Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

UIL Holdings Corp. (NYSE:UIL)

Q1 2009 Earnings Call

May 06, 2009 10:00 AM ET

Executives

Susan Allen - Vice President and Treasurer

James P. Torgerson - President and Chief Executive Officer

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

Analysts

Marc De Croisset - Macquarie Research

Neil Stein - S&P Credit Research

Daniele Seitz - Seitz Research

Daniel Fidell - Brean Murray Carret & Co.

Operator

We would like to welcome you to the UIL Holdings First Quarter 2009 Conference Call. I will now turn the call over to Susan Allen.

Susan Allen

Thank you, Mickey and good morning to everyone. Thank you for joining us to discuss the UIL Holdings first quarter 2009 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 Chief Executive Officer, and Rich Nicholas, our Executive Vice President and Chief Financial Officer.

If you do not already have a copy of our press release or the presentation for today's call, they are available on our website, at www.uil.com in Investor Section. During today's call we will make various forward-looking statements within the meaning of the Safe Harbor Provisions of the United State 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 good morning everybody. As you probably saw from our earnings release, we had an excellent first quarter and the results which were very pleased with. Now, looking at that from macro environment, it kind of looks like the recovery whether it's starting or not at least it's bottoming out from some of the indicators we see are particularly on our uncollectibles. They've actually flattened out. We haven't seen in the increase in the uncollectibles, so that's probably one good sign. I won't start to predict the recovery has started but kind of things are looking better.

The economist, we've talked to would say that unemployment in recent Connecticut it's running about 7.5%, now about a 1% below the national average, their prediction is it's going to continue to rise through the end of this year and probably in the early 2010. Even though, it will be sometime after the recovery actually starts.

Now, with our results, you saw that we earned 12 million or $0.48 a share compared to $0.26 in the first quarter of 2008. we really had a pretty strong first quarter and this was in spite of the fact that sales were down about 3.85%. Now, the good thing is rate case, we just had a decision on in February putting in the decoupling. So, the fact that our sales were down were overcome by the fact that we could tickup, take it up to the decoupling mechanism and that was on a weather adjusted basis from 2008.

Some of the other things, you'll see we had very significant O&M cuts in our 2008, 2009 versus the 2008. If you look at the income statement, you won't see it. But mainly it was in the distribution business. And this was after we had our rate decision and we looked it was the order was from the commission and we determined we probably need to reduce our O&M over what they were we had asked for by about 12 to $14 million. So we did put those reductions into place.

The other thing you have to remember is we also did actually didn't get a rate increase then went into effect January 1. It was...there was 7.2 million or so, rate increase from the previous rate case back in 2006 that are reduced slightly in this late rate latest decision. But, we still get over a $6 million increase and then with the...now that we have recent draft order on reconsideration and in that space final will actually pick up about another $650,000 for the year.

So, all those things said, we...the rate base that we had decision and did provide a lot of benefit fir decoupling being one. The pension tracker and the fact that we can move all of the pension expense either directly in the rates or into the recovering mechanism that the commissions signed up with the deferred accounting. We also have the trackers in place for the interest expense.

We have the uncollectible expense that large portion got moved to the GSC, according to James, generation service charge. So, all those added up to giving us previous first quarter. And Rich is going to go into it and some detail. The other good news is the transmission earnings were up 27% or $0.5 a share.

The completion of the Middletown-Norwalk line at the end of 2008 allowed us to have a vast majority of in the rate base. Now, the rate base is going to continue to grow because as you well aware it's on an average basis over the year. So, that's going to be...we'll still see some pick up this year and we're still spending a little bit on Middletown-Norwalk.

But we did have the higher rate base, the allowed return obviously is quite a bit higher than our distribution and we do have a little bit higher equity in our capital structure. So, all those were very good positives for the first quarter. We had a successful financing completed actually several of them in the first quarter.

The GenConn financing closed last Monday, a week ago, Monday and this was the United Illuminating-NRG partnership and we raised $534 million to fund the generation project we're working on in partnership with NRG. So, that was very successful. We also remarketed 103 million of taxes inclusive petrol bonds since the First of the year.

Now, I'm going to put through the fifth page of our presentation and talk about some of the strategic initiatives for 2009. We have filed a shelf-registration to issue securities some time and over the next couple of years. We actually made that filing March 11. We had previously announced that we are going to issue 75 to 100 million in 2009 of equity. And, then we subsequently said based on the where the markets were, we reduced our capital spending.

So we revised our capital spending. So, we revised our capital spending for 2009 and we're operating under that plan today with a reduced capital level. We also had said last year, that we were looking at spending 1.9 billion over for ten years for our transmission and distribution programs. That is currently under review, the expectations as we will probably spend a similar amount that may be stretched out over some longer period of time. So, we will give you an update of that probably around mid year, definitely by mid year. So, that we can tell you what we're going to be spending around next ten years.

We're having our people take a very hard look at that right now and looking at what changes the economy's impacting that and also the peak load forecast. We are continuing to investigate, investment opportunities related to our core business, whether it's in distribution, transmission or other generation opportunity. We've actually been working with legislature to allow us to invest in some renewable generation. We will see at that gets to legislature this year but then something we suggested to them but mainly extend to help jump start for us.

We are clearly moving forward our GenConn project, the peaking generation and will talk about that in a minute. And, we are looking at the Federal stimulus, stimulus funding opportunity. We have already received at least through state from the Federal stimulus plan about 2.3 million at least that were requested and we should be getting that correspond and as per under the Energy Efficiency programs we're continuing to look at what could be obtained to the deal on the for smart creating may be some transmission expansions but we're evaluating those right now and knowing that the applications have to be in later this year in the summer time.

Turning to the next page, the type of capital projects that we actually deferred and our current estimate is that we're going to spend about 50 to 65 million in distribution and 22 to 28 in transmission. For total capital spending of 75 to $90 million, while we've deferred our capacity projects related to the substations, new substations, some of them relief projects and substations rebuild. While, we're doing, we've done some evaluation and determined that we could probably stretch out adding this capacity needs for a little bit of time. We've been targeted on what we're looking at, making certain that, we're not going to severely overload any of our substations. And, but we do probably run a little bit of risk but not much by running them a little closer to the edge. We're not going to be running them where they're going to be overloaded at all.

But instead of a pokey note, starting to move things around whether they may be 90% loaded we'll be looking at may be 95% loading on some of these substations. Similar types of things we are looking at. Also on the infrastructure, where we have substation removals, cable replacements, splice chamber replacement. Pals, we're really just stretching out the timeframe when we'll be doing those projects. So, that we're taking a little more time in putting that in. So, we could allow to defer things. So, its not that we're really eliminated the need for these projects, we've pretty much just deferred it or stretched that out. And IT, is another one where obviously software upgrades, hardware upgrade, even defer those types of things.

Turning to page 7 of our presentation, you can see the average rate base. What's key here is that you will see that the average rate base is still going up in 2009, that's in spite of a $32 million decrease and the rate base for CTA. You'll see the distributions up, some what and transmission is up they're actually another $44 million for the year is our estimate.

So, the rate base is still growing in spite of the fact that the CTA is declining. Now, the next page talks about our GenConn project that's on track, its moving on very well. The ROE for that has a lifetime slower 9.75 based on our current distribution with ROE of 83 quarters and CL&P is 9.4 and then adding in the spread that would was originally there We're at the floor of 9.75 right now. Hopefully, the ROE for the distribution business will change in the upward direction and than in some time in the future and that will allow the GenConn project to actually earn a little bit more.

It is a 50-50 debt-to-equity and O&M cost reviewed annually but they were contemplated on a permanent basis. And the cost recovery is through a contract for differences. The financing less completed and our people did a great job along with the NRG folks and given that put to bed. 50% of the financing is, for equity bridge loans, half each for NRG and UI and the other 50% of the financing for the debt is actually done at the project level.

All the major equipments and order, deal contractors has been that contract has been awarded the Devon onsite construction is actually started already, the turbines are all on order, so we're on track to have the first 200 megawatts in the production in June of 2010. Those will be at Devon and then other 200 megawatts at Middletown are targeted for June of 2011 and right now we see that as all being right ion track. So that's very positive, big positive for us and we're moving forward with that.

So, some of the details on the project financing are on the next page, we did close on its 534 million of project financing the equity bridge loan for UI is 121.5 million and that's funding our commitments up to the point time where we go into commercial operations. Devon will be done in June of 2010 since the part of that has to be funded by us and that's point out the balance on Middletown goes operation in 2011.Another piece of the project financing was $243 million, seven year term loan and that of $48 million working capital facilities. So that's what totals up the total of 534 million.

Now on to our rate case and a little update there. We did file for reconsideration with the Commission back in February 18. We want to get clarification on some technical issues, about how the actual...the interest rate tracking mechanism was going work, the revenue decoupling provisions and there are really some other matters. The DPUC did reopened the proceeding to consider our request and the issued a draft decision on April 22. Now the draft is about the final will correct some of the technical issues in clarifying some of the other issues that will be requested would increase the revenue requirement by $655,000 in 2009 and 284,000 in 2010.

We submitted some written exceptions on the forth earlier this week planning out but there is still maybe...still some errors in view that need to be dealt with. All arguments are scheduled from May 19 and a final decision on June 3. We also requested a further reopening to address the ROE the agents record us the DPUC is actually scheduled all of arguments for the next Monday May,11 to determine whether the proceeding should be reopened. And we talked to the commission about the fact that the ROE is lowest in the country, had an impact on us. So, we think it's something that needs to be addressed. We'll see if the commission is willing to do anything at this point in time and go from there.

On page 11, we have the breakdown of the different ROEs we're seeing for our different businesses. And if you look at the combination and take a weighted average between the transmission and the distribution alone, with almost 40% being transmission and about 60% distribution. You see that our ROE is 10.1 to 10.2% on a combined basis. And that's made up of 12.3 to 12.5 on the transmission business and the any three quarters on the distribution.

We haven't factored in anything for generation simply because that's at the partnership level and today that's at 9.75. We will earn on that. So, we'll probably update at that once we actually start earning on this in the future. But that won't be till starting in June 2010.

And with that I'm going to turn over to Rich Nicholas, who's going to talk about our financial results for the quarter.

Richard J. Nicholas

Thank you Jim. Good morning everyone. On slide 12, of our presentation and as I'm sure you have noted the increase in net income for continuing operations was 81% quarter-over-quarter, going from 6.7 million to 12.1 million in first quarter of 2009. As Jim pointed out, the vast majority of that increase is in the distribution business, although transmission grew 27% as well. And so we really saw with end all of the mechanisms that were put in place as result of our rate case.

In addition, January was actually a very cold month and sales were up in January before decoupling came into effect in February and March and so even though sales were down for the quarter. We got to benefit of higher January sales and then decoupling offset to reduction in sales in February and March.

And the uncollectible expense side, in addition to things got bottoming out in terms of the increase in uncollectible, we were also able to allocate a portion of our the uncollectible for the generation service charge as result in rate case decision, about $0.02 of share in fact in that we will continue forward in the year may be a little to earlier to call what are the $0.02 these lower charge offs will continue and but it is certainly a good sign. In addition, one of the other changes that took place around customer service expense was third quarter in 2008 that allowed us allocate in larger portion with those expenses into transmission which then flow through our formula rate and the retail rate tracker for recovery.

So, looking at the quarter-over-quarter there was a $0.06 a share positive benefit from that change in allocation. Beginning in May that positive variance will no longer be there because it occurred in May of 2008. So, we got one more month of positive impact year-over-year coming from that change.

Also, even though pension and post retirement expenses increased significantly primarily as a result of the decline in plan assets last year, all of that increase is set up to be the recovered directly in rates or through the establishment over regulatory asset for future recovery. So, there's no net bottom line impact from the increase in pension and post retirement expense. For the 12 months ending March, 31, our distribution CTA rate of return was 8.45%. This compares to a weighted average allowed return, if you will -- 10 months at 975 and two months at 875, that rating was 9.6%. So we are under the weighted average allowed return, but on-track this year, moving towards the current 8.75 allowed. There was a slight variance in below the line, income and expense actually are positive $0.01 quarter-over-quarter, so not much of a change there.

On slide 14, one-item of note on transmission that we haven't talked about already was that in the first quarter of 2008 there actually was a one-time true-up based on FERC order increase in the base return on equity by 24 basis points. That impacted the first quarter of '08 by $1.4. So if you were to exclude that one-time, transmission is actually up $6.4 quarter-over-quarter on a normalized basis.

Talk a little bit more on slide 15 about the financing plans for this year and then move into a discussion around liquidity. On the debt side as Jim mentioned, we did successfully remarket over $100 million of tax-exempt bonds in the first quarter. In what was a very difficult tax-exempt market, part of that issuance was a $25 million issue that we were able to remove the Ambac insurance by petitioning the DPUC, we have that removed. Ambac insurance have actually become a credit negative and was a hurdle to get over to we reissue these, we got past that. So that is all successfully behind us at this point in time.

We do have a $51 million note coming due in December of this year, which we will be out to refinance in the fourth quarter.

The DPUC also approved removing Ambac from a couple other issuances that will be coming up in the future of $27.5 million and then a $64.6 million that actually is in the auction rate mode.

On the equity side as Jim mentioned, we do have the shelf in place and that along with our revised CapEx plan will give us flexibility moving forward on that front.

Turning to liquidity on page 16, we do have our $175 million revolving credit agreement in place. At the end of March, we were at a 160 million outstanding, but as a result of the GenConn financing we were able to get the inter-company loans paid down and as of April 30th, the revolver was down to a 122 million.

And there is some additional cash collateral yet to come back from GenConn that was used to support the contract, the differences and that will come back in May.

UIL also has a uncommitted money market loan facility of around 35 million and in March 31, we have 5 million outstanding on that.

In addition as part of the GenConn financing, two other things occurred UI had a separate $25 million revolver that was there as really as a backstop. That was terminated concurrent with getting the GenConn from an financing in place. And also UIL had guaranteed to General Electric, our half, our 50% of the turbines for GenConn and those guarantees had total 47 million at the end of March and those guarantees were terminated as a result of putting the prominent financing in place.

Given the first quarter, the outlook for the rest of the year, we have today reaffirmed our guidance on slide 17 of $1.80 to $2, and with the strong first quarter, have an reasonable opportunity to achieve the allowed return on the distribution business as we look out through the rest of the year.

So I'll now hand the call back to our operator, Mickey for the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Marc De Croisset.

Marc Croisset - Macquarie Research

Hi, good morning guys and congratulations on the quarter. A couple question -- a couple brief questions if I may on the distribution side. Other than whether in January and the '08 FERC order, was there anything that was non-recurring in nature or timing related in the first quarter that may have boosted results?

Richard Nicholas

No, it was a pretty clean quarter, Marc.

Marc Croisset - Macquarie Research

Okay. And typically what traction of annual earnings do you expect in the first quarter?

Richard Nicholas

Well, as you know we are a seasonal business and the summer is stronger than the either the first quarter or the fourth quarter.

Marc Croisset - Macquarie Research

Is the first quarter typically a 20-25% of annual earnings type of quarter?

James Torgerson

Hey Marc, this is Jim. We typically don't look at it that way, because the first quarter can be up or down depending on -- use to be depended on whether the coupling, we're going to have to see how this plays out in the future. But as Rich said usually it's our second quarter and third quarter that are the strong, particularly the third quarter that will be the strongest one.

First quarter is usually more of a shoulder line, kind of like -- it's going to be better than our fourth quarter typically. So putting in order kind of the first, fourth quarter is probably one of the worst. Then first, second and the third kind of net...

Susan Allen

We can give you some historical data on that.

James Torgerson

We'll give you that.

Marc Croisset - Macquarie Research

It might be really helpful. Thank you.

James Torgerson

Yeah.

Marc Croisset - Macquarie Research

I guess will do that offline.

James Torgerson

Okay.

Marc Croisset - Macquarie Research

In terms of the realized ROE, it sounds like, your trying understand the script, correctly. You were in the 8.6% range in the first quarter. Is that correct?

Richard Nicholas

8.45% is the actual that's the 12 months ending first quarter because you really can't take just the first quarter results and multiply for four for the reasons we just talked about because of the seasonality of the business.

Marc Croisset - Macquarie Research

Thank you for clarifying that. And your guidance for the distribution business is still predicating on 875 to the year.

Richard Nicholas

Yes approximately.

Marc Croisset - Macquarie Research

Approximately. As you and I'm overstaying my welcome, if just as you think through the factors that may drive equity issuances here. What would they'd be? Does an equity issuance depend on I'm assuming by the way that it takes place that's my own assumption. But are the factors -- is the gating factor, the size of your capital plan going forward? Is that the key question outstanding?

James Torgerson

Well, with the capital spending we've already reduced 2009 spending so that we're not -- we don't need to issue equity now. What will be the factor is we really need to put some equity in for the GenConn project, which we said all along. So that's like a mid-2010, I mean June 2010 when we have to take out the first part of the equity bridge loan. So really those are the factors we're looking at right now and obviously we want to keep a track on what's going on in the equity market. I mean that's the other things to look and see now how they're doing and they haven't done phenomenal as we all know since last fall. So, we're continuing to watch it.

Marc Croisset - Macquarie Research

Thank you very much.

James Torgerson

Your welcome. Thanks Marc.

Operator

Your next question comes from Neil Stein.

Neil Stein - S&P Credit Research

Yeah, hi. Good morning.

James Torgerson

Good morning.

Neil Stein - S&P Credit Research

Just had a kind of an add-on to Marc's question on the equity issuance, for potential equity issuance. Since early March, when you originally announced you're deferring the equity offering. Your stocks up about 30%, and quite a bit is changed in the world than in the equity market and we've seen a number of utilities that successfully come to market with new equity. And now we're seeing -- we look at where your stock is and it's actually not that far from when you originally announced you want to do equity on February 18th. I'm just thinking from the standpoint, I understand your comment on the equity markets have been consistently been stronger, it looks like now the markets are open, your stock is at higher level and it seem like would be with maybe a good time to be considering a revaluing plan to defer. Any comment on that?

James Torgerson

Yeah, I'll just say we positioned ourselves that we can continue to monitor the markets. We've cut the capital back to a level that we don't have to issue right now and we're just going to keep looking at it and decide if and when we want to go forward with that so. We're keeping our eyes on it still right now and -- but I want to make sure -- we want to make sure we were in a position to have flexibility and so that's what we've done.

Neil Stein - S&P Credit Research

Is your shelf is, has it been deemed effective. So you could kind of do it you have the flexibility to do it when you want or you still waiting on any sort of FSDC decision or ?

James Torgerson

We actually filed as a oversea filer and so it is been defective.

Neil Stein - S&P Credit Research

Okay. And then moving on to the quarter, just can't assess to why some of the cost reductions which had such a great impact on your first quarter results. Why those don't translate into higher earnings, for the rest of the year or at least relative to your annual guidance, relative to last years earnings. There's some of the lower expenses sort of reverse and do you incur higher cost later on the year did the revenues go down or are you assuming some sort of equity dilution in annual guidance?

James Torgerson

When you compare...if we compare the last year, we actually went through last year and we're cutting O&M as we went through the year. So, when we start comparing quarter-over-quarter, you start seeing that our O&M declining last year as we started cutting that back. So, the cuts we made at the beginning of the year, really pumping about the- -I'll say roughly the same level that we spent last year and I maybe slightly a little closer minus we'll be right around that. So, compared to the first quarter I think we had a good comparison and we're just going to keep managing our O&M. So that we're earning as Rich said at the opportunity running close to our allowed return this year. Last year I think we ended up- -what- -7

Neil Stein - S&P Credit Research

868, was our return on equity last year.

James Torgerson

Last year. Yeah some.

Neil Stein - S&P Credit Research

On distribution and CTA.

James Torgerson

Yeah.

Neil Stein - S&P Credit Research

I see, so the favorable comparison was as much as anything else to function of that fact that you're cost reduction program didn't really kick in later, until year last year? So the comparisons will get less favorable on maybe on that basis, over the course of the year, this year?

Richard Nicholas

Right. Neil this Rich. In addition there are couple of other things that did occur in the first quarter like the fourth order customer service expense allocation, the transmission. That favorable variants will only last in through April, because we started that May of last year. And that was in the first quarter, that $0.06 of the total distribution variance. And then uncollectibles continues to be tough to predict, we did see a favorable variance this quarter. One quarter doesn't necessarily make a trend on uncollectibles.

Neil Stein - S&P Credit Research

Okay. Even on your CapEx deferrals, how long could those- -I mean is that possible you could just maybe just cancel that CapEx. Or at some point you're going to actually have to spend those dollars and if that is the case, how long can you wait until you spend those dollars?

Richard Nicholas

They are more deferrals than they are eliminations. I mean you have to figure that the same thing planned already to do were projects that are needed and now some of it is going to be delayed as a result of the economy a little bit. When you have customer demands, those may change because they're not using as much electricity and so we have the opportunity to delay some time. But the programs that are going to replace the poles transformers, the cables, all those things they are getting older. So they going to have to be done I was just stretching that a little bit. So, when you look at it its - we can probably stretch it out may be through this year, but you don't want to go to longs with some of these delays. So we'll keep monitoring it and we do forensics on all of our facilities to make sure to se how they are performing and get up to the extent where we are not running close to the limits our upper limits and some of our substations and another things we can stretch it out little bit longer.

Neil Stein - S&P Credit Research

Okay, well thanks so much for answering my questions I really appreciate it.

Richard Nicholas

Okay Neil, thanks.

Operator

And question on the line is from Daniele Seitz.

Daniele Seitz - Seitz Research

Thank you. I just was wondering, if the interest tracking does that mean that it takes care of all of the incremental interest cost on a timely basis for both the GenConn as well as other projects or was it just for distribution I didn't quite get that.

Richard Nicholas

Daniel this is Rich, it is just distribution GenConn is not included in that process.

Daniele Seitz - Seitz Research

Okay, so you mean that could ASC during the construction for GenConn

Richard Nicholas

That's correct, we'll capitalize that interest and recover it over the life of the project.

Daniele Seitz - Seitz Research

Okay and what do you anticipate if it could be in '09 and '10 roughly? Does that make a big difference?

Richard Nicholas

On GenConn it doesn't because its interest during construction, its not AFUDC without taking into income any AFUDC related to GenConn. On the distribution side, just to be clear on the debt tracker, there is a $1.5 million what they call a debt band. So if our interest expense is plus or minus $1.5 million there is no adjustment and its only the incremental amount above that debt band that gets screwed up.

Daniele Seitz - Seitz Research

Okay, as far as reduction in CapEx you said actually over '09 and '10, you still see some growth in your rate base, if you go a later deep further do you see a significant reduction if we were looking at 5 years down. Or do you think that you think that you just postponed for couple of years and actually on a 5 years basis as software is same type of growth you were thinking about before.

Richard Nicholas

Yeah I see the growth is going to be still bare over the long term and our people looking at it right now to determine what our next 10 years forecast will look like. But the projects, we identified in 2008 they were going be doing over 10 years I supposed I going to be there another timing may changed a little bit so I think the growth on rate base that we talked about is going heard the timing may change a little bit on little. But we said, we needed there substations we still need to have them and the transmission lines we are going to have put in and still meter and all the infrastructure replacement is going to have to be done. So it's a matter of pushing it back a little bit, so I say over the 10 years your still going to see some growth - significant growth.

Daniele Seitz - Seitz Research

Alright and in terms of the rate assessed for the power that comes out of GenConn eventually on June10, this is purely going to be a rate base item? Is that the way you see it, or rates will be adjusted after it?

Richard Nicholas

It's the contract for differences that is with -between GenConn and actually CL&P (Connecticut Light and Power) and we will get a rate base return or GenConn gets a rate base return based on that. Any energy that's actually sold keep in mind these are peaking generator would go on to the market place and that will get reflected into the contract for differences and so that if we earn enough off of the capacity markets and the forward reserve markets and then any energy that sold, they would let say exceed what we get on our comps for service basis, then we will provide there's actually a difference to go back to customers. And it's a little less then we will collect from customers. But we'll earn the allowed return on that investment through GenConn and that'll have to passed along us.

Daniele Seitz - Seitz Research

Great. And I didn't touch the date when you think that the review regarding the ROE will be finalized. I mean when is the decision suppose to come after the review?

Richard Nicholas

Actually, Daniele the hearing for oral arguments Monday, May 11th and then the commission will decide subsequent to that whether to reopen it for the ROE to begin with. So they really hasn't been anything decided yet. They're just going to evaluate whether or even going to reopen at this point.

Daniele Seitz - Seitz Research

Okay, great. Thank you,

Richard Nicholas

Your welcome.

Operator

Our next question on the line comes from Dan Fidell.

Daniel Fidell - Brean Murray Carret & Co.

Good morning and thank you for hosting the call and well with detailing the release. Just a follow-up on the Connecticut draft, we're hearing, I guess. First I guess just quickly can you tell me if most of the mathematical errors have been fully corrected and the draft decision for if there are others still outstanding on numbers that your looking to correct?

Richard Nicholas

Well the errors that we're most directly observe able such as there was a sign error or something was subtracted that should have been added has been fixed. We did point out in our written exceptions that we think they missed a part of tax calculation in 2010 which is about 200,000. We have included that in a $939,000 estimate of what 2010 would like. There are other philosophical differences that they did not choose to adopt our philosophy on so is our we reflect in our written exceptions as well.

Daniel Fidell - Brean Murray Carret & Co.

Can you talk a little bit about what those philosophical differences might be?

James Torgerson

Sure, some of it was how to treat some of the allocations between transmission and distribution when they made changes in distribution expenses and either numerator or denominator that gets impacted and they did not choose to flow that fully through. Also the application of a fringe benefits factor the way that they applied it and we did not agree with we thought that they took some non-wage related fringes and applied them to wages, those are probably the major differences and than the ROE is in a whole separate proceedings from the draft on reconsideration that's come out so far.

Daniel Fidell - Brean Murray Carret & Co.

Right, okay. And can you talk a little bit about maybe just the general- - I don't if the climate is necessarily the right word but I do know that some...or at least I believe there are some changes going on at the commission right now. There are also a couple of I think gas cases that are outstanding and said to be finally decided by the summer. So, what's your general feel in terms of how you think in ROE we hearing might be received?

James Torgerson

Well, I think overall they're going to look at it and whether or not we're successful now in getting them to change the ROE. I think we're setting the stage for the future. When you look at...and we some data information, but you just look at our stock price and what occurred as a result of the orders the commission gave whether it was the draft order or the final order on our rate case and you can actually see the movement in the stock price.

So, the expectation, at least in our view of the market place was for something different. Obviously it wasn't for any three quarters. So, we're trying to impress upon the Commission that, what they do does matter and the market looks at it very closely and whether or not they do anything immediately. We would hope they do. We think there is good and sound reason to modify the ROE but at least we are setting the stage for the future.

Now, there are a number of cases that are coming up, the two gas companies are in and we'll see what happens with those. But the expectation on ROE, I'm not sure whether I can give you a good answer that they are going to do anything right now, but we would be hopeful that they at least look at it. So, with that I think the other thing you got to keep in mind is the Commission and they've said this very publicly did not want to have a rate increase.

So you look at the tools they have when they're evaluating our case and what they can actually move around in order to keep it from being in the increase. ROE is certainly as one them and so you have to look at that in light of the economic conditions and there desire not to have rates go up for the consumers today. So, and it also reflects that fact that were willing to put up a regulatory asset for our pension expense. That was a $10.2 million additional charge beyond the already amount that they had it granted in the rates which was about 15 million. So, we actually got a 25...close to $25 million increase in pension expense. So, they're willing to move some things put in order to keep from increasing rates currently to customer. So, you have to put all that in the context for what happened in our last rate case. And the some of the positive things they did do for us which was the decoupling, the pension track or the interest rate track or the GSE move over the uncollectibles to GSE.

So, there are trying to be flexible but on the other hand, they dint want a rate increase was the bottom line.

Daniel Fidell - Brean Murray Carret & Co.

Sure, understood I only therefore my appreciating against stability that those trackers provide just internal filing most would agree and little few owners and I think they've come under little bit of fire for that. They're already the lords in the country we agree with you. Yeah definitely. Last question was someone else ask you question on just you have talked about stretching up your 10 year build on spending at 1.9 billion transmission and other activities. When you go through that review, you said you expected to be late this year, will you also be providing sort of near-term, mid-term and long-term sort of breakouts sort of next 2 years, 3, 5, 10 years and get into a little bit of specifics on the kinds of things you will be doing.

James Torgerson

I would expect we'll do what we've put together in the past and look at annually to the next five years and then probably the six to ten years in aggregate what we are looking at and with some specificity on what type of projects we're looking at and the timing of those. Yeah, that's our plan.

Daniel Fidell - Brean Murray Carret & Co.

Thanks for your comments today and all the best in Connecticut as you go forward here.

James Torgerson

Thanks a lot.

Operator

Our next question on the line is from Ryan Muni.

Unidentified Analyst

Actually all my questions have been answered. Thank you.

James Torgerson

No, thanks Ryan.

Richard Nicholas

This is Rich Nicholas. Let me respond further to Mark's question about the quarterly timing, and just refer focus to our 10-K report footnote which is actually on page 99 gives the quarterly spread for the last two years '08 and '07.

And first quarter was 12 to 14% in long numbers and each of those 2 years. Again for the reasons, we've discussed whether the one time items or decoupling of the past may not be a prediction of the future.

Operator

Our next question on the line is from Neil Stein.

Neil Stein - S&P Credit Research

Yeah, hi. What was the equity ratio at the utility at the end of the quarter?

Richard Nicholas

It was, this is Rich, just a little over 49%.

Neil Stein - S&P Credit Research

Okay.

Richard Nicholas

Regulatory Cap structure basis.

Neil Stein - S&P Credit Research

And your allowed 50%, is that?

Richard Nicholas

That's correct.

Neil Stein - S&P Credit Research

So what's the idea there in terms of getting to your actual allowed equity ratio? Was there a certain time frame to do it? Or could you just continue have an equity ratio below what you're allowed and without any consequences?

Richard Nicholas

Overtime, we would certainly look to move towards the allowed cap structure. That have to be there at a specific point in time, but clearly if we never get there the chances of them allowing that in the next case so would go down.

Neil Stein - S&P Credit Research

Okay.

James Torgerson

We can do that through a number of mechanisms, how much do we dividend up to the parent company and so forth. So, there are ways to accomplish that, where you put the bad debt and so forth so. There are ways to get the equity into the utility and keep in mind that 50-50 is solely on long-term debt and equity and doesn't include any short-term debt of the utility. So there are ways to manage to the 50%.

Neil Stein - S&P Credit Research

Okay. Thanks very much.

James Torgerson

You're welcome.

Operator

Next question from Marc De Croisset.

Marc Croisset - Macquarie Research

Hi Rick, thank you for following up with that. The 12 to 14% was at the distribution or was these consolidated earnings.

Richard Nicholas

Consolidated UIL.

Marc Croisset - Macquarie Research

Consolidated. Also I'm wondering if you guys could make any comment on legislation proposed on the House, in the Connecticut House, that could be construed as partial regulation thus...if your aware of it does it affect you anyway?

Richard Nicholas

Lets see, if it went forward then obviously it would affect us. We also know that the Jonathan fair than the senate is opposes to it, so whether...and he's publicly said it he's not going to bring it forward, so we'll see what happens in the senate side. But the legislation that they're suggesting would limit the ability of people to choose an electric supplier to basically those that are large CNI customers and the residential and probably even some of the very small commercial, with then be limited to buying there follower from the common utilities.

And the idea...in fact really impact our earnings one way or in another, I think it's the bottom line because that because we buy electricity and pass it through we don't earn anything on this cost. So, where it could have some benefit to customers, they contemned it if the utilities could buy directly from generators there are middle man in the process but it couldn't reduce and they spend, they wouldn't expect cost reductions around 5%. Who knows if there is market sufficient and any retrofit wouldn't happen. I m not sure the markets been all the efficient but that's really that's really the just of the discussion as this been going forward and in a practical standpoint was confident not supporting it and he's the co-chair of the Energy Committee. As long as he doesn't want it doesn't see it to addressing it in the Senate, its probably not going to go anywhere.

Marc Croisset - Macquarie Research

It wouldn't have set GenConn and?

Richard Nicholas

No, not at all. If GenConn keep in mind is the...was put in budget order of the legislature through DPUC. We won that RFP and that is for peaking generation on a cost of service. So it's really wouldn't have any impact.

Marc Croisset - Macquarie Research

Thank you very much for the disclosure today.

Richard Nicholas

You're welcome.

Operator

(Operator Instructions) There are no questions in queue in this time.

James Torgerson

Okay. We'll if there's no further question really to appreciate your time today and thank you for the questions and if you have follow up please don't hesitate to contact us and thanks again.

Richard Nicholas

Have a good day everyone.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: UIL Holdings Q1 2009 Earnings Call Transcript
This Transcript
All Transcripts