康涅狄格電力 (ES) 2010 Q2 法說會逐字稿

Welcome to the Northeast Utilities 2010 Q2 earnings call.

My name is John will I be your operator for today's call.

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

Later we will conduct a question-and-answer session.

Please note that this conference is being recorded.

I will now turn the call over to Mr Jeffrey Kotkin.

Mr Kotkin, you may begin.

Thank you very much, John.

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 would like to remind you that some of the statements made during this investor call may be forward-looking at the time within the meaning of the Safe Harbor provision of the US Private Securities Litigation Reform Act of 1995.

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

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

If you have not seen that news release it is posted on our Web site 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 will turn over the call to Chuck.

Thank you, Jeff.

I would like to thank all of you for joining us this afternoon.

Since last Fall we have discussed with you the importance of 2010 to Northeast Utilities.

You knew at the start of this year that we needed to exceed in a number of areas in order to position ourselves to significantly enhance our operating and financial performance for several years to come.

Today, seven months through the year, we have seen two of these key items reach closure, the CL&P and PS&H distribution rate cases.

Those cases were decided in late June and both were effective July 1.

In both cases regulators made important decisions improving our distribution capital investment plan so that we can maintain the integrity of our distribution systems.

In both cases commissions approved increases in the equity component of our capital structure to help us maintain our investment grade ratings and finance our considerable capital expenditures at reasonable rates.

Perhaps as important, both regulators approved multi-year plans that will provide us with a higher level of certainty in our business planning process for the next several years.

These rate cases were completed in a difficult economic environment, on time and in a constructive and professional manner and for that we thank the regulators, their staff and the intervenors.

In addition, we hope to reach closure early next year in the distribution rate case WMECO filed last month.

The five months remaining there are still a number of key items we hope to resolve.

They are similarly important to our operating and financial performance over the next several years.

We will discuss the status of the NEEWS family of transmission projects.

We have already received approvals for some of the smaller projects and expect to receive Massachusetts approval of the greater Springfield reliability project within the next few months.

This project, which was approved by Connecticut siting regulators in March, will provide significant reliability benefits to New England by addressing a key bottleneck in the Springfield, Massachusetts area.

We also look forward to working with NSTAR to wrap up our negotiations with Hydro-Quebec on a transmission services agreement for Northern Pass, our proposed new 1,200 megawatt connection between Quebec and Southern New Hampshire.

One sign that agreement will be presented to the Federal Energy Regulatory Commission for it approval.

After completing the TSA we will begin preparing our state and federal siting applications for the project.

We continue to make progress and expect the sign to TSA later this quarter, begin the siting filings later this year and bring the line into service in the second half of 2015.

From transmission I would like to turn to legislation.

Connecticut's budget bill initially called for the state to borrow about $950 million during the new fiscal year to bridge its budget gap and to have those borrowings repaid through collections from the electric bills paid by CL&P, UI and the Connecticut Municipal Electric Company customers.

Fortunately, and somewhat surprising to many, the state ended the 2009 to 2010 fiscal year with nearly a $400 million surplus.

We expect about $250 million of that sum to be used to reduce the initially projected $950 million of borrowings.

That in turn will reduce the amount that needs to be collected from our customers over the next eight years with a competitive transition in energy conservation charges.

Our regulators and the State Treasurers Office will determine the exact amount to be collected, and we are hopeful that the budget surplus will result in a larger reduction in CL&P bills on January 1, 2011 than we had earlier anticipated.

Finally, I would like to comment on our change in earnings guidance.

You probably noticed that we raised and narrowed the guidance in the earnings news release we issued last night.

We now project consolidated earnings of between $1.95 and $2.05 per share in 2010.

Now, more than half way through year we have experienced very hot weather, good performance from our transmission segment and our competitive businesses, and concluded our two largest distribution rate cases.

Temperatures in the Hartford area have been at or above 90 degrees on 12 of the 31 days in July, compared with no days in the 90s in 2009.

While weather-related sales increases have been partially offset by much higher storm activity than we experienced last year, we expect July electric sales will be well ahead of both last year and our initial projections.

Additionally, we are seeing some early evidence of economic stability in New England with weather adjusted sales up in the second quarter, our uncollectibles expense in regions jobless rate declining.

David will discuss the details of the revised guidance and sales trends, but we are certainly pleased that from an operational and financial perspective, we are achieving the targets our customers and investors deserve.

Now let me turn the call over to Lee.

Thank you, Chuck.

I will begin by reviewing the operations performance.

As you know, we have had record high temperatures in the northeast in the week after July 4.

New England experienced peak electric loads we have not seen since August of 2006.

On July 6, the day after the long holiday weekend, New England's peak demand was estimated about 27,154 megawatts, fourth highest ever.

During that period, our system held up well.

Our New Hampshire generating plant's performance was strong, with nearly 100% availability during peak loads, and equipment-related issues were minimal.

We have not yet seen sales data for July, but we expect it to be robust, especially compared with the mild and wet July we experienced in 2009.

While our system has handled the heat well, we've had a number of severe storms this year, which have impacted our operational and financial results.

Over the first two quarters in 2010, we recorded more than $60 million in storm restoration costs of which approximately 77%, or $46 million, have been deferred for future recovery or capitalized.

The resulting approximately $14 million of pretax storm expense through June is more than double our budget of approximately $6 million for the same period.

In the second quarter alone, we experienced more than $8 million in pretax storm expense across our three electric distribution companies compared to $700,000 in the second quarter of 2009.

Our transmission system is much less prone to storm damage.

And it performed superbly, including our new southwest Connecticut lines handling very high loads along the Connecticut shoreline, despite the fact that the heat there was more intense than the inland areas.

The loads we experienced underscored the need for transmission capital investments we continue to make in our system.

Through June 30, our transmission capital expenditures were $113 million and we project total transmission expenditures of $257 million this year.

We continue to project overall NU capital spending of nearly $1.1 billion in 2010.

About $35 million of this year's capital spending has been on the NEEWS family of projects, and we continue to make progress on our siting initiatives, particularly the greater Springfield reliability project, which accounts for nearly half of our approximately $1.5 billion of projected expenditures on NEEWS.

In Massachusetts, the state energy facilities siting board, or EFSB, held a number of public meetings in May and June to discuss with staff key topics that were raised during evidentiary hearings earlier this year.

We expect a positive outcome for this application and for the approval of the route to be consistent with configurations that were approved by Connecticut siting regulators in March.

We anticipate receiving a draft decision from the EFSB in September and to receive a final decision shortly thereafter.

If the vote is favorable, we expect to begin construction by the end of this year or early 2011 and to complete the GSRP project in 2013.

We will update our cost estimate of the project once we fully understand all of the conditions that will be placed on construction.

Later this quarter we also expect [Ice in New England] to announce their updated needs assessment for the other two major NEEWS projects, the interstate reliability project and the central Connecticut reliability project.

We expect to file state siting applications to build the interstate project in early 2011 for the project to be completed by the end of 2012, with central Connecticut six to 12 months later.

As you will recall from earlier calls and presentations, there are more than $200 million of smaller projects related to NEEWS, some of which are moving forward today.

About $15 million of those projects are approved and some of those are currently under construction.

Like other major transmission owners across the country, we are closely monitoring regulatory commission notice of proposed room making, or NOPR, on transmission planning and cross allocation.

We support the NOPR's endorsement of regional bottom up planning and conclusion that the costs should be allocated based on who causes the cost and who benefits from the transmission.

We believe that the New England transmission planning and allocation model works very well and want to insure that the proposals incorporated in the NOPR do not interfere with the regions planning and investment successes.

We believe that the public policy aspect of the NOPR would support both the Northern Pass HBDC project, [Tupidac] and the potential of a win consortion in New England.

Our largest capital project currently under construction is the clean air project which involves installing scrubber technology, SP&H's Merrimac coal fired station.

Throughout the end of July the project was about 67% complete and we expect it to be completed by mid 2012.

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

In Massachusetts, Western Mass electric has begun construction on the first solar generation facility as part of its six megawatt solar program.

Located on a brown field site in Pittsfield, the $10 million facility will have approximately 1.8 megawatts of capacity, and it is one of the largest photovoltaic projects in new England.

Construction began in May and the installation of more than 6,500 solar panels is underway.

We expect the facility to be operational later this year, Western Mass Electric is currently authorized to invest approximately $60 million in solar projects by the end of 2012.

Site assessments of our next projects are nearly complete and preliminary findings indicate that the potential to install between 2.5 megawatts to 4 megawatts of capacity.

These larger installations of solar projects offer economies of scale and more favorable pricing.

This pricing dynamic provides WMECO customers the benefit of lower cost solar power that may enable the installation of additional capacity, given the appropriate regulatory approvals.

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 L&G plant in Waterbury, Connecticut to Wallingford, Connecticut.

The first phase of this project costs approximately $16 million.

It will provide a new interconnection to the greater Cheshire area, which has significant pent up demand for firm gas service that we cannot currently serve due to pipeline constraints.

We expect this first phase to be completed by November 1.

The second phase will involve expanding the vaporization capacity of the Waterbury L&G facility and connecting the plant to Cheshire from the West.

That should be completed in November of 2011.

We have spent nearly $8.2 million on the project through June and it is currently on schedule and on budget.

Turning to the electric distribution side, I would like to follow up on some comments by Chuck about the CL&P and PS&H rate case decisions.

Both commissions approved our proposed distribution capital investment plans for the coming years.

In Connecticut the DPUC also approves some additions to CL&P's work force including 16 metering technicians, 11 additional customer service representatives and various support personnel, as well as a higher level of tree trimming expense than we initially proposed in the rate case.

We believe both cases will allow us to maintain the recent improvements we had made in service reliability and make additional investments going forward in CL&P's and PS&H's distribution infrastructure.

In the Western Massachusetts Electric rate case we filed last month, we proposed a multi-year capital investment recovery mechanism to insure that we can recover on a reasonable timely basis distribution capital investments that is we need to make Western Mass Electric's service territory more reliable.

This mechanism is important to us and it is important for improved reliability as we go forward.

In the case we proposed raising WMECO's annual distribution capital expenditures from $35 million annually to about $50 million annually.

In our testimony, we told the DPU that we need the additional expenditures to stem what would otherwise a continued degradation of distribution service reliability.

Also, in the case we are seeking to recover over five years the $13 million of remaining deferred expenses related to the December 2008 ice storm and several smaller storms.

You may recall that in the PS&H rate case, the New Hampshire public utility commission approved recovery of PS&H's more considerable ice storm expenses over seven years.

Now I would like to turn it over to Dave McHale.

I will start by reviewing our financial performance in both the second quarter and first half of 2010 and finish with the more in depth comments concerning our revised 2010 guidance and future earnings prospects.

We earned $71.9 million, or $0.41 per share in the second quarter of this year, compared with $82.9 million, or $0.47 per share, in the second quarter of 2009.

The decline in year-over-year earnings is primarily due to the fact that in the second quarter of 2009 we settled a number of routine tax matters with state and federal authorities and recorded after tax gains of about $11.1 million, or $0.06 per share.

So, absent the tax related gains, our second quarter results this year were similar to last year.

In the first half of 2010, we earned $158.2 million, or $0.90 per share, compared with $180.5 million, or $1.07 per share, in the first half of 2009.

$0.09 of the $0.17 difference were related to gains from the settlement of routine tax matters in the first half of 2009.

Earnings in our transmission segment totaled $41.9 million in the second quarter of 2010, and $82.1 million in the first half of 2010, compared with $41.8 million in the second quarter of 2009 and $77.2 million in the first half of 2009.

The growth in year-to-date earnings reflects the increased transmission rate base on which we earn our current regulated returns.

Rate base at June 30, 2010 was $2.64 billion, up about $125 million from June 30, 2009.

Transmission earnings growth, while still positive of course, is slower than it was in the years during which we were building our four southwest Connecticut projects.

Now that we are on the verge of receiving final siting approvals for the greater Springfield reliability project, we are poised for accelerated growth over the coming quarters.

Earnings in our distribution and generation businesses totaled $27.1 million in the second quarter of 2010 and $75 million in the first half of 2010, compared with $38.2 million in the second quarter of 2009 and $97.4 million in the first half of 2009.

Much of that decline was expected and is related to the 2010 tax matters I discussed earlier.

I will go through each of the regulated businesses in a little more detail.

CL&P's distribution segment had the greatest decline, that was a segment that benefited the most in 2009 from the tax settlement.

Its distribution segment earned $8.4 million in the second quarter of the year and $22.7 million in the first half of this year.

Compared with $21.9 million in the second quarter of 2009 and $43.6 million in the first half of 2009.

In addition to the tax item, the decline in the second quarter was due in part to the storm expense we mentioned earlier, but was also due to higher pension expense and municipal taxes.

Over the past 12 months, CL&P's regulatory ROE was 5.4% and we expect that level to improve steadily over the next several quarters as a result of the Connecticut Department of Public Utility Controls distribution rate case that was effective last month.

For calendar 2010, we expect CL&P's distribution and regulatory ROE to be between 7.5% and 8%.

On June 30, the DPUC approved a distribution rate increase of $63.4 million that became effective July 1, 2010 and an incremental $38.5 million that will become effective July 1, 2011.

The DPUC approved CL&P's proposed capital structure of 49.2% common equity, but maintains CL&P's authorized return of 9.4%.

As you probably read in our 8-K, the DPUC initially denied the CL&P's request to establish a $13.7 million regulatory asset related to a provision in the federal health legislation that eliminated the tax deductibility of subsidies companies received providing retirees health care, which would have required us to take a charge to earnings.

On July 14, CL&P filed for a reconsideration of this finding, and on July 28, the DPUC amended its order in our favor granting the establishment of the regulatory asset.

So there was no charge taken in the second quarter.

In the rate case decision the DPUC agreed with our positions on several topics, it accepted our projected sales assumption for 2010 and 2011, approved CL&P's capital program, funded our reliability and maintenance program and, as I mentioned earlier, approved our requested capital structure.

But the decision also did not allow us to recover certain expenses we may not be able to offset, costs such as a large portion of incentive pay for non-officers and to a lesser degree, costs related to rental expense, fully benefit from pension.

Also as a reminder, there are certain costs we chose not to include in the rate case, such as executive incentive compensation, board-related expenses, and portions of D&L insurance and 401K expenses.

$12 million in total.

That said, we believe that CL&P will be in a position to earn in the 9% area over the next two years as long as we remain diligent on managing our costs and avoid a downturn in the economy.

While that may fall short of the allowed 9.4 ROE, we think the case was concluded in a constructive manner and fairly balances the needs of shareholders and customers, particularly against the current economic backdrop.

As part of this decision, the DPUC accepted our proposal to defer implementation of the rate increase on customer bills until January 1 of 2011.

As a result, while from an earnings perspective, CL&P will benefit from the rate increases in mid 2010 and mid 2011, as I described earlier, the cash impact will be different because customers will seen only one distribution rate increase, totaling about $110 million annually on January 1 of 2011.

That increase should allow us to recover all of the revenue due to us as a result of the two rate increases between the beginning of 2011 and the middle of 2012.

For customers still buying their energy from CL&P, that January 2011 increase will be more than offset by declines in the transition in generation portions of the bill.

So, even with the distribution increase, most of our customers are likely to receive a reduction of their total bill in 2011 with the generation portion, which comprises well over half of the total bill, likely down at least 10%.

From CL&P, let's look at PS&H where we also concluded a distribution rate case at the end of June.

On July 1 PS&H implemented a $45.5 million distribution rate increase as a result of the New Hampshire Public Utility commissions approval of a settlement we had reached with the commission staff and the consumer advocate.

As I described, that five year settlement at length during our May conference call, I won't go into the details here again, but like CL&P, we believe that the rate case will allow PS&H's distribution earnings to recover significantly over the next 12 months.

Going forward we estimate that its combined distribution and generation ROE can achieve returns in a 9.5% to 10% range, supported by a 9.81 ROE for PS&H generation business and an ROE in the 9% area for distribution only.

As of June 30, the combined distribution and generation ROE was 7.7%.

We expect to be close to the authorized levels of the full calendar year 2010.

PS&H's distribution and generation segment earned $16.9 million in second quarter of 2010 and $28.1 million in the first half of 2010.

Compared with earnings of $11.9 million in the second quarter of 2009 and $25.4 million in the first half of 2009.

The improvement in second quarter results was due primarily to our 4.6% increase in retail electric sales and the temporary distribution rate increase that took effect a year ago, partially offset by higher pension and other operating costs.

Western Mass Electric earned the $2.3 million in the second quarter of 2010 and $5.2 million in the first half of 2010, compared with $3.8 million in the second quarter of 2009, and $8.6 million in the first half of 2009.

The decline to date was due to higher storm restoration costs, employee benefit costs, interest expense, and municipal property taxes and occurred despite the 7% increase in electric sales in the second quarter of 2010, compared with the same period last year.

WMECO's trailing 12 month distribution ROE was 6.6% and we now expect it to be about 5% for the full calendar year 2010.

As a result of this weakening performance, WMECO filed with the Massachusetts Department of Public Utilities on July 16 for $28.4 million increase in distribution rates, effective February 1, 2011.

We expect this to be WMECO's first fully litigated rate case in about 20 years.

In it, WMECO is seeking revenue decoupling consistent with DPU policy, as well as a distribution capital tracking mechanism.

It is also seeking to recover a deferred storm, restoration and hardship receivable costs.

A link to the rate case filing is available on our investor Web site.

Although second quarter earnings were certainly not strong for our electric distribution businesses, they did benefit from hot weather in June.

Retail sales were up 5.9% in the second quarter of 2010, compared with the second quarter of 2009.

Importantly, they were up 1% on a weather adjusted basis.

That favorable performance offset a weak first quarter, so our overall retail electric sales are flat year-to-date compared with 2009.

On a weather-adjusted basis, retail electric sales are off 0.8% for the first six months of the the year, which is somewhat ahead of our sales forecast of negative 1% for the full year, and a significant improvement from the first quarter weather adjusted sales, which were down 2.5% from the first quarter of 2009.

The quarterly weather adjusted year to year increase in sales was the first we have seen in the service territory since 2007.

In fact weather adjusted sales in the quarter were up for all three of our electric companies and among classes, residential was up 1.8%, commercial was up 0.4% and even industrial halted its long decline, although just breaking even with last year's numbers.

We have seen the regional economy move from recession to stabilization, to perhaps now a glimmer of recovery.

New Hampshire's economy certainly seems to be improving.

The states unemployment rate, which started the year at 7.7%, has dropped to 5.7%, well below the overall US unemployment rate of 9.5%.

While the service sectors in New Hampshire such as health care continue to hire, it is in the resurgent and manufacturing employment that has made the most difference over the past six months.

New Hampshire added 900 manufacturing jobs in May.

Weekly hours are up, as are average hourly wages, the state is expected to add more than 10,000 jobs this year.

Connecticut's economy also has shown signs of improvement in 2010.

In June, Connecticut added jobs to its economy for the sixth consecutive month.

So, at a 500 gain, it is the smallest monthly increase since February of this year.

June's gain makes for a total of 13,500 new jobs since December 2009.

Although the insurance industry continues to shed jobs, industrial production has been bolstered by Government spending on aerospace and the recovery of the global economy, which has helped export related activity recover quite nicely.

The state unemployment rate declined from its 9.8% peak in January, to 8.8% in June.

One additional area where we are seeing progress across our system is in uncollectible write offs.

You may recall that rising uncollectible expense was a development that negatively affected our earnings and results in the second half of 2009.

As expected, this year, we are having more success in this area in uncollectible expense is running about $5 million better than planned.

As a reminder, last year we experienced $47 million in non-track uncollectible expense and we budgeted for a $12 million decline in 2010 to a level of $35 million.

Our current run rate, absent a reversal in the economy, has us now targeting about $30 million in non-track expense.

As you know, July was an extremely hot month in the northeast, cooling degree days at Bradley Airport, between Hartford and Springfield totaled 386 compared with 168 last year, at an average of 274.

That heat certainly provided us with a running start for the third quarter.

Turning to our natural gas business, Yankee lost $0.5 million in the second quarter of 2010, compared with a profit of $600,000 in the second quarter of 2009.

The warm April was clearly a factor, Yankee's firm natural gas sales were down 4.3% in the second quarter of 2010, compared with the same period of 2009.

Over the first six months of 2010, Yankee Gas earned $19 million, compared with $19.8 million during the same period of 2009, the principal factor leading to that decline was a 3.7% decline in firm natural gas sales driven by a much warmer heating season.

Aside from the weather, Yankee Gas continues to experience real sales growth, primarily as a result of conversion, on a weather adjusted basis, Yankee Gas firm natural gas sales were up 5.1% during the first half of 2010 compared with the same period of 2009.

This continues the trend we have experienced in the past couple of years.

In 2009, Yankee Gas' weather adjusted sales were up 5% over 2008 levels, with a 20% to 30% price advantage, we continue to see strong interest among our customers and installing natural gas fire equipment and converting away from heating oil and other fuels.

Lee discussed the Waterbury Wallingford line earlier.

Placing that line into service and into rate base will be a primary factor triggering the need for a Yankee Gas case next year.

Second quarter results at the competitive businesses and parent or in par with results in 2009, our competitive business has earned $5.3 million in the second quarter of 2010, compared to $5.5 million in the second quarter of 2009.

Although the competitive businesses continue their wind down mode, they benefit from remaining energy contracts and their profitable electrical contracting business [ESBS].

And the parent recorded net after tax expenses of $2.4 million in the second quarter of 2010, about $200,000 less than the $2.6 million incurred at second quarter of 2009.

As Chuck noted last night, we raised our consolidated earnings guidance to $1.95 to $2.05 per share this year.

I want to take a moment and expand on this by business segment.

First given the success of our competitive businesses so far this year, we see that segment earning at the very top of the original zero to $0.05 range.

Therefore, the revised guidance of $0.05 per share, and see little volatility remaining in business throughout the balance of the year.

Second, given the successful execution of our transmission capital plan this year and prospects over the balance of the year, we also see that segment earning at the very top of its original $0.90 to $0.95 range.

Therefore, we revised guidance to $0.95 per share.

Even though there are a small number of items that are not perfectly tracked through the transmission tariff, such as the nearly $1 million in health care reform related charges with we incurred in the first quarter of this year, we see manageable variation remaining over the balance of the year.

Third we are holding steady on the projected net expense of $0.05 per share at our parent and other businesses.

And lastly, we are left with the distribution segment where we started the year with a range of $0.95 to $1.05.

This range reflected several substantial unknowns going into the year including the PS&H rate case yet to be filed, CL&P rate case and the prospects for a weakening economy.

We attribute the increase in guidance in this segment to $1 to $1.10 per share to the constructive resolution of the CL&P and PS&H rate cases, perhaps with what is at least a stabilizing of the economy as demonstrated by the second quarter of 2010 weather adjusted sales and an improvement in uncollectible expense trends.

Of course, we also benefited from June's warm weather and we know July sales will be very strong due to record temperatures.

In addition, inflation remains in check, we are managing O&M quite effectively, interest rates remain low and our long-term debt issuance for the year has been completed at interest rate levels better than planned.

Looking at it another way, a revised consolidated guidance for of $1.95 to $2.05 per share is quite a bit better than our trailing 12 month EPS of $1.75 per share.

There are a number of factors that we believe will improve results, not only over the next two quarters, but in 2011 as well.

I already mentioned the CL&P and PS&H distribution rate decisions, electric sales and uncollectible trends including the fact that we recorded significant charges in the third and fourth quarter of 2009, associated with uncollectible expense at both Yankee and CL&P.

But we see other growth catalysts as well, such as the Merrimac clean air project at PS&H, which, as it moves towards completion in 2012 will generate additional earnings each quarter on its growing equity investment, with regulatory approval, the greater Springfield reliability project will move into full construction in 2011 and it will be booking a progressively larger FERC regulated cash return of 12.89% on the equity we expect to invest in that project.

We expect WMECO's distribution results to improve in 2011 should we receive reasonable rate treatment in the current case, and it is possible that Yankee Gas could have new rates in effect by mid-year should we move forward with a 2011 rate case filing at that company.

Of course, we will continue to manage our costs diligently in an effort to achieve our ROE targets and minimize costs to customers.

As in the past, we expect to provide you with specific 2011 earnings guidance during our customary breakfast presentation at the EEI conference in November, but meanwhile, we remain optimistic that our business can grow earnings at a 6% to 9% five year compounded annual growth rate and simultaneously grow the dividend at a rate above what we think on average the industry will achieve and consistent with our internal 50% dividend payout ratio target.

Lastly, turning from earnings to cash flow in our balance sheet, net cash flows from operations after retirement in rate reduction bonds totaled $405.2 million for the first half of this year.

Somewhat ahead of where we were at this time last year.

With the hot weather bolstering electric sales, we are now projecting cash flows after repayment of rate reduction bonds of about $700 million this year, up from the $650 million we had projected in May.

Total debt represented about 56.3% of total capitalization at the end of June, below our general leveraged target of 60%.

As a result, we continue to see no equity issuances on the horizon until at least 2012.

You may have noticed that in July, both Moody's and S&P completed their most recent reviews of NU and our subsidiaries.

Our ratings and the stable outlooks were affirmed.

Also, over the next two months, we will be working to renew our $900 million of credit lines, our banks are quite comfortable with both our business outlook and results and we expect a renewal for at least three years to be in place by October.

In addition, we have no debt maturities or debt offerings between now and year end.

Now I will turn the call back to Jeff.

I will just turn it over the Lee for a moment to correct something.

I just want to make one correction.

I talked about the interstate or reliability project which will start the siting in 2011, that will complete in 2014.

By the end of 2014.

Okay.

If I could now turn it over to John, and John can give you some instructions on how to enter any questions.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions) At this time I will turn it back to you, Jeff.

Thank you, John.

Our first question today is from James Dobson from Wunderlich Securities, Inc.

Jay?

Thanks, Jeff.

I was wondering if we couldn't talk, Chuck, about the TSA and I am not sure maybe it should be handed to Lee, but just sort of where exactly we are on this.

I know you said you hope to have something by the end of the third quarter, but that has been a little bit of a moving target.

So just give us a little more clarity on where exactly we are and your confidence around that.

Sure, Jay.

I think we continue to make good progress, very positive momentum and I would hope to see something in the recently near future.

We said third quarter, it is almost the middle of August now just to give ourselves a little bit of time, but I am very confident that, that is continuing to move forward.

There's no sticking issues or anything that we should be concerned about as far as Hydro-Quebec's commitment to the project at all?

No, there's certainly no issues with Hydro-Quebec's commitment to the project.

In fact, I had a discussion with Thierry Vandal yesterday talking about that and both of our desires to get this project done and get it completed quickly.

Great.

And then, Lee, you mentioned an update to greater Springfield cost, I believe that's [714], at least as you had originally -- where is it likely to go?

Is that a revision higher, lower?

It is really just because to say because you really have to get that final decision from the siting council and get the final round and whatever other EMF mitigation there is or screening.

We do think there will be some screening.

I certainly think that the cost estimate we have now, Jay, is a very good one.

It won't be lower based on everything that we know about the project.

That's probably the best council I can give you at this point.

Great.

Thanks very much.

Great.

Thank you, Jay.

Our next question is from Steve Fleishman from Banc of America/Merrill.

Steve?

Yes, hi, Jeff and everyone.

Hi.

Just a question with regard to some of the guidance.

Dave, I think in the past you have mentioned that 2011 might be an above normal growth year given greater Springfield et cetera.

Is that still the case given that you now have lifted this base?

What we said, Steve, I think we used the term above trend, if you think 6% to 9% is what we are characterizing as trend, mid point of that trend 7.5%.

I think as we look out at 2011 thinking through those items I rattled through, I think I still feel comfortable with that statement.

Thank you.

Thank you, Steve.

Our next question is from Caroline bone from Deutsche Bank.

Caroline?

Hi.

Hi, Caroline.

Hi.

Yes, I was just wondering if you can quantify how much benefit was seen in Q2 from weather and I guess, just specifically what you're assuming with regard to weather in your new guidance for the second half of the year?

Let me take the first half of that.

I think when we look at weather related revenue, the benefits, remember, it was off substantially in Q1, I think it was off about $10.5 million.

We got about $4.5 million of that back in Q2.

So, net we are still down about $6 million on weather-related revenue.

With that said, I will sort of maybe hesitate a little bit on opting specifically about how much July weather is built into our forward guidance, but I would say that it is not the material piece of that, Caroline, we have a lot of good fundamentals that are working in our favor.

I guess we have had here a nice, warm Summer tailwind on earnings, but it is a small part of that overall guidance increase.

And just on -- as a follow up, I was wondering if you can remind us what your EPS sensitivity is to a 1% change in electric sales?

I think you have give than before.

Yes.

We have said in the past a 1% change is worth about $3.5 million of earnings.

Okay.

Thanks.

All right.

Thank you, Caroline.

Next question is from Anthony Crowdell from Jefferies.

Anthony?

Yes.

How are are you doing, Jeff?

A question regarding the Springfield to -- great Springfield to -- I forgot the destination there.

On the line, the CapEx forecast following Steve's question about do you see CapEx going higher or lower?

Is there an opportunity that a substantial portion of that line gets underground as we saw in the first, I guess first build out of transmission lines in Connecticut?

Or do you think that mainly it stays above ground, with the exception of a few minor segments?

Anthony.

This is Lee Olivier.

Based upon all of evidentiary hearings that have taken place both in Connecticut and in Massachusetts, I think it is highly unlikely that there would be a significant amount of transmission that would be underground.

There could be some minimal undergrounding, but I don't think it would have a substantial impact on the cost of that project.

Great.

Thank you.

You're welcome.

Thank you, Anthony.

We don't have anymore questions.

So, I want to thank you very much for joining us this afternoon.

If you have any follow up, give us a call this afternoon or later in the week.

And have a great Summer, everybody.

Take care.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.