Jeff Kotkin – VP, IR
Tom May – President and CEO, NSTAR
David McHale – EVP and CFO, NU
Jim Judge – SVP and CFO, NSTAR
NSTAR (NST) Q3 2011 Earnings Call November 7, 2011 7:00 AM ET
Well good morning. I know it's early in the morning and we really appreciate you getting here so early. I'm Jeff Kotkin, NU, Vice President for Investor Relations. Speaking today will be Tom May, NSTAR Chairman President and Chief Executive Officer, David McHale, NU Executive Vice President and Chief Financial Officer and Jim Judge, NSTAR Senior Vice President and Chief Financial Officer. Chuck Shivery, NU's Chairman, President and CEO and Lee Olivier NU's Executive Vice President & COO were unable to join us for the conference.
On October 29th and 30th as I'm sure you know a catastrophic early fall snowstorm caused about 1.2 million of our 1.9 million electric customers to lose power at NU and secondly are actively involved in the management of the restoration process across our three state service territory.
Fortunately, almost all of those customers have had their service restored. We're still working on it through today as of this morning but as you can imagine the work has been going nonstop through the weekends. For those of you in the room or on the webcast who lost power we appreciate your patience and understanding.
Now one thing I need to say is that in the slide package that you have those were printed before we knew that Chuck wasn’t going to be joining us. So three of the slides that Chuck was going to deliver, numbers 9, 10, 11 we've integrated into David's presentation and slide 12 is now in Jim's presentation. So I know it's early but we're going to try to keep you alert by moving the slides around on you from what's in your packet.
Also joining us at the conference today and I'll ask him to stand, Phil Lembo, NSTAR Treasurer, Randy Shoop, NU Treasurer and John Moreira, NSTAR Director of Investor Relations and Financial Reporting.
Before we begin I'd like to remind you that some of the statements we make in this presentation may be forward looking as defined within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward looking statements are subject to risk and uncertainty which may cause the actual events to differ materially from forecast and projections. Some of these factors are set forth in the news releases that NSTAR and NU issued on Friday and are in the first three pages of this presentation which we'll pace through now.
If you have not yet seen those news releases or this morning's presentation and you're on the webcast they are up on our websites. Additional information about the factors that may cause actual results to differ can be found in our respective Annual Reports on Form 10-K for the year and then December 31, 2010 and our most recent 10-Qs which are available as of this morning. In these documents we also note our expectations of how and why we use certain non-GAAP measures.
Now I'll turn over the call and the presentation to Tom.
Thanks Jeff and thank you all for coming this morning. My job is to officially welcome you and I was supposed to be welcoming you with Chuck. He and I were going to do a tag team and tell you how excited we are to be in the red zone with our merger. Unfortunately I don’t feel like using those analogy's today since our Patriots got beat by the Giants last night. I also was going to apologize for getting you up so early in the morning but if you had a room like I did with seven screaming kids who were excited to see Mickey at 5:00 o'clock in the morning you've probably been awake for a while also but this is the way it goes. We do appreciate you sharing a little bit of your schedule with us today. We appreciate your interest.
Chuck and I do appreciate not only your interest in but your investment in our companies because in a couple of months there will only be one. We will all be one happy family. The NSTAR investors will become part of the NU family and so we are both looking forward to that day.
So say our team is going to talk to you about where we are, the status of merger proceedings. I said we're in the red zone. We're getting close. And also I mentioned to you how our companies are doing at this stage.
You've all heard us say this before. Unfortunately we said it a year ago and we hoped that -- a year ago I predicted that the merger would be complete by now. So we're a little disappointed it's taking us so long but we all are very excited about this and we believe that this is a compelling combination of two very successful companies. We think it's a little bit like peanut and jelly or like one plus one equals three. We have tremendously complementary strengths that are going to fit together very nicely and most importantly we're going to have the size and scale to achieve our goals.
I'm really also excited about leading this new management team into the future. I think we all believe that our future is even brighter than our pasts. And speaking about our pasts both companies have a very strong history or earnings and dividend growth and I think you all agree that that's very important in these days of turbulence that we've been going through in the marketplace have steady consistent growth is a key to making sure that we continue to have an attractive stock.
Since this hopefully is the last time that I get to brag about NSTAR as we'll be retiring that name and the New York Stock Exchange listing which we've had for about 125 years and I as a CEO for the last 18 years, I'd just like to say that we have operated on a very simple model. You've probably all heard me say this before. We're focused on great service to our customers. We believe that translates into good strong regulatory relationships and you all know that regulatory relationships are the key to financial success on the long term.
We at NSTAR have enjoyed 20 consecutive years now of operating earnings growth and we're quite proud of that. Our earnings picture for both companies has translated into great results for our shareholders. We've consistently outperformed our peers and the broader markets in general. For NSTAR I know these numbers. They translate on a 10 year basis an 11.8% average annual return and while it's not on this chart our 15 year return is 12.5% average earning occurrence which is the best in our industry or any industry for the last 15 years. Both management teams have consistently delivered for our shareholders and so you can just imagine what this new team is going to do for you in the future.
The merger approvals that we've been pursing are falling in place. I won't go through this elaborate list of the all the approvals we have but we just have two left. The NRC and the NAS [ph] Department of Public Utilities, the NRC sign off we expect to occur later this month and the DPU process will be the last one that we have left. We have finished our briefs and required briefs on Halloween, October 31st, a little ironic I guess. If the commission were to deliberate and decide the case in a normal 60 day period we could have an approval by year end.
However we do have one additional item to deal with there. There has been a DOER, Department of Energy Resource intervene in the proceedings that has asked the Commission to consider a motion to stay the proceedings. It suggests I guess that the Commission delay their decision on approving the merger and instead turn the merger proceedings into a rate proceeding. We will argue. All interveners get a change to argue on November 17th. We will argue that rate matters are beyond the scope of these proceedings and we will agree to file for new rates next year when our current seven year rate deal expires.
So we don’t believe that the commission can actually turn a merger proceeding into a rate proceeding that we will make our strong case on November 17th. We presented a very strong case for this merger. As you probably are aware during the proceedings the department changed the standard from a no net harm standard to a net benefit standard.
We presented a very strong case. David and Jim were our witnesses. So we expect that the information they provided, they interested a thousand data requests which if I were to stack the books up are about 10 feet tall. So there is a complete record and a very impressive record on the benefits to consumers in the environment that they will be expensive.
So before I turn it over to them let me reiterate how excited I am about this combination and about our future. David McHale has been heading our transition integration work and has done a great job. He tells me that our people are still excited. It's been very unique. I've never experienced anything quite like this, whether the alignment or our people who are in our call centers or executives, they all stop me and congratulate me and here it is a year later and they are excited to be getting on with their life and moving forward.
Throughout this integration process we have gained lots of information how each of the companies does business and David tells me that we can see lots of opportunities both to improve our service levels and reduce our costs. So we want to get on with the show.
The combination as I'm sure you all are aware, we'll certainly strengthen our financial position and it will allow us to seamlessly implement our vast infrastructure, investments and capital plans. To date the rating agencies have responded very, very well to, to this transaction and as energy policy evolves in the region I think we're larger, stronger and we are going to be better able to help our regulators and state politicians to implement all the changes that are going to come with the new requirements of Massachusetts (inaudible) Communities Act.
Before I turn it over to David and Jim I would just like to tell you that we will not be providing guidance for the combined company today but we are as I said earlier in the final stages of our DP approval process. When that’s complete I then will let the two of them get together and flip it to 2012 and further year plans together and at that time we promise to hold an Analyst Day and that will be shortly after the closing and we will roll out our future and answer all the questions that I'm sure you want us to answer today instead.
So with that let me turn it over to David.
Thank you Tom. And let me add my welcome and also a little bit welcome from Lee and Chuck. I'm sure you can appreciate that job number remains storm restoration. I know you appreciate that from Chuck's standpoint and from Lee's they will commit to finishing the restoration effort until every customer remains on. We still have a number of communities and a number of customers who have not been restored as of his morning and perhaps I would sort of add that also my household remains among one of those that it will critically important that that remains our focus over the coming hours and the coming days.
But what I'd like to do is provide the information that you're accustomed to seeing here, both via Lee and Chuck but I will tell you that echoing on some of Tom's comment's it's becoming increasingly outdated if you will to talk about the NU standalone store.
We are on the eve of this merger and there will be no NU standalone. There will no NSTAR standalone. But what we have done here is to provide you the type of visibility into our capital and into our investment plan that you've become accustomed to but we will stop short of talking about NU standalone. We will at length talk to you about what we think the prospects are for this company and as Tom said we are already looking at integrating these two companies operationally, strategically and thinking about how this management and leadership team come together in the future.
Now that said the capital plan that we have in front of you runs out through 2016. It's sort of a five year view. The cornerstone of that plan remains for the large part our transmission business and we've given you an updated view not only by year by segment but also in many respects by projects.
So that is available to you and it is available in the book. It's about $5.7 million program overall, about $2.6 billion of which is our transmission program. I'm pleased to announce that we've added about $400 million of investment spending to our transmission plan and continue to invest in our distribution business. The distribution business is also very, very critical to the investment platform of this company.
We will continue to invest in distribution in the business making it as reliable as we can. We'll invest in our maintenance programs. We'll invest in O&M and the like to drive the highest levels of reliability that we can.
So a couple of new elements as well on the plan including some renewable spend in Connecticut. I think you've seen earlier in the year where Connecticut's passed a new energy legislation Public Act 1180 that allows us to invest in up to 10 megawatts of renewables. It doesn’t, not respect to what technologies but I'll talk about that in a moment.
We drill down just a little bit with respect to transmission. These are projects of course that you know and you've been following with respect to news. We are now moving very aggressively into the first phase as we'll talk about in a moment. The Northern path becomes and it is a very, very key focus for us as well. I mentioned this earlier. $400 million of new spending driven by reliability and both kind of FERC standards, security, cyber security and the like, very, very critical, not only the north east [ph] utilities but all utilities that are in this transmission phase and we continue to focus on the policy making after FERC as well.
We think the FERC is very supportive of transmission investment coming of the energy policy after 2005. We do not see that changing. You all have seen FERC order 1000. We think that is very supportive of the way the New England ISO has done business and the way we plan to do business going forward. We are very encouraged by what we've seen from them in terms of new changes on resource allocation, on cost allocation, on transmission planning.
You know from talking about this in the past that the ISO has a very open and transparent planning process, the whole stakeholder process around topped allocation and transmission planning. We do not think that FERC order 1000 will have a real profound impact on the way we do business. We think it's supportive of the way we do business.
Increasingly you are also seeing the FERC being pressed around ROEs, no much incentives but on the base ROE and you may as you follow this NU story, you may have seen we are recently on September 30th, a number of complaints as filed, a Section 206 complaint after FERC challenging the base ROE which is currently 11.14%. It dates back to about a 2006 timeframe.
We feel very, very firmly that when that debate is over which essentially will be a test of the FERC methodology that establishes the base ROE that we will demonstrate counted to the complainants that New England rates not only for NU and NSTAR but for all transmission owners are in fact just and reasonable. But there will be a protracted discussion and debate if you will on what that base ROE will be, should be, is and the like and in many respects it is going to come down to a debate that you've seen unfold with other companies around what is the appropriate the range of reasonableness and how do you measure the central tendency within that range of reasonableness once you select a group of proxy companies.
The complainants have suggested that the number should not be 11.14% as it is today. It should be closer to 9.2%. We have filed testimony saying if in fact you really use what is a fairly quantified [ph] FERC methodology 11.14% is appropriate and that rates are just and reasonable.
In terms of the projects themselves we had made tremendous, tremendous strides on the first reg of the news projects. The Greater Spring Field reliability project is now almost 30%. We will drive that project to completion by the year 2013 and of the entire family of companies or to these projects this represents more than half. So it's critically important to driving 2012 growth into 2013 but that project now is in full swing. You will hear us by the way talk more and more about the second leg of this. The second leg is shown here in blue. It's interstate reliability project as it hits that Rhode Island, Connecticut border, our partner there is National Grid but we plan to later this year file exciting applications in Connecticut and you will see us getting more and more granular about that process that will unfold so that we can move forward and drive those investments and continue to support the reliability criteria of New England in the region.
Following on that of course is the third leg which still needs a little bit more confirmation by the New England ISO in terms of the specific project, the specific year. We need know that this suite of projects will be required. We are working with the New England ISO right now to confirm that date and then once that date is confirmed we'll translate that into specifically what are we building and when are we building but we see that project which is roughly a $300 million project being required in the year 2017.
I would tell you that all the projects as we talked through the course of the year with you on various earnings calls as per the change in their timing and their cash patterns in terms of the investment year-by-year has all been refreshed and is your appendix right now.
So if you're looking through your appendix you will find those in sort of a re-benchmark way including the Northern Pass project which remains a $1.1 billion project but as we push the time (inaudible) 2016 we've kept your current now on when year-by-year those monies will be spent. We remain incredibly optimistic about this project. You know from conversations in the past we feel as though this is one of the most innovative ideas that we put in front of this group. It will be 100% owned by the new Northeast facility, the combined company, that is a 75:25 project now, most of the activity right now is focused on group selection.
We have told you in the past that the FERC has approved the transmission service agreement. That is done. Embedded in the transmission service agreement are the economics of the project. It's capitalized 50:50. It will earn a return of 12.56%. I should remind you by the way that the FERC has allowed a 12.89% return on the news project and also a number of parties over the years including 2011 have asked for reconsideration or rehearing on these ROEs. The FERC has denied rehearing requests. I think that confirms in our mind that those are appropriate returns with the appropriate percentage.
But most of the focus for the Northern Pass right now is to finish the route selection. Its 180 miles of route. About 40 miles of that will be new right away and we are now studying that and negotiating what that route will be in the northern reaches of New Hampshire. We remain very focused on the economic benefits and the environmental benefits of this project which we think are really tremendous in terms of carbon reduction and building a project that brings in low carbon power at market that will clear out a mass term play, no subsidies and provide very, very attractive overall economic for the region and our customers.
Moving on here is both a historic and a perspective view of what we've spent on our transmission program and you'll recognize this chart certainly in terms of the historic perspective, a lot of that, what we show here in gold is the southwest Connecticut projects. As you know they are up and running. They are in service. They are generating cash flow but they are benefitting customers in a huge way with respect to the amount of congestion that our customers are no longer subjected to. Hundreds of millions of dollars of savings each and every day, each and every month in our customer build is a very, very powerful project.
Going forward you can see that a shift now to in blue here the non-news NBT projects. I'm including the $400 million of new projects and here is the re cash if you will of the news project and over the overall Northern Pass perspective, $2.6 billion going forward and we show you later on I think in the appendix and in some of my materials how that translates into rate base growth.
You haven’t seen this slide before but to give you a little bit more context on where we're spending capital in this plan and we said to you that New Hampshire is becoming increasingly an area of spend strategically important to us. You can see where we have labeled both in the northern and central areas and in the southern areas of New Hampshire the pockets of investment, whether it's new 115 KV investments in synchrophasors and the like, very critical that we get the reliability equation right. Same is true of course in the books of Massachusetts. So we have carved this out for you separately. Again, more detail in the appendix but these areas are receiving a lot of focus and a lot of attention as well in order to make sure that the system is robust, it's reliable and it is the backbone for moving wholesale power around New England as efficiently as possible so that our customers are paying the best rates possible.
On the distribution side of business still, very significant expenditures there. A couple of new items perhaps, one you know from the past that we’ve had in our forecast investments and advanced metering the AMI programs, in Connecticut. Connecticut is a little bit of a pause on to that. You know there is a new administration in Connecticut that I think wants us to spend time understanding how AMI will benefit customers in the future, in what timeframe we will make those investments. I believe it is likely those investments are still going to be made, but we’ve taken them out of the forecast because I think there is more work to do. That is about $217 million delta.
What we’ve also done, in part because of economic conditions is very carefully at the amount of new investments needed to meet new service, new customer growth and the like no surprise, it’s less. We don't see the level of customer growth that we’ve seen, in fact we’re running under budget this year intentionally on the amount of new customer hookups in the like, but really I think what's most put on here is the amount of work we’ve done over the last year to look at, how we’re spending our money, how to optimize those money, how much technology invest in the business to get the most return, operational return off of our business.
We’ve made great strides around reliability, we’ve made great strides around customer service by introducing technology, even with the respect of looking at now how those investments translated into customer favorability ratings and I know that's going to be tested by the storm, both Irene and there’s no storms, but I think fundamentally we’ve been making great progress there but when you peer into year-over-year what we’ve said last year, or even the prior versus now you’ll see less distribution capital because of those weave in.
Also because of light extension, possibilities as we look at things like vehicles and ageing infrastructure, we think there is a very strong possibility that we’ll get more life out of those assets if we are very protective of our maintenance programs, our collective action programs and that receives a big focus on our part day in and day out.
Looking to the future as well, I think we see some exciting things there but this is not going to be a new standalone feature, this is going to be a NU NSTAR combine company. Future, we’re looking at many of the same things but on the renewable side, you know that we’ve been investing in solar in Massachusetts; we’ve gone live now with a 1.8 megawatt project. We’re about to go live with our second 2.2 megawatt projects which is referred to as Indian Orchid, we’re excited about that. We’re going to continue to invest in that space and you’ll see some capital in our plan allocated towards renewable.
That's nothing new. What is new though is under public act 1180 in Connecticut, we will and have the ability to adapt up to 10 megawatts. Some of that will look a lot like potentially the Massachusetts store model. You’ll see a surely filed plan with the Connecticut CURA and you can file that as we proceed but I think some of that will certainly be in store. Some of that will be open to other technologies as well, but we’ll need to kind of talk about the underlying economic model, the underlying rate base model but we think that we have a good competitive advantage because we’ve done this in Massachusetts, we’ve done it effectively and we’re up the learning curve there to introduce store in a fairly large scale way into Connecticut.
On the transmission front, we’ve talked a great deal about news in Northern past but we still look to the future there about building additional transmission to bring renewable into the region. And arguably that hasn’t been our critical day-to-day focus over the last several months, Emergia has been a focus more focus more recently, but of course it’s been in focus, but we’re not taking our eye off our ability to really have an impact going forward helping the region meet its renewable portfolio standard needs.
In the middle of this page, is our story around natural gas, it’s a great story from an investment standpoint and from an economic standpoint, it’s a really great story from our customer standpoint. There are a couple of graphics here that I think demonstrates it in terms of just penetration.
Only about 31% of the homes in Connecticut see with natural gas and if you stack that up against other new England states, New York and New Jersey, it is by far, the lowest degree of penetration that we think that our customers have some very, very attractive economics in front of them and under some analysis we suggest that it cost twice as much to heat your homes these days on fuel oil as natural gas.
We are working with state policy makers on the energy side, and even federal policy makers to be thinking about, driving policies towards making it easier for our customers to do the changeover and we think that depending on those economics we could pick up 50,000-55,000 customers, in fact we could under some level of expansion, double the customer base alone. When you look at the economics for a household of let’s say, 2,500 square feet, they spend about $3,300 a year on heating their homes, you could spend less than half of that if you converted to natural gas but those customers who have natural gas now in their homes are not heating on that. We think that it's an out of pocket cost of $4000 or $5000 it's not a small amount of money but we think it's a four or five year pay back.
We are looking at ways to get more supply into the state. We have done that recently by the completion of our water (inaudible) project that will bring more gas to more homes and more businesses but we think there is a potential for 100s of and millions of dollars of investment throughout Connecticut to get natural gas to our customers. Now that said even though we are very bullish on this we have not built that into the plan that you have in your books so there is not this really vast expansion plan for Yankee Gas but it is going to be a focus of ours because we think that this is very compelling time for customers be looking to convert the natural gas.
Let me turn our attention to now the financials, in this slide does talk a little bit about NU’s standalone, obviously we are reporting earnings as of last Friday as well. We are very pleased with NU financials. Our earnings year-to-date are up 12 percent, we continue to invest in our dividend, we continue to have a standalone pair ratio about 50 percent, the credit conditions of this company is right now is stellar and I think is still improving.
All that really is going to be brought to bear with the new company. So all of what you have begun to understand and you know about NU is still in great position. The cash flow of this company in terms of the cash flow been generated by our investments as well as the cash flow generated by our investments as well as the cash flow being generated by tax depreciation, that will all accrue to the new company going forward and that kind of underlying strength on the capital program and the rate base program the new shareholders inherit all of that as well.
Dwell on this point, if you look at how we are doing year-to-date I mean you will hear me a firm our overall guidance 230 to 240, we are right on track. Earnings for year-to-date are up about 12.3% interestingly not driven by transmission this year but driven by the distribution businesses.
Even as we continue to invest in rate base growth we have seen year-over-year increases across the board. If you peel back the onion here behind the scenes, our utilities have better now on average our elite performance than they have had in years.
And that up and down all the utility including Connecticut, Massachusetts lags at a little bit but if you look at the trajectory going forward a very positive story. Further behind the scenes we had a kind of an interesting inflection point maybe too early to tell and if third quarter around sales, whether normalized sales for the nine months are actually up, tops a percent.
When we had our conference call around Q2, I shared with you that whether normalized sales were actually down about 0.5%, our guidance was premised on flat sales. Somebody asked me do you ever see a reversal in trend where it can actually weatherize, normal negatives than positives, I said absolutely not.
Okay I was wrong. It's positive and I am not suggesting that we are seeing at trend here but when you look at growth the same point of growth on the non-manufacturing side, in Massachusetts we see some positive growth and in New Hampshire we see some positive growth, we see even in New Hampshire kind of average hourly work week expanding a little bit, we see good export growth in the Connecticut market so there is a glimmer here that I will be careful not to say trend wise this is what we are looking for.
Long term we still see about 0.5% load growth over the coming half decade. On the guidance side again we’ll reaffirm 230 to 240 consistent with Tom’s remarks. We are not going to look forward as last year and share with you the say the loans of 2012 I will affirm what we said earlier in the year about transmission I think that’s going to be on the higher side of this 105 to 110 but looking pretty good and that’s despite the fact by the way that Hurricane Irene did take a bite out of the financials just a little bit. We lost 90 (inaudible) hours of sales and there are some secondary impacts including financing that storm that has taken a couple of pennies off of our earnings.
Just want to update you quickly on the financing front, we have kind of every couple of month it seems sending out a note on some financing activity but wanted to summarize this for you both on new money so you see at the top of the page PSNH and Western Mass, as we have built out rate base and the investment programs has issues collectively over quarter billion dollars of new money.
I was pleased to see that the Western Mass 10 year 3.5% coupon is as one financial newswire report is the second lowest ever BBB category bond issuance. So I haven’t scrubbed every single one of those but I have seen at least one of the newswires report that. Either way this is really quite beneficial for our customers as we take advantage of this low coupon environment. Also has some opportunities on the refinancing side as well, specifically for Connecticut around some of our tax exempt money’s. You can see we have taken out a 5.85% coupon, we buy that some long dated, some short but that is up to $6 million to $7 million of interest savings next year alone.
So a really good play and looking forward a little bit we got our maturity coming up for NU Parent, if we had to refit that today, our head that out today you can see that seven and a quarter coupon can get done at sustainably less and with NU on an upward trajectory with our rating standpoint, we are quite optimistic that NU Parent has an interest savings down the road as well.
Let me just kind of finish up by summarizing the capital program. We have shown you pieces and parts this is really a summary of not only distribution and transmission fact on top of each other it's a $5.7 billion but we compare it to last year as I said.
The program in poll is down from last year, it's a different time frame and 2011 is going to roll off and we introduced a 2012, a lot of that is explained by distribution, a lot of that is explained by AMI but the very focus on what’s happening within the transmission space. So very good story, I want to give you some comfort. In your appendix you have a lot of the detail to show you year-by-year how this all plays out for those of you who want to run back to your desk (inaudible).
And then lastly when you look at the rate base equivalent of that here the rate base that continues to grow, it's a north of $11 billion when you look at the overall compounded annual growth of say transmission as an example that’s still quite robust at 10% even updating for the year 2010.
So I think it gives you a very prospect and perspective on what type of growth we are going to bring to this combine company going forward and that one of the real sort of anchor points of our program and of this merger is our ability to invest capital on behalf of our customers.
At this point let me turn the podium over to my colleague and partner Jim Judge.
Thank you David. Good morning and it's good to see the crowd here, it looks like standing room only. Appreciate you showing up especially at such an early hour. As both Tom and David indicated Chuck and Lee are taking care of priority number one which is the final storm cleared up and restorations are sort of taking place and David did a great job finish hitting for checking Lee on the slides that they normally cover.
I am going really touch on four areas daily briefly; the first is the quarterly good quarter results year-to-date results for NSTAR. Second I am going to talk about transition projects that NSTAR has in progress. So a lot of them are faces, most of you are familiar with the NSTAR story, but I have two slides that will briefly give you the perspective that we have on the job that we have been doing investors and our customers. And finally I will wrap up with few more insights on the merger proceeding in Massachusetts.
Earnings for the third quarter with the facility merger related costs and there were actually two onetime items last year at NSTAR was excluded them, so in apples to apples comparison we are $0.94 in the third quarter that’s a $0.01 higher than we did last year, a $0.01 higher than street's expectations.
Despite the unfavorable weather in the third quarter we actually had some very positive items and had an impact transmission revenues contributed $0.04 as we continue to invest in that aspect of our business. We have recovering loss space revenues as we increase our spending and energy efficiency.
We are entitled to, recoupe the revenues that that are lost, spread them around the rest of the customer base, those lost base revenues actually contributed $0.03 to the quarter and once it came from our unregulated telecommunications operation.
Couple of factors that are set those causes, items, we did see a 2.1% decline in sales in the third quarter. They are actually driven by weather, the cooling degree days were down 3% from the year ago and so that cost us about $0.05.
And finally interest property taxes is higher O&M, each of those three items negatively impacted our earnings by $0.01 for the quarter. So I am pleased with the results for the quarter as I am with our year-to-date results which we have on the next slide.
For nine months our earnings for the company were 212 compared to 207 a year ago, up $0.05. Several causes of items again transition revenue continues to contribute to the bottom-line. Gave us $0.07 year-to-date. We also experienced a $0.04 pickup from the gas driven by a very cold first quarter I guess sales were up 11% year-to-date. Like I mentioned this recovery of lost based revenues contributed $0.04 year-to-date earnings and then we have four other items each of them were $0.03 year-to-date, we have seen a decline in interest cost, taken advantage as David mentioned would take an advantage of the low process interest environment as well, done some refinancing’s. We also have a lowest share count this year, we did a share buyback a year ago and so that contributed about $0.03 to the comparison.
In 2010, we had a one time that had to do with a regulatory two up of our transition charge that was a $0.03 item that we don’t have this year and again the unregulated telecommunications business gave us $0.03.
So a lot will be increases there the bottom-line is earnings is up $0.05 for the three quarter point. These are the positive items, negatively impacting them. We sold that district energy business a year ago. So those operating earnings will no longer in the mix that $0.07. O&M cost us $0.07 year-to-date and then the modest decline that we had in sales year-to-date which is only 0.3% and depreciation and property tax combined they cost us about $0.08.
So on a combined basis; we are very – three very months we are pleased with where we are. We continue to be confident and comfortable with our standalone guidance which is between $2.60 and $2.75 for the year.
I want to make a couple of comments about the Massachusetts economy. When we were a year ago the unemployment rate Massachusetts was 8.4% today it's down to 7.4%, well nationally the trend has been positive as well it's far less significant.
The national members a year ago were 9.6% down at the 9.1% today. So Massachusetts is very well and continues to improve, some recent numbers came out in trends of GDP growth Massachusetts growth on an annual basis in the last quarter was just under 4% compared to the national numbers which are 2.5%.
I think that’s the fifth consecutive quarter actually Massachusetts outpaces the rest of the country. Couple of comments on the transition projects at NSTAR, we have actually doubled our transition rate base in the last five years. If you look at the projects that we have on the horizon for the next five years it will double again. We spend on average about $100 million a year on baseline, reliability and capacity investments. We have a significant project, the Cape Cod line. That plan is a 31 mile line transit and 45 KV lines over the Cape Cod Canal and (inaudible) deciding what Massachusetts concluded back in July and in fact the briefing period has been concluded as well in August.
So we do anticipate hopefully a decision for me sitting by the end of this year or certainly early next year, project class is about a $120 million in again assuming timely approval from the state, we do think that we can bring the project in by year end in 2012.
Other project major projects we have is a mid-Cape project which basically will extend the benefits of the line further down the Cape. There is some upgrading and constructing of 115 KV lines that will reduce really the load risk in the mid-Cape area and that project is also in the regional plan. We have the new project the Boston 345kV connection which basically bridges the north and south parts of the city.
Really to address to circuit limitations that we have been – what we can foresee occurring in the near future. So that project could be in the mix over the next few years and obviously our share of the Hydro-Quebec little bit pass project that David talked about earlier I will share with that is $280 million.
I mentioned tonight, comments there is really two slides I want to give a perspective on NSTAR. This is the one of me the customer’s perspective you know we are really a company that’s driven by metric, we have been for years. When you look at the key customer performance metric in the areas of reliability things like number of outages and length of outages when you look at the customer service measures around meter reading, around billing, around call center performance NSTAR is really consistent with the several years there have been a tough quartile performer in our industry and every one of those measures.
So it is nice to see that these customer satisfaction scores really validating that strong performance, as you know JD Powers conducts these customer satisfaction surveys every year and we started improvements this year again in both NSTAR Electric and NSTAR Gas.
For NSTAR Electric the ranking is actually improved now for six consecutive years, you may be the only utility in the country that can make that claim. We have now the highest ranking really of any major utility from Boston all the way down to Washington DC area.
NSTAR Gas we are ranked number one on the east mid-sized utility region kind of the similar story a steady climb since 2006, in fact the last three years we are ranked number three, number two, number one. So you know customer demands and expectations are always increasing. No more evidence than with the more recent storms we have experienced but it is rewarding to see that with these high scores which really reflect the strong customer commitment that we have among our 3000 employees every day.
Now there is one slide in the customer story from an investor perspective is the one slide, the rest slide really deals with financial performance. The right side financial condition, our financial performance over this 15 year time period is really, is noble industry, a decade and half that brought actually reflects Tom May as CEO, certainly a challenging 15 years when you think back industry restructuring, there is two mergers in here certainly several economic downturns but we have consistently outperformed the group and outperformed the market overall.
The right slide, shows financial conditions also number one in the industry, that’s strong credit quality is obviously allowed us continuous access to low cost, capital low cost benefiting a low cost borrowing cost that really benefit our customers every day.
This merger provides a better opportunity for us to continue that commitment to excellent customer service, to strong financial performance and to very healthy credit quality.
Both North-East utilities and NSTAR have very active energy efficiency development and implementation programs. Many years at NSTAR would spent about $50 million a year of energy efficiency that’s stepped up to $75 million in 2009 and actually we will spend a $180 45 million this year and over $200 million next year.
Just last month, Massachusetts took the number one spot in the country really in terms of rankings on energy efficiency FX is a national energy efficiency council that ranks the states and Massachusetts has actually surpassed California now.
We have made progress on addressing the states renewable portfolio standards with executed three contracts at a very low cost that was approved by the DPU over 100 megawatts and NU and NSTAR have made some commitments in this procedure to advance the climate change agenda. We have agreed to target increased energy efficiency, we have agreed to own and contract additional solar and to build on electric vehicle pilot initiative that NU has in Connecticut basically they introduced it into the Boston area.
There are some indicators only two approvals ending, we have the NFC approval which we anticipate this month. The DPU the areas were completed in July, the briefing period was completed at the end of October. Typically it's a two month process, we would hope for an order so we do anticipate an order within the next couple of months.
The merits of our filing addressed these environmental concessions that we mention but also get into some detail in terms of savings for customers. We have a net benefit analysis that we anticipate at the cost customers will save $784 million over 10 years that number grows to $5.7 billion over 40 years, that 40 year horizon is a time frame that’s in the past the Mass DPU is looked at to access the merits of merger benefits.
In July, as Tom mentioned a state agency called the Department of Energy Resources did file a motion to stay the merger proceedings, basically looking for supplemental information in three areas.
Progress on merger integration, any rate changes from the merger and more on potential climate change impacts. We trust the DPU will deny the (inaudible) motion, we will have an opportunity to comment on it, certainly a stay would jeopardize the minimum delay, the many merger benefits that we have discussed with the state, benefits for our customers, benefits for our states, and benefits for the region.
Tom indicated all arguments have now been put up through November 17th that will allow the companies in the intervenes to try to resolve issue of these limits, some of the issues that are pending in that motion and after those all arguments we do anticipate an order rather the DPU within the couple of months.
So some final slides, slides on this last slide before we open it up for questions. We have here two highly successful companies, those similar strategies and expertise. Some great growth and opportunities ahead of us. I think we have made a very clear record before the department that demonstrates our compliance with the net benefit standard that is the Massachusetts now.
We have evidence, significant customer savings, significant environmental accretion and absolutely building past projects alone, when that project is completed, it is completed. It is equivalent of removing 800,000 vehicles off the road on a daily basis. So this is a great environmental advantages of this transaction moving forward. For investors we think this combined entity provides great investment opportunity and I’d like to reiterate as I quote “we are very enthusiastic about the merger, very confident that we will have the approvals in hand over the next couple of months.” We do have time for some questions, I think Jeff Kotkin is going to come up and join us.
We can take some questions now. I’ll be summarizing the questions for the folks who are on the webcast, because we don't have a microphone in the audience. Anybody out there?
So the question has to do with I think the NU sales figure for the quarter and are they sustainable. I think Travis is just echoing some of my comments earlier in the year. We went into the year thinking that we would really reverse trends that we’ve seen over the last three to four years which has really be demand destruction, just outright year-over-year deploying.
This year the reverse trend was not to be so optimistic as to think the economy was coming around. That said, we didn’t predict a double dip recession either. And for the first six months of the year, maybe the first seven months of the year, we were sort of seeing a little disappointing relative to that.
We were seeing sort of declines whether normalized across all classes of customers and then this inflection point I just discussed, we saw coming out of August and September, even in the throes of tropical storm Irene, used some growth and the growth was among all of our companies, all three customers companies and then also within each of the classes and it’s difficult on a peered into each of this quarter by quarter or thereabout. So when we looked at it, what we’d say is, we know there continues to be a drag on sales because of energy efficiency program. Those are good things, we’ll do it, so right answer for customers but it is having off more and more chronic organic sales.
Also, distributed generation, we know too that that is moving the needle a little bit. I thought that talked about going forward just sort of cause out half a million megawatt hours for every year, typically as customers are installing solar and the like. So what's driving the needle? So when we look at it, we saw that there was about neutralizing for that, there was about maybe, 1 to 1.5% real growth because of the economic factors that is you are seeing a little bit more manufacturing, you are seeing even a little bit more consumer confidence, and there was actually a pickup in windmill consumer confidence.
I am not suggesting that customers are ready to go out and start spending off their money, so we saw that as an (inaudible). We also know that prices are substantially lower and from an elasticity standpoint, customers look at a standard offer rate now that for many of our customers including NSTAR’s seven handle versus a $0.10 and a $0.11 product and that is going to sort of drive some sales. So we’re seeing that combination. Now whether it’s sustainable or not, not so sure. I told you earlier to the group that we look forward and look at maybe 0.5% electric growth maybe 2.5 to 3% natural gas growth. We look at this pretty closely but we do know that from a fundamental standpoint we’re going to continuously DJ, we’re going to continue to invest in energy efficiency but we’ll see some economic growth over the next two to three years. I don't want to get wildly optimistic on that but we do some growth emerging there.
Any other questions? No, okay all right, we want to thank you for all for joining us. Both companies have open visitations over the balance of the conference and obviously a lot of you in one on one but thank you very much for joining us this morning.
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