Nstar Electric Co. · OTC:NSARO
Nstar Electric — Investor Day (October 2012)
56 slides from Nstar Electric's investor day presentation, Oct 5, 2012
Slide 1: Analyst Day
Exhibit 99.1 Analyst Day October 5, 2012
Slide 2: Northeast Utilities
Northeast |, Utilities ea eae
Slide 3: Today's Agenda
Today’s Agenda David McHale Merger Integration Executive Vice President & CAO Redefining the Customer Experience Jim Judge NU’s Attractive Investment Thesis Executive Vice President & CFO Financial Outlook Lee Olivier Transmission Development Initiatives Executive Vice President & COO Region’s Incre
Slide 4: Excellent, Timely Investment Opportunity with a Unique Value Proposition
Excellent, Timely Investment Opportunity with a Unique Value Proposition Low Payout Ratio/Strong Dividend Growth Outlook Significant Transmission & Gas Opportunities Low Near-Term Rate Case Risk No Required Equity Issuances Attractive EPS Growth Potential • Diversified across 4 regulatory jurisdicti
Slide 5: "Crown Jewel" of a Service Territory
“Crown Jewel” of a Service Territory Seaport District Boston, MA Back Bay Boston, MA Cambridge, MA Hospital Expansion Stamford, CT The Summer House Stamford, CT
Slide 6: Room to Grow
Bu Hera ROOM TO - GROW == Operat bird's-eye ‘YEAR OF THE CRANE Fig
Slide 7: A Great Management Team that Delivers ...
A Great Management Team that Delivers ... Utility Index S&P 500 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 NU NSTAR
Slide 8: Creating Superior Value
Creating Superior Value Redefining the Customer Service Model Growing the Transmission and Gas Businesses
Slide 9: "One Company" Delivering Great Service
“One Company” Delivering Great Service Engaged Workforce
Slide 10: Walking the Talk ...
Walking the Talk … Reaching out to regulators and employees …
Slide 11: Very Strong Financial Condition
Very Strong Financial Condition Utilities Credit Ratings Distribution (1) Number of Issuers A A- BBB+ BBB BBB- Below Investment Grade 1. Source: Standard & Poor’s, “Industry Report Card: U.S. Regulated Electric Utilities’ Credit Quality Remains Stable” (3/28/12). Long-Term Rating of U.S. Investor-Ow
Slide 12: Proud of the Past and Optimistic About Our Future
Dividends Stock Price Proud of the Past and Optimistic About Our Future 2 for 1 split $10 Stock Price $140 of value A Leadership that Delivers Significant Shareholder Value • Dividend Increased Fourteen Consecutive Years • Total Return #1 in the Industry NSTAR
Slide 13: Integration and Customer Service Review
Integration and Customer Service Review David McHale Executive Vice President & Chief Administrative Officer
Slide 14: Merger Integration Priorities
Merger Integration Priorities Support the company’s strategic, financial and operational objectives through two paths: 1. Implement the one company model Transition to a centralized corporate service delivery model Deploy resources geographically to support the businesses Drive consistency and stand
Slide 15: Merger Integration Priorities
Merger Integration Priorities Merger integration initiatives Category Activity Staffing Levels Achieving reductions in staff, vendors and contractors Information Technology Consolidating IT infrastructure, data storage, data centers, security Implementing enterprise-wide application investments acro
Slide 16: Merger Cost Savings: Initial Assessment
Merger Cost Savings: Initial Assessment Estimated Cost Savings ( Source: 2011 Net Benefit Analysis $ Millions (Gross Savings) Labor Administrative Advertising Benefits Insurance IT Professional Services Shareholder Services Vehicles Association Dues Director Fees Credit Lines Procurement Contract Se
Slide 17: NSTAR Gas, Yankee Gas Have Superior Customer Favorability Ratings
NSTAR Gas, Yankee Gas Have Superior Customer Favorability Ratings 1. NSTAR Gas 2. Yankee Gas 3. South Jersey Gas 4. Columbia Gas of Pennsylvania 5. Elizabethtown Gas 6. Rochester Gas & Electric 7. Columbia Gas of Massachusetts 8. NYSEG 9. Peoples Natural Gas 10. Equitable Gas Source: 2012 JD Power G
Slide 18: New England Customers Benefiting From Lower-Priced, More Plentiful Gas
New England Electric and Natural Gas Customers Benefiting From Lower-Priced, More Plentiful Gas Source Data: ISO-NE New England Energy Production
Slide 19: Natural Gas Prices Have Reduced Wholesale Electricity Costs
Natural Gas Prices Have Reduced New England’s Wholesale Electricity Costs By More Than 50% 6.06 6.76 8.08 4.29 5.10 4.80 3.42 Average Cost (cents/kWh) ISO-NE Wholesale Market Costs, Energy Component New England Wholesale $0 $3 $6 $9 $12 $0 $3 $6 $9 $12 Electricity Value Natural Gas (Henry Hub)
Slide 20: Lower Wholesale Prices Have Reduced Retail Electric Bills
Lower Wholesale Prices and Lower Congestion Costs Have Significantly Reduced Our Retail Electric Bills Since 2008 19.22 14.87 CL&P NSTAR Electric 19.51 14.20 2008 Bill Today’s Bill Generation/Supply Transmission Distribution Other Today’s Bill 2008 Bill 22.6% 27.2%
Slide 21: Connecticut Energy Policy Reflects Today's Marketplace
Connecticut Energy Policy Reflects Today’s Marketplace and Enhancement of Previous Initiatives • 2011Connecticut legislation required the Department of Energy and Environmental Protection (DEEP) to prepare a comprehensive energy strategy (CES) in 2012 and every three years thereafter • The strategy
Slide 22: The Connecticut Comprehensive Energy Strategy
The Connecticut Comprehensive Energy Strategy Central to the NU strategy, a number of themes are emerging: The Role of Energy Efficiency The Feasibility of Natural Gas Expansion Renewable Targets and Clean Energy Natural gas as a competitive and cleaner fuel is viewed as critical element in the comp
Slide 23: Significant Natural Gas Expansion Opportunities
Lower Prices, Low Penetration Result in Significant Natural Gas Expansion Opportunities Key Policy Issues Incentives to customers to induce conversion, incentives to the utility to incent investment, recovery of capital, financing approaches 72% 53% 48% 47% 31% 0% 20% 40% 60% 80% CT & MA Residential
Slide 24: Operations Review
Operations Review Lee Olivier Executive Vice President & Chief Operating Officer
Slide 25: NU Transmission Shows Continued Excellence
NU Transmission Shows Continued Excellence in Planning, Siting, Building and Operating High-Voltage Grid • Since 2001, NU has sited and built highly complex and varied transmission projects in densely populated, congested areas High-voltage, long distance underground (Middletown-Norwalk) Undersea (L
Slide 26: The Greater Springfield Reliability Project
The Greater Springfield Reliability Project – A Case Study In NU’s Transmission Development Expertise Greater Springfield Reliability Project $718M • • • GSRP: Massive Scale and Scope • • • • Under Construction Continued strong relationships and frequent communications with affected communities Proj
Slide 27: NEEWS: Interstate Reliability Project
NEEWS: Interstate Reliability Project Interstate Reliability Project $218M • Joint project with National Grid (NU in CT; NGrid in MA & RI) • All major permit applications filed • CT siting hearings are complete with decision in early 2013 • Projected commencement of construction: late 2013/early 201
Slide 28: NEEWS: Greater Hartford Central Connecticut Project
NEEWS: Greater Hartford Central Connecticut Project (GHCC) • The 345-kV “CCRP” was designed to address east-to-west power flow constraints across CT • As expected, ISO has issued its need reassessment for CCRP, expanding the study to include other electricity connected areas inside CT • ISO-NE prese
Slide 29: Northern Pass Transmission Project Overview
Northern Pass Transmission Project Overview • 1,200 MW clean energy • $1.1 billion HVDC line, terminal and AC facilities • Participant funded structure; no impact on the Regional Transmission Rate • Uses HVDC technology at +/- 300-kV with AC/DC converters in Quebec and NH • AC radial 345-kV line to
Slide 30: Transmission's Projected Capital Investment Has Grown to $3.7B
Transmission’s Projected Capital Investment Has Grown by $700M to $3.7B from Last Year’s Forecast Successful completion of SWCT projects Northern Pass HVDC Line to Canada Historic Forecast $3.7 Billion $3.5 Billion NEEWS projects progressing US portion estimated at $1.1B; $1.04B in forecast period N
Slide 31: 2013-2017 NU Transmission Capital Program Other Projects
2013-2017 NU Transmission Capital Program Other Projects – In Millions CL&P WMECO PSNH Total $1.47 Billion High confidence level in “Other Projects,” 78% in RSP as required . Breakdown of Other Projects: • 78% ($1.14B) - in RSP • 22% ($328M) - not yet in RSP NSTAR 1990 Line Structure Replacement 62.
Slide 32: Gas and Oil Market Dynamics Provide Expansion Opportunity
Gas and Oil Market Dynamics Provide Expansion Opportunity for NU and Benefits to Customers and States Opportunity • • • • Economic impact Energy independence Environmental benefits Energy efficiency Business competitiveness Job creation $1,200 to $2,500 savings per year for an average customer Benef
Slide 33: Customer Growth Has Picked Up for NU's Gas Business
Customer Growth Has Picked Up for NU’s Gas Business NU Gas Business – NSTAR, Yankee Gas 2007-2012 Annual Customer Additions (Conversions and new construction) Economic downturn Natural gas prices decreasing
Slide 34: NU's Gas Business Could Be Significantly Expanded
NU’s Gas Business Could Be Significantly Expanded Potential High Growth Projection 89,000 incremental new customers 33% total customer base growth 2012 to 2022 NU Gas Business – NSTAR, Yankee Gas 2013-2022 Annual Customer Additions Projections Base Growth Projection 74,000 new customers 15% customer
Slide 35: Financial Review
Financial Review Jim Judge Executive Vice President & Chief Financial Officer
Slide 36: Well Positioned for Success
Well Positioned for Success Experienced Management Team Multi-Year Rate Agreements Focused on Improved Reliability and Customer Service Strong Financial Condition with Premium Growth
Slide 37: Regulatory and Business Segment Diversity
Regulatory and Business Segment Diversity Rate Base By State / Federal Rate Base By Business Combined 2011 Rate Base: $12.4 billion
Slide 38: Very Strong Ratings Rank Highly in the Industry
Very Strong Ratings Rank Highly in the Industry Utilities Credit Ratings Distribution (1) 1. Wisconsin Energy 2. Northeast Utilities 3. Con Edison 4. National Grid Holdings 5. Xcel Energy 6. Integrys 7. Dominion 8. NextEra 1. Source: Standard & Poor’s, “Industry Report Card: U.S. Regulated Electric
Slide 39: NU Business Segments Have a High Level of Rate Certainty
The Regulatory Environment: NU Business Segments Have a High Level of Rate Certainty Transmission Fully reconciling rates – no general rate cases Distribution NSTAR Electric Rates frozen through 12/31/15; reconciling adjustments continue to operate NSTAR Gas WMECO CL&P Rates frozen through 11/30/14;
Slide 40: Total Shareholder Return Outperformed All Benchmarks
Total Shareholder Return Outperformed All Benchmarks 5-Year 10-Year 15-Year NSTAR 68.9% 222.7% 597.0% NU 51.4% 185.6% 313.3% EEI Index 22.8% 122.6% 254.8% S&P 500 -1.3% 33.3% 121.2% Cumulative Total Return Periods Ended December 31, 2011
Slide 41: Review of FERC-Approved Transmission ROEs
Review of FERC-Approved Transmission ROEs 10.00% 10.50% 11.00% 11.50% 12.00% 12.50% 13.00% 13.50% Local Network Service Regional Network Service Base Northern Pass 2005-2008 Regional Projects NEEWS M-N Underground NU’s Local Network Service Tariff ROE (this is the New England base ROE that is subjec
Slide 42: Key Assumptions Through 2015
Key Assumptions Through 2015 Electric sales: Annual growth of approximately 0.5% - 1.0% Natural gas sales: Weather-normalized annual growth of 1%-2% Impact of a return to normal weather for 2013 adds approximately 7% to sales O&M: Annual decreases of approximately 3% Cost savings more than offset wa
Slide 43: Merger Has Enhanced Opportunities for Financing Savings
Merger Has Enhanced Opportunities for Financing Savings • NSTAR commercial paper program expanded to NU in July • Effectively lowered short-term borrowing costs on $700M by 150 basis points • Renegotiation of $1.6B of bank lines also lowered revolver fees • NSTAR Electric is refinancing $400M of sen
Slide 44: Projected 2012 Recurring EPS
Projected 2012 Recurring EPS • NSTAR earnings • Higher transmission rate base • Lower interest costs • Initial cost savings • PSNH, Yankee Gas distribution rate increases • Higher share count • Additional emergency preparedness expense at CL&P • Higher untracked pension, property taxes and depreciat
Slide 45: Projected EPS Range for 2013
Projected EPS Range for 2013 • Normal weather • Lower interest costs • Additional transmission rate base • PSNH, Yankee Gas distribution rate increases • Cost savings • Additional PSNH generation return • Higher depreciation and property tax expense $2.40 - $2.60 Major Drivers vs. 2012
Slide 46: EPS Growth Beyond 2013
EPS Growth Beyond 2013 • Continued investment in transmission reliability projects, including NEEWS • Northern Pass Transmission • Increase in gas conversions • Increased cost savings • Higher property tax and depreciation expense Major Drivers Long-term 6% - 9% CAGR off of Long-term 6% - 9% CAGR of
Slide 47: Dividend Growth In-Line with Earnings Growth
Dividend Growth In-Line with Earnings Growth Q1 2012 Q2/Q3 2012 $1.372 $1.175 $1.10 $1.025 $0.95
Slide 48: Additional Upside Opportunities Not Reflected in Projections
Additional Upside Opportunities Not Reflected in Projections • Additional natural gas expansion investments • Additional transmission investments • Favorable CT energy efficiency/ energy policy outcomes • Accelerated economic recovery
Slide 49: Northeast Utilities
Northeast | Utilities rs = Northeast ZINN Utilities
Slide 50: Northeast Utilities
Northeast | Utilities rs = Northeast ZINN Utilities
Slide 51: Schedule for New England Base ROE Complaint
Schedule for New England Base ROE Complaint Complainants’ Case Filed Transmission Owners Case Filed FERC Staff Complainants’ Rebuttal Case Filed Updated ROE Analyses Due Hearings Start Initial Decision From Judge FERC Decision Expected Possible Requests for Rehearing
Slide 52: Near Term Upside: Record Mild Weather Reduced Gas Delivery Margins
Near Term Upside: Record Mild Weather in 2011-2012 Reduced Our Gas Delivery Margins by $30 Million 4,529 5,579 5,151 5,682 5,318 5,179 5,130 5,545 5,579 5,876 4,726 5,680 2000 – Present Winter Heating Degree Days (1) 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 2000 - 2001 - 2002 - 2003 - 2004 -
Slide 53: Transmission Rate Base Growth Projections
Transmission Rate Base Growth Projections $3,823 $4,613 $4,214 $4,991 $5,424 $6,636 $6,811 10% CAGR
Slide 54: Projected Distribution/Generation Capital Expenditures
Projected Distribution/Generation Capital Expenditures $889
Slide 55: Total Projected Capital Expenditures
Total Projected Capital Expenditures $1,893 $1,711 $1,600 $1,870 Transmission Electric & Gas Distribution and Generation (including CL&P resiliency) Other, Primarily IT
Slide 56: Projected Rate Base Growth - 2015
Projected Rate Base Growth - 2015 Projected Combined 2015 Rate Base: $15.6 billion Rate Base By Business