UIL Holdings Corporation Q3 2009 Earnings Call Transcript

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UIL Holdings Corporation (UIL) Q3 2009 Earnings Call November 2, 2009 8:30 AM ET

Executives

James Torgerson – President & CEO

Richard Nicholas – EVP & CFO

Susan Allen – VP & Treasurer

Operator

We would like to welcome you to the UIL Holdings third quarter 2009 conference call. I will now turn you over to your host, Susan Allen.

Susan Allen

Good morning to everyone. Thank you for joining us to discuss UIL Holdings third quarter 2009 earnings results. I am Susan Allen, Vice President of Investor Relations the Treasurer. Participating on the call with me today is James Torgerson, UIL President and Chief Executive Officer, and Richard Nicholas, 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 to you 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 States 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 James Torgerson

James Torgerson

Thanks Sue and good morning everybody. I’m happy to report our earnings for the third quarter. It was a very difficult economic environment but our net income was slightly up in the quarter over the previously year’s quarter.

Our distribution earnings were down a little bit from last year’s quarter, transmission was up, and nine months, both are up rather significantly, both the transmission and the distribution earnings. Third quarter 2009 earnings from continuing operations were $21.7 million which was $0.73 a share.

And that compared to $21.5 million or $0.86 per share in the third quarter of 2008. The difference in the earnings per share is as most of you are aware the equity offering we did in May where we issued 4.6 million additional shares.

Year to date, the 2009 earnings from continuing operations were $47.6 million or $1.74 a share and that compared to $39.4 million or $1.57 a share during the same period in 2008. We’ve been very successful in managing our O&M expenses this year and those are really the items that impacted the distribution net income are being managed very well.

There are some other items such as the pension expense and O&M costs that are associated with the generation service charge that are actually up but the O&M strictly related to the distribution business is what we’re managing and focusing on to make sure that those are reflected appropriately and they do also reflect what came out of our rate case that was decided earlier in the year.

The decoupling adjustment which again was granted to us through that rate case has proven to be beneficial to us by providing really the commission determined revenue requirement and that’s what we were seeking to get to make sure we earn the revenue requirement that the Commission determined was appropriate for our company in order to be able to provide the service we need to provide our customers.

In the quarter it provided about $2.5 million pre-tax in additional revenue that were reflected, year to date its about $6.5 million from this decoupling mechanism. With that and the fact that we’ve been managing our O&M very tightly we have a very good opportunity to achieve our distribution allowed rate of return on equity for the year and that is 8.75 annualized.

It’s a little higher for this actual calendar year because the rate period didn’t start until February. Transmission is still going along very well. We now have a higher rate base because the average rate base has grown from the fact that we completed the Middletown-Norwalk project in the last year and with our equity capitalization so we’re on track to earn the transmission allowed weighted average ROE of about 12.5% during this 2009 calendar year.

Couple other things I want to hit on before I turn it over to Richard to give you a little more color on the earnings, GenConn our project with NRG is on track. We’re going to have the first 200 megawatts, the peaking generation in operation next June 1st. That’s moving along very well and we’re very happy and pleased with the way that’s progressing.

The DPUC, the Connecticut Commission, is actually pursuing a docket on the capital markets and the return on equity. And we think that could lead to a generic hearing related to ROE for the utilities in this state. We think that would be a very positive sign. The new Chairman has exhibited a willingness to listen to us in particular about the impacts the capital markets are having on the company.

And the impact the ROE is having on us being able to raise money in the capital markets. So we’re very encouraged that there could be some more discussion about the capital markets and the ROE. With the DOE stimulus money for [inaudible] we weren’t awarded any of the grants. We will continue with our plans but probably at a little less aggressive scale and pace then we had anticipated had we gotten the grants.

We’re also on track with our capital spending plans. Those are moving along quite well for this year. After our equity offering we reinstituted our capital spending program and we’re on track to get the capital spent as we have planned which will help our rate base in both transmission and distribution.

And we’re continuing to pursue transmission opportunities in New England with the consortium of the other transmission owners and there is information in our EEI financial presentation which we will be giving tomorrow.

The presentation itself should be posted on our website today. So if you want some more information on that, please take a look there. And I’ll turn it over to Richard Nicholas now, our Chief Financial Officer who will go over the results.

Richard Nicholas

Thanks James, good morning everyone. I’m on slide five of the presentation for those of you who have it available to you. To put a little more color around the details of the quarter and year to date, as James mentioned we’re still seeing the benefit from decoupling but recall that the decoupling adjustment is versus the sales forecast that was allowed in the rate case, not against 2008.

So we actually saw sales down fairly significantly in the quarter but on an actual basis sales were off 5% year over year for the quarter primarily because it was a very mild summer in the Northeast. Our weather corrected sales for the quarter were off 1%. So we have seen the rate of weather corrected sales decline slow down somewhat.

Year to date weather corrected sales are off 2% for the year so far. So the decoupling didn’t fully offset the sales as compared to last year. On the positive side we have seen our level of uncollectibles stabilize and actually improve somewhat both in the quarter over quarter and year over year calculations.

And so we are seeing a benefit from that as compared to prior periods. Also in this quarter we did have some positive below the line income from our conservation and load management programs and our ISO load response programs, about $800,000 on a net income basis there, positive net income.

And also there was an adjustment on non-qualified pension plans of about $400,000 of net income. Turning to our liquidity, at this point in time we’re in very good shape. At the end of Q3 we did not have any borrowings under our revolver, so zero on the $175 million joint credit facility.

We also last week successfully circled and priced the refinancing of the $51 million maturity that comes due in December and so we are moving forward to close on that in early December. Looking into 2010, we have a $27.5 million tax exempt note coming due in the first quarter. We also have the annual $4 million [sinking] fund payment on the UIL note.

Also next year in 2010 the first tranche of the equity bridge loan will become due in June when the Devon GenConn plants going into commercial operation. And we will look to pay that off and infuse our equity into GenConn at that time.

The following year the second tranche in June of 2011 also comes due on the equity bridge loan and the senior note at UIL becomes due in 2011 as well. In 2012 and 2013 we do not have any maturities coming due.

As we look over the next year we do not see any need to issue equity before the end of 2010. Also with the results of the third quarter we were able to refine our guidance for 2009. We raised the low end of the guidance from $1.83 to $1.87 so right now our guidance as of October 30 is a $1.87 to $1.97 which would give you a mid point obviously of $1.92 raising the mid point $0.02 from our prior guidance.

That does fully reflect the equity issuance earlier this year and reflects our opportunity to earn the allowed distribution return and with transmission return expected to be in the 12.5%. So on slide eight, looking forward to 2010, we typically put our next year’s guidance out with our year end earnings so in February of 2010, we’ll be looking to do that.

But some of the drivers as we look out the first GenConn plants will come on line in June so a little over half a year’s earnings on half of the GenConn investment. We will continue our focus on O&M expenses, managing those to malign with what was allowed in the last rate case.

You may recall it was a two year rate plan so we have rates set based on capital expenditure levels and O&M levels through 2010. And as part of that capital program we have a lot of projects going on and key to growing the rate case will be executing on those projects.

As well as capturing our non-rate base opportunities again things like conservation and load management, the ISO demand response program as well as the State of Connecticut has certain incentives for distributed generation.

In a given year those range $2 to $3 million on a pre-tax basis. All of that driving towards earning our allowed ROE. So with that I will turn it back to the operator for any questions this morning from the group.

Question-and-Answer Session

Operator

(Operator Instructions)

There are no questions at this time; I would like to turn it back over to management for any additional or closing comments.

James Torgerson

Okay if there aren’t any questions then I guess we’ll wait one second and make sure no one has one and then if there aren’t any we’ll just sign off. Thank you everyone then for participating today and we look forward to seeing many of you here at the EEI financial conference and if you need any assistance and do have follow-up questions, please contact our investor relations group.

Thank you very much.

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