康涅狄格電力 (ES) 2008 Q3 法說會逐字稿

(audio already in progress) this morning.

Before we begin, I would like to remind you that some of the statements made during this presentation may be forward-looking as defined within of the Safe Harbor provision of the US Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to risks and uncertainties which may cause the actual results to differ materially from forecasts and projections.

Some of these factors are set forth in the press release and slide packet we issued to you today announcing our earnings for the third quarter of 2008.

If you have not yet seen those slides, they are located in the investor section of www.nu.com under presentations and webcasts.

Additional information about the various factors that may cause actual results to differ can be found on our annual report on Form 10-K for the year ended December 31, 2007.

Additionally, our explanations of how and why we use certain non-GAAP measures are contained within both our news release and the slide packet and in our most recent 10-Q and 10-K.

Now I will turn over the presentation to Chuck Shivery.

Thank you.

New legislation that has created a number of opportunities for us.

2009 on a stand-alone basis.

You have see our capital projections for 2009, and clearly that capital program (inaudible) the first is the (inaudible) The first is (inaudible) because it's such a large portion of the capital programs in the years up to 2008.

The second is, we are seeing a decline in sales, we told you that in the news release.

David and Lee will talk about that in a little more detail.

So we we're seeing a little less work going on as (inaudible) and clearly that has impacted a little bit our capital expenditures going forward.

And then the third thing, and we started doing this six or eight months ago as we saw the disruption in the marketplace, is we have looked at our capital expenditures, which determine where we have the ability to (inaudible) should we need to do that.

We will spend some time chatting with you about that.

But we think we are in very good shape.

We have strong financial [liquidity], we have sufficient flexibility to go for a long period of time into next year without accessing the capital markets.

And the financial foundation that we have built over the last few years will continue to produce results going forward.

So if we look at 2009 as the transition year, we've talked about new siting, we'll get into that a little bit more.

That sets up the next big phase of transmission projects that are already approved from a technical standpoint from our [side.] But we need to work through the siting process.

The Merrimack Clean Air Project or (inaudible), which we've talked about, is another one of those projects that was required by legislation in New Hampshire.

And the generation side, we are moving forward with that.

Solutions transmission is part of the all encompassing transmission opportunities that we see in New England and beyond as we look out at the public priorities that have been set for us, including there will be some requirement for distribution rate cases.

We expect that the (inaudible) cases probable is to be filed in '09, and there is a possibility that we will file (inaudible) also.

And David is going to spend a little more time chatting about that.

The '08 good year operationally, financially, '09 good financial flexibility, good foundation and a key transition [for us] as we move forward.

This is a slide that we have used and one you have seen before, and we have used it for a number of months.

It's every bit as appropriate today, in fact even more so, than it was in the previous months.

And it really looks at the exogenous variables that are impacting our service territory, our region and our Company.

And it's -- just[kr1] starting at the top and highlighting a few clearly reliability concerns, whether that's transmission reliability, distribution reliability, overall grid system reliability.

Fuel diversity and resource adequacy are key items that impact our Company and impact our region.

We are working through those, but they are going to be with us for a time.

Continuing rate pressure.

We had put this slide together when commodity prices were almost at their peak.

Clearly they have dropped down a little bit.

Demand is still a little peaky.

We are seeing higher demand growth than we were sales growth and the infrastructure modernization.

In today's world, the economic dislocations that we have had in the financial marketplace, and as they play out over the economy, will continue to create rate pressures for us.

And it is something that we simply will have to manage through as we look at the next few years.

Increasing environmental pressure, energy efficiency, reduced emissions, renewable (inaudible) standards, we have all of those in New England.

We have them in different levels in each of our states.

In some cases, as you'll hear in just a few moments, they are opportunities for us.

But clearly, they are part of the transition to a different kind of resource generation that we'll have to work through.

And then advancing technology, whether that's on renewables or grid communications or networks; so there are a variety of external variables that impact us, that continue to impact us, and we've been talking about for some time now, and we will continue to manage through the implications of that.

But they are -- they do provide, in a lot of cases, opportunities for us.

And I think that's important as we go forward.

You've seen this slide before.

If we are going to meet the public housing decisions around RPS or around RGGI, and clearly, with a new administration coming into Washington, we may see additional environmental positions being taken, we are going to have to access the renewables that are available to us [in New England.] These renewables [really] consist of wind in Northern New Hampshire, Northern Vermont and Maine; on hydro in Canada.

There is some potential nuclear in Eastern Canada, (inaudible) solar now in Massachusetts.

In order to access those renewables, however, there will be transmission required.

So in order to meet those public policy decisions around renewables, not only do the renewables need to be built, but the interconnection of those renewables to the grid and to the load centers, will have to be built.

And they are opportunities, we think for us, as we look at our service territory in Massachusetts and Connecticut and in New Hampshire.

Clearly there are opportunities in Canada.

We have talked to you about those in the past.

In fact, as you'll hear from Lee and David, we have put $500 million in the capital budget for transmission opportunities to access renewables in the Canadian province.

It's something that we've been talking to a number of folks about.

We continue to move forward with that.

It's a little premature to talk about some of the specific projects at this point in time.

But we see, going forward, the opportunity to participate in that in a way that we have not in the past.

State regulation has given us some challenges, but it's also given us some opportunities.

No matter which state we looked at, whether it's Connecticut with increased DSM incentives, whether it's Connecticut with RPS standards increase and the ability to do long-term bilateral contracts, there are opportunities for us to participate in a way that benefits our customers and our shareholders that we have not been able to do in the past.

In Massachusetts, probably the most sweeping and comprehensive legislation that we have seen was the Green Communities Act, which removed caps from [facility] energy efficiency and demand response, opportunities that gave us the ability to lock in long-term contracts renewables.

It gave us the ability to build solar.

And we have spent time talking with the administration and with the regulators in Massachusetts, understanding their vision for the state, and how we can interplay with them to make that vision a reality.

Clearly there are opportunities for us around a variety of those options in the Green Communities Act, and you will be hearing more about that as we go forward.

And then in New Hampshire, there is mercury reduction bills, the Merrimack scrubber project continues to move along.

And the other thing is the 2008 (inaudible) generation authorization, where we have the ability to build some limited amount of (inaudible) generation in New Hampshire, and clearly we are looking at that.

So the public policy priorities of our states give us opportunities that we have been talking about in some cases for awhile.

We have actually included in our plan in some cases, but there are opportunities that we have not completed in the plan that are a little premature, but clearly are something that we look forward to working with the state in the future.

Let me just step back, in summary.

In 2008 all of our financings were completed, we completed the bulk of those in the early part, May and June of the year, finished up the last one just recently with a small [private] placement.

We have seen strong operational and financial results.

In 2009, we have reduced financing requirements and minimal debt securities (inaudible).

Cash flow [accrued] earnings per share guidance is comparable to 2008.

And when we look beyond, we look at 2009, it was a transition year and a year that sets us up for the future, we see (inaudible) future opportunities for the Company.

Clearly we had financial flexibility and financial strength.

And as we have evaluated all of that, we have come to a conclusion that we wanted to articulate our dividend policy in a different way than we have in the past.

What we have said to you in the past, and we typically get this question at this meeting as well as at a variety of other meetings, is that we strive to increase our dividend at a rate that is higher than the industry average.

That has, as all of you know, meant essentially over the last few years, a price increase every year.

As we look at the level of our dividends and the level of our earnings, the future opportunities and the actual dividend payout ratio, we clearly want to continue to grow the dividend at a rate that's a factor relative to the industry.

But we also thought it was time to begin to articulate the dividend policy slightly differently.

As we move into 2009, we begin to target a 50% dividend payout ratio.

We think that's appropriate in light of the (inaudible) we have right now and the opportunities that we see going forward.

And we think it's just one more indication of our concern for a total return for all of our shareholders.

So we are happy to articulate that dividend policy starting (inaudible) year than we have in the past.

Let me stop there.

Lee will give you an update on the operational successes that we have had, where we are going over the next four or five years.

And then David will give you the financial results of all of that.

Thank you very much for your attention.

Thank you, Chuck and good morning.

It's good to be here with you all in Phoenix.

What I'm going to do today is give you an overview of our five-year capital investment strategy from 2009 to 2013.

I'm going to start by saying we have had a very solid year.

Our cooperations have been good throughout the Company.

Our reliability in terms of our system performance in all three of our electric companies (inaudible).

Storm reliability has been excellent, particularly reliability at CL&P has been some of best reliability at CL&P in recent years.

No major outages.

Our safety has improved across the board in all of our companies.

Our generation plants in New Hampshire have all operated at or above their capacity factor targets.

And our transmission has had excellent reliability, and I'm pleased to say that all of the transmission projects are on or ahead of the schedule.

And I'll cover those in a minute.

Most notably, this will be the last EEI meeting that you will see us update you on the Southwest Connecticut projects.

We have been doing this it seems like forever, but the Southwest Connecticut projects are essentially complete.

I'll talk more about those in some specific detail, but they will all be done and in service by the end of this year.

And Middletown-to-Norwalk, which will be the last project, will be either late this year or early next year.

Our capital investment in this new five-year planning period is up to $7 billion, and up to $7 billion in what we think are investments that are good for customers, good for shareholders and, in many cases, good for the environment whether it's preserving a low-cost generator such as the Merrimack Plant in New Hampshire, which is a base low coal-fired power plant, by installing a mercury reduction scrubber, or going forward with transmission upgrades, transmission upgrades that save customers in Connecticut over $150 million as a result of reducing congestion.

And of course making sure that our distribution system is reliable is key to the economic growth of the region.

Now, as Chuck said, we need to make sure that we have flexibility in how we approach this.

I'll talk more about that later, but we really do think we have flexibility around the spend, particularly in the electric distribution and the gas distribution parts of the business, and that's kind of by their nature.

Yankee Gas is a company that for a lot of years had kind of stagnant earnings growth.

Yankee Gas is a result of the L&G facility now in service, and really is a result of the two-to-one advantage that natural gas has over home heating oil.

We see a real opportunity to grow that business.

In New England, gas is the choice of the -- the energy choice.

If you think about New England, about 65% of the small businesses and customers use light heating oil to heat their facilities.

And with the price advantage, or cost advantage, from gas to oil we see real growth in that business, and I'll cover that in a minute.

Let's take a quick look at the plan.

Well, this is it, the last time.

You can frame this in your offices, for those of you that have followed this so many years.

Again, as Chuck said, the Southwest Connecticut projects -- just tremendous performance.

These projects are some of the largest, most complex projects anywhere in the US.

They utilize both underground technology, (inaudible) 45kV cable first time ever used in North America, undersea technology from the Long Island cables replacement and of course overhead.

About four years ago, we said that these projects would cost about $1.7 billion.

And I'm pleased to say that when we look at the projects, they will all be under in totality about $80 million to $100 million.

Three of the projects, of course, are complete.

The Long Island cable replacement project was completed in September, Bethel-Norwalk last year.

The Glenbrook Cable project, which is this project for $239 million, will be complete either tomorrow or Wednesday and actually be in service, and be in rate base.

Middletown-to-Norwalk project -- essentially the construction is done.

We are in the test mode of that.

It's a very complex project, and if you remember, that project is a 69-mile overhead underground project.

The overhead portion is already in service.

So really what we are putting in service is the underground portion of the project.

Looking at the cost of the projects, Glenbrook, which we said would be $223 million, is going to end up being about $239 million, about a $15.8 million, $16 million increase.

And that's all about hitting more obstacles in the right-of-way, other utilities that were not marked, more rock, more water.

The Long Island cable replacement project will be about $6 million more, at $78 million.

And that's just about when you finish the project, you do a survey of the cable as it falls on the sound floor of the Long Island Sound.

More of it was on our side of the border, so to speak as well as a couple AFUDC adjustments.

So when we look at these projects, it's not only closing out some of the most important projects because, if you remember, FERC had said this is the number one transmission challenge in America.

But it's really closing the first chapter, if you will, on fixing the transmission grid in New England.

Now, the next chapter is the NEEWS family of projects, which I'm going to talk about.

And consistent with bringing benefits to customers and shareholders and to the environment, NEEWS will eliminate about another $100 million or so of congestion cost inside Connecticut.

When NEEWS is done, Connecticut and the rest of the region will be at equilibrium in terms of L&Ps, and you will not need to run a lot of these old fossil-fired power plants that emit a lot of pollution.

Now, beyond that, we have a number of other projects that we are looking at.

We have upgrades in Northern New England.

And you are going to see the focus in future meetings all shift towards Northern New England, shifting away from, obviously Southwest Connecticut north towards Northern New England.

There are going to be transmission projects built there to connect renewables.

We will build some, other companies in Northern New England will build others.

We are looking at doing major upgrades in and around the Berlin, New Hampshire area to connect a number of wind farms and biomass plans that are in the ISO New England (inaudible) to come online.

Chuck talked about the HBDC line, or a line from Canada I call the HBDC line.

[Here's my call on that] is that if you look up the distance in the technology, HBDC is the -- HBDC is the way you would move there.

We have had conversations with a lot of -- a lot of participants.

We have talked at the state level, the federal level, to commissioners at FERC, to commissioners in the various three states.

And when we look at that project, we think it's a real bona fide project.

We have planned a number of routes.

We are in the process of doing various load studies, and so we will get that to you in a future meeting on that.

Now what I want to do is to talk about NEEWS.

And NEEWS, if you remember, is a family of projects newly designed to resolve a number of reliability issues and violations, FERC violations of our transmission grid.

NEEWS is a project for -- the NU portion of the project is about $1.5 billion.

The project in total, when you add in the part that is owned by National Grid, which is building transmission in Rhode Island and Massachusetts, it's about a $2.1 billion project.

In fact, it's the largest project in New England in about 20, 25 years.

The project is advancing along.

We are out of the planning part of the process, and we are now in the siting phase of the process.

We have actually started siting on the greater Springfield portion of the project, both in Connecticut and in Massachusetts.

Now, we have started the so-called municipal consultation for the other two pieces, the interstate portion of the project, that's that light blue line or purple line over there, and the central portion of Connecticut.

We'll actually start siting the interstate part of the project late this year, early next year.

And we will start the siting process for the central portion of Connecticut by the middle of next year.

Now, we have asked FERC for incentives for this project.

Because this is the kind of project that if you look at what FERC said about incenting transmission, it meets almost all of the characteristics.

Well, that's for 100% construction work in progress.

We have asked for 150 basis point added to the base return on equity, which would give us a 13.1 -- 1.4% return on equity.

Of course, we also asked for a 100% recovery of any abandonment costs should the project not going forward, which we think is highly unlikely.

So we expect to hear back from FERC on those incentives later this year.

If you look at this slide, this slide that you have seen before, gives you the segmentation of the project.

I'm not going to cover any one part of that slide.

But you can see that we have updated the slide to what we have accomplished so far.

We are going to update this on a quarterly basis, and this will be available through Jeff Kotkin.

Looking at CapEx, on our transmission CapEx plan you can see we have added about $2.5 billion in transmission CapEx over the course of the last eight years.

(technical difficulty).

That will wake you up.

In our next five year planning period, we expect to increase that some 17% to $3.5 billion up to the previous plan of $3 billion.

Now, you can see in an Appendix slide, I have put a slide in you have seen before, that looks at the timing of when the cash flow occurs and the timing of when the plant goes into rate base and how total rate base grows over that point in time.

A couple of notes here, obviously, and Chuck hit on this, is that the investment in 2009 and 2010 is down.

It's really being driven by two things.

One is pulling the Middletown-to-Norwalk transmission line back into '08 and substantially completing it in '08.

The other one is the fact that if you remember, the NEEWS project before had a fairly large -- about $350 million segment that was 115kV underground.

We had to redesign the project, and that part of the project would have been sooner rather than later.

So it's mostly to do with the timing of when NEEWS occurs.

Clearly, with the capital markets being where they are, you know, that's not necessarily a bad thing at this point in time.

That's kind of flexibility by accident, so to speak.

Looking at the bars, you see NEEWS in there which makes up about 40% of the stand of $1.4 billion in the cash flows.

You can see we put in, as Chuck said, about $525 million for an HBDC line.

I think that number is a conservative number right now, and I wish we could give you more information on that, but we will in a future meeting.

Beyond NEEWS, you see that blue part of the bar.

And what that is, is about $1.5 billion of other projects that are spread throughout the three-state region.

And when you look at -- when you look at that slide, you see more of the focus in the future shifts up towards Massachusetts and New Hampshire.

For anyone that is interested in that slide, I have a hand-out that either myself or Jeff can give you and it will list the specific projects by detail, give you the detail on that and what state that they are in.

Just looking at transmission CapEx, we completed 2007 at about $1.5 billion of CapEx.

At the end of the period we will have approximately $5 billion of transmission rate base.

Next is Merrimack, and we talked a little bit about that.

We are going to go forward with the Merrimack project.

It's a $457 million scrubber project designed to take out mercury but also you get a benefit because it takes out about 90% of the SO2 that's required to be done by 2013.

We are targeted to have it done by 2012.

And although the cost of installing this is expensive, it is still the lower cost solution.

It's about $1000 per KW installed, and replacement for that unit with a combined cycle is about $1800.

And when you look up the differential, long-term differentials we believe between coal and gas, we still think it will be very competitive.

We have got approval from the New Hampshire PUC to proceed on the project.

We have actually issued $130 million of contracts for that project, the actual scrubber itself, the waste water treatment system and the chimney.

So engineering and construction is on -- is underway.

That project, when it's complete will fall into the generation rate base in New Hampshire.

It works very similar to the transmission rate base, has a return of 9.81% return on equity.

This slide looks at the transmission -- it looks at the distribution and generation CapEx.

Now, when you look at that, you can see the increase in 2009 and 2010, that's really being driven for the most part by the Merrimack scrubber.

Again, that finishes out in 2012.

Now in each year, embedded in the CapEx, there's about $25 million to $30 million of routine capital that we spend to maintain the plants.

Now, the 2009 elected distribution spend is down from '08, and that's really being driven more than anything else by the economy.

New home starts in New England down about 30%, we are seeing fewer requests for new connections in electrical upgrades.

Future years, and we look at the future years, distribution goes up.

Part of what I'm going to talk about next, is what we are going to do about creating flexibility and that aspect of capital spend, so we can pull that down and shift how we spend the capital to produce a lower capital spend but yet maintain strong reliability.

This is an interesting slide because it really shows you where the distribution capital goes, but it will also piece up where the opportunity is.

And the way we look at distribution is you're going to have to invest in distribution in the continuum.

What we would like to do, if you look at the three bends there, you have the aging infrastructure bend, which is the back debt.

Every year the system gets older, and if you don't manage that, you end up building a [biowave] out in the future years, where you have to do a very large capital spend.

You have spending for basic business, this is kind of the break-fix things, municipal highway relocations.

And then you have the peak load growth, which we've seen every year to be about 3% to 4% over the course of the last 10, 15 years, and of course new business.

Now, distribution system by its nature has flexibility because as the economy slows, you have to be -- you put less money into it.

And we have seen about a 50% fall-off this year in our new connections in upgrades across all three of our companies.

We are seeing a lot more conservation by customers, and they are looking at the price signal.

As prices have moved up to over $0.18 per kilowatt hour in total, people are using less electricity.

Clearly the economy is part of it.

The other part is energy efficiency.

In DSM, we are seeing a greater role.

A few years ago we only had about 1% DSM in all of New England.

Last year we had 4%, and we are projected next year to have 8% DSM.

So DSM has grown as well.

The value of DSM and energy efficiency is there's about a three-to-one ratio in favor of doing those versus investing into the distribution system.

So as we have more of that kind of investment, as we have more technology, smart thermostats, smart meters, that CapEx is less than investing in distribution system.

That gives us the flexibility to pull back on that distribution investment.

And we have a number of initiatives ongoing on that now.

So I'm not trying to tell you that you can take the take the distribution capital spend and lower it by 50%, or perhaps you could get 15% and perhaps even 20% as we go in the future.

Again, that provides the flexibility that you and we are looking at.

Looking at Yankee Gas, Yankee Gas is a result of the spreads in oil.

Light oil to gas has a real opportunity.

We have slotted in $63 million more of money to spend in Yankee Gas.

And clearly this is money that has flexibility around it, and I want to talk to you in the next slide just a little bit about how that works, where we see the value.

If you think about Yankee Gas, it's got about 203,000 customers.

We've got about 83% penetration rate along our mains.

And we [could reach] about 41,000 other customers that are essentially small commercial customers or commercial customers and residential customers we could hook up.

Inside of our service franchise, if you look at mains to roads, we have got about 38% penetration.

So clearly what you'd want to do here is to get the customers connected that are already on your mains.

And to do that we need to spend capital to do the connections.

But we also need additional capital to get gas transfer, particularly over into this Meriden and Cheshire area.

We have a lot of customers that want to sign up there.

We are going to build an 18-mile gas pipeline, high-pressure gas pipeline which will allow us to service those customers in that area, to do more connections.

But it also saves customers money, because we can use the L&G facility as their peaking unit versus buying more expensive peaking contracts.

We were doing about 150 gas conversions a year in the past few years.

We will do about 700 this year.

We will do 1,000 next year, and we will actually probably have that number in the -- back into this plan be even higher.

So again about $63 million of CapEx.

That last bullet there about service contracts, we are seeing a large demand by customers for service contracts not on the boiler itself, but on the pressure control valves, control systems through the boiler.

We have about a 10% penetration rate there.

We want to have that be about a 50% penetration rate.

Finally, I just want to say that the business plan that we have, this five-year CapEx plan, has real value both for shareholders and customers.

And Dave is going to cover more of the shareholder value as we go forward.

But for customers it's really all about building projects that reduce congestion, save money, preserve low-cost generation, ensure the plant reliability and also incentives around execution on what we do well, which is building major projects and getting them done on time and ahead of schedule.

And the plan does have flexibility around it, which I have discussed.

We will continue to advise you on that as we go forward.

It has a number of opportunities that I'm not going to go through in detail.

But we have teams of people working on all of those opportunities.

Some of those opportunities are opportunities not in themselves, but also for reducing the distribution of CapEx as we go forward.

So with that, I'm going to turn it over to Dave.

Thank you, Lee and good morning.

Just quick by way of overview I want to spend another 15 or 20 minutes looking at not a great level of detail, but 2008.

Obviously we are very pleased with the results.

Quickly move onto our guidance for the year, talk about some of the driving factors we are seeing, some of the leading indicators as a result of what we are seeing in 2008 that carries into next year and beyond.

Of course, I want to talk about the capital program, rate base, how we are going to finance it and the like, and a little bit more on where we think our financing needs to be, a little bit more around this sort of this total return equation we see going forward.

Now, most [prominent] of course, we should get this out of the way right up front, all the questions about credit, liquidity, Chuck touched on this.

I think we are very well poised, some of it a little serendipitous, because the CapEx program in 2009 is coming off.

That's really a natural result of finishing Southwest Connecticut early, so that's great.

I'll show you those cash flows.

Importantly we are done for the year.

In fact, if we discuss this a little bit more we don't need to be in the capital markets for another several quarters, probably midyear next year at the earliest.

When you look at the financing that we have banked this year and that we are going to ask customers to pay for, we have got a weighted average coupon this year of 5.9%, average tenure about 8 1/2 years.

That's money good these days if you look at that and say we got that done in 2008.

Very pleased on that one.

No bond maturities really looming.

$50 million in 2009, quite financeable for us; so no great hurdles to clear.

There's an exhibit in your Appendix that shows you what our landscape looks like over the next several years.

We talked about capital expenditures.

Not only are they down from 2008, but when you look at what we have previously projected for 2009, you'll see those projections down as well.

We will show you that comparative.

We do have some financing to do next year.

Clearly, this business strategy needs capital.

We think we are in good shape there.

The financing, the debt financing that we need next year is less than half of what we have done this year.

Last year we began to talk to you about our need for equity capital.

I think our views are the same.

We still peer into 2009 seeing that we need some equity capital.

We will talk a little bit more about that.

Won't really expand on this issue too much, but in terms of our overall liquidity, we think we are in very good shape there.

We have been using our bank lines during the course of the year on an [ongoing] basis.

(technical difficulty) We feel very good about the security of those bank lines, they don't expire until fall of 2010.

That does provide us with liquidity, and between the liquidity and those bank lines and the cash on hand, we've got almost $350 million, up to $400 million of availability today.

And what I think you know about our business is our cash flows are pretty predictable.

We don't have big -- the potential for big looming liquidity events on the horizon.

We don't have a collateral call business.

We don't have a high margin business by any means.

Stable, predictable cash flows.

We don't use a commercial paper program, we haven't since the early '90s.

We don't rely on that for a source of funding.

In terms of the dividend payout ratio, it's been modest.

You know that.

We have been on a downward trajectory there.

Really happy to sort of just maybe allow you to peer into where we're going with dividends going forward.

But even at 50%, as we grow our earnings, this is not going to compromise our cash and liquidity position by any means.

Credit outlook stable for all the agencies.

In fact, they have been affirmed as recently as just two weeks ago by S&P, and just recently S&P upgraded [CL&P's] unsecured debt rating.

Let's touch on the quarter a little bit.

I don't want to spend a lot of time on this, but very pleased to show you that the quarter consolidated is up 45%.

If you have done the modeling, no surprise then that the transmission business is driving this.

Arguably, we have come out a little bit ahead of where I think the street consensus was for a number of issues.

Let's turn to the nine-month numbers.

They are up 25%; a lot of the same factors.

If you look at transmission, we have taken rate base last year, which was $1.2 billion at the end of September.

This year, it's at $2 billion.

Again, no surprise.

You can see the project, a lot of transparency around those projects.

That's getting it done, transmission up 80%.

However, still with the distribution companies, largely because of CL&P's rate relief that they garnered earlier this year, $78 million in rate relief, year-over-year, they are too doing fairly well.

Let's look at those for a moment.

And in the backdrop of that business, as you know, is worth examining, because the fundamentals of the distribution business is under a lot of pressure these days, when you look at sales, revenues, uncollectibles, pension expense and the like.

I'm sure you're going to hear lots of people, you have already, talk about what's happening in the underlying distribution businesses.

But we are doing okay, in fact better than okay with the Connecticut Light and Power Company.

It does take some rate relief.

That's driven in large part by not only rate relief, but the incentives that we get through legislation to help our customers install (inaudible) distributive generation as one point.

So we are seeing some good growth there in terms of earnings.

It will take some rate relief.

We will touch on that and continue to follow that growth, And then across the curve, one thing that is common here, we have touched on this in the past, electric sales are down across our system companies.

No question and that's not a new trend for us.

We have been seeing that for really about three or four years.

On average, we are down -- on a [weather] normalized basis about 2% this year.

It varies by company.

I'll go into that in a little bit more detail on this slide.

We increased our guidance in 2008 on our second quarter conference call.

We are affirming that guidance today, if you exclude our litigation charge related to Con Ed.

We still believe we are between $1.80 and $1.95.

We know that's where many of you are as well.

We think that number works even in this environment, even in this climate and then we are rolling out for you our projected 2009 guidance.

(technical difficulty) [A couple of points] there, on 2009 in particular.

Again, when you look at the fundamentals of this business, they are driven by continued CapEx deployment, although as Lee discussed, down here for 2009, and that's deliberate.

And in those distribution companies, we continue to see an erosion in sales.

So built into our guidance for 2009 depends on which company, [but still] up to maybe 2% off on sales, a little higher for our Massachusetts business, where the economy there is softer.

A little stronger in our New Hampshire businesses, where we have seen historically that economy a little bit more resilient, and the price of the [product] in New Hampshire a little lower.

That's no surprise.

We still see some deterioration in sales.

We also see a higher pension expense.

Everyone at this conference is going to be -- [potentially affected by] pension expense.

When we look at what's built into 2008 because of the gains we have had in our portfolio, essentially in 2008 we had a zero pension expense.

Now, in our past life we have had a pension deduct or a credit because of the earnings.

In 2009, [in just] the contract that we have, $25 million of, it's higher expenses, pre-tax, pre-capitalized.

When you look at the earnings impact of that, it's about $9 million more, maybe $0.05 or $0.06 a share is going into that 2009 guidance.

Now, that number is still dependent on what happens to the markets over the next few weeks, what happens with discount rates when we measure that number on December 31.

But just to give you some comfort, we have already factored that into our guidance.

We have also factored in some share issues for 2009 guidance.

So fully diluted, lower sale, higher pension expenses, so we think we have those covered.

Also we're saying higher on deductibles as well.

When we show you our 2008 guidance, and where we think we'll come out for the year, that only has in it maybe $5 million or $6 million higher uncollectibles than we expect.

That's not tragic.

We see that trend continuing into 2009.

We have seen that trend for a couple of years.

I think we've gotten in front of that.

We have some trackers with the regulators, we've built some of that into our own settlements and the like.

So I don't think we are stumbling over that one as hard as maybe some other companies, but I think it's a very real outcome of the economy and the high price of (inaudible).

So we think when you look at '09, yes, it's kind of flat, maybe a little bit up, depending on how you measure midpoint to midpoint, but we think it shows you all the news, a lot of it on the distribution business under pressure.

Now let's turn to CapEx.

This may be a little confusing.

But when you slow down and look at this, this is the graphic that sort of adds up over this five-year period for us, an opportunity if we really execute on the strategy, take advantage of the initiatives that Lee and Chuck (inaudible) gives us the opportunity to earn and deploy $7 billion worth of capital.

That's about $1 billion higher than last year, driven in large part by things like the Merrimack scrubber project, the new transmission initiatives and the like but it really looks higher at this point in 2009.

If you look at that figure in 2009, you can see that not only is it down substantially from 2008, $892 million, generically call that $900 million of (inaudible) what we've shown you in the past, it's also down.

So this is [the thing] that I described earlier as being a little serendipitous.

But I think this gives us a lot of flexibility about the way we look at our financial program during the course of the year.

When you look at 2010, then no surprise when you overlay the cash flows that Lee addressed around transmission, you start to see more spending on the NEEWS project, you start to see more spending on the generation project in New Hampshire, the Clean Air Act project that was [struck.] Those are really from a capitalization standpoint, that's probably a better place to put our capital in terms of the transparency of earnings, the predictability and the certainty of our (inaudible) the ROE.

So, yes, you see a ramp-up in capital in 2010, hard to imagine what the financial environment would look like, but I'll give you some comfort that when we talk about earnings growth and our ability to achieve (inaudible) CAGR, no longer are we banking on 5% debt (inaudible), no longer 6%, no longer 7%.

We have in our model going forward 8%, 9-plus% (inaudible) on the cost of capital for debt.

This means our customers are going to have to bear that, which means a lot more emphasis on how tangible are these customers stages coming off of transmission.

And as Chuck and Lee referred to, very (inaudible).

We are seeing immediate customer benefits as a result of this transmission program, but it's no surprise we are seeing higher costs of capital on our debt.

We showed you this slide in the past, but just to make sure that you have organized in your mind what we have included and what we haven't because we talk about a lot of initiatives in the Company that we are working on, we have the Clean Air Act, of course.

We have NEEWS, of course.

We have this $525 million placeholder of sorts around transmission to Canada.

You can read the rest of these bullets.

But what's not in here are initiatives I think are important to us, they are supported by public policy initiatives throughout New England.

We just aren't at the point yet where we feel so strongly that they are there to generate earnings of revenues and cash flow.

Some of the solar projects (inaudible) working hard on.

Some of the distributive generation.

Some of you have asked, well how much underground have you assumed for the NEEWS project?

Very, very little to none.

That obviously will go up with pressure on the price of our project.

We are working on smart grid initiatives in [AMI].

We haven't loaded that into the model.

Just to organize yourself, that's what's in and that's what's not in this model.

How does it all stack up?

You're very familiar with this chart.

This is the rate base (inaudible).

If in fact we execute on all of those opportunities over time, it's a 14% CAGR.

Now, there are pressures.

If you put these two thoughts together, how do you grow your capital at 14% when you get sales erosion?

Somewhere in the middle there, you've got to be doing some things that are right for the customers.

And we think a lot of our capital is very pointed at these intangible benefits for our customers.

By way of example, alleviating transmission and congestion cost, or opening up the grid to optimize our system and allowing when we do our standard service procurement, lower cost of power.

So you would see rate increases with distribution and you would see rate increases for transmission behind the scenes here, but total growth over time you are really not finding that aggressive.

You've got to make some assumptions on what is happening with commodity prices.

And in terms of overall [cost] to our customers, a lot of benefit as we go forward and finance this program and grow the companies rate base.

Really haven't changed our views on the way we capitalize the business.

Still, this underlying 45%, 55% set within the utility, 55% leverage and to consolidate business really we think supportive of our ratings, really no more than about 60%.

That could be off a percent or two from time to time, but that (inaudible) do that and that's what requires us from our own perspective, and again to be [square] about our rates, periodic share issues.

But when you look at this 8% to 11%, it's fully diluted.

It has share issuance and we will talk about that in a moment.

I know you're going to ask me in a moment what day, what hour are you going to issue shares.

Not this hour and probably not this day.

I'll try to illuminate that a little bit more for you.

So what happens with this Company over time as we spend more money on transmission?

No surprise, if you look at these pie charts here, you can see that today about 54% of our asset base is tied up in distribution, a shift over time to about 40% on the end of the forecast horizon.

And transmission no surprise, goes to 28% to 44% over this horizon.

What does it mean by way of furnished contribution to this business and earnings growth?

This is a historical perspective from '03.

We were earning $28 million on transmission, which is less than 22% of our business.

When you look at what's happening today, we've got $103 million of earnings year-to-date in this business, and about 47% of our earnings in 2008 are from transmission (inaudible).

I think (inaudible) that number too high from an annualized standpoint because distribution is a -- has a very seasonal nature to it of course, transmission is linear.

I think by the time we sort of finish the fourth quarter you'll see this number a little bit lower.

But the trajectory is certainly towards 2012, '13, more than half of our business we see -- you're not going to believe this, but half of our business will come from transmission.

I do want to just back up a little bit to speak to -- to declare on one point.

We have seen [fulfillment] to this model, this $525 million project equating connectivity to Canada.

I'm not telling you right now what the exact ownership structure is, the exact way in which we actually financed it (inaudible).

But we have modeled it as if the earnings and revenue and cash flow are akin to a traditional rate-based project.

So we have capitalized it the same way, we believe it's a fully (inaudible) regulated tariff that earns to the 12%-ish type of return.

But when you look at our capital, it looks like traditional capital.

Warning, it may be owned a different way, it may be financed a different way, but the earnings power will contribute to the same (inaudible) that contributes to the belief that going forward that transmission is going to be 50% of this Company.

Let's switch to a little bit more detail on financing.

We've got a graphic here that shows you that we will have cash needs over the next five years of $8.4 billion to get this deal done.

We focus on the bottom portion of this, feel very good that because of things like Southwest Connecticut now being fully in [rates] starting 2009, internally generated cash has grown from what I think will be about $450 million this year to $550 million next year.

If you do your model, you'll see that will increase to a little bit more than a $1 billion by the end of 2013.

We think that too is very supportive of our ratings and pary of our overall profile.

If you look at the top of this chart (inaudible) a little bit, perhaps (inaudible) that when you look at the landscape on maturities, only about $600 million over the next several years.

So a lot of our financing, not driven by refinancing, there is about a $260 million refinancing in 2012 (inaudible) for new money financing.

In the middle here, you see this $3.7 billion, not inconsistent with the types of financing we have talked about in the past.

Now, for 2009, we see that we probably have a need of about $300 million to maybe $350 million of bond financing.

I think in this market, and in most markets, it's worked well for us (inaudible) secured debt.

I think we'll continue to lead with that, that's been successful.

I think for equity, not inconsistent with what we've been talking about in the past, maybe a little bit higher because our CapEx (inaudible) is higher but some additional equity there, maybe $250 million to maybe $300 million.

We see both of these tranches happening midyear at the earliest.

[Of course] we'll study which windows of opportunity are there, exactly when we will do it.

You would expect that we would do that, but in terms of being (inaudible) against the wall, we don't feel that pressure.

Again, CapEx is down, no maturities, good liquidity for us.

But you will see us do some financing later in 2009.

Beyond 2009, we continue to see some additional equity, not inconsistent with what we have told you in the past.

Maybe another tranche, two or three years later, maybe another $250 million to $300 million to continue to support our overall leverage ratio.

Take comfort that this is in our 8% to 11% finance (inaudible) growth rate.

Now in terms of (inaudible) you would expect that when you look at the overall forces, and uses as a result of a lot of things I have touched on, our overall uses of cash and requirements of cash are down significantly in 2009.

If you look at our cash CapEx plan, it's $870 million versus [$1.250 billion].

Again, we've talked about maturities being down significantly.

We have got at the top of this chart uses preferred, and our common dividend is up.

When you look across all (inaudible) very financeable if you look at the sources.

We will do less than half the financing that we did in 2008.

As you know our program for the year is over in 2008, but we look at net financing of 540.

When you look at (inaudible) long-term permanent capital, by definition we expect to be actually paying down bank borrowing for 2009.

I think that too is -- bankers (inaudible) around the borrowing these days all of their -- (inaudible) so that (inaudible) again you can see here in the blue, cash from operations up to $450 million to $550 million.

Let me just kind of finish up and just talk about a couple of things that we have seen.

Very proud that we've been able to execute on our strategic plan and get our projects done, and I think Southwest Connecticut is a perfect example of executing well and getting that done on time and under budget.

I think we are on track for finishing up 2008 quite well.

(inaudible) liquidity challenges of 2009 involve.

2009 won't be a massive growth year for us on an EPS basis.

I think it does a nice balance of moving us into continued position for 2010 and beyond and built into there, I think, a lot of things that fundamentally were offsetting as being negative (inaudible) in 2008.

If we achieve our spend, you can see the 14% growth rate.

That gives us (inaudible) to say to you we think we can continue to achieve 8% to 11% earnings growth if we can continue to demonstrate that there are tangible benefits for our customers and we feel that way.

We are also emphasizing a dividend payout ratio of 50%.

When you put that together, we think we continue to have a very, very attractive total return story for our investors in this business and on a work together basis feel more strongly very good value proposition for our investors going forward.

I'm going to pause there and turn the podium back to Jeff Kotkin so that we do have a few moments for questions.

Lastly, my pitch to you as the 2008 EEI program committee chairperson, I encourage you all to walk across the hallway and attend our general session at 9:00.

We have a very, very, I think, excellent program for you.

It will take about three hours of your day or three hours of your morning, but I encourage you to join us.

Thank you.

Thank you for staying with us.

We are going to take some questions and then (inaudible) we will take questions now and I will repeat those questions for those who may be (inaudible).

(question inaudible -- microphone inaccessible)

The question is the $525 million that's in our forecast for rate base, ifsthat project (inaudible) for New Hampshire, and do you have a partner on that?

Thank you for that question.

I think as David said, this is really a placeholder right now for a variety of potential projects that we are looking at.

We had considerable discussion with potential partners, with regulators, with a number of folks.

It is a little premature to get specific but we will keep you apprised.

All right.

Any other questions?

Yes.

(question inaudible -- microphone inaccessible)

Sir, the question in a request for David to repeat the (inaudible).

I believe you actually have a chart (inaudible) to that point.

Just to remind people, we have two bank lines for the Company, one for the holding Company, one for the regulated Company, $900 million in total.

We've got a bank group that's holding its own, but we do have some Lehman Brothers exposure in there, so we kind of had -- we had an $85 million commitment, some of that commitment was actually (inaudible) by a third.

So in terms of overall availability under those $900 million of lines, we've got about $850 million of borrowing capacity.

Right now, we have got about $280 million of availability, and we've got about $90 million of cash on hand.

And we think if you look forward to the business and what we see unfolding over the course of not only this quarter, but next, again, emphasizing the predictability of our cash flows and the like, (inaudible.) And that bank line runs through the fall of 2010.

Slide 47 gives you (inaudible).

Any other questions?

Yes, Barry.

(question inaudible- microphone inaccessible)

The question is, as other companies are slowing down from their capital spending and we are ramping it up, are there some advantages that we might [be able to access] because of the lower price structure of some of the (inaudible).

Just to say that, I mean, we have all seen the (inaudible) really rapidly (inaudible) almost 50% from the beginning of the year.

But these prices are usually sticky.

Manufacturers tend to want to give a bigger spread as they fall.

We haven't seen any significant fall-off.

We haven't seen, for instance, like -- really any noticeable fall-off has been in conductor.

Air conductor is off by about 2% (inaudible).

So it can continue to drop, but the analysis is (inaudible) 18 months before you finally see the real value going down, about six months going up.

So, we continue to watch that.

We do have some long-term relations in place, particularly for (inaudible) large transformers that work with the (inaudible) supplier.

We have long-term relationships in terms of having the labor that we need to build (inaudible) should we go forward with the AC/DC lines.

So we actually think we are in very good position, though.

Any other questions?

Yes.

(question inaudible -- microphone inaccessible)

On slide 30 of our presentation, [you'll see] what's in and what's out of our capital program.

(inaudible) have any idea how much we might be spending on some of the opportunities that are currently outside of that program if we are actually able to invest in them.

In regards to those -- as you probably know we have a pilot ongoing on DMI in Connecticut.

That pilot will conclude (inaudible) recommendations BTUC there, and that's a small pilot.

We are talking about a $12 million to $15 million pilot.

We will start another DMI of pilot in Massachusetts, and that's been mandated by this (inaudible) that Chuck referred to.

Clearly looking at the bigger stand, you have (inaudible) Green Communities Act that basically says that each utility in the state can build up to 50 megawatts of [solar].

So for the state it would be 200 megawatts of solar.

So (inaudible) for example, to build 50 megawatts.

If you're going to build all 50 megawatts, based on solar prices, (inaudible) and as you know, solar price are starting to fall as a result of technology and (inaudible) improvements and that could be $250 million capital spend over long period of time.

(inaudible) $6,000 per install, change (inaudible) benefits and tax credits capacity credit market and so forth, you can install it for about $4300.

I think important in Massachusetts and in the region you've got RGGI, and the states at taking the Reggie proceeds to use on building light solar, light DMI and other smart technologies to offset that against the customer's fit.

So it wouldn't be necessarily all completely additive to the (inaudible.

So we do have teams working on each one of those projects now.

Let me take one more question if we have it.

Okay.

Thank you very much for joining us this morning.

We are going to stick around, if you have any further questions.

And, again, if you want to drop by the conference room on this side, we will be there from 2:30 to 4:30 this afternoon.

Thank you again.

[kr1]Archived audio skips from end of opening remarks to here.