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Northeast Utilities System. Regulated Business Review and Northern Wood Power Project Tour. Portsmouth, New Hampshire September 23, 2005. Safe Harbor Provisions.

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Presentation Transcript
Northeast Utilities System

Regulated Business Review


Northern Wood Power Project Tour

Portsmouth, New Hampshire

September 23, 2005

safe harbor provisions
Safe Harbor Provisions

This presentation contains statements concerning NU’s expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, a listener can identify these forward-looking statements by words such as “estimate”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “forecast”, “should”, “could”, and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results or outcomes to differ materially from those included in the forward-looking statements. Factors that may cause actual results to differ materially from those included in the forward-looking statements include, but are not limited to, actions by state and federal regulatory bodies; competition and industry restructuring; changes in economic conditions; changes in weather patterns; changes in laws, regulations or regulatory policy; expiration or initiation of significant energy supply contracts; changes in levels of capital expenditures; developments in legal or public policy doctrines; technological developments; volatility in electric and natural gas commodity markets; effectiveness of our risk management policies and procedures; changes in accounting standards and financial reporting regulations; fluctuations in the value of electricity positions; obtaining new contracts at anticipated volumes and margins; terrorist attacks on domestic energy facilities; and other presently unknown or unforeseen factors. Other risk factors are detailed from time to time in our reports to the Securities and Exchange Commission. We undertake no obligation to update the information contained in any forward-looking statements to reflect developments or circumstances occurring after the statement is made.

topics for the morning
Topics for the Morning
  • Regulated distribution business overview in Connecticut and Massachusetts
  • PSNH and New Hampshire overview
  • New Hampshire generation and Northern Wood Project
  • NU transmission investment update
Overview of Connecticut and

Massachusetts Delivery Businesses

Cheryl Grise’

President – Utility Group

overview of regulated businesses
Overview of Regulated Businesses

In millions of dollars

Numbers of customers in thousands as of 6/30/05



*Excludes acquisition premium

cl p distribution critical success factors
CL&P Distribution: Critical Success Factors
  • Timely recovery of flow-through costs
    • Transitional standard offer (TSO) payments
    • Reliability-must-run payments
    • Transmission costs
    • Stranded costs (RRB)
  • Distribution rates that provide timely recovery of and/or return on:
    • Increasing capital investments ($225 million of annual cap ex vs. $125 million of depreciation)
    • Rising pension, health benefit costs
    • Other operating costs
  • Strong customer service, reliability
  • Modest retail sales growth
cl p bill components today
CL&P Bill Components Today

The proposed transmission investments in CT will help contain generation, congestion, and RMR costs.


new connecticut legislation provides opportunities some challenges for cl p
New Connecticut Legislation Provides Opportunities, Some Challenges for CL&P
  • Incentives provide new earnings opportunities for capacity built in CL&P service area
    • $25/kw for new traditional capacity
    • $200/kw for distributed generation
  • CL&P could build its own generation, but it could be obligated to sell the capacity after five years
  • Future of TSO procurement fee unclear after 2006
    • Begun in 2004
    • Currently provides about $7 million of annual net income
    • 0.5 mills/kwh is being collected now
    • 0.25 mills/kwh additional incentive under review
    • DPUC report back to legislature in early 2006 on procurement fee future
  • Transmission tracker ensures timely recovery of rising transmission costs
yankee gas growth opportunities focused on infrastructure investments
Yankee Gas Growth Opportunities Focused on Infrastructure Investments
  • LNG facility
  • New line to New England Gas in Rhode Island through southeast Connecticut entered service in 11/04
  • Support for construction of new generating capacity
    • Considerable interest expressed to date
  • $15 million of investment annually to improve reliability
  • $15 million annually to meet load growth
  • $15 million on meters, technology, highway relocations, other commitments
yankee gas lng project
Yankee Gas LNG Project
  • 1.2 Bcf LNG storage tank
  • Vaporization capability of 60,000 mcf per day
  • Liquefaction capability of 6,000 mcf per day
  • Total costs estimated at $108 million
  • Incremental capacity to fill supply gap
  • Construction 35% complete
  • Scheduled to be in service for the 2007/2008 winter heating season
  • Will help insulate customers from price volatility
status of yankee rates
Status of Yankee Rates
  • $14 million distribution rate increase effective 1/1/05
  • Next rate case expected to be filed in late 2006 to be effective 7/1/07 or when LNG facility enters service, whichever is sooner
  • Full pass-through of purchased gas costs
wmeco remains quiet on regulatory front
WMECO Remains Quiet on Regulatory Front
  • $6 million distribution rate increase 1/1/05 has allowed earnings to stabilize
  • $3 million distribution rate increase approved for 1/1/06
  • Rate case will be filed around 7/1/06 to be effective 1/1/07
  • Capital investment smaller than other subsidiaries, but still twice depreciation
    • $40 million for T&D in 2005
  • Full and timely pass-through of purchased power costs
we are closely watching retail electric sales
We Are Closely Watching Retail Electric Sales

YTD sales through August (2005 vs. 2004)

(percent increase/decrease)

Actual Electric Sales

Weather-Adjusted Electric Sales




Total Retail Electric

PSNH Overview

Gary Long

President and Chief Operating Officer

psnh service area key facts
PSNH Service Area: Key Facts
  • 5,445 square miles
  • 211 New Hampshire communities
  • More than 480,000 customers
  • 8,041,000 megawatt hours in annual sales
  • 1,234 employees
  • 1,000 miles of transmission and about 12,000 miles of distribution lines
major nh electric restructuring timeline
Major NH Electric Restructuring Timeline

2000: Electric restructuring laws approved by the NH Legislature consistent with a 1999 state settlement agreement with PSNH

2002: Electric restructuring laws modified to restrict PSNH from divesting its generating units until at least 2004

2003: Electric restructuring laws modified again to restrict PSNH from divesting its generating units until at least April 30, 2006. PSNH to divest its generation only if it is in the economic interest of PSNH’s retail customers

The changes allowed PSNH to modify its generation facilities with cost recovery thus enabling the NWPP

psnh regulatory rate settlement of 2004
PSNH Regulatory Rate Settlement of 2004
  • T&D rate increases of $3.5 million on 10/1/04 and $10 million on 6/1/05
    • Partially for the purpose of recovering costs due to the transfer of 34.5kv system assets from transmission to distribution rate base
  • Commitment to invest at least $60 million in capital improvements to its electric system in 2005
  • No specified ROE
  • No requirement or restrictions on a filing date for a new rate case
  • The revenue requirements associated with the Northern Wood Power Project are recovered fully through reconciled energy service prices, subject to a NWPP “Risk Sharing Agreement”
other key psnh regulatory items
Other Key PSNH Regulatory Items
  • Generation ROE
    • NHPUC lowered ROE on PSNH generation equity from 11% to 9.63%, effective 7/1/05
    • Affects about $100 million of equity
    • PSNH’s request for reconsideration is pending before the NHPUC
  • Fully tracking energy charge
    • Set once a year with the option of a mid-year change if needed
    • Recovers actual purchased power and fuel costs
    • Recovers all costs related to generationincluding a return on investment
psnh retail rates today
PSNH Retail Rates Today



September 2005 Total 13.855 cents/kwh

new hampshire economy remains strong
New Hampshire Economy Remains Strong

Employment Growth

(% change 7/05 vs. 7/04)

Manufacturing Employment Growth

(% change 7/05 vs. 7/04)

Unemployment Rate

(July 2005)

New Hampshire

New England


PSNH Generation

John MacDonald

Vice President - Operations

psnh generation in 2004
PSNH Generation in 2004

Meeting Customer Demand

PSNH-Owned Generation

70%PSNH-Owned Generation


30% Purchases


psnh generation fleet is competitive
PSNH Generation Fleet is Competitive




$75 Million in Savings Annually

* Forecast estimate

schiller station future site plan
Schiller Station: Future Site Plan

Northern Wood Power Project

new hampshire is a small heavily forested state
New Hampshire is a Small, Heavily Forested State
  • Covers 5.7 million acres, with about 1.3 million residents
  • Second most forested state in the nation (80%)
  • Home to one of the oldest private forest conservation organizations in the country (Society for the Protection of NH Forests: 1901)
  • Forest products industry in NH is a major employer and economic force
    • Forestry represents $3.9 billion in economic activity statewide, roughly 11% of the gross state product
the wood chip market in nh peaked at about 1 8 million tons annually in 1992
The Wood-Chip Market in NH Peaked at About 1.8 Million Tons Annually in 1992




IPP Buyouts


the economics of the project are strong
The Economics of the Project Are Strong
  • Capital Cost of the Project
  • Estimated total cost $75 million
  • Purchase and install new boiler, stack, environmental and fuel equipment
  • Balance of plant/civil addition/modifications
  • Engineering, permitting, and construction and AFUDC
  • Operating Cost of the Station
  • $300,000 projected increase annually
  • Variable Fuel Costs
  • Coal on existing boiler $28-32/mwhr
  • Wood on new boiler $32-38/mwhr

Additional Revenue and Avoided Cost Associated with the Project

Sale of additional incremental generation: $2-3M/year

Reduced emissions cost: $3-5M/year

Sale of renewable energy credits: $8-12M/year

Production tax credit: $3M/year

environmental benefits
Environmental Benefits

Using wood for fuel has significant environmental benefits

nwpp regulatory treatment
NWPP Regulatory Treatment

Equity: $33.75M (45%)

Allowed return: 9.63%

Earnings: $3.25M/year

Total Investment

$75 Million

Debt: $41.25M 55%

50/50 sharing of supplemental revenues

and rebates over or below settlement baseline*

* Includes revenue from the sale of Renewable Energy Certificates or Renewable Production Tax Credits

the technology planned for the project boosts the environmental benefits
The Technology Planned for the Project Boosts the Environmental Benefits
  • A circulating fluidized bed (CFB) type boiler will be installed at Schiller Station to replace an existing boiler
    • Known and proven technology
    • Significantly lowers emissions
    • Provides for fuel flexibility
    • Qualifies for the renewable portfolio standard (RPS) in Massachusetts and Connecticut
Northeast Utilities Plans for

Investment in Transmission Infrastructure

Lee Olivier

President – Transmission Group

the nation s transmission system is in need of significant additions and upgrades
: Constraint and constrained flow directionThe Nation’s Transmission System is in Need of Significant Additions and Upgrades

FERC’s Electric Transmission Constraint Study identified congestion points that need immediate relief.

  • A 2001 Edison Electric Industry (EEI) study identified $56B in transmission infrastructure investment needs.
  • The Federal Energy Regulatory Commission (FERC) has identified $12B that is needed simply to relieve immediate congestion points.
  • The August 14, 2003 blackout report addresses the need for significant new transmission investments.

Transmission Constraints in the Contiguous U.S.

Pacific DC Intertie


Northeast of Boston



CA/OR Interface


WY/ID Interface

Southwest MI

East NY

Central IA

SW CT Interface



West VA/PJM Interface

Southeast PA

East KS/MO Interface




Central CA


Central MO

Southeast West VA

Northeast AZ

Southern CA





about northeast utilities transmission
About Northeast Utilities Transmission…
  • Comparative Ranking of NU at 12/31/04
  • (Of the 20 largest transmission companies in the 11 Northeastern States)
  • 4th Largest in terms of miles
  • 10th largest in terms of Net Transmission Assets
In New England, the Regional Transmission Expansion Plan (RTEP) Identifies Nearly $2.4 Billion in Projects

NU’s part of that transmission expansion program is over $1.4 billion.

Transmission Investment has a Favorable Regulatory and Financial Environment
  • NU’s transmission tariffs fully track all transmission costs;
    • Rates are forward looking, based upon forecasted investment level
    • Rates are adjusted every six months
    • Provide for recovery of allowed cost of equity
    • Rates are trued-up annually
  • The combination of forward looking rates and the annual true-up provision lower the risks associated with recovery of transmission investment.
  • ROEs granted by FERC are more robust than those being granted by retail commissions, and reflect FERC’s policy of providing incentives for transmission investment.
  • NU has put in place other initiative to manage risks
    • Internal organizational realignment with new transmission officers that have experience with large capital projects in both nuclear and T&D
    • Enlisting top external engineering firms as agents on large projects providing engineering, procurement and construction management
    • Conducting competitive bids on large components of all major projects
    • Implemented a risk management process with help from an external consultant on all major projects
transmission group asset strategy for 2005
Transmission Group Asset Strategy for 2005
  • NU expects to spend $245 million for its transmission capital program for 2005
  • Five large projects in Connecticut comprise over two-thirds of the capital program:
    • Bethel-Norwalk $121.9M
    • Middletown-Norwalk $18.0M
    • Glenbrook Cables $3.9M
    • Long Island Replacement Cable $8.3M
    • Haddam Autotransformer $14.0M
  • The remaining one-third is comprised of nearly 200 projects in Transmission’s three-state region:
    • Connecticut $42.5M
    • Massachusetts $12.5M
    • New Hampshire $23.9M



nu s transmission asset strategy has identified both current and future transmission investments
White Mountain Upgrade

Madbury Capacitor


Gosling Road Substation

Fitzwilliam Substation

Scobie Substation

Hudson – Scobie Line

Berkshire Solution

Pleasant Capacitor

Springfield Solution

Woodland Capacitor

Southern New England

Reliability Project (SNERP)

Barbour Hill Autotransformer

Northeastern Connecticut

Bethel - Norwalk

Plumtree - Triangle

Haddam Autotransformer

Middletown - Norwalk

Long Island Replacement Cable (LIRC)

Glenbrook Cables

NU’s Transmission Asset Strategy Has Identified Both Current and Future Transmission Investments
  • NU’s Transmission Asset Strategy has identified the need for significant capital investment on franchise in all three states
  • Transmission interconnections and interstate seams issues will become regional planning initiatives
  • Technological advancement will create additional opportunities to invest


Under Construction

Siting Approved

Future Project

the need an adequate transmission system
The Need: An Adequate Transmission System

SWCT improvements have been a top priority in each of

ISO-NE’s last four regional transmission expansion plans. Our four major projects there total over $1.3 billion in investment.

Bethel-Norwalk 345 kV Underground & Overhead

$300-350 Million

  • 21 miles 345kV (56% underground)
  • 10 miles 115kV (100% underground)
  • Projected in-service date: Dec 2006

50% of CT Load

Middletown-Norwalk 345 kV

Underground & Overhead

$672-792 Million* (CL&P 80% Share)



Glenbrook Cables

115 kV Underground

$120 Million

  • 69 miles 345kV (35% underground)
  • 57 miles 115kV (1% underground)
  • Projected in-service date: 2009
  • 9 miles 115kV underground
  • Projected in-service date: 2008

Long Island Cable 138 kV cross sound

$72 Million (CL&P 50% Share)

  • 13 miles 138kV submarine cable
  • Joint project with LIPA
  • Projected in-service date: 2007

*Costs are being reevaluated

financial implications
Financial Implications

For customers:

  • Improved reliability – creates secure supply, quality service and stable environment for production and growth
  • Lower levels of congestion and less LICAP exposure results in lower bills
  • Increased access by competitive generators should lower costs

For shareholders:

  • Increases in rate base from investments drive earnings growth (compound annual growth rate greater than 20%)
  • $500 million of current rate base
  • $1 billion - $1.5 billion of capital spending projected in 2005-2009
  • Siting for our large projects is progressing
  • Our cost recovery mechanisms are largely defined
Transmission Capital Expenditures*

NU’s Transmission growth has already begun.

$ Millions

* Spending levels depend on final level and timing of all projects.

we believe that a significant continuing stream of investments in transmission is sustainable
We Believe that a Significant, Continuing Stream of Investments in Transmission is Sustainable
  • Line rebuilds to replace aging, low capacity conductor
  • Voltage conversions from 69 kV to 115 kV
  • Additional 345 – 115 kV autotransformers
  • New 115 and 345 kV lines (overhead and underground) to meet load growth and to increase transfer capability across constrained interfaces
  • New substations to meet load growth