Welcome to the Northeast Utilities Q2 Earnings Call. My name is Christine, and I will be the operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Mr. Jeffrey Kotkin. You may begin.

Thank you, Christine. Good morning and thank you for joining us. I'm Jeff Kotkin, NU's Vice President for Investor Relations. Speaking today will be Jim Judge, NU Executive Vice President and Chief Financial Officer; and Lee Olivier, NU Executive Vice President and Chief Operating Officer. Also joining us today are Jim Muntz, President of our Transmission business; Jay Buth, our Controller; Phil Lembo, our Treasurer; and John Moreira, our Director of Corporate Financial Forecasting and Investor Relations. 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 based on management's current expectations and are subject to risk and uncertainty, which may cause the actual results to differ materially from forecasts and projections. Some of these factors are set forth in the news release issued yesterday. If you have not yet seen that news release, it is posted on our website at www.nu.com, and has been filed as an exhibit to our Form 8-K. 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, 2012, and our Form 10-Q for the 3 months ended March 31, 2013. 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'll turn over the call to Jim.

Thanks, Jeff, and thank you everyone for joining us this morning. We appreciate your participation in today's earnings call. In my remarks today, I'll discuss our second quarter results, some additional financing activity since last quarter, economic conditions in our region, and I'll conclude with an update on various regulatory and legislative matters, including recent regulatory developments in New Hampshire; New England's ROE proceeding before FERC, some elements of Connecticut's comprehensive energy strategy, and the status of our storm cost filings in Connecticut and Massachusetts. As you're probably aware, we released our Q2 '13 earnings after the markets closed yesterday. Excluding merger-related and integration costs, we earned $172.8 million or $0.55 per share this quarter compared to $135.8 million or $0.45 per share for the same period last year. First half of the year, we earned $402.6 million, or $1.27 per share, compared to $236.2 million or $0.98 per share, excluding merger-related and integration costs for both periods. This is our first quarterly comparison that includes NSTAR's operations in both periods. Overall, we're very pleased with our financial performance in this quarter. Our solid results exceeded Wall Street's expectations and were driven by some core factors: one, an increase in transmission investment return; two, a decline in O&M cost; and thirdly, higher electric and natural gas sales. While Q2 weather conditions are typically not a significant driver, this year, we did benefit from colder temperatures early in the period, and warmer weather later in the quarter compared to last year. Heating degree days were up about 20% on average, in our gas service area this quarter compared to 2012. And due to an early summer heat wave in late June, cooling degree days in Boston for the quarter were up about 13%. Although total electric sales increased for the quarter…

Thank you, Jim. I will provide you with an update on our major capital projects and our natural gas expansion initiatives then turn the call back over to Jeff for Q&As. As most of you know, we had some very important news on June 27. We announced a new route for the northernmost 40-mile section of our Northern Pass transmission project. We had been working on a new route for more than 2 years and we were thrilled to be able to announce it in New Hampshire 5 weeks ago. The Northern Pass team did a tremendous job putting together a proposal that accommodates the concerns of many in the state's north country, while also delivering very significant economic and environmental benefits that are core to this innovative project. This northernmost section of the new route has about 32 miles of overhead line on new rights of way that we either own or have under lease and approximately 8 miles of underground. As result of the underground work and other changes to the structure configuration, we have raised the project's cost estimate to $1.4 billion. The new preferred route addresses many of the concerns that have been raised about the project. The 2 underground sections, lower structures and heights and a route that takes the project well to the East of our earlier route. We have significantly reduced the project potential visual impact. Additionally, the number of properties that would have overhead lines has been reduced to 31 from 186. Areas with new overhead lines are now located in generally more remote terrain and use natural topography to help with visual screening. On July 1, we filed an amended application with the U.S. Department of Energy and there is now a link to that filing on the Northern Pass website.…

Thank you, Lee, and I will turn the call back to Christine to remind you how to key in queue for our Q&A.

[Operator Instructions] Thank you, Christie, our first question this morning is from Kit Konolige from BGC.

Just, Jim, on your comments on O&M, in the table that reconciles the year-over-year showing $0.12 in EPS improvement in the first 6 months, is all of that $0.12 attributable to merger cost savings?

No, it's not. And actually, Kit, I prefer the focus on the second quarter numbers only because the year-to-date Q1 2012 NSTAR wasn't in the numbers. So maybe the way to think of O&M in terms of what's permanent savings is I think we finished the second quarter down $28 million in total. We think about half of that is timing related. As I mentioned, last year in the first quarter, it was extraordinarily mild. We had the majority of vegetation management completed early in the year. In fact, we have a variance year-to-year on that tree trimming of about $9 million. That $9 million will be spent, but would be later in the year. So the way to think of it is half of the $28 million is timing related and when you multiply that $14 million times -- as a run rate for 4 quarters, you get to the guidance that we've been providing, which is we think we'll be able to take O&M down by about 3% or $50 million. Does that answer your question?

That does. And just to follow on that a little bit, I think your communication to date has been that investors should not get overly optimistic that you can beat the $48 million, 3% per year O&M improvement. Does that remain the guiding principle?

Well, I think we have provided guidance in terms of earnings growth, we fully expect to be a top performer over the 3-year period. Our plans expect that we can do it with 3% reductions a year. If it turns out that we need more than that, I think that we have the management capabilities to achieve it if necessary.

Okay, very good. And a question for Lee. Lee, is there any public feedback in the newspapers, politicians comments, et cetera, on the new route for Northern Pass?

Yes, I would say, Kit, by and large, it has been very positive. I think the fact that seeing essentially 8 miles of underground -- particularly 8 miles of underground around very sensitive areas, environmentally sensitive areas, has all been very positive. I think that the real sense is that this company essentially took a hiatus of 2 years to come up with a route that is more sensitive to the environment, to the folks that live along the route, to the citizens of New Hampshire and that's being paid a lot of very positive compliments. We received a number of editorials in newspapers that's in support of the project, particularly because as folks look around to New England energy capacity situation and see anywhere from late 9,000 of old retired plants or plants that will have to retire rather, and they have, in many cases, questionable reliability. They know there's a need for this. This is clearly the best project for the region or they will be the best project for the region in the next 50 or 60 years in terms of its firm power, clean power and reliable power. So we see a building consensus in the polls that were taken, we see a rise in support for the project.

Next question is from Travis Miller from MorningStar.

A question on the FERC ROE issue. As we go through the proceeding, I know we've got a long way to go on this most likely, but as we go through, if you get indications that this might not go your way or there are some challenges here, what's your thought on how that will reflect your capital spending budget for transmission?

Well, I think that from a capital allocation perspective, transmission has been an attractive opportunity for not only Northeast Utilities, but really all the utilities across the country that are in the transmission business. And the returns have exceeded the 10.2% allowed ROEs that we've seen in the distribution business. If all of a sudden they were to invert and the distribution business was to become more financially attractive as investment opportunities, you'd have to think it would influence the capital allocation decisions that companies and the boards will make going forward.

And then a follow-up on that, is your investment spend within the time period that when we ultimately get a decision if it's 2015, 2016, do you expect that you'd be done with a lot of the projects and potentially [indiscernible] or something like that? Is there any chance there?

Actually, the expected decision of the FERC is probably a mid-2014 event, so it's not that far off. And the effective rate of it began October 1, 2011, when the complainants filed the complaint.

Next question is from Julien Dumoulin-Smith from UBS.

So perhaps a first quick question her, you talk about PSNH. Could you perhaps help us think about the recovery on those investments ultimately depending how this all hashes out in the state. And then secondly, the extent to which, perhaps, the state isn't heading towards restructuring, how would you reconcile the migration trend of late?

And Julien, just to be clear, you're talking about PSNH generation, correct?

Indeed, I am.

Yes, I think the migration rate of late has reflected the fact that the energy service charge had been higher than competitive suppliers' offerings. As I mentioned in my comments, that has recently have changed and that would reduce the energy service rate by 10%. We feel very confident from a legal perspective that the investments that we've made in the generation business in New Hampshire have served customers extremely well over the last decades and we feel highly confident that cost recovery there is unlikely to be an issue should the state decide to pursue divestiture, which is one of the options that they're considering.

As well, the New Hampshire Legislatures has enacted the bill that will look out the whole New Hampshire energy future in terms of what New Hampshire wants to do with those assets as well as other things such as renewable. So we expect that this -- the future of those assets will be taken up in that legislative study though.

It is unclear where the state goes in terms of this issue. I think there's probably going to be plenty of proceedings to assess the merits of PSNH retaining those plants. But in any event, we feel highly confident that the spending was prudent in the best interest of customers of New Hampshire.

Great. And then secondly, there's been a lot of discussion in New England on gas midstream supply, and obviously, your announcements today related to Connecticut to help improve that. But I'd be curious, how does that improve your plans for electric reliability investments, I'd be curious if there's been any discussion around the impacts associated with Northern Pass to that effect?

From the standpoint of the investments that I referred to in my presentation,, which is the Tennessee and Algonquin pipelines, if you look over the course of approximately the next 10 years, and you look at the increase in gas usage in the region, almost all of that capacity gets used up by the distribution companies, by the LDCs. And obviously what the LDCs will do is, during that period of time, they will whatever spare capacity they have, they sell back into the marketplace to benefit their distribution customers. But from the -- if the question is around this -- the shortfall of natural gas per generation capacity in the region, it actually does not do that. And if you look out the plans -- the proposed plans that ISO New England has that they're going to move forward later this year, performance market in the future generators would have to have essentially a guaranteed fuel supply to bid in. It could be oil, it could be obviously, firm pipeline capacity or it could be LNG, but they will have to have firm capacity to bid-in to the market.

Perhaps looking at transmission as a tangible alternative to gas midstream in the, call it, near term, I'd be curious, has there been any kind of expanded discussions on electric transmission as a "solution"?

That conversation has been ongoing for a long period of time. I think it probably is will -- the tempo will probably increase after the summer because in this past heat wave, there was, on any given day, over 3000 megawatts of capacity that couldn't start up or try to start up. Hottest day, there was 4,000 megawatts of generation capacity that couldn't start up. And so it just -- it reinforces the need for connectability of transmission to where the generators are in the region and to where the load pockets are. So I only see that as a positive.

Next question is from Andrew Weisel from Macquarie.

I wanted to start with a couple of questions for Lee on Northern Pass, specifically around the timing of approvals. I believe you said you're excepting processes to be done by mid '15, which is about 24 months from now. If we work backwards a little bit, the New Hampshire State Evaluation Committee takes about 8 months. And before that, you'll need to get the draft approval from the DOE. If the DOE scoping meetings don't start until this fall, that only leaves about a year maybe, even less, for the DOE draft decision. Does that seem realistic to you? How confident are you in that mid '15 timing to end the approval process?

Yes, I mean at this point in time, based on everything we know, we're still confident. So if you think about the scoping meetings, the scoping meetings are really all about the DOE coming into the impacted communities, and it will probably be a kind of a northern part of the state midsection towards the southern part of the state to probably be -- whatever, 4, 5 meetings. And it's really the opportunity for the DOE to hear from the people in those communities, to take their input into the overall impact of the line, but the real hard work is really all done around through in the environmental assessment. These are essentially environmental scientist who are out in the field taking samples and so forth. So you get the feedback, you get all the environmental samples, the data, you do the analysis, you factor in the comments of the public, and the DOE makes the decision. So right now, I would say, we think that, that is still a realistic timeframe.

Okay. Now the community outreach you've done in the past few months and the open houses you will be doing in the coming months, will that in any way, help speed along the DOE approval? Or the site evaluation committee? Or is that independent, just trying to gain support and the best approach for you guys to take.

Yes, they're really quite independent, the DOE is, by their nature, completely independent, and will conduct its own analysis and studies in accordance with their procedures and requirements. And we are doing this as really kind of good citizens, good stewards of the state, of the committee, as we always have and everything PSNH has ever done inside of New Hampshire. So this is really all about creating better understanding in the communities of the value of the project, the impact of the project. We will have topical overviews or what it would look like if the lines run through a particular area, we'll be able to see that using kind of a GIS or global information systems, super imposed transmission lines on that. So this is really about learning more about the project and building a greater trust level to the public.

Great. Next question is on, the cost of the project went up from $1.1 billion to $1.2 billion, and now $1.4 billion. Given your agreement with Hydro-Québec, how does that affect the earned ROE? And what you'll be collecting from HQ? Is there any upside to your earnings or downside to your ROE because of these higher costs related to undergrounding the line?

Well, in regards to the ROE, the ROE level is set by contract, so there's no change to the ROE, particularly during the construction of the project after the project is complete and in service, the ROE would flow off of the base ROE of the region by a band [ph] of I think it's 140 basis points, 142 basis points. Now to the extent that the project costs $200 million more, the equity base has now gone from essentially $600 million to $700 million, so you're earning 12.56 on a higher equity base, so that would definitely be more earnings for the company. Then you would look up the increase in that capital to $200 million spaced over 3 years, a $25 million pick up in 2015, $100 million pick up in 2016 and a $75 million pick up in 2017.

That's very helpful. And just to be clear, it is based on the regional base ROE, so this could be impacted by the FERC review, right?

Yes, it could be impacted, but only after the line goes in service.

Our next question is from Caroline Bone from Deutsche Bank. Next question is from Dan Fidell from U.S. Capital.

Just a couple of questions, also my questions have mostly been asked and answered. But maybe if you could just talk a little bit about where you are in terms of staffing for your longer-term plan with the merger put together and what your need assessments are going forward. It's assuming that you're perhaps running a little bit ahead of schedule in terms of just early on where the staffing count is?

Yes, I think at the merger close, we had approximately 9,000 employees, so I think we're down to about 8,700 today, so it might about that 3%, 4% reduction in staffing. What we've been able to do is really optimize attrition. This year alone, we've had about 350 employees leave the company. Vast majority of them, retirements. We've obviously had some replacements, we've hired about 200 to replace them as necessary in key operational roles, primarily. So what we're finding is that we're able to become efficient, reduce our cost going forward by really optimizing attrition opportunities across the organization.

Okay, great. Maybe just a follow-up question on the gas conversion side. You mentioned significant upside from that not included in the plan. The uptakes really do look very good for that. At what point would it make sense to start adding that to guidance, you think?

Well, I think the ramp up, you can think of it as approximately $5 million of incremental earnings, out around 2016, 2017. So, thus far, we've only given guidance to 2015. So -- but that gives you a frame of reference that it's -- the run rate will be about $5 million a year.

Appreciate it. And then just the last question, what's your understanding on the FERC ROE as we start to get closer to an ALJ recommendation here that -- which has to be delivered by early September here, will not include the bond yield mark up, but you do expect or will include that piece of it as they make their final decision, mid 2014, is that correct?

Yes, based upon the precedent, that's what forecast, as done, and as I mentioned, the bond yields have moved significantly since the testimony by all the witnesses, which was filed in early May.

Our next question is from Paul Patterson from Glenrock.

Just really quickly, the sales growth, I'm sorry if I missed this, the electric sales growth, weather-adjusted, what was that? I didn't get that -- for the first quarter?

For the second quarter. The sales growth for the quarter, was 0.6%, and weather-adjusted, it was about 0.8%. So it wasn't a huge sort of need for adjustment in weather.

Okay. And then also [indiscernible], that editorial about that specific piece of land and everything, we've -- you know what I'm talking up, with research in Northern Pass, does this alternative proposal that you have, do you think that deals with that and that specific sort of crucial area.

Yes, Paul, this is Lee. Yes it does, actually. The original proposal we had was essentially going under about 100 feet or so, 115 feet of that land underground. So you -- visibly, you would see nothing on the land that is in conservation. But this new route doesn't go near there, it goes underground. It goes away from it. So this resolves their issue that they had in the editorial.

We have no other questions, so we want to thank you all very much for joining us this morning. If there's any follow-up questions, please call John Moreira or me today. And have a great summer. Thank you.

Thank you.

Thank you. And thank you, ladies and gentlemen, this includes this conference. Thank you for participating You may now disconnect.