Operator: Welcome to the Northeast Utilities 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 today's conference is being recorded.
I will now turn the call over to Mr. Jeffrey Kotkin, Vice President, Investor Relations, you may begin.
Jeffrey R. Kotkin - VP, IR: Sorry to keep you waiting here. We were having an audio problem back in Hartford. So let me start, and good afternoon and thank you for joining us today. I'm Jeff Kotkin, NU's Vice President for Investor Relations.
Speaking today will be Tom May, NU's President, and Chief Executive Officer; Lee Olivier, NU Executive Vice President and Chief Operating Officer; and Jim Judge, NU Executive Vice President and Chief Financial Officer. Also joining us today are Jay Buth, our Controller and Phil Lembo, our Treasurer.
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 U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risk and uncertainty, which may cause the actual results to differ materially from forecast and projections.
Some of these factors are set forth in the news releases issued yesterday. If you have not yet 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, 2011. 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-K.
Now, I will turn over the call to Tom.
Thomas J. May - President and CEO: Thanks, Jeff, and thanks everyone for joining us this afternoon. Here I am excited to be the new CEO of NU. Three weeks on the job and I can tell you I am more excited now than I thought I would be. We really do have a great opportunity here and hopefully, I can share some thoughts with you on why I am so excited about this. This merger between the two largest New England based utilities ensures that 3.5 million electric and gas customers are going to be served by a company, whose only roots are here in New England and as many of you know I am a nut about customer service. It means that policy makers in Boston, Hartford, Concord, only have to look in their backyards to find the management of the largest regulated utility and it means that the 3.5 million customers that we serve won't have to look too far to see a Northeast Utilities employee since we all live right here in New England. In fact, I have been spending a lot time going out to the field with town hall meetings, talking to my lineman, talking to my groups to make sure they recognize that we are in the customer service business. That's my focus, but I need every one of those 9,000 strong to focus on the customers for us to be successful. I think we're making some great progress.
But this company is much more than a regional energy provider. We're going to have the scale to manage highly effective and efficient company. I think, I'm a nut about efficiency also, and as $11 billion to $12 billion market cap company, we're going to be able to access the capital markets on very attractive terms, better than we could do individually. So, we can continue to make investments in wires and pipes that our customers and our communities need.
We've married one of the nation's most reliable operators of electric distribution systems with probably the most preeminent planner, designer, builder and operator of electric transmission system. We also will operate two natural gas systems serving 500,000 customers, but when we look at those franchises in those communities, we think there's probably twice that number of homes and businesses that we can serve in the future.
In an era when economic and environmental benefits of converting from heating oil to natural gas has never been greater, we hope to expand our pipeline infrastructure to really save a whole bunch of New Englanders tens of millions, if not hundreds of millions of dollars annually, so that we can put that back into the economies of our state. With gas at a bucket a quarter of water gallon versus $4 dollars heating oil, I think you can appreciate how many of our customers are begging us to expand our infrastructure. To our investors on the call, I think we offer a very attractive value proposition from two companies that have provided some attractive total returns over the last five to seven years. We formed one larger cap utility with a singular focus on energy delivery in New England, a market we know and understand.
Over the past 10 years, NU and NSTAR have offered one of the most compelling dividend growth stories in the industry. As you noticed yesterday, the dividend growth is continuing as we've promised at the beginning of this transaction to align the two companies' dividends and so we've provided the legacy NU shareholders with a 16%, 17% increase, and yet our payout ratio is still low for the industry, especially for someone who is predominantly a delivery company and preserves the potential for pretty attractive dividend growth in the future. Also, it will allow us to reserve considerable capital to reinvest in accretive projects that our customers need regarding their reliability.
Earlier today, the newly formed Board of Trustees of Northeast Utilities completed two days of meetings. Members of the Board who unanimously endorsed our merger when it was brought to them in October 2010 were again even more excited just like me as we talked about this great combination in the potential we have going forward.
We believe that state policyholders and utility regulators share our views on how this can benefit the region. The settlements that produced this merger were announced enthusiastically by the governors of Massachusetts and Connecticut. Participation in the negotiations of those settlement agreements by the State's Attorneys General and a high level of energy policymakers were a key to their success. We are thankful for their hard work in achieving a balanced outcome that treat all parties fairly and over the next several weeks the consumers will see the first of that in the form of $46 million of rate credits that flow out of these negotiated rate settlements.
Additionally, we will begin and we have focused on the fact that we will now live through a multiyear rate freezes that are in effect for most of our utilities, but I do allow us to keep the benefits of our good work to offset the impact of rising costs and fixed delivery rate. We understand we need to implement efficiencies in our business processes, commonly referred to as synergies, but we also are immediately benefiting from reduced financing costs and lower cost of purchasing equipment and services.
When NU and NSTAR shareholders overwhelmingly approved this transaction back in March of 2011, we had a vision of how attractive a merged company could become. Now it's up to us and we're in the process of delivering on those commitments and we're ready and excited about the opportunity. So, that's all I want to say to open this up and now let me turn it over to Lee to talk a little bit about our capital programs in some of our big projects.
Leon J. Olivier - EVP and COO: Thanks, Tom. Allow me start by reviewing our transmission investment initiatives beginning with our NEEWS project. With extremely favorable weather that we've had to date, we're about 64% complete with the Greater Springfield Reliability Project. The project will provide an important new 40-mile pathway to move power reliably between Western Massachusetts and Connecticut. We continue to expect the projects to be completed by late 2013 at a cost of $718 million; of that sum, $426 million was invested as of March 31st.
Turning to the Interstate Reliability Project, you may recall that we filed our application with the Connecticut Siting Council in December. Last month, we completed three days of field reviews and three evenings of public hearings in Northeastern Connecticut on the project. ISO-New England and we are updating planning studies to reflect the latest available data and it was scheduled to submit testimony in support of the project later this month. Evidentiary hearings are scheduled to begin in June, and we continue to expect a final decision in 2013. While we're building the 40-mile $218 million Connecticut section of this project, National Grid will build the Rhode Island and Massachusetts sections. After receiving updated planning studies from ISO-New England later this month, we expect National Grid to file its siting application later this quarter and to receive final approval in late 2013. We continue to expect the project to enter service in late 2015.
The final major element of NEEWS is the Central Connecticut Reliability Project. As we've mentioned earlier, ISO-New England will review this project as part of a comprehensive study known as the Greater Hartford Central Connecticut Study. We continue to expect ISO to issue a preliminary needs analysis and related transmission solutions next year.
Turning to NSTAR Electric, the most significant project in 2012 is a new 18-mile 345 KV line to be built to Cape Cod. The project received final Massachusetts Energy Facilities Siting Board approval in April, and we expect to be approximately $110 million project in the first quarter of 2013.
Overall, we expect NSTAR Electric to invest approximately $190 million in transmission infrastructure in 2012. When we consummated the merger last month, we also brought together the two owners of the Northern Pass Transmission Project. As a result, we have consolidated NSTAR's 25% investment in Northern Pass. So, when we discussed the project's cost going forward, they will reflect 100% of the project. Northern Pass Project is a $1.1 billion, 180-mile primarily high voltage DC project to move 1,200 megawatts of clean power out of Quebec and into southern New Hampshire continues to make progress. You may recall, that 140 miles of the project would be built along existing right-of-ways, the other 40 miles in Northern Hampshire is where we need to secure a new right-of way.
We continue to make good on securing the additional 40 miles and plan to present a new route to federal regulators in the third quarter of this year. That would support the start of construction in 2014 and completing it by the end of 2016. Earlier this year, Governor Lynch signed legislation that would prohibit the use of eminent domain for transmission projects that are not subject to regional cost allocation, but we continue to believe we can secure a right-of-way without using eminent domain.
This line remains the most innovative proposal now before regulators to appreciably lower, both the cost of electricity and the amount of carbon emissions in New England. It also would provide Hydro-Quebec with an important new pathway to move power into New England from its generation now under construction in central and northern Quebec.
NU's transmission capital expenditures totaled $137 million in the first quarter of 2012 as compared to $68 million in first quarter of 2011. For the year, including NSTAR's expenditures we project approximately $675 million of transmission capital expenditures included in work on Northern Pass.
Turning from transmission to generation, PSNH is near completion of secondary wastewater handling facilities associated with the Clean Air Project at Merrimack Station. This is the last major segment of the project. We continue to project the total expenditures of $422 million about $35 million below budget. The wet scrubber has been operating well since last September and the results have been excellent. We have seen and 97% to 98% reduction in mercury emissions and a 96% to 98% reduction in sulfur dioxide emissions well beyond our initial projections.
On April 16, 2012, we began collecting a significant portion of the carrying costs on the Clean Air Project through a Public Utility Commission approved temporary rates, and we expect New Hampshire regulators to review the prudence of the project over the balance of this year. Given the fact that we're completing the project well below budget and with very favorable emission reduction results, we believe that the Public Utility Commission review will reach a favorable conclusion and the scrubber costs will be fully recoverable with our allowed 9.81% return on equity on our generating assets.
Our electric distribution reliability was strong across all three states in the first quarter due to our continued investment, ongoing preventive maintenance, and the lack of storm activity. CL&P, PSNH and WMECO invested a combined $125 million of distribution capital in the first quarter of 2012 compared with $98 million in the first quarter of 2011. For the merged company, we expect to invest a total of approximately $1.7 billion in our infrastructure in 2012.
Turning to our natural gas distribution business, we saw our two impacts in the first quarter. The first and most apparent impact was the decline in sales due to the very mild winter.
Yankee Gas firm sales were off by 13.2% in the first quarter of 2012 compared with 2011, but continued fuel switching among all classes of customers meant that weather-adjusted Yankee Gas sales continue to rise by 5% annually as they have over the past several years. Between Yankee Gas and NSTAR Gas, more than 4,000 residential units were converted to natural gas in 2011, more than double the previous year.
We continue to see significant opportunities ahead. Together Yankee Gas and NSTAR Gas have approximately 500,000 customers. About 38,000 of our residential customers have gas in their home, but do not use it for spacing. Another 90,000 customers are located within 150 feet of our gas mains, but they are not connected to our system. With natural gas price at less than half the cost of oil on a Btu basis, we expect solid growth going forward as customers switch to a much less expensive and more environmentally-friendly fuel source.
Now, I'd like to turn the call over to Jim.
James J. Judge - EVP and CFO: Thank you Lee. Let me start by saying how pleased I am to speak to you all today as Northeast Utilities' Chief Financial Officer. Before beginning my formal remarks, I want to reiterate earlier comments about how pleased we all are that we are able to merge these two companies into the new NU. We have tremendous opportunities available to enhance the benefits we can bring to our customers in our region or simultaneously creating very attractive value for investors.
There are several areas I want to focus on before we turn to your questions. The first area involves the settlements we reached in Massachusetts and Connecticut that moved us through the regulatory approval. Second, will be our financial results for the first quarter, the expected impact of the merger on our second quarter results and the state of our region's economy. The third area involves financings we have accomplished thus far this year and what we project for the balance of the year. Lastly, I want to discuss the work we are now undertaking to create a high-performing customer responsive and cost-efficient merged organization.
I'll start with the merger settlements that Tom touched on a little earlier. In Massachusetts, we reached two comprehensive settlements, one with both the Attorney General and the State Department of Energy Resources, and the other exclusively with the DOER. The three-party settlements incorporated several key provisions. First, it freezes base distribution rates through 2015 for NSTAR Electric, NSTAR Gas and Western Mass Electric Company. Second, it provides a $21 million rate credit to customers in the current billing cycle, that's $15 million for NSTAR Electric customers and $3 million each for NSTAR Gas and Western Mass customers.
While base delivery rate are frozen, the settlement continues to allow NSTAR Electric's recovery of lost base revenues that results from energy efficiency programs. It also allows all three companies' pension trackers to continue functioning and for Western Mass Electric Company, revenue decoupling mechanism that was approved in its most recent case will remain in place. NSTAR Electric's 2011 major storm costs, which totaled $38 million, will be recovered over five years beginning January 1, 2014, while Western Mass' storm costs will be subject to the recovery mechanism allowed in its rate case. As is typical, these storm recoveries are subject to DPU approval.
Under the other Massachusetts settlement with the DOER, NSTAR Electric will execute a 15-year contract with Cape Wind for up to 129 megawatts of power, which equates to 27.5% of Cape Wind's projected output. Costs associated with that contract will be recovered from customers and as permitted by statute, NSTAR Electric will be allowed a 4% remuneration to offset any balance sheet impacts.
NSTAR Electric also agreed to increase energy efficiency targets, procure up to 10 megawatts of new solar generation and implement an electric vehicle pilot program. These initiatives will contribute significantly to meeting the state energy policy goals.
Connecticut settlement was similar to our Massachusetts settlement in some ways and different in others. Both support each respective state's priorities. Under the Connecticut settlement, CL&P will provide a $25 million rate credit to customers in the current billing cycle and will freeze base distribution rates until December 2014. CL&P also agreed to fund $15 million of state energy initiatives and forego recovery of $40 million of deferred storm costs from tropical storm Irene and the devastating October snowstorm.
Importantly, the agreement will allow CL&P to recover storm costs following a prudence review over a six-year period beginning December 1, 2014. We believe having a no-recovery period over a reasonable number of years was a positive outcome for this settlement.
Separately, CL&P agreed to propose a multiyear $300 million system resiliency program to regulators. About $100 million of which we expect to spend between 2013 and 2014. We will recover the full revenue requirements associated with this program through a tracking charge on customers' bills. Up to $25 million of the associated revenue requirements will be recovered during 2013 and 2014. We believe this is an important and positive condition in the settlement.
Our two operating utilities that are not covered by these rate settlements, Public Service of New Hampshire and Yankee Gas, are currently operating under multiyear rate case decisions. PSNH's rate plan goes through mid-2015, and in the last summer's rate case decision, Yankee Gas will implement a rate increase of approximately $7 million this July 1st.
The impact of all these settlements is that we undertake the significant task of merging our operations and as we do that, we can do so without the distraction in costs of preparing, filing, testifying at and otherwise supporting distribution rate cases. This will be very helpful as we create a merged organization that can instead totally focus on providing significant benefits to New England's energy consumers and a very attractive value proposition to our investors.
Many on this call know that during the hearings in both Massachusetts and Connecticut, David McHale and I testified that our net benefit analysis indicated that there would be nearly $1 billion of savings over the first 10 years of the merger. Our focus now is to realize these savings and potentially more.
The work that will underlie future financial projections is underway and we expect to provide you with a comprehensive update either at an analyst day or at our traditional EEI breakfast during the fall. As we stated during the merger hearings, we believe that the savings estimates will prove to be conservative.
So what does that mean for 2012? I will discuss the first quarter results in a moment. Second quarter results which have traditionally been the weakest of the year for both NU and NSTAR, this year we will also include the nonrecurring impact of the merger settlement agreements that I noted earlier.
In addition, we will recognize other merger-related nonrecurring costs such as financial advisory fees and cost-related to change control agreements affecting a number of offices. As a result, we believe that the second half of 2012 rather than the first half of the year, will provide you in more representative basis from which you will be able to measure our financial progress in the years to come.
Turning to the first quarter, I will briefly discuss NU standalone results. NU earned $99.3 million or $0.56 per share in the first quarter of the year compared with $114.2 million or $0.64 per share in the first quarter of 2011. Distribution earnings declined by $21.5 million or $0.12 per share from $78.2 million in the first quarter of 2011 to $56.7 million in the first quarter of 2012.
Connecticut Light and Power, Public Service of New Hampshire, and Yankee all experienced distribution earnings declines due to the exceptionally mild weather and higher pension costs. Of that $0.12 decline about $0.07 were due to the weather.
Compared with the first quarter of 2011, heating degree days in 2012 were down 23.4% at Bradley Airport in Northern Connecticut and down 19.2% in Concord, New Hampshire. In fact, the first quarter of 2012 was the warmest on record in Hartford, in Boston and in Concord. In Hartford, the average temperature was 38.2 degrees in the first quarter of 2012 compared with an average of 31.3 degrees, and the previous record from 1998 which was 36.3 degrees. So weather records were absolutely shattered in this first quarter with the extremely mild temperatures.
Another $0.03 of the earnings decline from 2011 were due primarily to higher pension and other employee benefit costs and that impact is very consistent with the comments David McHale made in February when we projected that higher untracked pension and healthcare costs would result in an annualized $0.10 decline in NU's standalone earnings in 2012. It's worth noting that WMECO, which has both revenue decoupling and a pension tracker, experienced a modest $400,000 increase in the first quarter earnings.
Offsetting these negative items was a $7.2 million decline in merger-related costs from the first quarter of 2011 to the first quarter of 2012. Additionally transmission earnings rose by $1.6 million or about 3.6% due to a net doubling of WMECO's transmission earnings related to the construction progress on the Greater Springfield project that Lee referenced earlier.
Based on my comments, I'm sure you can surmise that we view 2012 as a transition year. From an earnings perspective, it's a year when we record almost all of the costs related to the merger and due to the timing of the closing, it's a year when the benefits of the merger on recurring earnings will only be modestly apparent. Although, we're not ready to provide you with 2013 guidance at this time, there are a number of factors that we believe will provide significantly better results next year.
First, we estimate that a return of normal first quarter weather in 2013 should restore $0.06 per share to NU's earnings.
Second, we continue to expect much of the incremental 2012 pension cost to fully reverse in 2013 as a result of increased pension contributions, asset performance, similar discount rate and lower amortizations on prior year actuarial losses.
Third, as the Greater Springfield Reliability Project and Cape Cod Line are build-out, we expect strong transmission earnings growth in 2013. On a merged company basis, we had about $3.8 billion of transmission rate base at the end of 2011. We expect that to rise to $4.1 billion by the end of this year and $4.4 billion by the end of 2013.
Fourth, as I mentioned earlier, we expect to be able to reduce our operating costs as we implement cost efficiencies and merger synergies.
Finally, we expect to see the benefits of improving economy. Overall, I would characterize our economy as improving and still better than the rest of the country. Boston area unemployment rate is now 5.5%. New Hampshire rate is down to 5.2%. Connecticut's unemployment rate of 7.7% and Western Mass's rate of 7.3% are somewhat higher, but they are still well below the national average of 8.2%.
Both initial and continued unemployment claims are down in all three states and building permits in the first two months of 2012 were up by more than 125% in both Massachusetts and Connecticut over 2011 levels, helped somewhat by the mild weather this year. We saw some of that economic impact in our first quarter sales.
PSNH weather-adjusted sales rose 0.5% in the first quarter compared with last year, and CL&P and WMECO's weather-adjustment sales were essentially flat compared with sales declines in most recent years. Yankee Gas's weather-adjusted sales rose 5% similar to the increases Yankee has experienced for the past several years.
Turning to financing, NU had a significant amount of activity just prior to the merger closing. In March, NU parent sold $300 million of 18-month floating rate notes to refinance $263 million of 10-year notes that matured at April 1st. The initial rate on those NU notes is 1.22%. So, interest costs will be about a third of what we had been paying on that series. CL&P remarketed $62 million of tax exempt pollution control bonds, locking in an attractive 1.55% rate for the next three years.
Over the balance of the year, the most significant refinancing involves $400 million of NSTAR Electric notes that mature this fall. The current coupon on those notes is 4.875%. We also expect smaller new debt issuances at WMECO and Yankee Gas.
You may have also seen that all three credit rating agencies completed their comprehensive reviews of NU and its subsidiaries around the closing of the merger. Some ratings on our system rose, some fell, but all ratings are now stable. Only one electric utility family, Southern Company has a higher credit rating than NU. We will continue to enjoy very strong access to low-cost capital.
NSTAR Electric continues to have a very highly rated economical commercial paper program. We currently have about $1.9 billion of credit lines along with attractive active commercial paper programs at NSTAR Electric and NSTAR LLC. Over the coming months, we'll begin analyzing our capital requirements to determine where further savings can be realized as a result of the economies of financing a much larger, stronger and more liquid company.
(We will ahead) steadily on our integration work. While the merger was pending, we engaged 11 teams and 175 subject matter experts to focus on both day one requirements and develop a deep understanding of each company's operations and organization. During the week before the merger, we announced the next level of leadership, primarily at the officer level and the next level beyond that will be announced in a few weeks. We're very encouraged by the quality of the team, about the teamwork that they're showing.
We are confident that this merger will work and deliver the value to customers and investors we've discussed for the past 18 months. Now I will turn the call back to Jeff for your questions.
Jeffrey R. Kotkin - VP, IR: Now, I will turn the call back to Christine to remind you how to enter questions. Christine?
Jeffrey R. Kotkin - VP, IR: Greg Gordon, ISI.
Greg Gordon - ISI: First I wanted to say congratulations, I know how long and hard of a road this was to get to this point and I'm sure you guys will do a great job. And Jim, the questions for you, I know you're attempting via this call to sort of give us verbally a lot of the puts and takes that you are looking at and what's going to be a very unique year because of all the transition costs and the weather and all the other things that are happening, at some point are you going to be able to A, give us what you see is sort of a normalized earnings number for this year? And B, confirm that you still believe that this is a company that can grow with the 6% to 9% earnings growth rate that was articulated when the deal was announced off of what would otherwise be a normal base level of earnings?
James J. Judge - EVP and CFO: Greg, as I indicated we're not prepared to sort of talk specifically about 2012's guidance or the long-term rate. I think you got a sense from Tom, Lee, and my comments that we are bullish on the company. We think we've got great opportunity ahead. When you look at both of these companies and saw in the track record certainly over the past five or ten years performance has been well above industry average in terms of earnings growth in terms of total shareholder return so the new venue up is a very long track record of notable and consistent success for investors. What we'd like to do is make sure that we have the team in place that we develop a plan that we have broad consensus upon, that we review that plan and get the endorsement of our Board. At that point in time, we will provide guidance to Wall Street of a plan that we're very confident and that we'll be able to achieve. So, we will provide guidance but it's not going to be on this call.
Greg Gordon - ISI: We look at the starting point, would it be fair to go back to all the structural drivers that have been in the presentations to-date, and just think about how those things have changed for better or for worse, I guess. So, the one thing that I know has just come up has been – for the quarter just came out today. I know it was probably not the best timing given the earnings call, but can you comment on what do you think next steps will be in your relationship with the Massachusetts AG around the FERC's proposal that you went to settlement talks?
James J. Judge - EVP and CFO: Yeah, you're right, it just did come out. I think I got to see it about 30 minutes before this call, haven't had any discussion obviously with their advisors, FERC Counsel or senior team even. I still feel that our position is sound and the existing rate is fair and reasonable, and apparently Commissioner Moeller who dissented actually agreed, so we're not going to speculate on our response. It's too early to predict an outcome. It could be a litigated outcome that would take 15 months or it could be a settlement prior to that. What I would point out is that, we have very good track record in both arenas; litigated cases as well as rate settlements, so I think I am confident at the end of the day, we'll have a reasonable outcome.
Jeffrey R. Kotkin - VP, IR: Travis Miller, Morningstar.
Travis Miller - Morningstar: Again, another congratulations on getting the deal done. I'm concerned about your ability to integrate the sports team that you guys root for, but good luck with that. A question on Yankee Gas, the CapEx spending that you've laid out in the past, how could that effected if you sustain this 5% plus type normalized growth and is that baked into a low growth portion that you laid out?
Leon J. Olivier - EVP and COO: Travis, this is Lee Olivier. The current budget that we have at Yankee, so it really looks like spending about $565 million over the course of the next five years, when we put that together last year we baked in the current growth rates that we have now which is about a 5% growth in gas sales. So, I think we will be well equipped to stay within that. I think we have flexibility in and around other work we can do with Yankee Gas. So, I think that currently is a good number. Now there would be legislation that gets passed in Connecticut that spurs shall we say conversions, as results of subsidies that the state is willing to provide then that's a different story. Then we'd have to go back and take a look at what that does to our capital program.
Travis Miller - Morningstar: Does that 5% get you to the allowed ROE or does that get you well above emitting or earning your allowed ROE based on those projections?
Leon J. Olivier - EVP and COO: That would get us to half of the allowed ROE right now.
Travis Miller - Morningstar: Above, sorry, I didn't catch it.
James J. Judge - EVP and CFO: I think there are obviously a number of variables – and this is Jim, what are the O&M synergies that we were able to achieve. So I think, we obviously have sales growth opportunities that should allow us to continue to have a very favorable ROE. If you look at the ROEs that the NU family of companies produced last year, they were all approaching the allowed ROE numbers. So I think there is reason to believe that we can continue to maintain that kind of performance going forward.
Jeffrey R. Kotkin - VP, IR: (Ashar Khan).
Ashar Khan: Can I just ask just for reference purposes, what is the – I know I had it for NU, but what is for the combined company as we have now. What is the 100 basis points on transmission variance equals positive or negative delta on earnings? Is there a number that you can share with us with the combined entity and the new share count?
James J. Judge - EVP and CFO: Yes, Ashar. I think we actually disclosed in our 10-Q rule of thumb there, and I think that the 10 basis point change is worth $2 million of net income.
Ashar Khan: That's for the combined company?
James J. Judge - EVP and CFO: That's for the combined company.
Ashar Khan: Then can you just a little bit tell us where we stand on this transmission line? How the process is going along and when can we hear some more definite information on the routes and everything from you guys?
Thomas J. May - President and CEO: Ashar, I think you are referring to Northern Pass?
Ashar Khan: That's correct.
Leon J. Olivier - EVP and COO: Ashar, this is Lee. Where we are right now is in procuring the last 40 miles of the right-of-way, and I can tell you we are making very, very strong progress in lining up there right away. I think we're on half for the middle of the year, approximately August timeframe to have the right-of-way secured and then to be prepared to file with the DOE the root and then start the environmental sampling process that is required, it's a two season process, so it's kind of a spring and fall process, spring, fall, winter, so we'll be ready to go and should we stay on that schedule we would be ready to have the project go in service in late 2016. So we continue to work with HQ around the issues and technical aspects of the project, continue to line up the land, we continue to do outreach in the communities, particularly in the northern New Hampshire we continue to meet with other key stakeholders in New Hampshire to continue that influencing process around the project.
Ashar Khan: If I can just ask one more question, the pension that you mentioned for a new standalone which would be kind of like something like $0.10 or something, does that reverse next year or is it just it's going to reset this to a lower base of earnings, I'm a little bit confused?
James J. Judge - EVP and CFO: It is a $0.10 increase this year that we think goes away next year so that the pension cost estimate for 2013 is going to look more like 2011.
Jeffrey R. Kotkin - VP, IR: Jay Dobson, Wunderlich.
Jay Dobson - Wunderlich Securities: Great job of getting the merger done. Jim, I was hoping you would talk about the cost reductions and I know you were alluding to that and some of the drivers to earnings, but just how that order flow, obviously interested in 2012, but maybe even '13, '14. I know it's early, but how should some of this cost reduction flow, meaning how fast can we achieve them is what I am getting at just for clarity?
James J. Judge - EVP and CFO: We had in our net benefits analysis that we filed with the regulators. It was essentially a four year ramp-up of savings largely driven by attrition opportunities in terms of staff reductions based upon retirements, not backfilling position, so it was a slow ramp up and then continued escalating at a lower rate beyond that. I think we're looking long and hard at that issue. I think we recognized that – we've had a very conservative approach to that study and I think we have an opportunity to actually accelerate some of those savings that we had targeted in that original plan. So, we have in the past done a merger, if you go back 10 years in terms of the NSTAR's experience, the Boston Edison Commonwealth merger. We were able to extract cost out of the Company and we did it steadily over a number of years, so that the earnings impact tended to be progressive and as we – (long) time after the merger. So, we hope to have the same opportunity here.
Jay Dobson - Wunderlich Securities: I'm not sure to who to address this, so I'll address it to you Tom and maybe you could throw it out to whoever you think and I'm back to the FERC issue. Can you just talk a little bit about how you're seeing FERC right now obviously we are short of commissioner, how that plays into what they announced today? I appreciate – I am not sure who made the comment, but that Commissioner Moeller was dissenting on what they released today, but just play into sort of how you're looking at FERC right now?
Thomas J. May - President and CEO: That's a tough one. As you say it is influx, they are waiting for a new commissioner. It will result in a full commission, so that you can get a majority of hung jury, but this obviously came out before that and it's on the surface it's just simply sets us up for a rate proceeding, if you will, on the issue of what is the right return. As Jim said it's new to us. It caught us a little off guard. We weren't expecting it today. We're still sorting through it, but we at the stage aren't reading anything into with other than as Jim said we believe we have a strong basis for our position, and we're just going to take the next steps.
Jeffrey R. Kotkin - VP, IR: Michael Lapides, Goldman Sachs.
Michael Lapides - Goldman Sachs: A couple of questions. One, on rate increases or rate changes, I just want to sanity checks on some of the things you said regarding New Hampshire and Connecticut. In New Hampshire, can you walk us through both the distribution rate changes expected over the next year or so and how much the Merrimack related one would be?
James J. Judge - EVP and CFO: I don't have that information readily available, Michael.
Michael Lapides - Goldman Sachs: Just real quick on the Merrimack one. Is that rate change dedicated to that project? Is that not something that's already a known amount?
James J. Judge - EVP and CFO: Yes, we get temporary recovery of about two-thirds of our cost of scrubber and the PUC up there will have a final order that will determine the prudence cost recovery amounts and what will be in rates going forward. So, it's a preliminary estimate to be decided with the final order at some point later.
Leon J. Olivier - EVP and COO: I'd just add in too, Michael, that we have over-collections at PSNH as a results of forecasting rates around energy and the actual rates around energy in terms of what our procurement has been significantly under that. So, although there will be an impact, we don't think that would be a huge impact on PSNH customers.
Thomas J. May - President and CEO: Michael, I think also Jim mentioned earlier that there was a rate increase that was due to additional construction and distribution facilities that was dialed into that five-year rate decision. We estimate right now that's about $6 million, $7 million in the middle of the year. There will be storm true-ups and everything. So, I don't have that full number for you right now, but you're looking at a change in the middle of '12 and also for what Lee was talking about once the generation docket is over, once the prudence docket is over, you are probably looking at another reset at the beginning of next year, but that rate not only will it reflect the scrubber, but all the other purchased power that goes into that energy rate for PSNH. But it's only tough to answer that question, exactly how you produce that.
Michael Lapides - Goldman Sachs: But if I just to back of the envelope, you said you got about two-thirds of the cost of the scrubber in rates in recovery right now. So if I just do one-third times the cost, times your WACC that directionally gets me there, just kind of thinking 50,000 foot level?
Thomas J. May - President and CEO: I think so.
Michael Lapides - Goldman Sachs: Second, Connecticut, can you touch a little bit about the infrastructure tracker, how much you'll spend per year when the revenue changed tied to that will go into effect?
James J. Judge - EVP and CFO: You can think of it as $300 million, roughly $50 million a year for six years. Our base case right now is, to think of it as $50 million for 2013 and 2014 and we'll let them propose it at the pure for recovery…
Thomas J. May - President and CEO: With the docket in midyear, the docket will purpose an infrastructure hardening, as Jimmy said, the agreement limits that by about $25 million of rate revenue recovery each year.
James J. Judge - EVP and CFO: So you'll see something by midyear.
Michael Lapides - Goldman Sachs: So if you file midyear, it probably goes into effect sometime early 2013, if you spend $50 million and if I just apply high-level of 10% pre-tax WACC, that's roughly $5 million a year rate change?
Leon J. Olivier - EVP and COO: Michael, we could take some of the numbers offline and look at what actually is being, has been filed and what may be filed in New Hampshire.
Jeffrey R. Kotkin - VP, IR: (Paul Patterson, Glenrock Associates).
Paul Patterson - Glenrock Associates: All of my questions were answered, but and I apologize if I missed this, did the quarter include a leap year, through the sales growth, excuse me?
Thomas J. May - President and CEO: Yes, it is.
Paul Patterson - Glenrock Associates: Okay, and so we just back up what about 1%?
Thomas J. May - President and CEO: Roughly, we have 91 days.
Paul Patterson - Glenrock Associates: So when we look at this, I know just one quarter and but you guys have had some pretty anemic growth really, right? I mean any change in your forecast or any thoughts about that as far as sales growth?
Thomas J. May - President and CEO: It's all about the weather Paul, when you look weather-adjusted the numbers look pretty good. As I indicated, the temperature in Hartford was 2 full degrees milder than the all time record that they've had here for the quarter. January was 5 degrees milder than normal, February was 6 degrees milder than normal, so March was 9 degrees milder than normal. So, it's tough to sort of draw any conclusions about any anemic sales with that as the catalyst for the numbers.
Paul Patterson - Glenrock Associates: Well, what I am looking at weather-normalized on the, and maybe I am looking at the wrong thing, it looks like its 0.1% for weather normalized growth in that (catalyst) and that includes a leap year right?
James J. Judge - EVP and CFO: It does.
Jeffrey R. Kotkin - VP, IR: Steven Fleishman, Bank of America.
Steven Fleishman - Bank of America: Couple of questions. First on Northern Pass, I guess Lee what's your conviction level on third quarter being kind of the right time to have this new route? It's obviously – it's been tough to pin these things down?
Leon J. Olivier - EVP and COO: Steve, I'm actually very confident. Third quarter is a good timeframe, obviously because we're out in the real estate markets, but current land, I can't be terribly specific of just how much land we have left, but I can tell you we're closing on that. I think we're very optimistic, so I think as we speak third quarter is a good timeframe. I'm very confident in that.
Steven Fleishman - Bank of America: Is it possible or likely that the overall cost of the line ends up going up given some of the changes?
James J. Judge - EVP and CFO: Actually with the work that we've done right now in terms of the studies we have to do for ISO-New England, so called I-39, the studies we need to do around capacity markets, which is probably overleaping impact study to determine how much capacity (HQ) would be pay for. I do not see a significant increase in the cost of that line which is good, because it's obviously very important that HQ has a project, which is profitable for them as well as us. So, I'm pretty confident that $1.1 billion give or take we'll say $100 million is a pretty good number.
Steven Fleishman - Bank of America: Then one last question, Tom, I think you noted the low dividend payout of the Company and I know you're still working on putting your full plan in place, but do you think over time given the mix of assets of the Company you'll be targeting a higher overall dividend payout ratio than the old Northeast Utilities has been?
Thomas J. May - President and CEO: We don't know yet. As Jim said, we're in the throes of a planning process that just yesterday we promised the Board we would bring back to them. It's a new Board that is excited about the future, but also interested in being part of the decision-making process. So, we do intend to wet that with them and they are excited as we said, we're happy that even though we bumped NU's dividend by 17% or whatever we're still in a low range versus companies that tend to be pure delivery companies. So, we've got room to move on and it gives us great comfort that we can you still be considered a growth company rather than a yield company and we hope that our yield reflects that.
Jeffrey R. Kotkin - VP, IR: Jonathan Arnold, Deutsche Bank.
Jonathan Arnold - Deutsche Bank: You talked about, you either going to give this outlook at an analyst meeting or potentially not until the full EEI Conference. Is it safe to assume that the full EEI is sort of the latest this would come?
James J. Judge - EVP and CFO: I think that's a safe bet.
Jonathan Arnold - Deutsche Bank: How much sooner than not might have come, Jim in sort of generalities of your comment?
James J. Judge - EVP and CFO: I do think that we – as I said, we want to be certain and sure of what we're provided for guidance. We have a process where we just had our first Board meeting as Tom mentioned yesterday and today. We just named the Vice President level just before the merger closed three weeks ago. We're moving forward with the next level of management, the distribution management. We have an offsite for that executive team in about a month. So, I can see us doing a lot of work during the summer and coalescing on the plan that we have some consensus on, the end of the summer into September potentially. So I consider maybe the options would be September Analyst Day, where we could provide some insight as to the new company's prospects or potentially EEI is not far behind that. So that's sort of the window I'm thinking of right now, Jonathan.
Thomas J. May - President and CEO: Jonathan, I think you know our track record and one of the reasons we've been so successful is that I'm a big believer in not top-down planning, but really having everybody involved, everybody owing the plan. So, as Jim said, we're putting the team together. We're having our first leadership team meeting where we're going to be talking about the importance of this three year plan on whatever is May 24 and 25 and we like to drive it down, so that people agree on the assumptions, agree on goals agree on the strategies and priorities and then they own it and when they own it, they commit to deliver it and we haven't missed too many estimates because of the process that we use. So, that's why we don't want you to seem like we're too cautious. We're just in a mode here where we initially thought that we would have our management team all picked and in place and up and running by now, but because we had so much trouble getting this merger through the different gates, we sort of held off, so that we wouldn't be in the situation of selecting certain executives which meant you unselected others, and as a result if it didn't go through we would have had some broken China in the process. So, we're a little bit behind, you have to be patient with us, but we're confident that now that we get the team in place we'll create the plan you'll be proud of.
Jonathan Arnold - Deutsche Bank: Tom, I appreciate the extra color as to how the circumstances are different, that's very helpful. Did I just hear you correctly that you're planning on giving a three-year outlook?
Thomas J. May - President and CEO: Well, that's what we're working on internally as to what we provide long-term, we still haven't figured that out, and as Jim said, we've got to wet that through our new Board the new NU Board.
Jonathan Arnold - Deutsche Bank: You will do a three year plan and how much do you share of that with us, we'll find out when you share it.
Thomas J. May - President and CEO: That's correct.
Jeffrey R. Kotkin - VP, IR: Michael Lapides, Goldman Sachs.
Michael Lapides - Goldman Sachs: What do you view as the biggest hurdles or the biggest risk in terms of achieving some of the cost savings outlined in planning document when you first filed the merger and the biggest opportunities to where given your history ten years ago, where you could beat those levels?
James J. Judge - EVP and CFO: I think the biggest challenge is making sure that the cuts are happenings in the right places. I mean we are committed to improvements in reliability and customer service, so across-the-board cost reduction that impact customer facing operations is unlikely to be the case study. So, I think the fact of the matter is we have a track record of taking cost out of the business and actually improving reliability and customer service at the same time, but not mutually exclusive. So, the challenge is to keep that in focus as you develop your plan.
Jeffrey R. Kotkin - VP, IR: Thank you, Michael. We want to thank you all for joining us this afternoon. If you have any follow-up questions, please give us a call. Have a good afternoon and evening.
Operator: Thank you, for participating in the Northeast Utilities first quarter earnings conference call. This concludes the conference for today. You may all disconnect at this time.