1 / 54

RATING AGENCY MEETINGS APRIL 7, 2009

RATING AGENCY MEETINGS APRIL 7, 2009. Today’s Agenda. 2008 review ERM initiatives Transmission segment Distribution and generation segment Financing requirements Financial forecast. Key Achievements in 2008. Solid execution of strategic initiatives

nell
Download Presentation

RATING AGENCY MEETINGS APRIL 7, 2009

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. RATING AGENCY MEETINGS APRIL 7, 2009

  2. Today’s Agenda • 2008 review • ERM initiatives • Transmission segment • Distribution and generation segment • Financing requirements • Financial forecast

  3. Key Achievements in 2008 • Solid execution of strategic initiatives • Earnings ahead of forecast, excluding Con Ed litigation settlement • Southwest Connecticut projects all completed and reflected in rates • Middletown-Norwalk finished one year early and $100 million below budget • Several positive FERC decisions on transmission rates • New legislation could provide additional regulated investment opportunities • Strong operational performance • Solid execution of financing plan

  4. Most Key 2009 Financings Already Complete • NU common equity issuance closed 3/20/09 • Upsized to nearly 19 million shares • Net proceeds exceed $370 million • Four times oversubscribed • CL&P $250 million bond issue closed 2/13/09 • 7.7 times oversubscribed • Coupon of 5.5%, 15 basis points below May 2008 issuance • Ten-year maturity • CL&P $62 million PCRB remarketing closed 4/2/09 • 2.5 times oversubscribed • Coupon of 5.25% • One-year mandatory put

  5. 2008 Results 17.9% * 3.1% 67.6% In Millions * Distribution and Generation Transmission Competitive Total Parent/Other *Excludes $29.8 million after-tax charge from March 2008 litigation settlement

  6. Competitive Business Performance Strong During Unwinding • $13.1 million of net income in 2008 • Net income up 12% from 2007 • Forecast had been breakeven • Strong management of wholesale contracts • $1.1 million of net after-tax mark-to-market gains • 2009 earnings projected to be $8.2 million • 2009-2013 cash flow neutral overall • Wholesale contracts roll off in 2012, 2013 • Boulos projected to be profitable, free cash flow positive

  7. 2008 Results vs. April 2008 Forecast * *** *** ** ** ** ** * Excludes $29.8 million after-tax charge to settle litigation ** Excludes $56 million of WMECO long-term debt offset by spent nuclear fuel trust assets ***Excludes $288 million of equity associated with acquisition premium

  8. NU is Targeting a Conservative 50% Dividend Payout Ratio EPS * 2002 2003 2004 2005 2006 2007 2008 2009 Est. *Low end of projected earnings range

  9. Enterprise Risk Management Status Update Board of Trustees • Enterprise Risk Management is in its fourth year of implementation as a corporate oversight function. • Corporate level Enterprise Risk Management Group works directly with the businesses and corporate functions • Accountability for risk remains with the businesses • Regular reports to the Board of Trustees on strategic financial, and operational risks • Fully functioning Risk and Capital Committee which integrates risk with capital expenditure decisions • Responsible for establishment and oversight of risk management and capital approval policies and procedures • Executive management membership • ERM principles integrated into strategic planning and budgeting processes with strategic and operating plans “risk rated” Chief Executive Officer Chair Risk & Capital Committee Chief Financial Officer Director Corporate ERM Distribution/ Generation Risk Controller Executive Vice President Operations Transmission Risk Controller Corporate Shared Services Risk Controller Select Energy Risk Controller Risk Analyst

  10. Strategic Risk Momentum Themes Each Strategic Risk can be mapped to a key business theme. The economy has also emerged as an additional theme driving risk and mitigation strategies.

  11. Favorable Favorable Favorable Unfavorable Unfavorable Unfavorable Neutral Q1 2009 Strategic Risk Momentum[Extract from the April 2009 NU Board of Trustees Finance Committee Meeting Materials] Unfavorable Unfavorable Narrow lined arrow is an update from prior quarter view

  12. Favorable Favorable Favorable Favorable Unfavorable Unfavorable Unfavorable Unfavorable Q1 2009 Strategic Risk Momentum Slightly Favorable Slightly Unfavorable Slightly Favorable Slightly Unfavorable Narrow lined arrows an update from prior quarter view

  13. Favorable Favorable Favorable Unfavorable Unfavorable Unfavorable Favorable Unfavorable Q1 2009 Strategic Risk Momentum Favorable Slightly Unfavorable Slightly Favorable Neutral Narrow lined arrows an update from prior quarter view

  14. Favorable Favorable Unfavorable Unfavorable Favorable Favorable Unfavorable Unfavorable Q1 2009 Strategic Risk Momentum Slightly Unfavorable Neutral Slightly Unfavorable Neutral Narrow lined arrows an update from prior quarter view

  15. Transmission Segment

  16. Strong Execution, Efficient Operations and Effective Capital Deployment: Cornerstones of Our Transmission Strategy • We continue to focus on strong execution of operations and projects, as we have shown with our southwest Connecticut transmission build-out • Our capital investment plan continues to address needed infrastructure upgrades while creating value for customers and shareholders • Our transmission segment of the business continues to be a major driver of capital outlays and earnings • We have maintained excellent safety and environmental records • We have had very successful NERC audits for compliance with reliability standards and cyber-security

  17. A Deliberate, Strategic Approach to Contracting • Limited internal resources are used for construction • NU maintains field oversight with Project Managers, Construction Representatives, Switching & Tagging personnel and Inspectors • Outside experts hired for construction management of specialty areas (underground, undersea cables, gas insulated substations) • Larger construction projects: • Use integrated contracts such as Engineer-Procure-Construct (EPC) or fixed price, turn-key purchase and install contracts • Competitively bid the work • Risk management – a formal, rigorous process to identify and manage risks is built into the decision-making and project oversight processes

  18. Future Resources Aligned with Strategic Business Plans • Construction Expertise – we use experienced, project management firms with a proven track record • Burns & McDonnell, Bond Brothers, Power Engineers • Labor – We have partnered with the largest U.S. transmission constructor • Initial contract signed with Quanta in 2007 for $750 million in transmission construction services • Provided for 70% of labor through 2013 • Expanded in 2009 to $950 million through 2015 • Already awarded $50 million • Material – established worldwide network to procure key components • Cable suppliers – Silec, Prysmian, VISCAS, Nexans • Transformers – Areva • Breakers – Siemens • GIS – Mitsubishi • Poles – Thomas & Betts

  19. 2008: Major SW Connecticut Projects Complete SW CT Projects completed at a cost of $1.6 billion, nearly $80 million under budget COMPLETED Bethel/Norwalk 345/115-kV Underground & Overhead 21 miles Completed October 2006 50% of CT Load COMPLETED Middletown/Norwalk 345/115-kV Underground & Overhead Long Island Replacement Cable 138-kV marine COMPLETED 69 miles Joint project with United Illuminating Completed December 2008 Glenbrook Cables 115-kV underground 11 miles Joint project with LIPA Completed September 2008 9 miles Completed November 2008 COMPLETED

  20. 2008: Several Favorable FERC Transmission Rulings • March: Rehearing decision on New England transmission returns raised base ROE for regional projects by 20 basis points to 11.64% • July: 13.1% ROE approved for Middletown-Norwalk underground section – 46 basis point adder (reaffirmed in January 2009) • November: 12.89% ROE, 100% CWIP approved for major NEEWS projects

  21. Transmission 2009-2013: Capital Expenditure Program $1.5 billion of additional forecasted projects Historic Forecast $2.5 Million Up To $3.5 Billion HVDC Line from Canada US portion conceptually estimated at $700 million with $525 million NU ownership share In Millions NEEWS projects ramping up NEEWS projects estimated at $1.46 billion during the 2009-2013 forecast period

  22. Greater Springfield Reliability Project SPRINGFIELD Interstate Reliability Project HARTFORD Central Connecticut Reliability Project 345-kV Substation Generation Station 345-kV ROW 115-kV ROW The NEEWS Projects are Advancing Into the Siting Phase Favorable FERC treatment, with a 12.89% allowed ROE and 100% CWIP in rate base approved for major NEEWS projects

  23. New England Regional Environmental Challenges Regional Greenhouse Gas Initiative CO2 Emissions Renewable Portfolio Standards Needs • Compliance gap is 21 million tons CO2 by 2025 • Equivalent to 38 million MWh or 5,400 MW of emitting baseload generation • New England has 2,800 MW of coal • Compliance gap is 24 million MWh by 2025 • Equivalent to 3,000 MW biomass (80%), 7,900 MW wind (30%), or 19,700 MW solar (12%) • Opportunities to develop large scale projects in ME (wind) and NH (wind, biomass), but not sufficient to meet requirements

  24. NU’s Proposed Canada Transmission Interconnection Project Will Bring Low-Carbon Resources to New England Load Centers NU Partnership with NSTAR, Hydro-Quebec (“HQ”) Eastern Canadian Development • Signed MOU with NSTAR and Hydro Quebec to develop project on an exclusive basis • 1,200 MW HVDC line between HQ’s hydroelectric system and New Hampshire • PPA to supply low-carbon energy to New England load • Joint filing with NSTAR for a Declaratory Order from FERC to approve concept of joint PPA / transmission arrangement • HVDC line would be participant funded • US portion of HVDC line would be owned by affiliates of NU and NSTAR • Anticipate filing PPA terms with State regulators in 2009 • Intend to offer PPA broadly to New England load through an open process • NU share of project investment approximately $525 million • Construction targeted to begin in 2011 H Newfoundland & Labrador Exploring development of large Hydro facilities H H Quebec Hydro Quebec plans to develop a portfolio of hydroelectric projects totaling 4,500 MW and integrate 4,000 MW of planned wind power by 2015. H H H H W W W N New Brunswick Exploring development of 1 or 2 nuclear units W W B Biomass B H Nuclear General Movement Of Power Hydro N Wind W

  25. Logic Behind Our HVDC Project • Developable path with existing right of way and few technical challenges • New Hampshire provides short path from resource to market • Transmission development with a separate corridor from the existing “Phase 2” HVDC tie line for reliability • Project will utilize proven overhead HVDC technology • Construction synergies with NH Coos County renewables Transmission • Committed load to anchor project • NU and NSTAR collectively serve half of New England’s electricity load and all major load centers and can effectively “anchor” the PPA Load • Bona fide supplier with committed low carbon supply • Project leverages new hydro facilities already under construction in Quebec • HQ system power with high reliability • Hydropower is dispatchable, unlike wind or solar which are intermittent resources • Winter peak/summer peak compatibility Low Carbon Generation

  26. Distribution and Generation Segment

  27. 2008 Distribution and Generation Results 14.0% 5.3% In Millions 19.9% 33.5% CL&P Yankee Gas PSNH WMECO

  28. Distribution and Generation Regulatory Summary CL&P PSNH Distribution PSNH Generation WMECO Yankee Gas ~66% of CL&P and WMECO distribution revenues, 50% of PSNH distribution revenues and 40% of Yankee Gas revenues are collected through charges not dependent on sales volume Electric Gas Notes: WMECO allowed ROE based on a range of potential outcomes CL&P is also allowed full recovery of conservation and renewable costs

  29. Projected Capital Expenditures and Rate Base Projected rate base by company Projected capital expenditures by company ($ millions) ($ millions) CAGR of 8.3%

  30. Sales Data Yankee Gas CL&P WMECO PSNH

  31. Write-Offs Rising, Reflect Each Service Territory’s Economic Conditions and Household Income Write-offs as a % of Revenues

  32. CL&P Update • Rate case filing deferred until late 2009/early 2010 • Peaking generation proposal not selected by DPUC • Internal task force in place to better target distribution capital • Conversion of all utility accounts into new customer service system completed in late 2008 • New procurement contracts likely to lower CL&P customer bills • 3,000 customer Smart Grid pilot to commence June 1, 2009

  33. CL&P Recovers Costs Mostly Through Tracking Mechanisms Total: 17.656 cents/kwh Projected Price of Electricity 18.55 19.20 19.91 18.90 All subject to trackers Cents/kwh Cents per kWh (*) Rate Reduction Bonds are fully retired in 2010 Average rate as of 4/1/09

  34. PSNH Regulatory and Legislative Update • Temporary and permanent distribution rate cases to be filed this quarter • Legislative focus this year on Merrimack Scrubber • $250 million cap proposal rejected by House • 2008 legislation provided new distribution and generation opportunities • RGGI-related costs being passed through PSNH generation charge • Initiative still under review to connect new renewable generation in northern New Hampshire

  35. PSNH Rates Competitive Within New England Projected Price of Electricity Total: 15.24 cents/kwh* 16.27 16.58 18.00 18.28 Cents per kWh Cents/kwh Tracked costs *Blended rate

  36. New Hampshire Clean Air Project Construction Under Way • Scrubber required by New Hampshire statute to reduce mercury emissions • Revised estimate of $457 million • All major contracts in place • Estimated project completion: 2012 • Expected to reduce sulfur emissions by more than 90% • Expected to reduce mercury emissions by 80% • Investment to be recovered through PSNH generation rates per legislation • Merrimack a key source of low-cost power for PSNH customers • Two coal units supply about 40% of PSNH’s energy requirements • PSNH energy costs will remain one of the lowest in the region

  37. WMECO Implementing New Legislative Regulatory Initiatives • Next distribution rate case planned for mid-2010 filing, early 2011 implementation • Full decoupling • First litigated case in about 20 years • Application filed to build up to 15 MW of solar generation • Application to implement “Smart Grid” pilot for 600 – 800 lower income customers • Greater Springfield Reliability Project now in siting • Will significantly change composition of WMECO rate base by 2013

  38. WMECO Costs Mostly Tracked Total: 15.125 cents/kwh Projected Price of Electricity 16.65 17.47 17.49 17.06 Cents/kwh Tracked costs Cents per kWh

  39. NEEWS Will Change WMECO Rate Base Composition Significantly $1,109 $1,023 $870 $665 Year-End Rate Base $Millions $510

  40. Yankee Gas: New Opportunities, Lower Prices Driving Improved Projections • Sales increases continue to be driven by distributed generation, lower natural gas prices • Conversions from oil to natural gas up 500% in 2008 • Customer growth of 1% in 2008 • Interest in conversions continues to be strong • More than 50,000 new potential customers are located along Yankee’s gas mains • No near-term rate relief required • Proposed expansion of LNG facility to meet planning criteria would enable new line from Waterbury to Meriden

  41. Financings and Forecast

  42. Available Cash/Credit As Of 4-3-09(in Millions) $500 Million Parent Revolver Available Cash $163 $337 $436 $400 Million Regulated Revolver $140 $260

  43. Cash Requirements Projected To Be Much Lower In 2009 Uses Sources ($ millions) ($ millions) $1,530 $1,530 $1,120 $1,120

  44. Significant Modeling Assumptions in Forecast • Reflects upsized net equity issuance of $371 million in 2009, additional $600 million in 2011, and $300 million in 2013 • Annual dividend increases of $0.10/share, down from $0.15 annual increases in last year’s forecast • Assumes $835 million of pension funding, no relief from Pension Protection Act • Assumes rate relief to achieve distribution ROEs of 9.25% beginning 7/1/10 for CL&P, 7/1/09 for PSNH, 1/1/11 for WMECO, Yankee Gas • Transmission projects are constructed as planned and achieve blended ROEs of approximately 12%

  45. 2008-2013: New Capital Expenditure Forecast $1,685 $1,693 $1,371 $1,299 $1,310 $1,247 $1,234 $1,210 $1,088 $986 $921 2013 Est.* 2008 Actual* 2009 Est.* 2010 Est.* 2011 Est.* 2012 Est.* Distribution Capex From 3/08 Forecast Distribution Capex Actual or From 3/09 Forecast Transmission Capex From 3/08 Forecast Transmission Capex Actual or From 3/09 Forecast * Includes capex of approximately $20 million per year for 3/08 forecast and $35 million per year for 3/09 forecast at corporate service companies on behalf of operating companies Five-year 2009-2013 capital spending of $6.7 billion, compared with last year’s 2008-2012 $6.0 billion plan; 2008-2012 period up by $806 million

  46. Elements of 2009-2013 Capex Projections What’s In What’s Not • New PSNH distributed generation • New WMECO solar opportunities • Additional renewable generation • Additional transmission opportunities • Underground portion of NEEWS (if required) • Extensive Smart Grid infrastructure • $430 million to complete Merrimack Clean Air Project • $1.46 billion to complete NEEWS • $525 million for transmission from Canada • $130 million for Northern NH transmission loop • $1.3 billion for additional transmission projects • $2.3 billion for electric distribution • $400 million for natural gas distribution

  47. Minimal Maturities Through 2011 Millions Excludes RRBs

  48. Cash Flow To Cover More of Cap Ex After 2008 Actual Actual/Projected Cash From Operations (Excluding RRB Retirements) In Millions

  49. Defined Benefit Pension Funding Requirements are Biggest Change From Last Year’s Forecast • Strong performance has offset need to fund pension plan since 1991 • ABO obligation was 123% funded as of 12/31/07, 76% funded as of 12/31/08 • Forecast projects $835 million of funding in 2010-2013 • Funding requirement significantly increases outside equity and debt financings • No relief from Pension Protection Act requirements in forecast

  50. Projected Consolidated Balance Sheet Year-End Balance Sheet

More Related