康涅狄格電力 (ES) 2010 Q1 法說會逐字稿

Welcome to the Northeast Utilities 2010 first quarter earnings conference call.

My name is Christine and I will be your operator for today's conference.

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, Vice President, Investor Relations.

Mr Kotkin, you may begin.

Thank you, Christine.

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 call may be forward-looking as defined within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

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

Some of these factors are set forth in the news 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 31, 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.

I'd like to thank everyone for joining us this afternoon.

Lee and David will provide you with a more detailed review of our operations, capital projects and financial results for the quarter, but I'd like to begin by discussing the highlights.

While our first quarter earnings were lower than last year, they were consistent with our expectations, despite very mild weather which reduced our customers' electricity and natural gas consumption.

They are also consistent with our earnings guidance for the year, which resulted in us affirming 2010 guidance last night.

Revenues were clearly lower than we had anticipated for the quarter.

But you saw in the quarter's financial statements that we continued to hold the line on operating and maintenance costs despite continued pressure on areas we have limited control, such as our pension costs.

Our ability to maintain our controllable costs will continue to be an important factor in our financial performance given the trend we see with sales.

New England does not yet appear to have turned around in terms of economic growth.

Our retail electric sales were down nearly 5% in the first quarter of 2010, compared with last year.

Excluding the weather impact, they were still down about 2.5%.

While this trend does not affect the financial performance of our transmission and generation segments, it has hurt the performance of our electric distribution utilities and underscores the need for periodic rate relief in each of our three jurisdictions.

As you know, we have reached a settlement in New Hampshire and we believe we have made a persuasive case for CL&P.

We expect a final decision in both cases later this quarter.

In CL&P's filing we have requested sales decoupling.

We will also request decoupling in the upcoming Western Massachusetts Electric rate case.

We believe the decoupling makes sense in New England, where state energy policies focus heavily on using financial incentives to encourage customers to use electricity by upgrading the efficiency of homes and businesses.

As we said, in New Hampshire, we were pleased to reach a multi-year settlement of PSNH's distribution rate case.

We appreciate the long hours that the staff of the New Hampshire Commission and the state's Office of Consumer Advocates spent negotiating this settlement, which we believe will provide benefits for both our customers and our investors.

If approved, it will resolve one of the most significant uncertainties we faced as we entered 2010.

It will help us improve our returns significantly, while at the same time ensuring that our customers will benefit from continued investments in our electric distribution system.

We look forward to commission review, which will begin with hearings next week.

David will provide you with details of the settlement in a moment, as well as an update on the current CL&P rate case.

On the legislative front, we've had a busy Spring in Connecticut.

Last night, the Connecticut legislature concluded its regular 2010 legislative session.

In the last days of that session, both the Senate and House passed Senate Bill 493, which if it becomes law would reorganize the Department of Public Utility Control, launch a significant solar generation initiative, allow distribution companies to manage a portfolio that would provide some of their standard service supplies and implement a low income rate.

While the bill does not appear to have an adverse financial impact on us, we are concerned that certain elements, particularly the solar mandate, would increase customer prices.

It is not yet clear whether Governor Rell will sign or veto this bill, however, as we learn more about this legislation, we will be sure to communicate with you about it.

In addition, last night the Connecticut legislature approved a state budget for the 2010-2011 fiscal year.

To fund a revenue gap, the budget calls for the issuance much $956 million of economic recovery revenue bonds that would be amortized over eight years.

These bonds would be repaid through a charge on customer bills of CL&P, United Illuminating and municipal electric companies.

For CL&P, the revenue to pay interest and principle on the bonds would come from a continuation of a portion of its competitive transition assessment, which would otherwise end at the end of this year, as well as diverting about one third of the annual funding for energy conservation programs beginning in 2012.

The specifics of these adjustments will be determined by the DPUC.

On average, the CL&P portion to support these bonds would be about $108 million annually.

While disappointed with this legislation, it is better than the initial proposals that would have used $180 million of CL&P customer money to service $1.3 billion of new debt.

As you can appreciate, the bill passed late last night and we are still analyzing its impacts and provisions.

Turning back to the progress we've made in the first four months of the year, all major capital projects continue to move forward.

PSNH has made significant progress since the beginning of this year on its largest construction project in 20 years, installation of a scrubber at Merrimack station.

The clean air project is now more than half complete and we've just broken ground on the second largest Yankee Gas project -- project Yankee Gas has ever undertaken and we've started to secure key approvals for the first elements of our newest family of projects.

Lee will provide you with more detail on all of these projects.

We also continue to move ahead on our project to build a new 1200-megawatt DC line to bring additional hydroelectric power from hide row Quebec to New England.

This project holds the potential to bring substantial environmental and economic benefits to the New England power sector.

It could by itself lower total regional power sector CO2 emissions by 10%, would provide enough low carbon power for one million homes and liberate about 50 billion cubic feet of gas annually for other uses.

We consider this project an innovative way to bring competitively priced clean power to a region that has rising environmental standards.

Earlier this year, we formed NU Transmission Ventures, a new wholly owned subsidiary designed to hold our non-traditional transmission projects.

We have also formed Northern Pass Transmission LLC, which is the entity through which NU and NSTAR would jointly invest in our new direct current power line to Canada.

NU Transmission Ventures owns 75% of Northern Pass and NSTAR owns 25%.

I know that over the last month or so, due to media reports, a number of you have asked Jeff about Hydro-Quebec's commitment to this project.

We have had a number of conversations with HQ in recent weeks and we fully believe they are committed to this project and we continue to be very optimistic that they will conclude negotiations and move into the citing process.

We have now signed a joint development agreement and continue to develop the terms of a transmission services agreement with NSTAR and Hydro-Quebec.

We hope to have a signed agreement by mid-year, so we can present the TSA to FERC for approval.

That agreement will set out the financial and operating arrangements with Hydro-Quebec, as well as the terms and conditions by which Hydro-Quebec can use the new DC line.

We also continue to work to structure the long-term purchase power agreements with HQ.

Any PPAs will of course be subject to state regulatory approval.

The terms of power sales will not affect the transmissions services agreement, nor will they impact the financial returns that NU will generate through this initiative.

However, we believe that clarity around the terms of power sales will be important to win broad public and regulatory support for the project as we enter the citing phase.

Before the end of 2010, we expect to be begin the process of seating citing approvals for this project.

We hope to begin construction of the project by the end of 2012 and expect to begin delivering power across this line in 2015.

Hydro-Quebec is undertaking a ambitious build out of its advanced hydroelectric potential and it continues to target New England, as its sole power since the 1980s, as a principal growing market.

Lee will discuss our first quarter operations, which generally were quite good.

As many of you know, we had two severe winter storms during the quarter, one in February in New Hampshire and another in March in Southwest Connecticut, that probably affected a number of listeners on this call today.

The storms required extensive restoration efforts by our line crews who were supplemented by contractors and other utility workers from as far away as Michigan and Canada.

We are proud to say that restoration was accomplished safely and efficiently and we thank our customers for their patience and their understanding.

Now I'd like to turn the call over to Lee.

Thank you, Chuck.

I will begin with an update on our transmission business, starting with operations.

As you know, the federal Energy Regulatory Commission through the North American Electrical Reliability Corporation, or NERC, and its satellites are closely reviewing transmission operations throughout the country to ensure that grid security is enhanced and blackouts, similar to the Northeast US blackout of August 2003, do not reoccur.

On August 19, the Northeast Power Coordinating Council audit team concluded its on site evaluation of our transmission group with a favorable outcome.

The team determined that NU was compliant in all areas covered by the audit, which covered the period of June 2007 to the present.

The audit team looked for compliance with a total of 58 NERC reliability standards, encompassing 216 requirements.

These reliability standards defined requirements for the operations, planning and design of high voltage electric transmission systems in North America.

Congress made compliance with these standards mandatory as part of the Energy Policy Act of 2005.

The results of the audit were very strong, with three minor suggestions for improvement and two best practices noted.

In light of the growing number of civil penalties elsewhere in the country, we are very pleased with the result of this audit.

Turning from operations to our capital program, we continue to make progress in the first four months of the year on signing our NEEWS projects, particularly the greater Springfield reliability project, which accounts for nearly half of our approximately $1.5 billion, or projected expenditures on NEEWS.

On March 16, the Connecticut Siting Council approved the 12-mile section of the greater Springfield project in Connecticut.

We are now preparing our follow up, development and management plans for filing to the Siting Council.

In Massachusetts, we completed citing hearings in the first quarter and filed our briefs.

We feel very positive about the case we have made for the need of the greater Springfield reliability project.

The Massachusetts Energy Facility's Siting Board, or EFSB, staff members are scheduled to discuss with the Board certain larger topics in the case on May 13 and to receive the Board's guidance, so that the staff can prepare its decision.

If needed, a second meeting between the Board and staff is scheduled for May 20.

We expect a decision to be issued in the third quarter of 2010, which would support a late 2010 construction start.

Once the Massachusetts audit is issued, we will review our $714 million cost estimate to determine how the final decision will affect the scope of the work.

We continue to expect the greater Springfield segment to be completed in 2013.

In the third quarter of this year, we also expect ISO-New England to announce their updated needs assessment for the other two major NEEWS segments, the interstate reliability project and the central Connecticut reliability project.

We now expect to file state applications to build the interstate portion of the project in early 2011.

And for the project to be completed in late 2014, with the central Connecticut segment following six to 12 months later.

As we have reported in earlier calls and presentations, there are more than $200 million of small projects related to NEEWS.

On March 19, the Massachusetts Department of Public Utilities approved one of those projects, a $23 million project to separate 215 KV lines between Agawam and West Springfield that are currently on the same structures.

We expect to commence work on that project later this year and complete it in 2011.

All told, our transmission capital spending totaled $51.5 million in the first quarter of this year, including $15.8 million on NEEWS.

We continue to project total capital spending of nearly $1.1 billion in 2010, including $273 million on transmission.

Our largest capital project under construction currently is our clean air project, which involves installing wet scrubber technology at PSNH's Merrimack coal-fired station.

Through the end of April, the project was about 55% complete.

We expect it to be completed by mid-2012.

The project continues to be on schedule and under its $457 million budget.

Merrimack and our other New Hampshire generation units operated well in the first quarter with a base load equivalent availability factor of over 90% for the quarter.

Our 50-megawatt northern wood power project in Portsmouth, New Hampshire continues to operate well, generating savings that are shared between customers and shareholders.

We are in the process of applying for permits to double our on site wood storage capability, which will produce additional benefits for customers.

In Massachusetts, Western Mass Electric has received all approvals necessary to begin the construction of our first solar generation facility located on a brown field site in Pittsfield.

The $10 million facility will have approximately 1.8 megawatts of capacity and is one of the largest photovoltaic projects in New England.

Construction will begin in May and we expect the facility to be operational later this year.

Western Mass is also in the final stages of due diligence on a second solar project, which we expect to announce in the coming weeks.

Turning to our gas distribution business, in April, Yankee Gas commenced construction of the new $67 million project to build a 16-mile natural gas pipeline from our three-year-old LNG plant in Waterbury to Wellington Connecticut.

This project includes upgrades of our LNG plants vaporization capacity and provides additional gas supply to meet peak day demand growth in the greater Cheshire area.

This new capacity will allow Yankee Gas to address requests for new gas services that we cannot meet today.

We expect some of the project to enter into service later this year and for the entire project to be complete by November of 2011.

Turning to the electric distribution side, I would like to follow up on some comments by Chuck about PSNH -- about the PSNH settlement, the distribution capital spending from 2010 to 2014 is consistent with the figures we provided you at the EI conference in November and with the spending projected in our last 10-K document.

On the electric distribution side, we suffered from two very damaging Northeasters in the first quarter.

Together a February 25 wind storm in New Hampshire and a mid-March wind and rainstorm primarily affecting our Southwest Connecticut area caused by 430,000 individual power outages.

Between the two storms, restoration costs are estimated to be about $45 million, the majority of which we expect will be recovered through a combination of insurance and money we collect through CL&P and PSNH rates.

Connecticut regulators have commenced a review of utility storm recovery performance in the state.

This review was common for a storm that causes power to be lost for more than a few days.

While we believe we responded well to these extreme weather events, we always try to identify operating and communications lessons learned that we will factor in to the next storm recovery process.

Lastly, before turning over the call to David, I want to review CL&P's March 31 advance meeting infrastructure filing with Connecticut regulators.

You may recall that last summer we were in a three-month pilot program that focused on residential, commercial and industrial customer response to various pricing plans that were enabled by the installation of a 3,000 AMI meters and associated infrastructure.

Our filing was based on our analysis of the effectiveness of the different dynamic pricing options and also examined the state -- examined the state of the technology.

Based on the results of our pilot and cost benefit analysis, our proposal calls for a full AMI implementation over a four-year period for all of CL&P's 1.2 million customers beginning in mid-2012.

This timing assumes that the AMI standards and cyber security protocols presently under development are near completion and that we have received approval from Connecticut regulators.

We currently estimate that the capitol costs associated with this initiative will approach about $300 million.

Our filing is available on the investor section of our website.

We anticipate making additional regulatory filings to refine our cost estimates prior to implementation in mid-2012.

No cost associated with this implementation are currently in our five-year capital expenditure forecast.

Now I would like to turn the call over to David.

Thank you, Lee.

To start off, I'll provide you with a general overview of the quarter.

First quarter results were consistent with our own expectations for the year and with our 2010 earnings guidance of between $1.80 and $2 per share.

As was said, unusually mild weather, particularly in March, reduced our first quarter electric sales and the enactment of federal healthcare legislation cost us about $0.02 per share.

But those factors were partially offset by increased transmission earnings and a 1% reduction in overall O&M, despite higher pension and benefit costs.

As a result, we remain comfortable with the guidance we first issued in November of last year.

Overall, we earned $86.2 million or $0.49 per share in the first quarter of 2010, compared with $97.7 million or $0.60 per share in the first quarter of last year.

The decline in earnings per share, in part, also reflects the issuance of nearly 19 million NU common shares in March of 2009.

Our regulated utilities earned $88 million or $0.50 per share in the first quarter of 2010, compared with $94.6 million or $0.58 per share in the first quarter of 2009.

Our transmission business segment showed the most improvement last year, as a result of higher level investment in the business, our transmission segment earned $40.1 million or $0.23 per share in the first quarter of this year, compared with $35.4 million or $0.22 per share in the first quarter of 2009.

Transmission rate base totaled just over $2.6 billion as of March 31 of this year, compared with $2.5 billion a year earlier.

We continue to believe that our transmission segment will earn between $0.90 and $0.95 per share this year.

Unlike transmission, our distribution segment earnings are still somewhat dependent on unit sales to generate revenue.

In the first quarter, weather in New England certainly was not helpful.

Compared with 2009, heating degree days were down about 13.5% in the Hartford, Connecticut area and down about 16% in the Concord, New Hampshire area.

Our electric sales were down 4.9% in the first quarter of 2010 compared with the first quarter of 2009, and our firm natural gas sales were down 3.5%.

Mostly due to warmer weather than -- warmer than normal weather, residential electric sales fell by 6.1% in the first quarter of 2010, compared with the same period of 2009, while commercial sales fell by 4.9%, industrial sales were flat, reversing course from last year's big declines.

You may recall that far more of our residential revenue comes from kilowatt hour charges in our commercial and industrial revenues.

So when residential sales fall disproportionately, as they did in the first quarter because of weather, our earnings are adversely affected.

The overall weather affect this quarter relative to normal weather probably cost us about $10 million in revenue or roughly $0.035 per share.

While, I know you've seen the signs of rebounding sales elsewhere in the country during the first quarter, we expect that New England's recovery will lag the broader national recovery.

On a weather adjusted basis, commercial sales were down about 4% in the quarter, compared with the same period of 2009.

A statistic that we believe illustrates the continued challenging economic conditions we face in New England.

It also reflects continuing long-term trend of customers benefiting from conservation and load management measures, as well as a move to distributed generation.

On the margin, I would add that during the quarter, the storm activity, which left large amounts of customers without power in some cases for extended periods, certainly did not help the comparative to last year either.

Weather adjusted residential sales, which actually held up well last year, were down about 1.5% in the first quarter.

Overall, weather adjusted electric sales across all of our electric companies were down 2.5% relative to 2009, which so far is somewhat more of a decline than the 1% we expected to see this year.

Longer term, we see electric sales growth of roughly 0.3% over the 2011 through 2015 time frame.

While that represents some modest growth, it also reflects the underlying structural trend of increased conservation, load management and demand response, as well as continued use of distributed generation and, of course, new lighting efficiency standards that are effective in 2012.

The sales results were a significant factor in the reduction of distribution earnings from $59.2 million in 2009 to $47.9 million in 2010.

The largest decline in distribution earnings occurred at CL&P, where we earned $14.3 million in the first quarter, down about 34% from the first quarter of 2009.

In addition to CL&P's 4.9% decline in sales, we experienced higher pension costs.

Additionally in the first quarter of 2009, CL&P's distribution results reflected a $3.4 million benefit from the resolution of certain tax audits.

There was no such benefit this year.

Over the past 12 months, CL&P's distribution regulatory ROE is only 6.8%, well below our allowed level of 9.4%.

That level of earnings underscores CL&P's need for distribution rate relief.

As you know, CL&P filed a rate case in January.

On April 26, all of the parties filed their final briefs in the case, and our brief, the Consumer Council's and the AG's are posted in the investor section of our website.

In our final brief, we slightly modified our rate request to an increase of $129 million effective July 1 of 2010 and in an additional $41.4 million effective July 1 of 2011.

We continue to recommend that the DPC defer the first increase until January 1, 2011, so that the impact on customer bills will be more than offset by an approximate $230 million decrease in the competitive transition assessment, due to the full amortization of our rate reduction bonds on December 31 of this year.

This increase would also take effect on the generation portion of the bill as determined by the standard offer service rate should decline from today's level of approximately $0.113 to well below $0.10.

Back to the case, we also requested a 10.5% return on equity, revenue decoupling, a pension tracker and the amortization of about $380 million of excess depreciation reserves over the remaining life of our distribution plan.

While the other parties generally supported our proposed capitalization ratios, they took very different positions in several other areas.

The Consumer Council recommended a non-deferred $6.9 million rate increase on July 1 of this year and an incremental $40.6 million increase a year later.

The Consumer Council also recommended a 9.375% ROE, no decoupling or pension tracker and expense reductions in several areas.

They also supported a seven-year amortization of excess depreciation, which accounted for about $43 million of the proposed reduction in our rate filing.

Unlike the Consumer Council, the Connecticut Attorney General did not file testimony during the case, but its brief calls for signigicant rate decreases, additional reliability spending, a 9.375% ROE, no decoupling or pension expense tracker.

We are scheduled to receive a draft decision on May 21 with a final decision June 4.

New rates in effect on July 1.

Turning to PSNH, their distribution and generation business earned $11.1 million in the first quarter of 2010, compared with $13.5 million in the first quarter of 2009.

The benefit of a $25.6 million annualized temporary rate increase, that took effect on August 1 of 2009, and AFUDC earnings on the clean air project were more than offset by higher pension and other operating costs and a 5.3% decline in sales.

Additionally, PSNH generation booked a $1 million after-tax charge in the quarter associated with the new federal healthcare legislation.

PSNH's distribution segment ROE, which includes its generation, was 6.6% for the 12 months ended March 31, 2010.

As you know, we are nearing the end of a distribution rate case that was filed roughly a year ago.

As a reminder, in April of 2009, PSNH filed for a $36.4 million temporary rate increase, which was followed on June 30 of 2009 with a permanent rate increase request of $51 million to occur effective August 1 of 2009 and they filed an additional $17 million effective July 1, 2010.

On July 31 of 2009, the NHPUC authorized a temporary rate increase of $25.6 million effective August 1 of 2009.

Just last week, on April 30, we joined the staff of the New Hampshire Public Utilities Commission and the Office of Consumer Advocate in the filing of a proposed settlement of this case.

The settlement addresses rate levels over the next five years, July 1, 2010 through June 30, 2015.

The first rate change allows us to raise distribution rates by an incremental $45.5 million on July 1 of this year, on top of the $25.6 million temporary rate increase we implemented on August 1 of 2009.

Of that $45.5 million, $13.7 million represents the difference between temporary rates effective August 1 of 2009 and permanent rates effective July 1, 2010.

The $13.7 million will be recovered over 12 months from July 1, 2010 through June 30 of 2011.

When the recoupment of that $13.7 million ends, the second rate change will take effect on July 1 of 2011 and it will actually be a net $2.9 million rate decrease.

Included in that net number is a $10.8 million increase to recognize the additional capital and reliability spending Lee referenced earlier.

The settlement further allows a projected third rate change which would increase rates by $9.5 million on July 1 of 2012 and a fourth rate change which would increase revenues by $11.1 million on July 1, 2013.

Each of these rate increases is projected and relates primarily to the distribution capital and reliability investment we will continue to make in PSNH's distribution system over the next five years.

The settlement maintains PSNH's distribution return on equity of 9.67%.

It allows a rate making common equity ratio of 52.4%, an increase over the currently allowed level of 47.7%.

It also contains a rate case sale provision until June 30, 2015, unless 12-month trailing distribution ROEs drop below 7% for two consecutive quarters, and it includes a sharing mechanism that refunds to customers 75% of any distribution earnings above a 10% ROE.

Lastly, the settlement allows for additional increases based on certain exogenous events, such as a general inflation rate exceeding 4% or changes in tax law or accounting regulations.

PSNH's tracking generation ROE of 9.81% remains unchanged.

The New Hampshire Commission is scheduled to hold hearings on the settlement next week and we expect new rates to be effective July 1, 2010.

Since the settlement is subject to full commission approval, we will need to refrain from a full assessment of our ROE prospects over the five-year period, but I will state that we expect a very significant improvement over the 3.6% distribution only ROE PSNH earned in 2009.

And if the settlement is supportive of our 2010 distribution earnings guidance of $0.95 to $1.05 per share in our earlier statement regarding our 2011 EPS prospects.

Should the New Hampshire commission approve the settlement, the primary swing factor remaining in our 2010 guidance will be the CL&P rate case.

Western Mass' distribution segment earned $2.9 million in the first quarter of 2010, compared with $4.8 million in the first quarter of 2009.

The decline was due primarily to a 4.4% decline in sales.

Western mass distribution ROE was 7.2% for the 12 months ended March 31, 2010.

And as we have told you previously, we expect to file a rate case this year.

The letter of intent is likely to be filed later this month and we expect new rates will be effective in early 2011.

Because the rate case will have no impact on 2010 results, we continue to project a 2010 distribution regulatory ROE at WMECO of about 6%.

Yankee Gas' earnings rose to $19.6 million in the first quarter of 2010, from $19.3 million in the first quarter of 2009.

Yankee's actual firm sales declined 3.5%, but weather adjusted sales continued to rise and were up 6.4% for the quarter.

In the quarter, the impact of lower sales was more than offset by lower interest expense and lower O&M.

You may recall that Yankee Gas results in the second half of 2009 were very negatively affected by rising uncollectible expenses.

We have added considerable focus to the customer care function at Yankee Gas, as well as at the electric distribution businesses and we believe we are making considerable progress.

We have deployed additional resources and are working very thoughtfully with our customers to structure payment arrangements.

As an aside, first quarter 2010 non-tracked uncollectible expense across all of our distribution companies was just below 2009 levels, and we believe this outcome is supportive of our annual uncollectible expense embedded in our 2010 guidance.

As a reminder, we've previously stated that we expect our non-tracked uncollectible expense for 2010 to decline by about $12 million from 2009 levels of $47 million, and that the vast majority of that decline will be at Yankee Gas.

Turning back to Yankee, its ROE for the 12 months ended March 31 was 6.7%.

We continue to expect that level to improve by year end, but only to about -- excuse me, only to about 8% rather than the 9% we had projected earlier.

The downward revision is a result of mild weather in the first quarter.

We continue to evaluate the timing of Yankee Gas next rate case and we do not expect a filing until 2011.

I mentioned earlier that the new healthcare bill resulted in a $3 million one-time charge to earnings in the first quarter and over the course of the year it will cost us another $2 million, for total of about $5 million.

The first quarter impact showed up primarily in two line items on our income statement.

You'll see our effective tax rate for the quarter was 47.5%.

This reflects a charged income tax expense of about $18 million associated with writing off a portion of the previously established tax assets associated with future retiree healthcare benefits.

However, you'll also note that our amortization of regulatory assets declined by about $30 million, approximately $24 million of that decline or about $15 million after tax reflects the creation of a regulatory asset associated with our regulated companies having lower tax benefits to defray other rate costs.

The $3 million charge reflects our expectation that we will have to absorb some of the impact associated with the higher future tax obligations.

I mentioned the $1 million impact at PSNH generation, another $1.2 million was split evenly in the quarter between our competitive businesses and NU parent and other with a balance attributable to our -- excuse me, to our transmission segment.

Including a $600,000 healthcare charge, our competitive businesses earned $2.3 million in the first quarter of 2010, compared with $5.8 million in the first quarter of 2009.

The primary reason for the difference was mark to market impact of our remaining wholesale contracts.

We recorded $400,000 of after-tax mark to market losses in the first quarter of 2010, compared with $3.2 million of mark to market gains in the first quarter of 2009.

Our first quarter results are consistent with our 2010 guidance of $0.00 to $0.05 per share for these businesses.

But I should emphasize that we continue to wind down these businesses, so their contribution to NU's overall results will diminish over the next two to three years.

NU parent and other subsidiaries had net expenses of $4.1 million in the first quarter of 2010, including its $600,000 share of the $3 million healthcare charge.

That net expense is somewhat larger than a $2.7 million we recorded in the same period of 2009.

We continue to project net expense of about $0.05 per share for NU parent this year.

Turning to our financing activity, we essentially completed our 2010 debt issuance plans in the first four months of the year.

On March 8, Western Mass closed on the sale of $95 million of 10 year unsecured debt carrying a coupon of 5.1%.

On April 1, CL&P completed the remarketing of $62 million of secured pollution control revenue bonds.

Until next April, when they must be remarketed, they will carry a coupon of 1.4%, compared with the previous one year coupon of 5.25%.

Finally, on April 22, we closed on the sale of $50 million of first mortgage bonds at Yankee Gas with a coupon of 4.87%.

Each of these coupons support our 2010 business plan and guidance, and reflect our continued ability to access the capital markets at attractive rates that will benefit customers and shareholders for years to come.

Over the balance of the year, our primary financing focus will be on renewing our $900 million revolving credit lines that mature in early November.

We believe that the bank revolver market is becoming progressively more attractive to investment grade borrowers such as NU and that we will secure new lines for multiple years.

Turning, finally, from financing to our balance sheet and cash flow statements, you will notice that we generated $159.1 million of cash from operations in the first quarter of 2010, after repayment of rate reduction bonds.

This is much better than the $77.5 million we generated in the first quarter of 2009.

The primary difference was the payments being made in the first quarter of last year associated with the very destructive ice storm that struck New Hampshire and Massachusetts in mid-December of 2008.

Due primarily to the costs of the first quarter storms this year, however, we are adjusting our full-year 2010 forecast of cash flows after rate reduction bond payments to approximately $650 million from the previous $700 million.

Our balance sheet ratios remain within our target ranges, short-term and long-term debt represented 56% of our capitalization at the end of March and we continue to project no need to issue equity before 2012.

I know that next week starts the Spring investor conference season, we look forward to seeing many of you at the AGA and other conferences over the coming weeks.

Now, I'm going to turn the call back to Jeff.

And I will turn the call back to Christine and she'll remind you how to enter questions.

Thank you.

We will now take questions.

(Operator Instructions)

All right.

I think our first call today is -- first question today is from Jonathan Arnold from Deutsche Bank.

Jonathan?

Hi, good afternoon.

Hi.

Could I first ask is the budget outcome in Connecticut set in stone now or is it still up for debate?

And what would the net impact -- rate impact to customers be if the budget is done in the way that you described in the prepared remarks?

Jonathan, this is Chuck.

The budget is pretty much complete, so that is not, I think, an issue.

I think we mentioned to you that in order to meet that budget deficit, there was a requirement of about -- a requirement to issue about $956 million of bonds that charge -- that cost to our customers would be about $108 million spread over an eight year period.

So the $108 million should be netted against the -- whatever you get out of the rate case in terms of increase and the roll off of the CTA, or the roll off of the CTA would otherwise have been?

Yes, remember, Jonathan, the CT -- the roll off of the CTA would have been about 230 plus or minus a little bit of dollars that would end up -- that would have ended at the end of this year.

So instead of the customers seeing a reduction in their bill in an aggregate amount of $230 million, they're probably going to see about $80 million out of the CTA.

Recognizing for CL&P it comes from two different pieces and this is on average over that period of time.

Those pieces are the use of a portion of the CTA, but it's also a use of the portion of the conservation and load management.

So if you look at just the CTA piece, over that full period of time on average it should be about $80 million.

Okay.

Thank you.

Jonathan, I'll also add, and I mentioned this, this is David, that the generation charge should also decline for those left on the standard offer service.

For those who are in the marketplace, they're receiving very attractive rates, but probably declining even more than we would have projected when this case was initiated.

The rate is about $0.113 today.

It's likely it will be well below $0.10.

We already have 80% of that energy procured, so they've got maybe a penny and a half or so of price relief coming at the same time when these two other events occur.

So when you net all that together, they can sill still see a reduction, is that the --

Very much so.

Okay.

That's what I was hoping to get to.

Can I ask just one other thing.

What's the point of no return effectively for HQ on the DC line?

Is it the signing of the TSA or could they effectively still sort of be not fully committed to the project at that point?

How should we think about that?

I think, Jonathan, once we -- we have, as we mentioned earlier today, signed the joint development agreement.

That has been executed.

I think the next thing that will need to be executed is the TSA.

We would expect to see that about the middle of this year.

That would be the agreement to which -- by which we define, not only the operating parameters of the line, but also the relationship between ourselves both -- and HQ both financial and operating.

That, of course, has to go to FERC for approval, so you've still got a variety of approvals that have to happen around the TSA.

After that approval, we have to go to a citing council, so you've still got citing council approval.

So there are a series of items over the next few years that we have to conclude and conclude successfully and you'll be able to see those.

And so that commitment sort of during that period is dependent on just remaining committed?

Oh, I think once the -- once we sign the TSA, you'll -- that's a very definitive representation of their opinion.

Okay.

Thank you.

All right.

I think our next call is from Leslie Rich from Columbia Management.

Leslie?

Hi.

Could you go over what the implications are, if any, at the BPU -- no, the DPUC, is it just a name change or are they going to change the commissioners?

What actually is going on in terms of the changes at that agency?

Leslie, this is Chuck.

They're not changing the commissioners.

They are looking at a variety of different organizational changes within the commission.

They're going to add a couple of new divisions.

One of those is to deal with the procurement of function, there -- there will be potentially additional people associated, there will be additional people associated with those new divisions.

One is procurement, one is research and the other division would be around conservation and load management.

Okay.

So there's no change to the rate-making processing staff and commission and --

No, there is no change in the rate making process.

Okay.

And then just to clarify a question -- a comment that you made about the uncollectible expenses, I thought David said that uncollectibles were going to be flat in 2010 with 2009, as opposed to being down about $12 million or did I not hear that correctly?

Leslie, what we said is in the first quarter of 2010, it was roughly flat, actually a little bit down from the first quarter of 2009 and our expectations for the full year would be that our uncollectible expenses are going to be down about $12 million.

So $47 million last year for the non-track, that is the cost of hits earnings and it will be $12 million less this year.

Okay.

Great.

Thank you.

Thank you, Leslie.

Next question is from Jim von Riesemann from UBS.

Jim, welcome back.

It's good to have you on our calls again.

Thank you.

Thanks, everyone.

I just wanted to follow up on some of the questions that Jonathan was asking earlier and with the Connecticut legislature and this time I want to go into the solar and some of these renewable mandates.

Can you give us a little color around what the legislature has as its intentions, how much capacity you want to add -- do they want you to add, what the timing is and what sort of the capital outlays might be and whether or not they're included in budgets at this point in time?

There -- we have nothing in our budgets for this solar project from -- that's coming out of the legislature.

The overall solar program has some limits around a rate cap and it starts at about a half a percent of distribution revenues going up, I think, to a percent over time.

That probably means that we would build -- if that rate cap is in place, there would be built about 14 megawatts to 16-megawatts of solar.

The utilities would have the opportunity to build about two of that.

As that rate cap continues to increase, the amount of the solar could go up from that point.

Where are they going to build all of this stuff in Connecticut?

Well, I'm not sure that the specific sites have been defined.

No, I guess the point is there is a lot more land out west than there is in the Northeast.

A lot of landfill brown fill.

Yes, there are brown fill areas, there are landfill areas.

Okay.

Potentially roof tops.

There's just a variety of places.

I don't think they've been definitive about that.

Okay.

Thank you.

Thank you, Jim.

Next question is from Neil Kalton from Wells Fargo.

Neil?

Good afternoon, everyone.

Just a question on the back half of the NEEWS projects and sort of the load trends and you had pushed back the timing last fall by about a year for those two projects and sounds like load trends -- it hasn't been a long time, but it sounds like they're coming in a little bit worse than what was expected and I wonder does this give you any concern about the timing or is it in within the realm of expectations at this point?

This is Lee Olivier, Neil.

I think the load expectations using the ISO load forecast, they're probably a little bit more robust than ours.

I think that's pretty much as we expected.

Earlier last year we said we'd probably have an answer from ISO in the spring of this year, March, April time frame.

We've seen that slip.

There's been a number of complicating factors, obviously the issues around Vermont Yankee and the lack of willingness of the legislature to extend the license of that plant.

That plant would close in 2012.

Recently we had the issues around the Queen plant and what is the future of that.

I think as a result of those kinds of things, plus further refinement of the econometric model that ISO uses, this is just continuing to kind of slide out probably to the middle of the year, July, August time frame when the draft regional resource plan is out.

So I'm not particularly alarmed by any significant changes in demand.

I just think it's a matter of a number of issues that they're dealing with at the time.

Okay.

Thank you.

Yes.

All right.

Thank you, Neil.

And one thing that we'll do is -- with the Connecticut legislation, once we have a bill that is final enough so that we can put it up on our website, we'll do that and we can notify you of that as well.

Next question is from Michael Lapides of Goldman Sachs.

Hi, I apologize.

This may be a little bit redundant.

I need you to, if you don't mind, to repeat a handful of things.

Can you walk through and just repeat for each of the phases of NEEWS when you expect a construction start and a construction completion date by?

Sure.

This is Lee Olivier and, Michael, when you look at greater Springfield, we should start construction late this year, early next year.

So if we get a decision by the facility citing board in the third quarter, it's either going to be start late this year or early next year, it will be in service in 2013.

In the case of the interstate reliability project, we're going to file for the application in early 2011.

We expect to have evidentiary hearings to be complete by early 2012, get an order by mid-2012, begin construction later, probably third quarter of 2012, fourth quarter of 2012 and the expected in service for interstate is in late 2014.

That previously was the middle of 2014, but as a result of essentially anywhere from a four to six-month slip through the ISO process, we tacked that in to the end of 2014.

If you think of the central Connecticut project, essentially, just add somewhere between six to 12 months beyond the interstate.

So central will follow the interstate between six to 12 months, so the inter -- the central Connecticut portion of the project is likely to be done in 2015 now, probably in the third quarter of 2015.

Okay.

So if I go back and look at -- I'm going to go back a few months.

If I go back and look at slide 13 from your EEI CapEx -- presentation, how different is the CapEx guidance and, therefore, obviously the rate base guidance between your November slide and today?

Michael, this is Jeff.

I want to make sure you're talking about the slide where we profile the transmission CapEx going back to 2001 and then out to 2014?

Yes, with the yellow and green lines showing Hydro and NEEWS or yellow and green bars, sorry.

We haven't formally changed it and you shouldn't expect us to really materially change that in any way until we get something definitive back from ISO at this point.

Okay.

But it sounds from Lee's comments that some of those items are moving out and that's pretty normal for -- you're not going to be the first guy who's had transmission projects take a little longer to go through the paperwork process, but I just want to kind of make sure I'm following that, that, Lee, your comments were -- the original slide said NEEWS projects estimated at about $1.35 billion during 2010 to 2014.

Strikes me that that's a much more 2011 to 2015 time frame and that the 2010 numbers have simply been pushed out.

I think it's -- the 2010 numbers hold.

Those numbers hold, of course, because beyond NEEWS, we have a number of other smaller projects.

So we said about $272 million of expenditures in transmission for this year, that's going to hold.

But you're right to the point that it becomes -- in the outer years, it becomes a little flatter because clearly the central Connecticut portion of the project drifts out to 2015 and you've got -- you've got the interstate finishing up in late 2014.

So it flattens out and drifts out a little bit into 2015.

Got it.

Okay.

Thank you.

Much appreciated.

I'll follow up with Jeff offline.

Okay.

Thank you, Michael.

Our next question is from Paul Patterson from Glenrock Associates.

Paul?

Hi, how are you doing?

All right.

I'm sorry, I -- I wasn't on the very beginning of the call and I heard the questions.

I guess I'm sort of wondering, this 15% reduction that's being talked about in the energy legislation, I'm not really completely clear how that's achieved and I was wondering if you could just briefly elaborate on that and whether it's realistic?

Paul, this is Chuck Shivery.

That's really -- you almost call that aspirational on the part of the legislature at this point in time.

They would like us to, as we file supplement to our 2010 integrated resource plan, to talk about opportunities or options that may reduce power prices for the customers.

They were not specific as to exactly what type things we should look at, but want us to look broadly at what might be an opportunity to reduce prices to our customers over that period of time.

Okay.

And so I guess -- and I apologize, what do you think the impact would be if Rell doesn't veto this?

Well, I think as I said a little bit earlier, we don't see a specific financial impact to the Company, but there could be clearly potential impacts to our customers as we put some of these in place.

Okay.

And do you think she'll veto it?

I think it's a little premature to say what the Governor is going to do, but clearly her -- the Office of Policy and Management and the DPUC have come out against the bill, not in support of the bill, so we would -- we would hope that the Governor vetoes it.

Okay.

Thanks a lot.

All right.

Thank you, Paul.

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

Steve?

Hi.

I know it's late in the process, but be curious if you think there's, at this point, any chance that you could settle the case in Connecticut?

I think, Steve, your initial comment was probably right on.

It's pretty late in the process.

We're expecting a draft order within a few weeks and I think by this time if there was a realistic opportunity to settle the case in Connecticut, we probably would have tried to take that.

So I think you'll just see a draft order coming out of the commission.

Okay.

All right.

Thank you, Steve.

And that's the last question.

If you have any further questions -- hold on.

Daniele Seitz from Dudack Research, Daniele, do you have a question?

Just a quick one.

What do you anticipate from the methods to compute [Ares] in Canada at this point, do you see that as a discussion on methods or do you see it more it not have really any impact on the current case, but will have an impact in future cases?

Daniele, this is David.

At this point the cases are really going in parallel, so when we get this draft order and the CL&P general rate case on May 21, it's not going to have a bearing, it's just not going to be done in time.

There have been just one round of interrogatories at this point, those will be filed next week, but this process is generic, ROE proceeding won't even get to hearing until the very end of June, June 30 is the first day.

It doesn't really get decided until September.

So no immediate impact.

With that said, many of the positions that we've taken and we will take in the generic ROE docket, are exactly the positions that we've taken in this generate case.

So I think we've expressed our views.

So there may be some information content, if you will, when the -- when the commission rules on the ROE in this case.

Just a quick comment, do you think they are leaning toward an automatic system so that cases filed in between and it will be more of an incentive system, is that what you think they are leaning toward?

I do not think they are leaning towards and incentive system.

I think there's really two things.

First is a threshold question as to whether or not setting a generic formula is in the public's interest and then second, if they rule that it is, what is the adoption of that formula.

So I really think it's going to be about what would the specific algorithm be, less around how do we create incentive mechanisms through ROEs.

Okay.

Thanks.

I appreciate your comments.

All right.

Thank you.

Thank you, Daniele.

And there are no more questions in the queue, so we want to thank you for joining us today and if you have any follow-ups, please give us a call and we'll send a note out when we have the version of the legislation that we can post up on the website.

Thank you very much.

Thank you for participating in the Northeast Utilities first quarter 2010 earnings conference call.

This concludes the conference for today.

Thank you for your participation.

You may all disconnect at this time.