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UIL Holdings Corp. (NYSE:UIL)

Q4 2008 Earnings Call

February 19, 2009 10:00 AM ET

Executives

Susan Allen - Vice President and Treasurer

James P. Torgerson - President and Chief Executive Officer

Richard J. Nicholas - Executive Vice President and Chief Financial Officer

Analysts

Daniel Fidell - Brean Murray Carret & Company's

Daniele Seitz - Seitz Research

Operator

Good morning and welcome to the UIL Holdings Corporation Fourth Quarter Full Year 2008 Conference Call. I will now turn the call over to Susan Allen.

Susan Allen

Thank you, Lindsey and good morning to everyone. Thank you for joining us to discuss the UIL Holdings' fourth quarter and full year 2008 earnings results. I am the Vice President of Investor Relations and the Treasurer. Participating on the call with me today is Jim Torgerson, our President and CEO, and Rich Nicholas, our Executive Vice President and CFO.

If you do not have a copy of our press release or the presentation, you can find them in the Investors section of our website, at www.uil.com. During today's call we will make various forward-looking statements within the meaning of the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Significant factors that could cause results to differ from those anticipated are described in our earnings release and the filings with the SEC.

With that said, I will now turn the call over to Jim Torgerson. Jim?

James P. Torgerson

Thanks, Su and welcome everybody. Today we want to cover a number of topics and I am going to start on page three which has the discussion topics. The first half, we're going to... I am going hit these briefly, and then go in a little detail.

The 2008 earnings came in at $1.92 above our guidance of $1.75 to $1.90. We had a excellent quarter and year end. So really a good result and I will talk about that in a minute. Rate case, we're going to go into that a little bit. The summary... it's probably a lot better than most of you think and I think we're going to talk about that and why we see it is actually achieving many of our goals.

The dividend, I want to make sure everyone is aware that the Board has affirmed its commitment to continue to pay the dividend at current level. We're going to talk a little bit about capital spending and where things are now. The fact is our plans... really our ten-year plan still is on track, and we'll get into that a little bit. Then the earnings guidance and Rich is going to go into that. But, for 2009, we're seeing the guidance at between $1.80 and $2 and that would incorporate our planned equity.

Now going to page four and we'll start with the earnings. As I said, 2008 turned out to be a very good result. In spite of the fact we had declining sales, our sales were down 3.7% over the previous year. The equity market conditions which caused us to have to mark-to-market some of our equity plans, that are in the SERP plans primarily and then the uncollectibles were still off during the year. We accomplished a lot of this by actually having the increase in the transmission business. That was actually up 88% on earnings over the year.

We also managed very aggressively our O&M expenses to make certain that we're getting done all the service levels we need, but also managing the cost as effectively as we could, and we've had some reductions there which allowed us to impact the earnings.

As you can see in the fourth quarter, earnings were 8.8 million or $0.36 a share, which was a $0.01 higher than the previous year. For full year, it was $48.4 million or $1.93 from continuing operations, which was actually up $0.06 over the 2007.

When you look at the two aspects; the transmission as I said nearly doubled year-over-year, up 88%. The distribution business has declined 22%. And that was the reason we saw that coming, mainly the sales and we want to make sure we filed the rate case.

Now flipping to page five; there are a lot of negative aspects to the decision, when you really look at the ROE expenses that were in the logs (ph). The bottom line that we were much better off than had we not filed and you look at what we filed, we had a two-year rate plan asking for 52 million and then 30 million in the next year we were looking for. There were some pensions in the post-retirement expenses of about 8 million that were measured at the end of the year that weren't even in this request. What we got out of it, we got the 22 million in additional pension and OPEB expenses that had occurred during the year, some of it through actual rates, part of it through a regulatory asset. We got the 7.5 million of uncollectible expense moved out of distribution into the generation service charge we'll pick that up. We received the decoupling.

So let me talk about a few of these. We actually got a revenue increase. But when you couple that with the increase that had gone in effect from the 2006 rate decision, we saw a slight decrease of less than $1 million for 2009. We do have in the order, a rate increase for 2010, that's right now at $19 million, and that will be adjusted depending on what the 2009 year-end pension expense is. So, we do have a rate increase and most of it's from the investments we're going to make and the return of and return on those investments. So, you can see the pension expense as being left open to determine the asset balances and the discount rate as of the end of 2009.

This is actually going to be very helpful for us for recovering any further declines in our increases in the pension expense, decline in the asset value. Hopefully the market's are going to turn around and you can see that flip and you could see some... a reduction in that expense. Either way it's going to get passed through.

Now, the negative is obviously the ROE; it's 8.75, the lowest. I think anybody has seen in a long time. We did get an increase in the equity component from 48% up to 50% for the cap structure. We have filed as of yesterday some items for our reconsideration and clarification. It totals about $3 million and these are mainly mathematical errors that the commission made... they were made in the final decision. And we think there's probably a good shot of getting some of that back, but the commission will have to decide that.

When we go to next page of our presentation, you look at a lot of the favorable items. One of the bigger ones is we're implementing the decoupling methodology that we have proposed. And they are doing this as a two-year pilot program. And the bottom line is we will make what we have for revenue requirement and it will trued-up to our revenue requirement each year. So whether our sales are up or down is not going to matter to us and particularly, with the decline in sales we've been seeing, we think it's a big plus for us.

Now it is up to your pilot, we'll see how things go at the end of the two years. But, right now, we're very happy, we have this in place. Particularly, if we had not filed, we would still be having to absorb the decline in sales from the rates that were set in 2006 and those have been fairly significant.

The commission also approved the vast majority of our distribution capital program. The things that they took out when we say about 90% was approved; the things they took out was a conservation and load management that we've put in as an idea to rate base some of those expenditures and they've decided they don't want to do that at this point. They took out the backup data center which was a temporary fix for us, not a big deal as far as we're concerned. Then they reduced some other areas as a result of what they believed are reduced fuel and commodity costs, in which they did have some evidence that they had gathered that shows they'd come down. I think we'd all acknowledge that crude oil is down and most commodity prices are down.

So, what they're proposing probably isn't too far off the mark of what we may see, when we have to actually go out and buy material. So, it's not that they disallowed any programs we have underway other than the temporary backup data center.

They did transfer the parts of uncollectibles that we'd requested and it was about 7.4 million to generation, which has really worked along; so that's another big plus for us. And for the pension plan assets that they haven't picked up in the draft decision, they moved it to a regulatory asset for us and it's a $10.2 million adjustment that allows us to recover that expense in the future. They did acknowledge and recognize that expense was legitimate. It is based on a year-end asset value and discount rate which they hadn't reflected in the draft decision.

So that was corrected in the final decision. And then they gave us the pension tracker, which we will true this up at the end of next year... at the end of 2009 for 2010 expenses, to make sure that the asset values and discount rates are reflected in our rates. So we're picking up all of this increase in the pension expense which is a big plus. So we are not having to absorb that into our... with our revenues.

They also gave us a cost-to-debt tracking mechanism. I think all parties were a little uncomfortable where interest rates were going and what they would be when we actually have to issue debt. So we have our mechanism now that will adjust for changes in our embedded cost of debt. If it's plus or minus 25 basis points or a total of $1.5 million, we can put this into the tracker and then recover it. And we actually... this is one of the areas, we asked for clarification on the wording and the final decision isn't real clear on how it works. We think we all know it wasn't intended, but the words just don't quite say that. So we are asking to clarify that.

The sharing mechanism is pretty similar to what it was in the past, now 50% any excess over the lot goes to customers. 50% stays with the company before we would... the 50%... the customers also reduce the CTA have that's gone away.

The distribution revenue requirements, as I said there is a $19 million increase that goes into effect subject to the adjustments for pension in 2010. So that's going to be another plus for us. We did have some fairly significant adjustments or decreases in our O&M expenses from what we asked of about a 158 million, they gave us about 134. 10 million of that the adjustment for the pension expense from what part we had request, so it's part of we did and we are working pretty hard to get the expenses down to the level that we think could be appropriate right now.

So, with the rate decision now finalized, the Board did affirm its commitment to continue to pay the dividend at current level. And as you're well aware that we paid a consistent dividend for the last 12 years at $1.728 and we've paid a consecutive quarterly dividend without any suspension for more than a hundred years.

Now, when we look at our capital spending program and our ten-year plan, it is on track. I mean year-over-year there is going to be some fluctuations. We're actually looking at bringing forward some of our transmission projects and we have a minimal amount that we can bring forward in 2009.

But the economy is pretty weak and then, I think the commission announced (ph) commodity prices are down, materials and fuel in particular. And really when you look at it, in some respect it could be a really good time to invest in projects like this.

Now, we also have to reflect in the fact that because the markets are weak and the fragility of the capital markets, we're very cognizant of that and our ability to finance. So we are looking at our plans and we will manage the capital spending to be able to access the capital markets when appropriate and we have reduced the capital spending somewhat on the ten-year plan you saw before. It's all in distribution and actually transmission is up, I think about 10% which is a small amount because we weren't spending much on transmission in 2009 anyway since the Middletown-Norwalk project went operational in the 2008.

When you flip to page nine, and you get to GenConn project. This is on track, moving along as planned, our partnership with NRG to build peaking generation. The 400-megawatt, the turbines are on order. The ROE has, as you know, has started out at 10.25. It will be determined at the time we go operational and right now based on our ROE and that of CL&P it will probably be at the floor unless things change between now and June of 2010 when the first four units go operational. And 30-year O&M costs are going to get reviewed annually. Financing is being put in place, it's been targeted to get done. End of the first quarter, maybe early in the second quarter at the very latest. So that's moving along very well and we're pretty happy with the way that's progressing.

The Middletown and Norwalk project, as I said that was energized ahead of schedule both CL&P and our risk (ph) assets online in December of 2008, well ahead of the original schedule. The cost was about $290 million, and still we have a few things that are going come in, and the rate raise is about $300 million. One thing we're very proud of, we had 725,000 hours worked with no reportable incidents. And we have formed a partnership with OSHA to work on ways and put this in as safely as possible, so none only employees or contractors will get hurt or harmed by this very large civil engineering and project and it's... we are very happy with the results of that. And that's up and running and you can see that in the results we get... we had for the end 2008, with the transmission business growing as rapidly as it did.

And I am going turn over to Rich Nicholas now, who is going talk about the financials.

Richard J. Nicholas

Thank you, Jim. Good morning everyone. I'll spend a few moments on a little more details on the fourth quarter and 2008 in total and then turn to the looking-forward guidance.

I am on slide 11 of the presentation and as Jim mentioned, the strong growth in transmission 88% year-over-year more then offset the decline in distribution. Distribution continued to be impacted in the fourth quarter from lower kilowatt hour sales, higher on collectibles. Although when we had timed our guidance range earlier in 2008, kilowatts hour sales we were seeing declines of over 4% a month and you'll see the weather-adjusted kilowatts hour sales were only down 3.4% in the fourth quarter. So better than we expected, primarily driven by some cold weather a in the fourth quarter.

Also on collectibles, came in better than we had expected. The trend line was getting worse in the year and again we lowered our guidance; we took that into account. The fourth quarter did not come as bad as expected on collectibles in part because a greater percentage were, what I'd call hardship on collectibles which become a pass through in the system's benefit charge, so we were able to recover those. So those two items helped us in the fourth quarter and obviously, for the total year.

On slide 13, there were few below the line items that did impact the fourth quarter and the year. Jim had mentioned the mark-to-market adjustments on a supplemental retirement plan. $0.03 in the fourth quarter and actually year-over-year was $0.10 reduction, because we actually had positive results of $0.03 a share in 2007.

In addition, the hit you see disallowed... changed a prior draft decision related to incentives for power procurement during the transitional standard offer period which was 2004 to 2006. That was a $0.03 a share hit that we took when they reversed that decision. Related to 2004, you may recall on a prior draft they had granted that and then reversed it in January of 2009. We will be filing 2005 and 2006 shortly, but we have not taken any of that '05, '06 incentive into earnings.

In addition, one other below the line item I wanted to mention was the conservation and load management incentives. We do earn an incentive for managing those programs. It was less in 2008 than it was in 2007, by little over $0.02 a share.

Moving back to the above the line, the distribution and CTA combined return on equity, just under 7% and that compared to the allowed 9.75 in 2008. With regard to transmission, the strong growth in earnings there driven by the completion of the Middleton-Norwalk project having flipped that rate base throughout the year and getting it enter service in December. We also completed the Trumbull substation during the year of 2008 which helped the earnings on transmission and overall, on a weighted average basis, transmission earned a little over 12.5%.

Also impacting 2008, depreciation expense was up as a result of the additional capital expanding by $0.07 per share. But we did our rate increase back in January of '08 on the distribution side in anticipation of the additional capital spending and expense that was approved back in the 2005 rate case. Similarly, interest expense was up as we followed the fund capital program, again anticipated as we knew those costs were coming.

At UIL Corporate, the costs there associated with the senior note, the interest as well as in 2007, we actually had interest income from cash balances and we reinvested that cash in the utility to support the capital program. So interest income was down at corporate.

So a very strong 2008, both the fourth quarter and the year in total, and as we move forward on slide 15, talk about guidance. As Jim mentioned overall from continuing operations, we're looking at $1.80 to $2 as compared to our $1.93 in 2008.

On the distribution side, basically holding our own there, with all of the changes coming out of the rate case and slight growth in transmission as Middletown-Norwalk is now fully in rate base and the average rate base will be slightly higher in 2009. Corporate again the main cause there is the interest on the senior notes.

The range of $0.20 is wide enough to accommodate our anticipated equity issuance, which we're targeting around 75 to 100 million depending on markets. And the timing will depend on availability in the market. We do want to be opportunistic. We do need to get a shelf-registration filed. UIL has not issued equity since back in the 1980s and so work is underway to get the shelf filed. So we'll be in a position to be opportunistic as market conditions avail themselves. And again, as we look at that we would still be within the range of $1.80 to $2 of earnings per share.

On slide 16, a few more details around the CapEx plans for 2009. In 2008 for distribution just to put some context, distribution was a $118 million of CapEx and we're targeting for 2009 a 110 to 120. Really consistent driven by the rate case decision that Jim went through in terms of the impacts on commodity costs. Still looking to replace ageing infrastructure and meet the capacity needs. The other 110 to 120 compares to our presentation done at EEI in November, where we are targeting a 143 million. Again the changes, they are really driven by the rate case decision.

On transmission, in 2008, we spent 93 million. But 84 million of that was Middletown-Norwalk. There is a little bit of final Middletown-Norwalk dollars in 2009, getting spares in place and those kinds of things, but targeting 28 to 38 million that compares to the 30 million that we have presented down at EEI. So overall a CapEx budget in the 140 to 155 range would be supported certainly by our short-term debt revolver as well as the equity issuance.

One other item of note in the rate case was we have proposed to put conservation of load and management spending, incremental CLM spending in rate base. The department did not agree with that. So in prior discussions we have mentioned 4.5 million in 2009 for CLM rate base that is no longer there.

So slide 17, I'll talk a moment about the financing plan and liquidity. We did successfully re-market 78.5 million of tax-exempt bonds just recently. We were able to access the market and get that done. So that's a big piece of liquidity behind us. We will be moving to re-market to 25 million of additional tax-exempt bonds that we had to buy in at the end of last year when the market was not available. Just yesterday the DPUC approved our application to remove the Ambac insurance which was not helping us any longer in the market. And so we will be moving quickly to get those out and get that cash back in house. And then in December of 2009, we do have a maturing amount of 51 million that will have to be refinanced before the end of the year.

So we are constantly looking at our liquidity needs where we are in the markets and the availability of funds. We will apply to the DPUC to the extent we need any additional long-term debt over the next three years to fund our capital program. But in 2009, we are really looking just at new equity. No new long-term debt is in the plan right now to support the capital expenditure program as well as be in a position to put our equity contribution into GenConn in middle of 2010 which is right around $50 million.

On slide 18, from a liquidity standpoint, we do have a $175 million short-term credit facility revolver that's available to us. And although we had a 148 million outstanding at December 31, we're planning with the permanent GenConn financing to bring $40 million back in house that we have provided as inter-company loan to GenConn. And with tax-exempt bond that I just mentioned of 25 million that would bring in total $65 million back in house within the next couple of months.

We also have a $25 million revolving credit agreement that was there really to back stop the tax-exempt bond we had to bring in house. That does terminate in May of 2009. We do not currently have any borrowings outstanding as of December 31. But we also have available to us an uncommitted money market loan facility to support our liquidity needs, should we need to avail ourselves of that.

So with that I'll hand it back to our operator Lindsey for the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Dan Fidell. You may proceed with your question.

Daniel Fidell - Brean Murray Carret & Company's

Good morning guys.

James Torgerson

Good morning.

Daniel Fidell - Brean Murray Carret & Company's

Just a quick question on the... following up on your comments on the mathematical pairs that were in the final order. Could you talk maybe just a little bit about them, about the timing of when you think the DPUC will take a look at that and the potential impact on what the final order would be if they were collecting?

James Torgerson

The timing, since we filed yesterday, they will have to set a schedule which they haven't yet and we also have to say we would be open to having our prosecutorial staff setup to work through this with us and also a technical conference. We requested that and then any oral arguments, so they have to set the schedule. I don't think we know exactly how long they plan on.

If we go by history, when we filed for reconsideration in 2006; it took about 60 days. My recollection is correct in the time we filed. So, hopefully, it will get done in the next 60 to 90 days and we'll know the dollar amount. I think Rich has probably got there is about $3 million, maybe you can go through couple of those big items.

Richard Nicholas

Sure. Dan, this is Rich Nicholas.

Daniel Fidell - Brean Murray Carret & Company's

Hi, Richard.

Richard Nicholas

Some things were as straightforward as assigned, went the wrong way. When they actually were attempting to add back $190,000, they subtracted it. So it ended up being a $380,000 error, if you will. Historically, those types of things have been corrected by the department and that's a very straightforward one.

Some of the others get a little more complicated in terms of a portion of most of our expenses get allocated to either transmission or generation and so, when they cut a dollar of O&M, only a portion of that, a substantial portion ends up in distribution. And so in a couple of there disallowances, they didn't fully take into account the allocation and so, let's say, where they should have cut $0.80 on a dollar, they cut $0.100 on a dollar. And so we go through that on 401(NYSE:K) and fringe benefits, customer service accounts to correct that allocation. And again we view that purely as an error. We're not asking them to reconsider matters of judgment, but purely just to fix errors. It totals up around $3 million.

And we also asked them to clarify some of the specific mechanics around how the decoupling would work. There's language is there that includes uncollectibles in it. We really don't think that was their intent. And also to clarify around the pension tracker, whether there truly is a dead band, if you will, of 1.5 million (ph) or do we start at the first dollar.

James Torgerson

And that was on the interest rate tracker?

Richard Nicholas

Yes, I am sorry, the debt tracker.

Daniel Fidell - Brean Murray Carret & Company's

Okay, was there any reason why these mathematical errors weren't addressed after the draft went before the final order, you know what I mean?

Richard Nicholas

Because they were created... what we found real exceptions as did others and they made many changes from draft of final. And like that plus and minus sign was created when they put their final decision out.

Daniel Fidell - Brean Murray Carret & Company's

Okay.

James Torgerson

And the other thing we did, we said we understand they don't want to have raised rates and that they want to have this small refund to customers. We said, you can keep that in place and just put this under our regulatory asset if you approve these collections, quite basic with the pension or at least a portion of the pension.

Daniel Fidell - Brean Murray Carret & Company's

Okay. And then maybe just a last question, I'll let some one else ask a question. In terms of, you had asked in your initial filing for I think revenue increase for both '09 and 2010. I didn't know if 2010 might be a separate filing. Is that something you are considering or does this order sort of encompass what you are looking for over the next couple of years?

James Torgerson

The order does address 2010. They gave us a $19 million increase, but they haven't set the rates for 2010 because they are waiting for the pension expense to be determined at the end of 2009 and that will get rolled into whatever the increase is. But in the order itself, in a table way in the back, they show that there is a $19 million increase. It shows 25 million cumulative; so the 6 for 2009 and 19 million for 2010.

Daniel Fidell - Brean Murray Carret & Company's

Very good. Thanks for that clarification.

James Torgerson

Sure.

Operator

Our next question comes from Daniele Seitz from Seitz Research. You may proceed with your question.

Daniele Seitz - Seitz Research

Thank you. I just was wondering if did you maintain your estimates for sales in 2009 at minus 1.9% or was that changed over the course of the rate case?

James Torgerson

The commission actually took what we had suggested in our initial filings for the sales, and I think that was the original. It was about less than 2%?

Richard Nicholas

Two points.

James Torgerson

Yeah, a decline. But Daniele, the big thing is now that we are decoupling, it's really not going matter to us because, we will adjust up or down based on whatever our revenue requirement is. And if earn, if we get the sales to allow us to meet our revenue requirement exactly, then there is no adjustment. If it's less, we'll have a tracker and pick it up in the following year. If it it's more, we'll give back in the following year. So --

Daniele Seitz - Seitz Research

Yeah I understand. And I was wondering if any changes, let's assume that if sales were not to reverse, that 19 million would be grossed up or is through the year that you can adjust it. So then can you tell me if you are late on this system?

James Torgerson

Yeah, the mechanism would... it would gross that up, after beginning of... early next year. We'll have proceeding that we will have go through and make a filing after the end of year to see what the impact was on the revenue requirement.

Richard Nicholas

Daniele this is Rich. We will now normalize the earnings in '09, if you will. So the earnings impact... if sales were down, we would not be impacted on earnings. We would be on the cash and we would get the cash the following year when we do the true-up filing.

Daniele Seitz - Seitz Research

I understand. Thanks.

Operator

Our last question comes from Bill Capucci (ph) with Luminous Management. You may proceed with your question.

Unidentified Analyst

Hey guys. Just I have three-part questions I want to go over. One thing is the EPS guidance, you guys said it does include some assumptions for equity issuance. Can you just elaborate a little bit more on that in terms of one, when you expect to issue equity in terms of the guidance you gave and what the price would be?

Second question, I'll just going to ask all three once; can you elaborate little bit more on the O&M cuts that you guys are projecting for '09 and also the third part is, how do you guys feel about... if you do cuts on O&M from the suggestion of the utility commission, how does that affect you on future rate cases?

James Torgerson

Let me take the last one first, the future rate case. I mean obviously, if you cut a lot that they are going to look at that in the future and assume you can live without it so. What we are looking at is what I would characterize as some temporary cuts for 2009. That would... and some of them probably will be permanent. I mean there's just no doubt about that, some of them will be. But to make sure that we are hitting some reasonable targets for earnings in 2009 and I'll let Rich talk about the earnings but... yeah you are right. If you cut away more and they reduced our O&M to begin with. So we are just trying to live within what they pretty much had cut, I guess is the best way to put it.

Unidentified Analyst

Could you just elaborate a little bit in terms of where you are cutting them?

James Torgerson

The areas we are cutting are a lot of across the board. We are doing things that we haven't even announced our employees outside rather than our (inaudible) at the moment, but we are looking across the board. It's not anything just in one particular area.

Richard Nicholas

On the equity question, we are targeting 75 to 100 million. The timing will depend on part... in part on when we do the shelf registration, whether or not we have to go through an SEC review. Depending on the timing where the stock price is now, we may not and likely will not qualify for the well known seasoned issue approach, and so depending on how long the SEC takes and then where the market is at that point in time. But we have made the rings wide enough that kind of baking in an estimate to get through the review process, issuing 75 to 100 million that we're within that range of $1.80 to $2.

Unidentified Analyst

You may not be able to answer this but if you do issue the equity, I assume you guys, your intention will always be to keep the dividend the same. So, you'd actually have effectively increased the amount cash you're using for dividends?

James Torgerson

Yeah, I think what we said; the Board had affirmed the current dividend level and that would apply to whatever shares are outstanding.

Unidentified Analyst

Okay.

James Torgerson

At that point in time.

Unidentified Analyst

Okay. Great. Okay, thanks guys.

James Torgerson

Sure.

Richard Nicholas

Welcome.

Operator

Our next question comes from Daniele Seitz with Seitz Research.

Daniele Seitz - Seitz Research

Thank you. I just was wondering what was the distribution O&M at year end 2008, just to get a feel for on the sacrifice (ph) estimate? Hello?

James Torgerson

Daniele, I think it's little as 140 million, like 137 to 140 million.

Daniele Seitz - Seitz Research

Okay, okay and that's including the $10 million you were talking about?

James Torgerson

No.

Daniele Seitz - Seitz Research

Okay.

James Torgerson

The 10 million, it's the end of 2008 after the results. The 10 million is going to be a regulatory asset that will pick up pension expense that would be incurred in 2009.

Daniele Seitz - Seitz Research

Okay, okay. And your cap structure at year end 2008 is the reason for the 75 to 100 million equities to bring you up to 50%?

James Torgerson

That's part of it. The other part would be the funnel, the equity in for GenConn in 2010.

Daniele Seitz - Seitz Research

Right. Okay, great. Thank you.

James Torgerson

Thank you.

Operator

Our last question comes from Peter Harr with Cowen and Capital (ph). You may proceed with you question.

Unidentified Analyst

Yes, good morning everyone.

James Torgerson

Hi, Peter (ph).

Richard Nicholas

Hi, Peter (ph).

Unidentified Analyst

Hey, Jim, Rich. Hi, Su. Su Allen. Just a couple of detailed questions; first on the distribution guidance for '09, how much of that is CTA and, I know you make comments that the CTA is expected to decline from '08 to '09. Could you just kind of review that for us?

Richard Nicholas

The CTA has been declining $0.06 to $0.08 a year as we amortize. We don't have out publicly that break out at this time

Unidentified Analyst

Okay. Actually maybe through the case there might been an opportunity to adjust the CTA amortization to help mitigate the outcome and I don't know if you were able to negotiate that?

James Torgerson

We had... Peter (ph) we had proposed that and the commission decided they did not want to impact the amortization on the CTA. So that was one of the reasons we ended up with the regulatory asset on the pension. But, no they didn't modify.

Unidentified Analyst

Got you. Got you, Jim. Thanks. On the distribution guidance, would that equate to about the 8.75 or will you still be under-running that amount?

Richard Nicholas

It will definitely be a challenge to achieve it and right now, it doesn't look like we'll get all the way there.

Unidentified Analyst

Okay. So a little short. Did you know what it would be Rich, around 8 or about or you're not going to provide the detail?

Richard Nicholas

No it's really too early.

Unidentified Analyst

Okay, okay. And then I think, Jim, in your prepared comments you talked about advancing potentially some of the transmission spend. Could you talk about what that might be and the dollars that might be in line?

James Torgerson

Well, I think we said previously we're going to spend about 30 million in 2009 for transmission and the range that we have is 28 to 38. We're guessing, we may spend a little more than what we spent last year. So, that's kind of where we are at. It is not a huge increase, Peter (ph). I mean and we're talking a few million of dollars.

Unidentified Analyst

Okay, okay.

James Torgerson

I'd like to accelerate some more into... from the future earlier and what our guys are looking at now is on the some of the big projects I like the Grand Avenue substation and the Broadway substation. Hopefully, we can get those a little bit earlier. But we are working on that right and going through citing counsel (ph) and we should get, I think we're expecting an order from them today on those two projects. So we will see if we can get the update. We don't require a full review and then just say go ahead then that could accelerate things by 6 to 12 months.

Unidentified Analyst

Okay, great, great, thanks. Then the last question was on the GenConn investment. Review again for us if you could, the way the floor works. I know it's tied to fill out ROE at the utility but can you review for us how that floor works and the potential for the better ROEs going forward. And then secondarily your partners' appetite for investments at these levels as well, are they you know tied to the same returns or to the extent to they can project finance a lot of their contribution potentially. Does that... is it still attractive to them at these levels?

James Torgerson

Well as far we know, they'd still want move forward as much as we do. The way the ROE works, it was originally set at 10.25 and there was a spread between that and the average for us and CL&P of the ROEs. And at the time that was 67.5 basis points. It was based on our 9.75 and CL&P's 9.25. And then it has a floor of 9.75. So if you... actually the way the math works, like just we did it the other day. If you'd take our allowed ROE and theirs, we would actually be at 9.75. So we are at the floor or we will be assuming nothing changes between now and the time we go operational. So it can't go below 9.75 and then you always take the average of the two and 67.5 basis points to that. And if it's below 9.75, you get 9.75. If it's above that, that's the ROE would be. And there will be an ROE determination at the point in time when we go operational and that is a minimum every four year after that.

Unidentified Analyst

Got you. Got you, Jim and just to be sure I understand that this would then be based off of your currently authorized 8.75 in this case, or was that set previously?

James Torgerson

Well it will be set at whatever it is, when we go operational in June of 2010. And it will be whatever the average of the ROEs are at that point, plus 67.5 basis points. But it won't go below 9.75.

Unidentified Analyst

Okay, I got you. Thanks for actually clearing that up. Thank you very much.

Operator

We have no further questions in queue at this time.

James Torgerson

Okay well there are no further questions. We really appreciate everybody's attention today. If you have other questions, please do not hesitate to contact us or contact to Allen or Michelle and Hanson and I am sure you all have their numbers. If you don't, you can call me or Rich.

Thank you for your participating and we'll talk to you soon.

Richard Nicholas

Thanks everyone.

James Torgerson

Thank you.

Susan Allen

Thank you.

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