康涅狄格電力 (ES) 2009 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the Northeast Utilities 2009 Q4 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 conference 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, Lee Olivier, NU Executive Vice President and Chief Operating Officer and David McHale, NU Executive Vice President and Chief Financial Officer.

Also joining us today are Jim Muntz, President of our Transmission Group and Jay Buth, our Controller.

Before we begin, I'd like to remind you that some of the statements made during this investor presentation and conference call may be forward-looking as defined within the meaning of the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

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

Some of these factors are set forth in the press release issued yesterday.

If you have not 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 10-K for the year ended December 31st, 2008 and our Form 10-Q for the third quarter of 2009.

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

Now I'll turn over the call to Chuck.

Thank you, Jeff.

And I'd like the to thank everyone on the call for joining us this afternoon.

Let me begin by saying that we were pleased with our operational and financial results for 2009.

We saw a significant improvement in both transmission and distribution reliability, and in our generation results.

And, we earned $1.91 per share in 2009, somewhat better than our guidance, despite the continued negative impact of a weak economy.

Earlier this month our board of trustees approved a 7.9% increase in our dividend, that is consistent with both our view of future opportunities and our general policy of targeting a 50% payout.

Although that payout is conservative for our industry, we think it strikes a balance for investors and provides an attractive cash return on shareholders investment in our Company while at the same time preserving half of our earnings for reinvestment in the energy infrastructure that our customers require.

A year ago as economic conditions worsened, we began to take a number of steps to prepare ourselves for a prolonged, difficult time.

We aggressively managed our labor costs and were able to do so without layoffs.

We implemented rigorous cost controls which included no raises for management employees, and effective control of other operating expenses.

And again this year, our senior leadership will not receive raises.

We also took advantage of a one-time opportunity when we were included in the S&P 500 to complete the only equity issuance we project until at least 2012.

While many segments of our Company performed well, financial results of our four distribution businesses continued to be disappointing.

Those businesses were clearly weakened by economic factors, even though we maintained tight control of our operating costs and continued to invest in the energy infrastructure needed to serve our customers and our region.

We will discuss the steps we continue to take to keep down our operating costs in just a minute.

As we begin 2010, we remain cautious about the economy in New England.

But despite this near term caution, we continue to be optimistic about our long-term business strategy.

We believe that the rate cases and citing applications we are undertaking now can position us for attractive earnings growth in 2011 and beyond.

These regulatory proceedings also are occurring as customers continue to benefit from declining generation, congestion and transition costs.

Lower natural gas prices and our completed transmission projects are also helping to drive down the cost of energy.

Our Southwest Connecticut transmission projects have significantly reduced the congestion cost paid by Connecticut customers.

Overall bills for CL&P customers, still on standard service, declined by about 4.6% on average as of January 1, 2010.

We also saw generation related rate declines earlier in 2009 for our PSNH and WMECO customers.

As Lee will discuss, our two largest near term capital projects, Public Service of New Hampshire's Clean Air Project, and WMECO and CL&P Greater Springfield Reliability Project are on schedule.

Connecticut siting regulators are preparing their GSRP decision which we believe they will finalize next month.

Additionally, Yankee Gas is about to embark on a major new project that will bring improved service to key areas of central Connecticut, where our customers want to install additional gas fired equipment, but are today limited by pipeline constraints.

We also continue to make progress negotiating a series of agreements on the proposed high voltage direct current line we plan to build with NSTAR and Hydro-Quebec.

This line will expand New England's access to Quebec's growing hydroelectric generation and bring significant environmental and economic benefits to the region, once it is placed in service.

In addition, the structure of this project represents a unique method of having those involved in a specific transaction pay for the construction of those transmission facilities.

So contingent on timely sighting approvals, we currently expect to begin construction of the line in 2012, and have 1200-megawatts flowing into New England in 2015.

Lee will provide more detail on this project shortly.

The HQ line and the clean air project are two of several initiatives to address new England's long-term energy and environmental policies.

We also continue to speak to policy makers, our fellow utilities, and project developers about developing projects that would allow us to move significant quantities of renewable power into the regions' load centers.

Now let me turn the call over to Lee.

Thank you, Chuck.

2009 was a strong year for our operations performance.

Distribution and transmission reliability was the best in five years and our New Hampshire generation facilities performed well, exceeding our capacity and availability goals.

In fact, on January 30th, 38 months after it entered service, our 50-megawatt Northern Wood Renewable Power plant in Portsmouth generated its one billionth kilowatt hour.

Over that period, it has displaced the burning of 500,000 tons of coal, avoided the emissions of 6,500 tons of sulfur dioxide and produced one million renewable energy certificates.

As well, it has produced significant economic benefits for our customers, shareholders and the area's forest products industry which has received $51 million for the 1.6 million tons of wood we had purchased.

We also continue to move ahead on our Merrimack Station Clean Air Project.

The project is now 40% complete with the work shifting from procurement and engineering to field design and construction.

With most foundations in place, the structural steel is being erected, including the 110-foot tall scrubber absorber vessel.

A workforce of over 200 craftworkers are on site.

We are currently below budget and targeting completion for the mid-2012 time frame.

Once completed, the scrubber will eliminate more than 80% of the mercury emissions and more than 90% of the sulfur emissions from Merrimack's two coal fired units.

The clean air project was the largest single project we had under construction in 2009, accounting for nearly $120 million of our total capital expenditures of $970 million.

Transmission capital spending totaled $292 million in 2009, somewhat higher than the capital expenditures we had previously projected.

Of that $292 million, approximately $75 million was spent on the New England East-west Solutions family of projects, primarily on engineering and permitting.

Most of that was spent on the largest piece of NEEWS, the Greater Springfield reliability project.

That project which will extend from Ludlow, Massachusetts around Springfield to Bloomfield, Connecticut, must be approved by both states and it continues to move through the permitting stage.

In Connecticut, hearings have been completed and final briefs were filed in mid-January with the Connecticut siting council.

A final decision may be issued as early as next month.

In Massachusetts we finished hearings nearly two weeks ago.

From here, briefs will be filed and a hearing officer will certify the findings and forward them to the state's Energy Facilities Siting Board this spring.

We are currently expecting a decision from the EFSB in the third quarter.

If we secure approvals from both states by the end of the summer, we expect to commence construction by the end of this year and complete the project in 2013.

We continue to project a cost of $714 million but will revise that estimate once we fully understand all of the conditions the siting authorities place on construction.

NEEWS includes two other large projects, and a number of smaller initiatives.

The other two projects are the interstate reliability probability and the central Connecticut reliability project.

Those projects remain within ISO New England's regional system plan but ISO is continuing to review its estimates as to when they're needed to meet the region's summer loads.

It is possible the need dates, which are in 2014 for both projects, could shift, depending on a number of factors including generation retirements and load growth.

Until ISO concludes its review we will not file our siting applications.

The ISO staff that is reviewing these projects also is involved in a number of other initiatives including supporting our Greater Springfield applications, other transmission siting processes in Rhode Island and Maine, working on a new methodology for forward capacity payments that needs to be filed with FERC and analyzing reliability concerns raised by proposed generation retirements in the region.

As a result, we expect ISO's view on need dates for those two projects to be updated in the next version of the regional system plan which we will see as a draft document by late summer.

But it is also possible that ISO could update its view of those projects before that time.

We will keep you abreast of these developments as we move forward.

Aside from the three main projects we have budgeted about $200 million for a number of smaller initiatives within NEEWS.

We are now moving ahead on more than $50 million of those projects including pursuing siting applications where required.

This is all included in the $1.5 billion project cost of NEEWS.

Chuck discussed the status of the new high voltage DC tie -- tie line -- we and NSTAR proposed to build to Quebec.

We have made significant progress in the design of the line, and the development of a transmission service agreement.

There are several routing options still under technical review and we expect to resolve them by the end of the first half of 2010 and then file the Transmission Services Agreement with FERC by mid-2010.

There are also a number of state and federal permits the tie line will require and we anticipate filing those applications in 2010 as well.

We continue to estimate that our share of the project will cost about $675 million.

In 2010, including our work on NEEWS, the line to Hydro-Quebec and other projects we expect a total transmission capital spend of $273 million.

On the electric distribution side, we're projecting about $450 million of capital spending compared with about $420 million in 2009.

That level of spending is consistent with the capital spending we have proposed in the CL&P and PSNH rate cases and is needed to improve our aging infrastructure and ensure high levels of reliability in today's interconnected economy.

We expect both of these cases to be decided by mid year and levels of distribution capital spending are key elements of both cases.

David will discuss this and other elements of the cases in a moment.

At Yankee Gas we continue to see attractive expansion opportunities.

We're moving ahead on our 16-mile, $67 million project to expand and connect nearly -- our three-year-old Waterbury LNG storage facility to a growing load in the Cheshire and Wallingford area of central Connecticut.

We plan to begin construction of the line in the second quarter of 2010 and complete it by late 2011.

In January 2010, the DPUC approved the decommission of Yankee's four propane facilities used during peak send-out periods.

The LNG facility and the Waterbury to Wallingford line is a much better method of meeting peak demand requirements as well as providing service to new customers in Yankee's service territory.

We continue to experience load growth at Yankee, due to in large a part of its significant price advantage over heating oil and relatively low penetration in the New England market.

This factor is illustrated by the fact that Yankee Gas has added about 4,000 customers since 2007, increasing its customer count by about 2%, while over the same period of time our average number of electric customers has remained essentially flat at about 1.9 million customers.

Due to the increase in customers as well as an additional natural gas fired distributor generation in Connecticut, Yankee Gas unit sales were up by about 6.9% in 2009, compared with 2008.

When adjusted for colder weather, sales were up by 5% last year.

Moving north, into Massachusetts, you may have seen that WMECO announced last week that it has selected an eight-acre site in Pittsfield, Massachusetts as its first location for installing up to 6-megawatts of solar generation.

We expect this brownfield site to accommodate up to 1.8 megawatts of solar generation and become one of the largest solar facilities in New England.

We estimate the cost will be $10 million to $12 million.

One attraction of the location is that a substation already is in place.

We continue to look at other sites to fill out the remainder of the 6-megawatt authorization we received from the DPU last August.

We expect all six megawatts to be operational by 2012, and you may recall that we will earn a tracked 9% return on equity on our shareholders investment in these facilities.

Finally, I want to add that effective management of our operations and maintenance expense was a key factor in helping us to offset higher uncollectible expense in 2009.

In 2010, we will continue our strong focus on building rigor into the business, including benchmarking against best performing companies, making process improvements and further lowering our expenses.

Now I'd like to turn the phone call over to David.

Thank you, Lee.

As Chuck mentioned, we were pleased with our performance in 2009.

We earned $84.7 million in the fourth quarter of '09.

And $330 million for the full year, compared with $71.9 million in the fourth quarter of 2008 and $290.6 million for the full year, excluding last year's litigation charge of $29.8 million.

On a per share basis, we showed growth in both the fourth quarter and the full year, despite the issuance of nearly 19 million shares in March of 2009.

Earnings per share were $0.48 in the fourth quarter of 2009, up from $0.46 in 2008.

For the full year, we earned $1.91 per share in '09 compared with $1.86 in 2008, excluding the $0.19 litigation charge.

That $1.91 per share was slightly above our $1.80 to $1.90 guidance.

That performance was primarily due to better results in our transmission and competitive segments, and a continued focus on managing our operating costs across all businesses.

Our Transmission segment results benefited from our investments in the Southwest Connecticut projects, particularly the 69-mile Middletown to Norwalk line being included in rates for all of 2009.

The Middletown-Norwalk line entered service at the very end of 2008, and we earned a 13.1% return on equity on its underground section and a 12.64% equity return on its overhead section.

That 12.64% return was further supported last month when the DC Circuit Court of Appeals sustained FERC's 2006 decision allowing a 12.64% return on equity for new regional transmission projects competed in New England before 2009.

Our total transmission rate base averaged just over $2.5 billion in 2009, compared with $1.77 billion in 2008.

As a result, transmission earnings grew to $164.3 million or $0.95 per share in 2009, from $138.3 million or $0.89 per share in '08.

Transmission earnings totaled $44.4 million in '09 compared with $34.7 million in '08.

I should note that our transmission earnings were above our guidance of $0.90 per share.

There were a number of contributing factors driving that performance including the fact that our average rate base was higher than initially projected for the year.

You may recall that earlier -- early in the year we had adjusted upward our projected transmission CapEx.

By the end of the year we had invested about $292 million in our transmission system, compared with an initial estimate of $225 million.

Our Distribution businesses earned $159.2 million or $0.92 per share in '09 compared with $150.8 million or $0.97 per share in 2008.

The lower earnings per share were due to the share issuance in March.

In the fourth quarter, those businesses earned $39.2 million in '09 compared with $36 million in 2008.

CL&P's distribution business earned $19 million in the fourth quarter and $74 million for the full year '09.

In 2008, CL&P earned $12.8 million in the fourth quarter and $70 million for the full year.

Most of the fourth quarter improvement was due to the absence of a $3.5 million charge we took in '08 to reflect a negative regulatory decision denying us incentives on wholesale power we bought for our customers in 2004.

Despite the fourth quarter improvement in 2009, CL&P's distribution regulatory ROE was just 7.3% last year, well below our currently allowed 9.4% and the 10.5% we are requesting at CL&P's distribution rate case.

To update you further on that case we filed on January 8th for $133.4 million increase, effective July 1st, 2010.

And an incremental $44.2 million, effective July 1st, 2011.

Based on our filing, the $67 million cash revenue requirement for the second half of 2010 would be deferred and recovered from customers beginning January 1st, 2011 through mid-2012.

That would allow customer bills to remain stable since distribution increases would be completely offset in January 2011 by a decline in stranded cost recoveries due the final amortization of CL&P's rate reduction bonds in December 2010.

The maturity of those bonds which were issued in early 2001 means a drop in CL&P's transition costs of approximately $230 million starting in January 2011.

In the distribution rate case we are requesting a 10.5% return on equity, a rate making capitalization ratio of 49.2% common equity, revenue decoupling, a pension tracker and support for CL&P's proposed distribution capital program which totals about $960 million for the years 2010-2012.

Since the case was filed we have responded to literally hundreds of data requests from the DPUC staff and interveners.

Office of consumer counsel testimony is scheduled to be filed by the end of this week and hearings will start in mid-March.

The current schedule calls for a final decision the first week of June.

This case is critical to CL&P's efforts to support its capital program and the customer initiatives that are required by state energy policy, as well as improvement in distribution returns so it can continue to finance the investments Lee described earlier.

While we are working our way through the rate case, Connecticut regulators are also working through a generic proceeding they opened last year on ROE levels and how they should be set.

That docket is entitled Investigative Inquiry Into the Desirability, Need and Feasibility of Establishing a Uniform Methodology For Determining the Return on Equity.

We and other parties filed comments last week.

Our comments are on our website along with a docket calendar that calls for a final decision at the end of September, long after our case decision will be issued.

We are encouraged that the DPUC opened a docket on this subject so that it could be thoroughly examined outside of a rate case.

We also have a case pending in New Hampshire where PSNH is seeking to raise distribution rates by about $51 million effective August 1st, 2009 and an additional $17 million on July 1st, 2010.

You may recall that New Hampshire regulators allowed us to implement a temporary $25.6 million distribution rate increase on August 1st, 2009.

The permanent increase, now being considered by regulators, will be retroactive and reconciled back to August 1st of 2009.

Hearings on that case are scheduled to begin on April 20th.

The parties in the rate case have initiated discussions regarding their various positions and the PUC's procedural schedule calls for the filing of any settlement that may be reached by April 9th.

A primary reason we were allowed to implement the interim increase in PSNH's low earned distribution only return on equity, which was about 3.6% for 2009.

Together, PSNH's distribution and generation earnings were $47.5 million in 2009, compared with $41.4 million in '08.

In the fourth quarter of 2009, PSNH earned $11.3 million compared with $9.1 million in the same quarter of 2008.

The earnings increase was due to several factors including the August 1st temporary rate increase and improved generation results.

Western Massachusetts Electric distribution segment earned $3.2 million in the fourth quarter of '09 and $16.7 million for the full year compared with $2.2 million in the fourth quarter of '08 and $12.3 million for the full year.

The primary driver in that improvement was the absence in 2009 of a number of relatively small charges that WMECO recorded in 2008 as well as lower storm and operating costs.

WMECO's distribution ROE was 8.4% in 2009, up from 7.2% in 2008.

We expect it to decline to about 6% in 2010.

As we have said previously, we expect WMECO to file a distribution rate case by the middle of this year which would be effective at the beginning of 2011.

All three of our electric companies recorded sales declines in 2009.

Overall, sales declined 3.5%, 2.1% weather adjusted.

The most significant declines in all three states were in industrial sales which were -- overall -- were down by 14%.

Residential sales were down by 0.7% but on a weather adjusted basis recall that we had quite a mild summer, residential sales were actually up by 1.2%.

The fact that residential sales held up better than other sectors and that about two-thirds of our distribution revenue at CL&P and WMECO are collected through fixed charges, have helped support our distribution earnings.

Our distribution ROEs would have been still lower otherwise.

Yankee Gas had a very different dynamic in 2009 than it had in 2008.

Firm sales growth was quite strong, particularly in the industrial and commercial sectors.

Firm industrial sales were up by 11.3% and commercial sales rose by 8.7% while residential sales rose by only 0.7%.

Overall firm sales rose by 6.9%, 5% on a weather adjusted basis.

Much of that 5% increase was due to the competitive price of natural gas, customer growth, and the continued installation of distributed generation.

But, despite its 2009 sales growth, Yankee Gas earnings were disappointing in '09.

The Company earned $21 million compared with $27.1 million it earned in 2008.

In the fourth quarter of '09 the Company earned $5.7 million, compared with $11.9 million in the fourth quarter of 2008.

The regulatory ROE for Yankee Gas also declined as a result of the lower earnings.

It was 6.6% in '09 compared with 8.3% in 2008 and an authorized 10.1% return.

The primary reason for the decline in Yankee Gas earnings was higher uncollectible expense, due largely to the economy.

For the year uncollectible expense was nearly $12 million higher than it was in '08.

It was $7.4 million higher in the fourth quarter of '09 compared with the same period of 2008.

Because of enhanced credit and collection measures that we believe will reduce Yankee's uncollectible expense, we expect a rebound in Yankee's earnings this year.

At this time, we project a regulatory ROE of about 9% at Yankee in '10.

Recall that we had projected higher levels of non-tracked uncollectible expense in 2009.

But actual levels did exceed our expectations, particularly in the fourth quarter.

And particularly with Yankee.

As I'll discuss in a moment we do think that the uncollectible trend has peaked in 2009.

We spent considerable time working with our customers last year to help them address their difficulties in paying their electric and gas bills on a timely basis.

But in parallel, we did step up both our collection efforts and disconnections.

While on balance, this did create additional expense in 2009, we think these efforts position us for improvement this year.

In addition to uncollectible expense, earnings in the distribution businesses of CL&P, PSNH and Yankee Gas were negatively impacted by higher pension expense.

While pension expense is tracked in our transmission generation in WMECO and distribution segments is not currently tracked in any other distribution segments.

Our competitive business earned $15.8 million or $0.09 per share in 2009 compared with $13.1 million or $0.08 in 2008.

The 2009 results were well ahead of our $0.05 per share projection.

We benefited from $3.8 million of after-tax mark-to-market gains as well as a strong management of our remaining book of business.

Aside from the mark-to-market impact, the biggest difference between the two years was a more than $3 million net charge we incurred in 2008, when we adopted FAS 157.

As projected, NU parent had net expenses of $9.3 million or $0.05 a share in 2009, compared with net expenses of $11.6 million or $0.07 a share in 2008.

You probably noticed that in last night's news release we reaffirmed the earnings guidance for 2010 that we first issued at EEI in November.

We project consolidated EPS of $1.80 to $2.00 per share in 2010, including $0.95 to $1.05 per share in our distribution and generation segment, $0.90 to $0.95 in our transmission segment, break even to $0.05 per share in our competitive business and expenses of about $0.05 per share at the parent level.

The most significant variables in the distribution segment relate to the outcomes in the CL&P and PSNH rate cases and how they affect earnings in the second half of 2010.

Other variables relate to sales, pensions and uncollectible expense.

We are projecting a 0.4% decline in retail electric sales, off 2009 levels.

On a weather adjusted basis when we account for the unseasonably cool summer of '09 we expect retail sales to be down about 1%.

Although that's a less negative number than the 2.1% decline we saw last year, the fact is we still see downward pressure on electric sales throughout the areas we serve.

While we expect some lift from the economy relative to last year, it's likely that our service areas will lag the national recovery.

New Hampshire will likely emerge first, followed by Connecticut and Western Massachusetts.

We expect continued employment loss through about mid year, a slight rebound in housing activity, although well below normal levels, and manufacturing activity that may begin to increase workers' hours and perhaps add shifts and production but only at modest levels.

Beyond the economy, however, there are some real structural trends that will weigh on sales.

We expect the long-term trend in declining industrial sales to continue and we see continued moves towards distributed generation by our commercial and industrial customers.

We also see additional investment in conservation measures.

On the plus side we do see generation costs declining so from a price elasticity perspective, that should help sales.

And to the extent customers are utilizing gas fired distributed generation in our Yankee Gas franchise area, we benefit from higher gas sales.

Total Yankee Gas firm sales are projected to rise about 0.5% in 2010 from 2009 levels.

Excluding certain special contracts whose usage can fluctuate significantly from year to year but not impact the Company's earnings, firm sales are projected to rise by about 6%.

In terms of uncollectible expense, following up on my earlier comments, we expect that our non-tracked uncollectible expense will decline by about $12 million from 2009 levels, and that the vast majority of that decline will be at Yankee Gas.

We expect higher untracked pension expense will cost us about $0.05 a share in 2010, relative to '09, assuming incremental pension expense at CL&P and PSNH distribution will be adequately reflected in the distribution rate case decisions we receive later this year.

We expect that untracked O&M expense across the Company, other than pensions and uncollectibles, will rise at about a 1.5% in 2010.

Our projected transmission earnings reflect our current 2010 capital expenditure projections of $273 million, and our projected year end rate base of about $2.68 billion.

Our competitive business projections reflect the continued winddown of our wholesale book of business.

I'll remind you that our last remaining wholesale contract expires in 2013.

From an earnings perspective, let me just touch on a couple of cash flow items.

I'm pleased to say that we ended the year with total debt levels that were actually less than where we ended in 2008 -- about $116 million less.

That was largely because a $400 million increase in outstanding long-term debt was more than offset by our nearly $520 million reduction in borrowings on our two bank credit lines.

And while debt levels declined during the year, shareholder equity levels rose by more than $550 million because of a nearly $170 million increase in retained earnings as well as our $380 million equity issuance in March of '09.

As a result, total debt represented 55.8% of our consolidated capitalization ratio at the end of 2009 compared with 60.4% at the end of 2008.

That stronger balance sheet along with continued improvements in cash flow as we build and bring into service the Merrimack Clean Air Project, and additional transmission projects, should allow us to continue to access to credit markets at competitive rates.

We also continue to believe we will not need to sell additional common equity until at least 2012.

In December of last year, PSNH sold $150 million of 10-year first mortgage bonds with a coupon of 4.5% -- a rate well within our initial forecast.

In 2010, we expect to issue $145 million of new long-term debt all in the first half of the year.

That figure includes $95 million for Western Mass Electric and about $50 million for Yankee Gas.

In the second half of the year while we are not planning further debt issuances, we will renew our two credit lines totaling $900 million that expire in early November.

Given our recent financial performance we are confident that we will maintain the access to the bank capital we require to finance our business plans.

We continue to project cash flows from operations of about $700 million in 2010, and that number is after investing about $45 million of cash into our pension plan later this year.

In the fourth quarter of 2009, all three credit rating agencies confirmed all of their ratings and stable outlooks on NU and all of our operating companies.

Now let me turn the call back over to Jeff.

And, I will turn the call back over to Sandra so she can remind you how to enter questions.

Thank you.

(Operator Instructions) Mr.

Kotkin, I'll turn the conference back over to you for the first question.

Thank you very much.

Our first question is from Neil Kalton from Wells Fargo.

Neil?

First on the transmission guidance for 2010, I'm just curious in 2009 you did about $0.95, I'm wondering with higher rate base why it would be flat to down a little bit in 2010?

And then the second question is for Lee.

I'm curious if -- I would like to get your thoughts on whether he -- his point of view for the prospects or timing of the back half of the NEEWS projects has changed over the last three or four months?

Okay.

Neil, this is David.

On the first item, we are showing as you would expect, given the higher rate base some net income growth in 2010, but I think if you compare to '09 -- in '09 we had arguably a number of items flow to the bottom line that won't necessarily reoccur.

So some tax benefits, in particular, that were harvested during 2009 that will not flow through.

So you may see a slightly different effective tax rate there.

But it's really a couple of non-reoccurring items that might have been worth about $0.02 or $0.03 in 2009.

Then, Neil, this is Lee Olivier.

In regards to my views on the other two portions or segments of NEEWS and the timing of those, I can't add a whole lot more than what I've laid out for you a few minutes ago.

Clearly ISO will probably be very interested in what's going to happen to this Clean Energy project from the standpoint of its schedule.

It was due to come on-line in the November time frame of this year and they have to assess what the delay is in that or in the viability of that going forward into the future.

So I think ISO has to work through those issues that we talked about.

I think it's probably unlikely from everything I'm hearing that we're going to hear anything from ISO probably before the June to July time frame as they go through the iterations around major projects inside of the regional system plan and the variables such as demand and generation, retirements or delistings.

Of course, there's always the issue of Yankee, what happens with that going forward.

They have to factor in all of those as they put together their RSP.

Okay.

Thank you.

Thank you, Neil.

Our next question is from Michael Lapides from Goldman Sachs.

Michael?

Hi, guys.

Can you talk about the ROE docket a little bit?

I know that the schedule is a little pushed out so it sounds like it's going to come after the CL&P rate case resolution.

Can you talk about what your expectations are for the docket, what do you thing the outcome is and whether any of the interim testimony in the docket will have an impact on the CL&P case?

Yes, Michael, this is David.

Let me tackle that.

Parties file responses so what I'll call the CPUC's strawman that was released earlier in the year, those responses are in.

There is a calendar that has interrogatories being exchanged through April and into May and there are some hearing dates for May.

It's not clear.

In fact, if you look at the docket calendar, it doesn't really call for any additional testimony at this point but it does call for a hearing, so presumably the interrogatories will focus on the responses by the various parties.

So our responses will not -- in terms of the methodology -- will not be inconsistent with the type of discussion that we're having quite likely on the witness stand during this CPUC or CL&P general rate case.

It will not be decided until after the rate case.

I don't think it's going to have any bearing on this particular ROE.

But there's definitely going to be a similar set of discussions about our views around the methodology.

So we have filed our views of what the specific methodology should be.

In fact, we said it should be based on a number of methodologies including the DCF model.

The strawman was mostly done at DCF.

We also proposed in our filing that this process is conducted once every four years where the commission would review the methodology but the the utilities -- the methodology under our proposal would not set an absolute ROE level that the utilities would then apply to their revenue requirements.

It would only set the framework such that when you went into your next rate case, that's the framework that you would adopt.

So I don't -- to finish off this piece.

I don't think it's going to have a bearing on this case but as we have the debate through the spring, it will begin to shape the way I think the commission views both the feasibility and the methodology by which they're setting future direction.

Got it.

Thank you, guys.

Much appreciated.

One last item, thinking about Hydro-Quebec, can you walk us through, Lee, the ISO New England's process, if any.

It strikes me as this will be a line that the ISO is far less involved in the approval process.

And then what the siting and permitting process would be like since this is on exiting rights of way.

Well, in terms of ISO, what we have to get from them is only the technical review, the I39.

And that's essentially ensuring that when we build the project and it integrates itself into the AC system, it works.

It doesn't cause any undue hazard on the AC operating system.

So we think that analysis will be pretty straightforward.

In terms of the siting process, most of what we propose to do is inside of the existing right of way in which we have 115 kV line and we have to -- because it crosses the border, we have to file for a presidential permit.

That goes through the DOE -- the federal DOE -- and has to be approved by them.

That's probably one of the longer lead time items.

The other issue is that even though the existing right of way goes through a National Forest -- The White Mountains National Forest -- we would have to file for a permit to place the line on that right of way with the US National Forest Service and then we would go through the classic siting council for New Hampshire.

And we would have to demonstrate the fact that when we build a line it doesn't have significant environmental hazards, that it provides a benefit for customers in New Hampshire in general.

And we think, based upon a lot of things, such as the early environmental assessments we've done, the economic benefits of increased tax revenues from the infrastructure, the benefits of lowering location and marginal prices, we think we can make a very strong case in regards to that.

Got it.

Okay.

Thank you, guys.

Much appreciated.

Thank you, Michael.

Next question is from Jay Dobson from Wunderlich Securities.

Jay?

Thanks Jeff.

David, was hoping you could address the tax rate.

Seems like it ticked up a little bit in '09 and explain that away and then talk to us a little bit about '10 and what we should be thinking about there.

Okay.

What we signaled through some of the quarters as it unfolded is we were settling a number of outstanding tax returns and producing some favorable numbers.

I'm going to give you some more specificity, by turning to my controller, Jay Buth, and see if we can shed a little bit more light not only on '09 but 2010 -- steady state as well.

Hi.

Basically where we're at in '08 was about a 28.5% effective rate.

About 35.5 -- 34.9% rate in '09.

And we're projecting that to drop to right around 34.1% in '10.

And a lot of that basically deals with the timing around certain tax credits that we're trying to utilize on a state basis.

And that all plays out with some of the construction roll-out and the timing as to when we're able to utilize those.

Okay.

That is -- that's great.

I appreciate that, Jay.

Jay says thanks, Jay.

Lee, was hoping you could talk a little bit more about the HQ project.

You mentioned the TSA but you didn't give us a little update on the PPA and where we stand on that and if you could just fold into your comments there, just what if any impact of Vermont Yankee might have on that.

The TSA for the most part, without disclosing what's in it, because we're not ready to do that, is essentially done.

The key issue associated with the TSA now, other than just contract language, is centering around where the line will be landed.

And obviously you want to land the line where it has the biggest locational marginal pricing impact and so there is an analysis that is ongoing right now by Hydro-Quebec to determine that.

That's an analysis that they're conducting, we're supporting, and that analysis should be done essentially by the end of March.

And I think we'll have a firmer sense of where is the right place to terminate the line and if you terminate the line beyond that what is the other impacts on the AC system.

So that's the main point.

In regards to the joint development agreement, that is essentially done as well.

So feel pretty good about the JDA and the TSA.

The PPA is ongoing and I think that the key thing with the PPA is to determine what the price would be is you need to understand where it's going to land and what the LNPs are going to be.

So that quite frankly, although discussions are ongoing, that really heats up more once we firm up the landing for the facility and then we'll be in earnest in discussions.

We expect to have the PPA and the TSA complete, signed, TSA filed with FERC mid-year, and then of course the PPAs would have to be approved, not by FERC, but would be approved by their respective Public Utility Commissions and whatever EDCs that would -- or other entities -- that would take the power.

That's great.

Do you see any impact from Vermont Yankee?

It's interesting we're having this call as they are discussing that very issue in the legislature.

It's certainly a wildcard, it's about 660-megawatts of power.

Of course, you've got the whole clean issue.

That's another 620-megawatts.

And you've got 500 plus megawatts of the the Salem Harbor plants that have delisted and so you've got quite a bit of power there, nearly a couple thousand megawatts that is in play.

Certainly if 30% of the power that Vermont uses comes from Vermont Yankee, should that plant no longer go forward, it's an opportunity for Vermont to purchase a significant portion of the output from the Hydro-Quebec line.

So that's how we view that right now.

Great.

Thank you very much.

You're welcome.

Thanks, Jay.

Next question is from Steve Gambuzza from Longbow.

Steve?

You mentioned $12 million decrease in bad debt expense at Yankee.

Would that mainly be experienced in the first quarter or do you incur the majority of bad debt expense in the first quarter?

Well, in terms of the results that we saw in 2009, we had seen bad debt expense accelerate throughout the year.

As I said earlier, we had budgeted and planned for higher levels but most of it came to fruition for Yankee -- it culminated in Q4 for them.

So it should be -- that impact is not going to be front end loaded.

It will be felt evenly throughout the year?

It should not be front end loaded.

Just on the competitive business, where you called out a couple of one-time items and I think you're guiding to $0.00 to $0.05 of contribution in 2010.

And you also mentioned that the wholesale contracts expire at the end of 2013.

Can you just help me understand exactly what is the recurring income pieces in the other segment?

Sure.

There aren't that many.

We've got a capacity contract with one entity in which we receive capacity revenues for peaking product from the New England ISO, and to the extent that those capacities, those units are called on, we receive additional revenues.

I will tell you, they're rarely called.

So that's one revenue product.

And they receive forward reserve product.

All right?

Which has I think maybe Steve clearing $14 a Kw a month.

That's their primarily source of cash flow and revenue.

We also own -- we still own an electrical contracting business that's housed out of Portland, Maine and Connecticut called ES Boulos.

They'll produce a couple million dollars of earnings a year toward [new E] and not a real competitive business in not a real volatile way and then there are a couple of fractional pieces.

We serve one large -- modest, I guess, in terms of the grand scheme of things -- wholesale contract, that's the contract in New York state.

We used [NIMBA] as the acronym for that.

That's the contract that expires in 2013.

It's mark-to-market so there really is no earnings value per se coming out of that and that's pretty much it.

So with the electrical contracting piece there's a few cents of recurring net income from there that we should think of going forward.

The few cents, the $0.00 to $0.05 comes from the capacity contract and from this ES Boulos company.

Okay.

Great.

Thanks very much.

Thank you Steve.

Next question is from Daniele Seitz from Dudack Research.

Daniele?

Hi.

Thank you.

Most of my questions have been answered.

I just was wondering is there any possibility that you will be selling some of your share of this HQ line once all the -- you have been doing all the work and for any potential investor?

Daniele, this is Chuck.

I think we're very comfortable with that line.

We would expect to keep the equity ownership interest that we have in it.

Great.

I just was curious.

Thank you.

Thank you, Daniele.

Next question is from Steve Fleishman from Banc of America Merrill.

Steve?

First, in the event that the latter pieces of the NEEWS projects do get phased -- moved backward a little bit, what would that do to the timing of the 2012 equity issuance?

Could that potentially push that back as well?

I'd say, Steve, the biggest determinant right now for an equity offering that could happen potentially as early as 2012 is really the $700 million investing in Greater Springfield.

That is budgeted.

That CapEx is budgeted to pick up later this year.

That's back half of '10, it's in '11, it's the beginning of 2012.

That's the big determinant.

There's a little conjecture beyond that in terms of what's going to happen with the other two legs.

I think they are less impactive to the overall equity amount than Greater Springfield.

But they could be on balance a little bit.

Right.

Okay.

On Greater Springfield, Lee, I think you mentioned that you'll have an update on that CapEx number after the siting's fully completed in both states.

Yes.

Should we assume that it should be pretty close to the $714 million or this a chance it could move meaningfully up or down?

No, I think, Steve, that it will be very close to the $714 million.

I don't think there's anything that has been discussed in testimony that would significantly move that one way or the other.

Okay.

That's it.

Thanks.

Thanks.

All right.

Thank you, Steve.

And thank you everybody for joining us today.

We don't have any more questions.

If you want to follow up afterwards, please give us a call here in the office and have a good afternoon and thank you for joining us.

Thank you.

Ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may now disconnect.