康涅狄格電力 (ES) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to the Northeast Utilities 2008 year-end earnings call.

At this time all participants are in a listen-only mode.

Later we will conduct a question and answer session.

Please note that this conference is being recorded.

I will now turn the call over to Mr.

Jeffrey Kotkin.

Mr.

Kotkin, you may begin.

Thank you very much.

Good afternoon and thank you for joining us.

I'm Jeff Kotkin, NU's Vice President for Investor Relations.

Speaking today will be Chuck Shivery, NU's Chairman, President and Chief Executive Officer, David McHale, NU Senior Executive Vice President and Chief Financial Officer, and Lee Olivier, NU Executive Vice President and Chief Operating Officer.

Also with us today is Shirley Payne, our Vice President and Controller, and Jim Muntz, head of our Transmission Segment.

Before we begin I would like to remind you that some of the statements made during this conference call may be forward-looking as defined within the meaning of Safe Harbor provisions 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 forecast and projections.

Some of these factors are set forth in the press release issued Tuesday announcing our earnings for the fourth quarter 2008.

If you have not yet seen that news release it is posted on our website at www.nu.com.

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

Additionally, our explanation of how and why we use certain non-GAAP measures is contained within our news release and in our most recent 10Q and 10K.

Now I will turn over the call to Chuck.

Thank you, Jeff, and thank all of you for joining us this afternoon.

Today I would like to discuss recent initiatives we've announced, as well as our performance in 2008.

I will also review our outlook for 2009 and the economic conditions we are seeing in our region.

But first I want to discuss last week's announcement of the $0.10 annualized increase in our dividend, which was affective for this quarter.

This increase is consistent with the 50% dividend payout target we first discussed with you at EEI in November.

As we said then, we believe targeting a 50% payout ratio will fairly balance our shareholders desires for a competitive cash return on their investment at NU with the opportunities we have to invest significant capital in New England's energy infrastructure to the long-term benefit of our customers.

We also believe a conservative payout ratio is consistent with our investment grade credit ratings, which are so important to our investment plans.

These investment plans are very consistent with the energy policies of the states we serve.

And they are also consistent with the themes we hear from the new administration in Washington.

Our transmission investments provide the region with a more reliable, secure and modern grid.

They also can provide the electrical highway to bring low carbon and renewable power to the load centers of New England from northern New England and Canada.

Our Merrimack Clean Air Project, mandated by the New Hampshire legislature, would dramatically reduce sulfur and mercury admissions from Public Service New Hampshire's generation fleet, while continuing to provide the region with needed fuel diversity.

Last week's announcement of WMECO's solar power initiative was a direct result of the passage of the Green Communities Act, which was signed by Massachusetts Governor Patrick last summer.

WMECO is seeking regulatory approval to initially invest approximately $42 million to install six megawatts, potentially growing to 50 megawatts, at multiple sites in western Massachusetts.

If approved the first solar facilities could be operating as early as next year.

In December we announced another innovative proposal, our partnership with NSTAR and Hydro-Quebec to build a new high voltage direct current transmission line from Quebec to central or southern New Hampshire.

We have entered into exclusive memoranda of understanding to develop this project with HQ and NSTAR.

In addition to developing the transmission line, we have begun negotiations with HQ's US marketing subsidiary on the terms of a power purchase contract that will allow us to provide clean energy to New England under attractive pricing terms, delivering real benefits to our customers, shareholders and the region.

On December 12th, we and NSTAR petitioned FERC to issue a declaratory order in which the commission would agree to consider a bilateral transmission services agreement between us and Hydro-Quebec Energy Services that would allow importing up to 1200 megawatts of low carbon power into New England from HQ's hydroelectric system.

We estimate that NSTAR and NU would invest about $700 million in that US side of the line and that revenue requirements to cover our cost and return associated with that investment would be paid by HQ, rather than build proportionately to New England's distribution customers and others.

This model of participant funding is an attractive one for economic projects and has received the endorsement of several regulators in the New England ISO.

We are hoping to receive a decision from FERC in the first quarter of this year, through there is not a defined timetable for the FERC to rule on our petition.

If FERC agrees to this concept, we can move to the next steps, which would involve finalizing PPA negotiations and creating a process for soliciting interest from other utilities in New England to participate as buyers of the power.

We are hopeful that by the end of this year we will be able to file with the FERC the actual terms and conditions of the payments that would be made by Hydro-Quebec to NU and NSTAR, as well as filing the power purchase agreement with state regulators for their approval.

Assuming we receive regulatory approvals from state and federal regulators, we would move to siting the line, which will require approval in New Hampshire.

If all this comes together we could see construction potentially beginning in 2011 and power moving south by mid 2014.

We think the benefits to New England energy consumers would be very significant.

The line could carry enough low carbon power to energize more than 1 million New England homes and displace a considerable amount of natural gas that could be used for other purposes, such as heating or manufacturing.

The project would also help the region meet its regional greenhouse gas emission targets, as well as providing another significant source of energy for the region improving reliability, fuel diversity and fostering competition.

Not only are these initiatives very consistent with both Federal and New England energy policy, they represent more diversity in our future capital expenditures, as we compliment our traditional electric distribution and transmission investment with initiatives to meet broader energy policy objectives.

We continue to believe that NU can and will take a leadership role when carrying out these policies in New England.

Turning to the results we announced last night, we consider 2008 to have been a strong year operationally and financially for Northeast Utilities.

We accomplished the capital investment program we set for ourselves and witnessed good results in the dependability of our energy delivery systems and our New Hampshire power plants.

We completed our southwest Connecticut transmission projects $80 million below their overall budget.

The largest of those projects was finished a year ahead of schedule.

Despite a difficult economy, our 2008 operating earnings were near the midpoint of our guidance, which you may recall we increased to $1.80 to $1.95 per share.

All of our credit ratings are stable and CL&Ps successful bond sale last week shows that we can access the capital markets at favorable terms for us and our customers.

As you also can see in last night's news release, we continued to reaffirm our previously announced 2009 earnings guidance of $1.80 to $2.00 per share.

This projection takes into account the economic conditions which will clearly weigh on our region.

David will discuss sales and uncollectible trends in more depth, but I want to emphasize that we understand that our customers are going through a difficult period.

Last week we announced that CL&P would not file a distribution rate case in the middle of this year.

We continue to evaluate the possibility of filing a rate case later this year or in 2010, but clearly we need to be cognizant of the state's economic condition.

We also need to ensure that our operating costs are managed consistently with our expectations for the economy.

Outside of higher pension costs, we project lower operating budgets in 2009 than we incurred in 2008.

And last week we announced that the Company's management will forego base pay increases in 2009.

While we believe that over the long-term our opportunities are very attractive, we also have an obligation to our customers and investors to manage the company in a way that assures operating excellence, allows us to proceed with our strategic initiatives and continues to maintain our strong financial position.

I'm proud of how this Company has continued to perform during these difficult economic times.

Our continued investment in needed energy infrastructure will provide long-term benefits to our customers, our investors and the region.

And while we cannot predict the future, we will continue to work hard to maintain this kind of performance and leadership.

Before I turn the call over to Lee Olivier, I want to address one additional topic.

In December our region was hit with a devastating ice storm.

The storm, in fact, was the worst in the history of the Public Service Company of New Hampshire.

Our employees and those from surrounding utilities responded heroically to restore power to approximately 400,000 customers in bitter cold.

On behalf of the Company and our customers, I would like to personally thank our employees for their efforts and their continued commitment to excellent customer service.

I will now turn the call over to Lee.

Good afternoon.

As Chuck mentioned, from a operational standpoint, 2008 was a strong year for NU.

Our major transmission projects were completed on or ahead of schedule.

Absent major storms, our service reliability was good.

Our New Hampshire generation operated very well and our safety record improved.

The severe ice storm that Chuck noted crippled large parts of New Hampshire and Massachusetts.

The night of December 11th, knocked out about 65% of PSNH's customers and more than 20% of Western Massachusetts Electric customers.

But the recovery efforts demonstrated the dedication of the many of our 6000 employees, who worked 16 hour days right up until Christmas to restore service to our customers.

It also illustrated the benefit of our three state company as hundreds of Connecticut based workers aided their (inaudible) colleagues to rebuild large sections of New Hampshire and Western Massachusetts distribution systems.

David will discuss the financial implications of the storm.

But I just want to say that we have been heartened by the flood of praise our employees, as well as the employees of other companies sent to help us have received for their tireless efforts on behalf of our customers.

From the ice storm I would like to turn to our transmission program.

As Chuck discussed, in December we completed our four major southwest Connecticut projects, concluding with the Middletown (inaudible) project one year ahead of schedule and $100 million below budget.

All four of these projects have operated well since they have entered service, providing southwest Connecticut with a much more robust and reliable electric grid.

Additionally, they have essentially eliminated congestion in a state whose electric customers had been paying in excess of about $100 million a year of congestion cost in recent years due to bottlenecks and the need for additional temporary generation in the summer period.

The experience and track record will help us as we move on to siting of the NUs projects.

In October we filed siting applications with the Connecticut Siting Counsel and Massachusetts Energy Facility Siting Board, to build the greater Springfield reliability project.

At $714 million, this project represents nearly half of our projected NUs expenditures of $1.49 billion.

The Connecticut Energy Advisory Board, a statutory body, has been looking at nontransmission alternatives to the greater Springfield reliability project and currently is in the process of making its recommendation to the Siting Counsel with respect to any alternatives.

Any application for such alternatives would be due to the Siting Counsel by March 19th.

While some Connecticut based generation alternatives and demand side management projects have been proposed, we do not believe that any of them can address the very serious reliability challenges we face around the Springfield, Massachusetts area.

The Connecticut Siting Counsel has preliminarily set hearings, public comments and site visits on the Connecticut portion of the Greater Springfield project for the second quarter of 2009, with a final decision due in early 2010.

Though the Massachusetts Energy Facility Siting Board has not yet issued a schedule for the larger Massachusetts segment of the Greater Springfield reliability project, we expect that schedule will be issued soon and will track the Connecticut schedule with respect to timing of hearings and the decision date.

That would lead to a start of construction in late 2010.

You may recall that NUs is primarily comprised of three major projects.

We continue to prepare our application for the interstate reliability project, which we would build in eastern Connecticut and connect to national grids transmission network up the Rhode Island border.

Our 40-mile section of that project is expected to cost about $250 million and we hope to file an application with the Connecticut Siting Counsel late in the second quarter or early in the third quarter of 2009.

The third of the three large NUs projects is the central Connecticut reliability project at $315 million.

It would connect from the southern terminus of the Greater Springfield project in the northwest suburbs of Hartford to Watertown just north of Waterbury.

It would add another major route to bring power into southwest Connecticut and we expect to file our application with the Siting Counsel in about a year.

As you know, completing the southwest Connecticut projects a year early and not starting major NUs construction until late 2010 will result in a reduction in transmission capital spending in 2009.

Currently, we expect our transmission capital budget to total approximately $225 million in 2009 compared with $714 million in 2008 and $762 million in 2007.

As you may recall, transmission capital spending is driven by a number of factors, include a stricter reliability requirements of the North American Electrical Reliability Corporation and peak flow of growth.

As those NERC requirements evolve and as projections about peak load growth are updated, we will continue to evaluate the timing of some of our projects.

In 2009 our spending will focus on scores of smaller projects that have been through the regulatory approval process, where necessary, and they're either under construction or about to start.

For example, in February, the Connecticut Siting Counsel approved construction of a new substation in the town of Waterford in southeast Connecticut.

We expect to complete that $13.2 million project in 2010.

This year we expect to complete four new substations in Connecticut located in Gilford, Wilton, Oxford, and South Windsor.

The transmission and distribution elements of those projects will sum up to about $71 million.

These are all suburban areas that have seen significant load growth in recent years.

In New Hampshire we will spend nearly $38 million in 2009 as part of an ongoing project to upgrade transmission in the southwest section of the state.

Upgrades we expect to complete in early 2010.

In June 2009 PSNH expect to complete the $21.2 million Weare area solution project, which involves constructing a new substation in Weare, New Hampshire and upgrades the two substations in Goffstown and Hillsborough.

We expect PSNH generation capital expenditures to rise to $156 million in 2009 from $74 million in 2008 and $35 million in 2007.

The primary reason for that increase is our work on PSNH's Clean Air Project, which we are undertaking to meet requirements of the state statute.

That statute requires us to install a wet scrubber at our two unit base load Merrimack station in Bow, New Hampshire to reduce mercury emissions from our coal fired fleet.

We began work on the $457 million project in late 2008, getting the site ready to build foundations for the chimney and other large components in 2009.

In November the New Hampshire Public Utilities Commission reiterated that it would not require a prudence review of the scrubber project prior to construction.

Several parties who asked the New Hampshire PUC to conduct such a public interest inquiry, appealed the regulators ruling to the New Hampshire Supreme Court, which is expected to hear the case later this year.

We continue to plan to have the scrub operational as early as 2012, prior to the July 1st, 2013 legislative mandate.

Our New Hampshire generating units performed well in 2008, with combined base load reliability greater than 80%.

During peak periods of the market, our base load reliability factor exceeded 98%.

Because of our above normal precipitation for much of the year, our hydroelectric generation achieved a very strong capacity factor of 69% of rating fuel savings that go right to PSNH customers.

Companywide we now project capital expenditures of $921 million in 2009, down nearly $400 million from 1.3, that we spent in 2008, primarily due to the reduction in transmission spending I mentioned earlier.

Again the decline is due to the early conclusion of our work in southwest Connecticut and the late 2010 expected start of NUs construction.

On electric distribution, we continue to undertake an internal study about how to effectively deploy our capital expenditures in light of the current economic climate.

We are in the process of completing our analysis of our distribution capital investment process.

This process is focused on making our distribution capital spending more efficient, more flexible and smarter, so that the growing investment needs of an aging infrastructure can be efficiently met.

Areas where efficiencies will occur include more accurate load forecasting, life extension for some distribution components, managing peak load requirements with targeted DSM and NG efficiency spending, supply chain and contracting optimization.

By improving these areas our electric operating companies will be able to achieve comparable operating performance, while enabling NU to reduce some of its future distribution capital spending.

Currently we are projecting $400 million of electric distribution capital expenditures in 2009, compared with $433 million in '08, and $406 million in 2007.

However, that figure could be impacted by the initiative I just mentioned and the general economic climate.

For example, in 2008 there were 18% fewer requests for the new services and service upgrades that we projected in our budget.

That reduced distribution capital spending by about $24 million.

In 2008 the average number of electric and gas customers we served was 2.107 million, up only 6400 or 0.3% from the 2007 average.

That rate of new customer gross was less than half of the increase between 2006 and 2007 when we added about 15,600 customers.

The story at Yankee Gas is somewhat different than the electric utilities.

While retail electric sales declined 3.5% last year, firm natural gas sales grew by 2.1%, driven by increased installation of distributed generation and conversions of oil furnaces to natural gas.

We had 760 such conversions in our service territory last year, up from about 150 in a typical year.

While the economics of furnace conversions are not as compelling today as they were last summer when oil prices were at historic highs, they still make sense for customers in homes already are connected to our mains and are using natural gas for water heating or cooking.

It also makes sense from a environmental standpoint, lowering a home's carbon footprint significantly.

We anticipate that Yankee Gas will invest $66 million in its system in 2009.

Before turning over the call to Dave McHale, I will touch on our advanced metering infrastructure, our AMI program in Connecticut.

You will recall that AMI, the AMI pilot has been implemented to comply with a directive from our regulators and it is on track to commence on June 1 of 2009.

This pilot will involve 1500 residential and 1500 commercial and industrial customers.

And we are on pace to reach that plan total participation of 3000 customers by the time the pilot begins on June 1st of this year.

Meter installations began as planned in December, 2008 and will continue through April of 2009.

The actual pilot will run through the summer and end on August 31, 2009.

We primarily wanted to see how customers react to the rate schedules we are implementing for the pilot.

These rate schedules include low and high differential peak time pricing and low and high deferential time of use rates.

With AMI technology in place, we will determine if the rate designs influence our customers energy usage and patents.

A final report on the outcome of the program is due to our Connecticut regulators on December 1, of 2009.

Chuck mentioned our solar initiative under the Massachusetts Green Communities Act, however, there are a number of other features, including an AMI pilot similar to CL&Ps, which we are evaluating for some customers on our -- at WMECO now.

This far reaching legislation also removes the cap on utility expended for energy efficiency in demand response and requires utilities to sign long-term contracts for renewable resources.

We believe that elements of this act can serve as a blue print for activities across New England and we will keep you appraised of new developments during future calls.

Now what I would like to do is turn the call over to David.

Thank you, Lee.

I would like to start by summarizing what was a strong year financially for Northeast Utilities.

Excluding the first quarter litigation charge we have spoken about on previous calls, we earned $290.6 million or $1.86 per share in 2008, up nearly 18% from the $246.5 million or $1.59 per share we earned in 2007.

Isolating the fourth quarter, we earned $71.9 million or $0.46 per share, down slightly from the $72.7 million or $0.47 a share we earned in the fourth quarter of '07.

In that quarter higher transmission earnings compared with 2007 were offset by lower distribution results.

For the full year 2008, our transmission segment was the primary driver of our stronger performance.

It earned $138.3 million or $0.89 per share for the full year '08, up 68% from the $82.5 million or $0.53 per share we earned last year.

Driving transmission earnings higher was the progress we made on our southwest Connecticut projects.

We ended 2008 with a transmission rate base of about $2.4 billion compared with about $1.5 billion at the end of 2007.

Our average transmission rate base in 2008 was approximately $1.77 billion compared with a average of about $1.2 billion in 2007.

We also benefited from a FERC decision on rehearing that raised by 20 basis points the base ROE that New England Transmission owners receive on the equity they invest in their transmission systems.

As a reminder, our base ROE is 11.14%, although much of our transmission asset base earned an incentive return of 12.64% given 150 basis points of incentives authorized by the FERC.

Going forward, we will benefit from the effective 46 basis point technology adder FERC allows us to earn on the 24 mile underground section of the Middletown Norwalk project.

Last month FERC affirmed a 2008 decision that allows us to earn a 13.1% equity return on the approximately $400 million underground segment of the $950 million project.

In the fourth quarter of 2008 our transmission segment earned $34.7 million, up 36% from the $25.5 million we earned in the fourth quarter '07.

The lower earnings growth in the fourth quarter compared to 2008 as a whole, was due to the fact that we were investing at a slower rate in the fourth quarter as we completed our southwest Connecticut project.

You will see that trend continue in 2009 as our transmission capital expenditures decline due to the completion of our southwest Connecticut project last year.

We expect growth in our transmission earnings in 2009 and we continue to forecast transmission segment earnings of between $0.85 and $0.90 per share in 2009, which includes the assumption of new share issuance later this year.

Our distribution businesses earned $150.8 million in 2008, up 3% from the $146.2 million we earned in 2007.

In the fourth quarter those businesses earned $36 million compared to the $46.1 million we earned in the fourth quarter of 2007.

I will discuss some of the reasons for that decline, which include a regulatory disallowance at CL&P, higher operating expenses and lower sales.

In terms of each company's performance, first, the Connecticut Line and Powers distribution segment earned $70 million in 2008, up 14% from the $61.4 million it earned in '07.

However, in the fourth quarter CL&P earned only $12.8 million, down from the $17.1 million it earned in the fourth quarter of 2007.

The higher full year earnings were primarily the result of a $77.8 million rate increase that took effect February 1, 2008, partially offset by higher operating and interest expenses and a 3.7% decline in retail sales.

The lower fourth quarter results were negatively affected by a disappointing regulatory decision.

Last month Connecticut regulators reversed the draft decision it had issued in late 2005, in which a grant to CL&P, a $5.8 million incentive fee for procuring electricity for CL&P customers in 2004 at prices that were lower than various regional averages.

The final decision granted us no incentive, so we had to reverse the $5.8 million pretax gain we booked in '05, resulting in a $3.5 million aftertax charge to CL&P.

We have booked no similar incentives for the 2005 or 2006 calendar years.

For the year, the regulatory ROE for CL&P distribution was 7.5%, below the 7.9% we earned in 2007 and about 190 basis points below our allowed 9.4% distribution return.

In 2009 we will benefit from a $20 million distribution rate increase that already has been implemented and for the year we projected distribution regulatory ROE of approximately 7%.

Chuck noted earlier that CL&P will not be filing a mid-year distribution rate case as we had previously disclosed as a possibility.

We will continue to evaluate the timing of a filing for later in 2009 or 2010.

While deferring the rate case will not impact 2009 earnings and returns, it will affect 2010 results.

Recognizing that a delay in new rates will put further pressure on CL&P's 2010 return on equity and earnings, we are taking additional steps, some of them noted by Lee, to manage costs in the allocation of our capital.

PSNH's distribution and generation earnings totaled $41.4 million in '08, down 5.3% from the $43.7 million we earned in 2007.

PSNH benefited from distribution rate increases that took affect July 1, 2007 and January 1, 2008, but they were offset by higher operating expenses and the absence of a $2.7 million aftertax benefit we recorded in the second quarter of 2007, when our rate settlement was first approved.

In the fourth quarter of '08 PSNH earned $9.1 million compared with $12 million in the fourth quarter of '07.

Higher operating expenses and a 6.8% decline in fourth quarter electric sales compared with '07 were the primary factors.

Some of that sales decline was due to the ice storm.

Including the affects of the storm, PSNH's retail sales were off 2.5%, 1.6% weather adjusted, for the full year.

As the news release noted, the storm is expected to cost PSNH about $85 million by the time all restoration costs are totaled.

While some of that sum will be capitalized or reimbursed through the $15 million of T&D insurance we carry, PSNH has deferred about $63 million of storm expense for future recovery from customers and currently we collect about $7.4 million a year from customers to fund past and future catastrophic storm expense.

As part of our upcoming rate case, we will request specific rate recovery treatment of these costs and expect full recovery, although perhaps over a number of years.

During 2008 PSNH's distribution and generation regulatory ROE was 8.3% compared with 9.5% in '07.

PSNH's allowed distribution ROE is 9.67% and it's fully tracking generation ROE is 9.81%.

In 2009 we expect to earn a regulatory ROE of approximately 8% for those combined businesses, but achieving this level will likely require some level of rate release to be granted midyear.

WMECO's distribution segment earned $12.3 million in 2008, down from $18.5 million in '07.

In the fourth quarter Western Mass Electric distribution earned $2.2 million, down from $4.9 million in 2007.

WMECO has the economically most challenging service territory of our four distribution companies and its sales were down 4.2% in '08 compared with 2007.

A number of other factors hurt WMECO's earnings in 2008, including higher pre-December storm expenses and $1 million aftertax charge associated with a regulatory decision concerning the method of calculating transition costs.

WMECO's distribution ROE was 7.2% in '08 compared with 9.7% in 2007.

We expect it to rise to approximately 8% in 2009 as a result of many nonrecurring charges dropping off.

As we mentioned earlier, we expect WMECO to file a general rate case in mid-2010 to be affective in early 2011.

That rate case will reflect the Massachusetts DPU's required move to full decoupling for the electric utilities it regulates.

Yankee Gas earned $27.1 million in '08, up 20% from the $22.6 million it earned in 2007.

Yankee Gas benefited from the general rate increase it implemented in July, 2007 and a 2.1% increase in firm sales.

All that increase was driven by a 9.2% increase in industrial sales, which benefited from the installation of a considerable amount of additional distributed generation over the past two years.

The full year earnings improvement at Yankee Gas would have been stronger had it not been for a $3.5 million aftertax charge in the second quarter of '08 that resulted from a DPUC review of previous gas cost recoveries.

Yankee's regulatory ROE was 8.3% in 2008, compared with 8.7% in '07.

The lower return, despite higher net income, was primarily due to higher equity levels in 2008.

In 2009 we expect Yankee Gas to earn approximately 9%.

Yankee's allowed ROE is 10.1% and, as we have said in the past, we do not anticipate that Yankee will file a rate case in the immediate future.

Several factors will weigh on distribution returns in '09, all of which are already built into our 2009 guidance.

I will touch on three of these in particular --sales; uncollectibles; and pension costs.

Let me start, though, with sales and a few more thoughts on '08.

We ended the year pretty much on course with expectations we set for you in November.

For example, at that time CL&P's September year-to-date weather normalized sales were down 2.5% and they finished the year down 2.8%.

The equivalent numbers for Western Mass were 3.1% in September and we finished down 3.5% for the year.

The one weaker spot was PSNH, which was flat at September and finished the year down 1.6%, including down 6.8% in the fourth quarter alone.

However, we know that that storm outages had a impact on these figures and probably accounted for about 1.5 percentage points of the quarter's 6.8% decline.

The bottom line is that perhaps with the exception of PSNH, sales were on expectations in 2008.

Now to give you some assurance that the fourth quarter does not, in our review, introduce a new trend, total January, 2009 weather normalized electric sales were actually up 1.3%, including a positive 0.9% at PSNH.

In terms of our view for 2009, similar to what we've discussed again in November, we project a weather normalized sales decline of about 1% for our electric distribution businesses on average.

This reflects the current state of our local economies and the utilization of increasing conservation, demand side management, and distributed generation by our customers.

This figure was developed based upon our assessment of critical, several critical economic assumptions, including projected appointment levels, building permits and electricity prices.

In terms of electricity prices, for the first time in a number of years many customers will see a favorable landscape.

Residential customers will not see price increases, but rather stabilizing prices, if they stay on our standard offer rates, which are now in the $0.115 to $0.12 per kilowatt hour range.

In fact, they may have real opportunities to reduce cost in the competitive supplier market given the declining cost of natural gas, which on the margin in large part determines the price of electricity in New England.

Commercial and industrial customers should experience declining prices, unless they were locked into long-term contracts with competitive suppliers.

For example, our commercial industrial default rates have dropped from over $0.10 a kilowatt hour to roughly $0.075 a kilowatt hour.

From a price of elasticity perspective, this is clearly a net positive in our modeling of 2009 sales.

On the natural gas side we are expecting a weather normalized increase of 2.5%.

This is above the 1% sales growth we projected in November and reflects lower natural gas prices, continued convergence from oil to natural gas, and additional distributed generation in Connecticut.

I will remind you that while declining sales do pressure our distribution returns, they do not affect our transmission or PSNH generation profitability, since cost recovery and return are independent of sales volumes.

Additionally, about two-thirds of CL&P's and WMECO's distribution revenue is collected through fixed charges in approximately one-half of PSNH's distribution revenue that is collected through fixed charges.

As a result, while lower sales certainly are a contributing factor to our expectations of electric distribution returns, they will not achieve the authorized levels in 2009.

They are not as much of a factor as they were a number of years ago.

For example, a 1% further erosion in electric sales across all three of our electric companies has only a $3 million aftertax impact on NU consolidated earnings.

The second item pressuring our distribution returns is write-offs for uncollectibles or bad debt expense.

Uncollectible costs recovery to our energy supply rate do not affect earnings nor do those in Connecticut that involve customers who are protected from shutoffs due to financial or medical hardship.

But we currently expect uncollectible expense that does impact earnings to rise by about 10% to approximately $30 million in 2009.

Overall uncollectible write-offs for CL&P and PSNH are now about 0.5% of revenues.

For Western Mass Electric, which shows a less affluent customer base, is about 1.7% of revenues.

And the third item that I will -- that will pressure earnings in 2009 is pension expense.

At December 31, 2007 our pension plan funding ratio, that is our plan assets to accumulated benefit obligation, was 123%.

Due to 2008 market performance, the value of our pension plan was $1.6 billion as of December 31, 2008 compared with approximately $2.5 billion at the end of '07.

Those results now equate to a funding ratio of 76% December 31, '08.

While the plan's return performance was generally in-line with broader market indices, it will have a earnings and cash flow impact beginning this year.

In terms of earnings, we expect gross pension expense to total about $40 million in 2009 compared with essentially zero in 2008.

That $40 million is higher than the $25 million we projected in November due to further market erosion late last year.

However, a significant portion of that $40 million will be capitalized into the cost of distribution, transmission and generation investments.

Additionally, our transmission and generation segments and WMECO's distribution segment have pension tracking mechanisms built into their tariffs.

As a result we estimate that pension expense will be a $0.10 per share drag on earnings in '09 compared with '08.

In terms of earnings per share this is somewhat more than the $0.05 to $0.06 we had projected last November at the EEI conference, again, because of further declines in the markets in the fourth quarter of '08.

Despite the increase in pension expense, we continue to project distribution and generation segment earnings of between $1.00 and $1.10 per share in '09 compared with $0.96 in '08 and $0.94 in 2007.

We expect much of that improvement to come from not having the same level of regulatory disallowances in '09 then we had in '08 and from affectively managing our operating costs.

We also are counting on some additional earnings at PSNH as a result of the possibility of temporary rate relief and as we begin to accrue AFUDC returns on the Merrimack scrubber.

Turning to our other segments of our business, our remaining competitive businesses performed better initially, than we initially anticipated in '08, earning $4.3 million in the fourth quarter, $13.1 million or $0.08 per share for the entire year.

In '07 we earned $3.6 million in the fourth quarter and $11.7 million for the full year.

The improvement was due largely to sound management of our remaining wholesale energy positions.

The full year 2008 results also reflect $4.3 million of net income associated with mark-to-market gains on wholesale obligations.

We continue to project competitive business earnings of between zero and $0.05 per share in 2009.

For our parent and service company segments, we had expenses of $3.1 million in the fourth quarter '08 and $11.6 million for the full year or $0.07 per share, excluding the litigation settlement.

In 2007 we had fourth quarter net expenses of $2.5 million and full year net income of $6.1 million.

The change was due primarily to higher net interest expense, as we fully invested the cash we received in late 2006 when we sold our competitive generating assets.

In 2009 we project net expense of about $0.05 per share.

(inaudible) let me transition to cash flow and I will start with the impact of our pension plan results from 2008.

Today we are looking at a dynamic we haven't faced in nearly 20 years.

Because of strong investment returns we have not contributed cash into our pension plans since 1991.

But we now expect to contribute approximately $150 million in the fall of 2010 based on performance from the 2008 plan year.

This contribution would be tax deductible, of course, so the impact on our external capital requirements would be moderated by reduced corporate income tax payments.

We are also studying the implications for additional employer contributions going forward.

This is not a issue unique to Northeast Utilities or our industry, by any means.

And although dozens if not hundreds of plan sponsors are lobbying for funding changes, absent a change in the funding requirements currently embedded within the 2006 Pension Protection Act or a change in regulatory recovery mechanisms or a meaningful recovery in the equity markets, in all likelihood, an additional $150 million to $200 million pretax contribution may be required in 2010.

With that said, pension expense is a recoverable regulatory requirement for all of our distribution and transmission businesses.

These projections will not affect our 2009 financing plans.

We continue to anticipate raising between $250 million and $300 million of equity later this year and up to $400 million of debt capital.

Last week we closed on the sale of $250 million of ten year CL&P bonds with a very attractive coupon of 5.5%.

That coupon was well below the 8% to 9% we had projected when we rolled out our guidance in November and actually 15 basis points below the coupon of bonds CL&P issued in May of '08.

We believe the remainder of our financing plan, which now consists of a single $150 million PSNH bond issuance and the NU common equity issuance, is achievable given the recent activity in the credit and equity markets for high grade utility debt and equity.

At year-end 2008 our consolidated balance sheet was comprised of about 39% common equity, 1.5% preferred equity, and 59.5% debt net of cash and marketable securities.

These figures are consistent with our policy of limiting total debt to total capitalization to about 60%, which we believe is supportive of our current credit ratings and risk profile.

We continue to project an improving cash flows in 2009, particularly as a result of our southwest Connecticut projects being in service and fully reflected in our transmission rates.

In 2008 net cash flows from operations totaled about $420 million after amortization of rate reduction bonds.

In 2009 we project net cash flows from operations after amortization of rate reduction bonds to be about $500 million.

We continue to estimate that those cash flows will rise to about $1 billion by 2013, assuming we are able to execute the five year plan we outlined for you at EEI in November.

We are pleased that in November FERC approved 100% (inaudible) in rate base for the NUs projects.

That decision will support our credit metrics and credit ratings as we build those much needed transmission projects in Connecticut and Massachusetts.

Lastly, I would like to comment on the two elements of our investment thesis, earnings and dividend growth.

In terms of earnings growth, we have discussed a compounded annual growth rate from 2008 through 2013, off an '07 base of $1.59 per share, of 8% to 11%.

While we remain quite optimistic with respect to our strategy and our ability to deploy capital on behalf of our customers, given the economic climate we face, we currently expect our growth rate to be toward the lower end of this range.

With respect to the dividend, Chuck earlier mentioned last week's announcement to increase the dividend from an annualized rate of $0.85 to $0.95 a share.

That is an 11.8% increase and moves our dividend yield from roughly 3.5% to 4%.

We will continue to target a dividend payout ratio of 50% and we believe our ability to deliver both dividend and earnings growth going forward will provide a very attractive total return for our shareholders.

Now, please let me turn the call over to Jeff Kotkin.

And I will turn the call back to Jamie, who can remind you how you can queue up for questions.

(Operator Instructions) I will now turn the call over to Mr.

Jeffrey Kotkin.

Thank you.

Our first question today is from Anthony Crowdell from Jefferies.

Hi, good afternoon.

Question I guess on CL&P.

When I look at CL&P's 10k you have like maintenance expense of $108 million and you have other of like $540 million.

So I wonder, not just for CL&P but maybe for the whole Company, how much of O&M moves earnings?

What can I expect that you guys could possibly manage and maybe trim a little on the expense side?

I think, Anthony, our objective going into 2009 was to focus pretty precisely on both what we think of as sort of functional O&M within each of our utilities and even for our corporate shared services operations with a goal of keeping our cost at least flat, try to make some improvement if possible.

And we continue to sort of study that.

That is built into our 2009 guidance.

When you look at our overall pool of O&M in terms of what really gets booked to earnings because, as you know, a lot of it is tracked.

As an example, there is about $340 million at the Connecticut Light and Power Company, and maybe closer to $800 million overall within the Northeast Utility, system, that's the pool of O&M that we are very focused on managing.

Thank you, Anthony.

Our next question is from Leslie Rich from Columbia Management.

Hi, could you walk through again the recovery mechanisms for uncollectibles and pension expense?

Okay, for pension expense we've got -- that has traditionally been over the years an item that has been recovered via our transmission, excuse me, our distribution regulators in a rate case and now in Massachusetts we have a specific pension tracker there.

The other jurisdictions we go through a rate case and we have a discussion about the underlying assumptions, the returns, inflation, et cetera, and when we build a revenue requirement and it's recovered in rate.

There isn't a history of really the commission pushing back a great deal and with our transmission businesses those costs are tracked.

So we would expect that in our upcoming PSNH case and then down the road a little bit in our other cases to have that same discussion.

We would pro form in what will be increasing pension expense for those jurisdictions.

But it wouldn't be retroactive.

So your impact in 2009 will be fully felt but then sort of on a going forward basis you try to get balanced up?

That's right.

With the exception of the tracking that goes on with transmission and with Western Mass Electric.

What regulators will see is a higher revenue requirement then they have seen over the last couple of year and once approved that will be reflected in rates.

Okay.

Thank you, Leslie.

You didn't answer the other one which was uncollectibles?

Uncollectibles it's a little bit of a mixed bag depending on what jurisdiction.

We have uncollectibles that are associated with a generation portions of our bills, as a example, which are tracked and collected as a generation charge.

We have in some jurisdictions hardship receivables that are tracked and recovered and then we have also for the related to the distribution segment of the business a more traditional mechanism where we have within a rate case, recoverables built in to our revenues and that to the extent that recoverables in a forward rate year are higher, we are at risk, if they are lower we receive the benefit.

Similar to pension, we will have a discussion in our next rate cases or in our next distribution rate cases around what our projected, what our historical and what our projected level of uncollectibles will be and we will seek to recover those in rates.

Okay, so your comments during the script were that in 2009 the amount of unrecoverables uncollectibles would rise to $30 million.

Right and that would be about $3 million higher than we experienced last year.

Okay, great.

Thank you.

Thank you Leslie.

Our next question is from Vedula Murti from DCA.

Good afternoon.

Good afternoon.

Couple of things.

One, in terms of the cash contribution for the pension in 2010, in terms of the source of funding, can that be through debt issuance, will debt increase the potential equity issuance required out in that period or can you talk a little bit about where the funds would comes from.

Well, to your first point, Vedula, yes, it can be financed with debt.

This is something we continue to study.

It gets down to the point where this will be an additional requirement based on the employees in our plan, this is both retirees and actives, so the requirement goes right to a specific Company, it could be the Connecticut Light and Power Company, it could PSNH and they would have an obligation.

We only have one plan and only one pension fund, but there is specific and designated obligations by Company, by employee or former employee.

So we would raise debt and/or equity capital to finance those contributions.

Of course, we do that sort of on a aftertax basis.

That's something we continue to study.

I don't think it will have any bearing on 2009.

I don't think it will have a bearing from a equity perspective on 2010, but it may beyond 2010 if we need to make contributions to the plan and if we continue to experience the type of erosion we see in the markets today.

Secondly, with regards to the 2009 equity plan, is your shelf or whatever other SEC regulations or whatever all fully in place such that you would be able to issue the equity at your discretion whenever you feel like?

Those regulatory approvals are all in place.

And can you also tell us in terms of the assumptions in the guidance for what the average fully diluted shares are for 2009 that you have used for the range?

I will be too quick to say no.

All right, thank you very much.

Let me just back up on there, not to be too sort of cute on that.

We have given you guidance that we'll do $250 million to $300 million of new common equity issuance midyear-ish and I think that if you want to divide that by any share price, you're going to get an answer, Vedula, and you can sort pro form that in.

You're not going to be that far off of what management's view is, I'm sure.

Fair enough.

Thank you very much.

Thank you, Vedula.

Our next question is from Jonathan Arnold from Merrill Lynch.

Good afternoon.

I just wanted to ask around the Connecticut Siting Counsel process.

You talked about the advisory board looking at some other alternatives to the Greater Springfield reliability project and that you thought those were not going to be good enough to address the issues.

Could you just provide a little more detail around what you were talking about there.

Yes, Jonathan, this is Lee Olivier.

As part of this CEAB reactive RFP process, they did get essentially a number of proposals.

One was around ice storage, another one was around the use of DSN, the other one was around building essentially a gas fire generation in Connecticut.

And when we look at all of those and we look at the issues in and around Greater Springfield and northern Connecticut, we do not think that those proposals would resolve the NERC reliability issues.

In fact, at least two of them said that they wouldn't.

But that they were good proposals and somebody ought to pursue them anyway.

So we don't think they have particularly a whole lot of credibility in terms of providing the level of surety reliability that transmission would.

What should happen here is that the CEAB will take those proposals and they will full with them over to the Connecticut Siting Counsel.

The Connecticut Siting Counsel, which provides a certificate of need for the project will evaluate those as part of their review for the need of the project.

Thank you.

Can I ask one follow-up on the New Hampshire situation with the scrubber.

You talked about the Supreme Court case and I think there has also been some noise in -- around in the legislative arena around potentially revisiting how level of commitment given the escalation in cost.

Can you provide us any update or thoughts around what is happening on that side?

In regards to the legal case, the appeal, there is really no timeline set for the trial.

The New Hampshire PUC has to turn their record over to the court somewhere around the middle of March, I think, around March 16th.

In the legislature there is a bill in the senate that would look at doing, would basically require New Hampshire PUC to do an alternative analysis for the scrubber In other words, what could you do, what where the other alternatives, whether it's building of the power plant and so forth.

We do not think that will be successful.

When we look at the capital replacement costs for that project, even though the scrubber's $1000 per kw, fixed kw, it's still far cheaper than anything you can get to replace that project.

And of course the other issue is that from a standpoint of fuel diversity and security, we think the Merrimack plan provides a significant advantage to the state and to the region and we think there is a number of folks in the legislature and others in New Hampshire that support that view.

Well, we don't have anymore questions, so I want to thank everybody for joining us today.

If you have any questions later today, please feel free to give us a call.

Have a good day.

Thank you very much.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may all disconnect