Wednesday, August 3, 2011

Listening to Northeast Utilities' Q2 Earnings Call Today: A Guest Blog

A guest blog on significant aspects and implications of Northeast Utilities' Q2 earnings call for investors today. Northern Pass was a prominent subject. Following their presentations, Charles Shivery, NU's CEO, and Leon Olivier, NU's COO, took nine questions from analysts.The full transcript is here; the audio version is here.        

  • For the first time, the securities analysts on the call honed in on the right of way, eminent domain legislation, and timing issues for Northern Pass. There were tough, direct questions. This hasn’t happened before, so it’s clear the analyst community is becoming aware of the substantial issues facing Northern Pass.
·         Shivery sets a deadline of 6 months, by the end of the second half of 2011, to announce the new “northern” route for NP.  NP is clearly working on the route, and Shivery is putting his credibility on the line by saying that the new route will be announced within 6 months.
·         Shivery sells the message that the only problem from stakeholders with the NP route occurs on the top 40 miles.  He gives no credence, airtime, or indeed any mention whatsoever to any other issues raised regarding NP, and he gives no notice to the investment community about the problems with the existing PSNH ROW.
·         Shivery mentions the new FERC transmission planning and cost allocation order (Order No. 1000) and tries to suggest it is good for Northern Pass. In fact, it is irrelevant to NP as currently designed.
·         For those who don’t understand the difference between “reliability” and “optional” projects, note that the vast majority of the discussion of transmission on the call is about traditional reliability projects – determined by ISO-NE to be “needed” and qualified or to be qualified for inclusion in the customer rate base.
·         “Earlier, Chuck discussed some of the recent developments concerning the Northern Pass project. Recall that the project involves 180 miles of new transmission line in the state, including an AC section in Southern New Hampshire. Of those 180 miles, we currently have right of way for 140 miles. Our focus right now is on the 40 northernmost miles where we need new right-of-way,” Olivier says. There’s a misleading statement.  NU is trying to take analysts off any scent that there are problems on the existing PSNH ROW.  As we know, contrary to the statement, they DO NOT “have” the necessary ROW for the 140 miles!!! All those so-called expansions would also have to be new ROWs, for one.
·         “We continue with our outreach in New Hampshire stakeholders and communities as we identify and secure a route for those 40 miles and hope to announce such a route later this year. We are making solid progress in this effort.”  There’s a clear statement to the investment community that NP is making tangible progress on the new northern route.  If this is true, we need to worry…
·         The new timeline:  “This process of identifying routes and providing stakeholders with time to review and comment has added about an additional 9 months to the siting process. That is why we now estimate that the construction will begin in early 2014.”
·         “As a reminder, the project has a number of benefits for New Hampshire and the region. It is expected to add more than $25 million a year in local property tax revenue and add 1,200 construction jobs. We estimate it will reduce the region's wholesale electric cost between $200 million and $300 million annually, including at least $30 million that would accrue to New Hampshire, and reduce CO2 emissions by as much as 5 million tons a year.” NU's Olivier has now wrapped around NP’s claims in an official statement to the market. This statement is now fair game for any challenges that it is inaccurate and/or misleading under federal securities law concepts.
  • · And if anyone thought there would really be an “independent” environmental assessment: “We have a contractor that will put together an environmental assessment that looks like 2 seasons. It looks at both kind of spring and fall. And we've already started that on the first 140 miles on the existing right-of-way. We'll be turning over that data and information fairly soon to the DOE third-party contractor that will evaluate it.” In other words, NP’s own consultant is doing the environmental work and the DOE’s consultant will just check it over. Independent?

  • "As you may know, the U.S. Department of Energy environmental assessment process begins once a specific route is submitted. We applied last fall with the DOE, and they have left open the public comment period on the project so that the petition and the review process can comment on the route that we identified. The DOE will announce a consultant who will be working on the environmental data already collected for the lower 140 miles of the route. We expect this process to continue throughout this year and into 2012 as we advance through the siting process. Additionally, we will begin preparing our application for the New Hampshire Site Evaluation Committee once the northern 40 miles of the route are identified." Does the underlined statement mean that the data already collected by Normandeau in the existing ROW will be the data used by the DOE's EIS consultant? Independent?
  • · NU’s view of HB 648: discriminatory? “And the Eminent Domain Bill, what that would have done is essentially it would have precluded the right of eminent domain for any other project other than essentially reliability based projects. So if that was the case, then it would be very difficult to develop any other renewable resources inside of New Hampshire, so we thought that was discriminatory.” Just ridiculous. A developer of a renewables generating plant does not get eminent domain. Why should the transmission line that hooks up the plant get Eminent Domain?
  • · This response to a question about connections to wind developments in NH suggests that NP, or some additional lines on the same corridor, will try to hook up Brookfield or other wind resources. “The wind developers in the north are all essentially commercial competitive enterprises, and what we do there is a system, as necessary, to make interconnections through their wind development, most notably in New Hampshire.”