CL&P actual retail sales were down 4.2% from 2005.

At PSNH retail sales were off 0.8% and at Western Mass Electric retail sales were down 4.9%.

Yankee Gas, however, was impacted most with overall retail sales down 13.5% from 2005.

These lower sales are hurting our financial results and represent an important factor driving our company's need for hire distribution rates.

On April 12th, PSNH requested temporary energy delivery rate increases of $34 million annually to be effective July 1st and notified regulators that we intend to file a general rate case around May 30th.

We estimated that the permanent rate increase would be about $49 million annually, inclusive of the $34 million temporary increase.

We also notified regulators that with the recovery of hundreds of millions of dollars of stranded cost nearing an end, we expect to be able to reduce our stranded cost and recover charge by about $0.02 a kilowatt hour effective July 1st, 2006.

When combined with proposed higher T&D rates and a lower energy charge, we are anticipating a rate cut in New Hampshire of more than 12% effective July 1st.

If approved the higher T&D component of rates would be effective on an interim basis until our rate case is decided.

A decision that probably would come next year if we do not settle the case.

Once decided the results of the rate case would be retroactive to when interim rates were implemented.

The PSNH rate case is one of four we expect to be filing in the coming year.

Although CL&P received an $11.9 million distribution rate increase at the beginning of this year, we do not expect that increase to offset the sales losses and cost increases we are experiencing.

We have not yet determined precisely when we will make that filing.

Moving to our Massachusetts company as permitted in our 2004 energy delivery rate settlement WMECO expects to file an application around the end of the second quarter to raise rates effective January 1st of 2007.

In the past WMECO has been successful in settling many of its rate filings and we have pursued that option as well.

Pursuant to Yankee's 2004 rate settlement our next rate filing at Yankee Gas will occur around the end of this year for new rates to take effect on the earlier of July 1st, 2007, or when our LNG facility comes online.

We continue to combine many Yankee and CL&P functions in Connecticut to reduce our cost.

Employee reductions have been particularly noticeable in the management ranks, but despite these reductions we expect Yankee to under-earn its 9.9% allowed ROE until it receives rate relief in 2007.

I am pleased to report that Yankee's 1.2 BCF liquified natural gas storage and production facility, which we started building a year ago, is now about half complete and we hope to begin filling it around this time next year.

Now let me turn over the call to Lee Olivier who has our transmission group.

Thank you, Cheryl.

NU's transmission group has gotten off to a really good start in 2006.

As David already mentioned we had strong financial performance in the first quarter.

We also had strong operational performance and made significant progress on our major projects.

We began construction on our 69-mile Middletown to Norwalk, 345 KB transmission line.

That project will take us over 3 years to construction and we estimate that the project will cost $1.05 billion, making it our most significant single capital project in 20 years.

Citing approval for the Middletown to Norwalk was received over a year ago.

We have now reached settlement on all of the legal appeals.

We continue the process of obtaining Connecticut Siting Council approvals for the development and management plans which we need to work on certain sections of the line.

To date we have received approval of 5 of these plans.

Our 2006 construction activities will focus primarily on the Beseck switching station in Wallingford, Connecticut, underground construction in the Bridgeport area, and overhead construction in the Middletown area.

Our Bethel and Norwalk line, a $350 million project, which represents the other portion of the 345KV loop in southwest Connecticut is nearly 80% complete.

We have now completed all of the work from the rebuild of the 115 KV portion of the project and these lines are now in service.

We've placed $70 million of this project in service in late 2005 and expect to place the remainder into service in the fourth quarter of 2006.

This project is ahead of schedule and on budget.

On our 115 KV [LINDBERG] cables project we have begun filing our development and management plans for the Connecticut Siting Council.

As the project is evolving from the plans phase to the construction phase we are revising our preliminary $120 million cost estimate.

We expect the estimate to increase primarily due to increases in commodities and other market driven costs, which are similar to our experiences with the Bethel/Norwalk and the Middletown to Norwalk projects.

The estimated process will not be finalized until the bids for materials and construction services have been received.

We expect to begin construction in late 2006 and complete the project in 2008.

This project is critical to long-term service and reliability on the Stratford, Greenwich, and Darien areas All of which has large and growing electricity demands.

Our Long Island cable replacement project has experienced some delay due to the difficulty in avoiding the contracts for the manufacture in installation of the submarine cables.

We had initially forecast a 2007 in-service date, however, as a result of the delay we now anticipate completing this project in 2008.

This shift in the in-service date will not require additional regulatory approval, nor will it impact reliability of our current cost estimate of $72 million.

Overall our construction expenditures totaled $92 million in the first quarter of this year.

Slightly ahead of budget.

We expect to spend about $455 million in 2006, and complete several significant projects throughout our service territory.

Including the Bethel to Norwalk line and our new [MALPIECE] Connecticut substation.

We are on schedule and on budget to achieve our 2007 targets.

On the regulatory front we anticipate that FERC will render a decision in the [inaudible] transmission owners return on equity case later this year.

Once the commission has finalized its proposed rule making for transmission of [inaudible].

We continue to book earnings at 11.5% return.

As we discussed with you on 2005, our 2005 year-end call on February 1st of 2006, FERC approved our request to include 50% of the construction work in progress of CWIP associated with our 4 major projects in southwest Connecticut.

Their in the first quarter of this initiative provided incremental earnings and cash flow to the transmission business.

Now what I'd like to do is return this call back to Jeff Kotkin.

And I will return the call to Christine, our conference operator, to remind you how to enter questions.

Thank you sir. [OPERATOR INSTRUCTIONS.]

Our first question today is from Paul Patterson from Glenrock Associates.

Paul?

Good morning, how are you?

Fine, how are you?

All right.

I wanted to get a better idea-- I mean-- sorry if I missed it was the ROEs that you are looking at the-- the distribution companies for the last 12 months?

Paul this is David McHale.

While we didn't put-- share them with you in our prepared marks I can tell you that we've got trailing ROEs for March 31st of 2006 and I'll share what they are for CL&P and this-- this is the legal entity CL&P, you know that based on our formulas, the transmission assets within each of these companies earning 11.5% but in terms of the total net income bottom-line return on equity 9.8% for CL&P, 8.7% for Western Mass Electric, 9.1% for PSNH, and about 6% for Yankee Gas.

Okay.

That electric companies that includes-- if I understood you correctly, these legal entities include the transmission which is earning more, right?

That's correct.

So obviously the distribution company is earning considerably less.

That's right.

You mentioned that you're planning on going in because of-- for one reason because of the lower demand due to higher prices.

I was wondering if could give-- you guys gave the number 0.9% for all of the distribution companies, I think in terms of the weather adjusted demand reductions, but what do you think going forward?

Is this sort of a initial thing that you think would happen because the prices have gone up relatively recently in that would change over time, or do you have any flavor in terms of your experience now with pricing having risen for some period of time as to what the outlook might look, I mean I know this might be difficult, but what the outlook might be in terms of demand with what you are seeing coming down the pipe with respect to your current rates?

Do you follow me?

Paul, this is Cheryl.

We expect to see rates remain high for some time to come so I would expect that the customer response to the higher prices will continue.

We don't see that abating in the near term.

So in other words weather adjusted demand could be as low-- could be reduced as-- somewhere in the neighborhood of 4% or something theoretically; is that right?

I think that's overstated that's in our projections to see that kind of reduction.

No.

People would begin-- after the initial shock they begin to go back to their normal demand growth.

Is that sort of--

That's what our accountant is telling us, yes.

And then in terms of the opportunity in Connecticut with respect to the legislation and the generation opportunities and stuff could you give just a little more of a flavor, Cheryl, in terms of what-- I know you have got-- what-- what might be happening there in terms of the soonest that might show up in terms of potential opportunities to invest in?

At this point in time the only way that, that will be the issue of the utilities owning generation in Connecticut would be revised this would be-- would be resurrected this year is if there were a special session of the Connecticut legislature.

There has been some talk of that, but beyond that, the opportunity for utilities to invest in generation is simply not there.

We would need a legislative change unless we chose to participate in an RSP that the [DQC] may issue later this year.

It has been our stated position that we don't intend to bid in that kind of an RSP.

Apt to a legislative change we don't see an opportunity for CL&P to own generation in Connecticut, at least in the near term.

As I said, though, there is some talk of a special legislative session to deal with this very important issue, the energy policy in Connecticut, so we'll have to wait and see what opportunity comes there.

Thank for the clarification.

Thank you, Paul.

Our next question from Shalini Mahajan from UBS.

Yeah, thank you.

Would you be able to quantify the impact of weather on earnings this quarter?

Sure.

I think-- there's a couple of perspectives here, but if you look at the impact on weather, relative to a normal year, let's say, I think that-- you know what-- what we've looked at and what we talked about is about $3 million of impact on the electric companies and about $2 million of impact on the gas companies, and those-- those are pre-tax revenue dollars.

Yes.

I mean, $3 million on the electric and $2 million gas, is that for one person's drop in sales?

I'm not sure if I follow-- for this quarter is that a normal year calculation that you are telling me here?

Simply for the first quarter and it's only related specifically to weather.

So it's $5 million in total for 1Q '06?

And then the-- the payment of $44 million to Amerada Hess, would you be able to break that into what was the amount that they actually paid for the business and what was the amount they paid for a below-market contract?

This is David McHale.

The short answer is, no.

I mean, there-- we know there was an analysis around the portfolio value.

We know there was an analysis around the franchise value, based on the outcome of the negotiations there's one figure, it's about $44 million, that's the payment we'll take on or about June 1 to Hess.

I guess my last question is in the year-end conference call there was some discussion about the distribution earnings could probably come below the guidance range of $0.89 to $0.96, any update on that, the 4 months having gone by if you guys want to update on the segment wise earnings or kind of feel comfortable the way things stand right now?

I think our language and our position, relative to the first quarter, still stands.

We clearly affirmed guidance of 109 to 122.

We know on the parent side expenses are coming in better than-- at least at this point, better than expected and we know we're on the weaker side of that range on-- on the distribution companies, and I think you can expect that we will monitor that over this particular quarter and that we will have more to say and certainly a better handle as we work our way through the summer weather at the Q2 call.

Anything baked in-- into the guidance from the PSNH rate case at this point?

Could you repeat the question, please.

I mean the rate case that you-- the temporary rate that you filed at PSNH is any-- any outcome of that baked into the guidance?

Yes, there is some small amount from that rate case that we built into the guidance when we first announced that guidance last fall.

All right.

Thanks so much.

Thank you very much.

Our next question is from Ushar Kahn from SAC, Ushar?

Hi, how are you doing?

All right.

I might have missed this.

Could you-- do you have an updated number for the transmission rate base at the end of the first quarter?

About-- this is Lee Olivier, about $700 million.

About $700 million.

And if I heard you correct you said you sent $95 million this year in the first quarter?

We sent actually about $92 million on our capital budget and transmission for the first quarter.

And that's slightly ahead of our target.

And the total amount you expect to spend is what, $400 something?

We expect to $455 million for 2006.

And then David, how should-- I know you had the proceeds and I saw the cash balance went down in the quarter, and then you mentioned that you are going to be doing a debt offering at CL&P at next month if I heard your right on the call.

How-- how should-- how are you using the-- I guess there's still some-- what $55 million of cash on the balance sheet?

I'm just trying to use-- how cash from the parent is going to fund all of the CapEx-- how are you allocating capital?

Sure.

I think in terms of the way that we're managing the cash, clearly we have excess proceeds from the equity offering at this point.

We use those moneys in a system-wide money pool to fund short-term debt borrowing needs and that's really kind of temporary arrangement but I think on the permanent side we look to the way we capitalize the companies and as we said earlier we're keeping our leverage targets in the 55% neighborhood.

So as we build out the capital, company by company, we will infuse capital into your utilities to keep that balance and that capital comes from those funs that were raised in December.

We will continue that pattern quarter-to-quarter and when we look at the funding this year, I-- at lease our view is at this point, CL&P will be the only company that will amass, you know, enough short-term debt in enough size to go out and do some permanent financing and as I said that will be a $250 million issue as early as June.

But you can expect us to keep moving money from NU parent into our four operating companies to keep that capital structure in check.

And then if I can just probe a little bit on the expected rate filing in Connecticut.

Am I correct that it's still your objective that you want new rates to be in effect in the beginning of next year, which would imply that the filing would-- should happen around the middle of the year?

And then I was secondly-- I was just wanting to get your views, because you are saying that higher rates are causing conservation, and how are you going to build that into your forecast?

Because if you go in for another rate increase, isn't that going to lead to more conservation.

So I'm just trying to understand how you are playing that in your analysis and the timing of the rate case.

This is Cheryl, with respect to the timing on the CL&P rate filing, I think you are reading more than I said into-- into my comments.

We have not said when we will file that CL&P rate case, and I cannot-- I said that I would expect to file some time within the next year, but we really have not determined when that filing will be.

There are a lot of factors, as you know, that go into the determination that make a rate filing, and we have not filed that-- we have not determined that, so I don't think you can assume that we would be necessarily assume that we would be filing midyear.

With respect to how we think about conservation in building our forecast, clearly any decline in sales for whatever reason is built into our forecast and that is a key driver of our need for rate relief in-- in all of our jurisdictions as we have seen commodity costs really affect customer usage patterns.

So yes, it's built into the forecast.

Okay.

Thank you.

Thank you Ushar.

Next question is from Eric Beaumont from Copia Capital, Eric?

Hi, guys.

Just a couple things real quick.

One, for PSNH again you gave a laundry list of why earnings were down so much--

Sorry, Eric can you speak up a little bit?

Sorry.

You gave the laundry list for PSNH and why earnings were down I understand the trend cost, can you quantify the higher transmission costs, the operating cost, and the tax rate for us?

The-- the net on transmission amounted to about $400,000 in that neighborhood.

Okay.

And your second question, Eric?

On, you know -- you also talked about just higher operating costs and tax rate at PSNH.

Could you quantify those for us as well?

The tax impact is about $1.5 million.

And what was driving that?

The-- the higher taxes on PSNH is primarily due-- it's a timing item.

We would expect those taxes by the end of the year to reverse, and it was-- really the impacts of PSNH is taxable-- the-- the unitary tax rate in PSNH and the losses we incurred in the first quarter associated with the select business.

And one more thing then, on the transmission build out, you have done a good job of laying out the building blocks for us, and you have always kind of said that '06 is a base year, and given how the transmission net income was up and how quick it's accruing, how-- how should we think about this '06 being a base year versus how much of-- of the revenues and income are kind of being brought forward through CWIP?

Eric this is Lee Olivier.

If you look at CWIP-- what CWIP does over the coarse of the four-year period starting in February of this year to December of '09, you end up getting about $16 million additional earnings associated with 50% CWIP rate base and southwest Connecticut projects and you get about $70 million of increased earnings over that period of time-- excuse me, cash flow, rather.

And that ramps up from-- starting in 2006, for instance for cash it's about $11 million ramps up to about $25 million a year in '09 and earnings for this year, it's about $2.6 million ramps up to about $5.8 million in '09.

And again-- then-- and so we can consider the CWIP at those levels and then once we get out to '09 and have everything in service it would be the typical rate base of the 11.5%?

That's right.

CWIP-- those projects would be expired and of course if we had another major project as we go forward we would look for 50% CWIP rate base, or if the new FORC incentives, which call for 100% CWIP rate base, if those were available we would look at those as well.

That's helpful thanks, guys.

Thanks, Eric.

Next question is from Steven Rountos from Talon Capital.

Hi, everyone.

Good afternoon.

I guess the first question was on CL&P, probably for Cheryl, more than anything else, it sounded-- I just wanted to confirm is it-- is it a question of when you'll file a rate case or is it still-- are you still weighing the possibility of not filing a rate case in Connecticut?

It is clearly a question of when over the course of the next year not whether.

I guess I was just doing the math the last 12 months earned I guess 9.8% ROE at CL&P and if I have my rate base for distribution rate around $1.5 billion for CL&P and a-- you know, I guess a $600 million transmission rate the number I backed into just for distribution was roughly about a 0.9% ROE, so is that the level that you are earning roughly-- just on distribution?

I think that's higher than what we're earning, Steve, on distribution.

The ROEs you gave are those financial or regulatory?

Those are financial.

Okay.

So there might be a difference there?

Absolutely.

Do you know what the differential is?

For the trailing 12 months we are down below 8% for CL&P.

In total or just in distribution?

For the distribution company-- for the distribution component of CL&P.

Okay.

Great.

And then I guess my next question was on-- on the process for the competitive generation sale, it sounded like-- I think you made a comment that you are in the second round when are the final round bids due?

We have not been public with that level of information.

I-- I will say though, I think we are on a schedule consistent with what we have discussed in the past.

Where we hope to conclude a process late in the second quarter, and be able to announce shortly thereafter, but in terms of week by week that's a process that is confidential to-- to the bidders.

Lastly, just more -- more of a big picture kind of thing.

Given the-- the spending in-- in New Hampshire, the wet scrubber, the potential wood plant, and some of the rate case filings, what-- what's the view on the second tranche of equity now?

I think originally I was 2008 type-- type time frame has that been accelerated or pushed back?

How should we think about that?

Steve, this is David.

I think there are a number or factors, and we have always called out capital plans as being one of those factors.

Clearly now we've got some answers around what we will transact the retail business at select for-- the biggest driver, perhaps is the final outcome on the sale of the generating units, and that will take some time to unfold.

I see no reason to change the company's posture on the equity issuance at this time.

I think it's still an event that-- early 2008.

But you said dependant on the proceeds from competitive gen or sort of the whole non-reg side in total, right?

Yes.

That's the largest single factor.

The $200 million in net proceeds that was for all of the wholesale, all of the retail and the generation?

The entire NU business.

Wholesale, retail, Gen, tax benefits, everything.

Can you remind us what the tax base was of all those businesses, maybe broken out separately or just all together to give us an idea of what the proceeds might look like?

Steve, I would rather have that done on a separate call because it's probably a 10-minute answer.

Okay.

I'll follow up with that thanks, thanks, Dave.

Certainly.

We don't have any more questioners so I want to thank you all for joining us today have-- have a good day and we hope to see some of you at the AGA conference Sunday and Monday.

Thank you.

Thank you all.