"And we are doing this as really kind of good citizens, good stewards of the state . . . as we always have and everything PSNH has ever done inside of New Hampshire."--Thomas J. May, CEO & Pres.
NU’s Q2 investor call – July 30, 2013
Northern Pass excerpts
As most of you know, we had some very important news on June 27. We announced a new route for the northernmost 40-mile section of our Northern Pass transmission project. We had been working on a new route for more than 2 years and we were thrilled to be able to announce it in New Hampshire 5 weeks ago. The Northern Pass team did a tremendous job putting together a proposal that accommodates the concerns of many in the state's north country, while also delivering very significant economic and environmental benefits that are core to this innovative project.
This northernmost section of the new route has about 32 miles of overhead line on new rights of way that we either own or have under lease and approximately 8 miles of underground. As result of the underground work and other changes to the structure configuration, we have raised the project's cost estimate to $1.4 billion. The new preferred route addresses many of the concerns that have been raised about the project. The 2 underground sections, lower structures and heights and a route that takes the project well to the East of our earlier route. We have significantly reduced the project potential visual impact.
Additionally, the number of properties that would have overhead lines has been reduced to 31 from 186. Areas with new overhead lines are now located in generally more remote terrain and use natural topography to help with visual screening. On July 1, we filed an amended application with the U.S. Department of Energy and there is now a link to that filing on the Northern Pass website. We expect the DOE to hold scoping meetings this fall. These scoping meetings will offer the public the opportunity to comment on the project and will be an addition to our own open house forums. Our open houses begin next week in the northernmost area of the project and eventually, will cover towns all along the route.
The public will be able to meet face-to-face with project representatives and view maps and other information specific to their community. The DOE will now continue to work on the draft environmental impact statement for the project. As soon as that draft is complete, we will use it as part of our siting application with the New Hampshire site evaluation committee. Once we file that application, the site evaluation committee will review and adjudicate it. Our plan has both the state and federal permitting processes complete by mid-2015.
On that schedule, we expect to bring the project into service around mid-2017. The benefits of the Northern Pass and this 1,200 megawatts of firm capacity remain extraordinarily persuasive. We expect the project will lower New England energy cost by $200 million to $300 million annually, between $20 million and $35 million, of which will directly accrue to New Hampshire customers. Because Hydro-Québec is almost exclusively a hydroelectric system, it is expected to reduce the region's carbon dioxide emissions by up to 5 million tonnes per year. We expect the project will increase property tax revenue in New Hampshire, in the project host communities, by about $28 million per year.
Effective Thursday, August 1, Gary Long will move from his long time position as President of PSNH, to work fulltime on the Northern Pass and other New Hampshire renewable energy initiatives. Larry* has done an excellent job over the past 13 years leading PSNH through industry restructuring and through some major initiatives such as the innovative conversion of our Shiloh 5 [ph] unit from a coal boiler to a renewable biomass generator. As one of the most respected business leaders in New Hampshire, Gary will play a key role in ensuring that the benefits of the Northern Pass project are delivered to New Hampshire residents.
. . . . . . . . . . . .
Kit Konolige - BGC Partners, Inc., Research Division
Okay, very good. And a question for Lee. Lee, is there any public feedback in the newspapers, politicians comments, et cetera, on the new route for Northern Pass?
Yes, I would say, Kit, by and large, it has been very positive. I think the fact that seeing essentially 8 miles of underground -- particularly 8 miles of underground around very sensitive areas, environmentally sensitive areas, has all been very positive. I think that the real sense is that this company essentially took a hiatus of 2 years to come up with a route that is more sensitive to the environment, to the folks that live along the route, to the citizens of New Hampshire and that's being paid a lot of very positive compliments. We received a number of editorials in newspapers that's in support of the project, particularly because as folks look around to New England energy capacity situation and see anywhere from late 9,000 of old retired plants or plants that will have to retire rather, and they have, in many cases, questionable reliability. They know there's a need for this. This is clearly the best project for the region or they will be the best project for the region in the next 50 or 60 years in terms of its firm power, clean power and reliable power. So we see a building consensus in the polls that were taken, we see a rise in support for the project.
I wanted to start with a couple of questions for Lee on Northern Pass, specifically around the timing of approvals. I believe you said you're excepting processes to be done by mid '15, which is about 24 months from now. If we work backwards a little bit, the New Hampshire State Evalution Committee takes about 8 months. And before that, you'll need to get the draft approval from the DOE. If the DOE scoping meetings don't start until this fall, that only leaves about a year maybe, even less, for the DOE draft decision. Does that seem realistic to you? How confident are you in that mid '15 timing to end the approval process?
Yes, I mean at this point in time, based on everything we know, we're still confident. So if you think about the scoping meetings, the scoping meetings are really all about the DOE coming into the impacted communities, and it will probably be a kind of a northern part of the state midsection towards the southern part of the state to probably be -- whatever, 4, 5 meetings. And it's really the opportunity for the DOE to hear from the people in those communities, to take their input into the overall impact of the line, but the real hard work is really all done around through in the environmental assessment. These are essentially environmental scientist who are out in the field taking samples and so forth. So you get the feedback, you get all the environmental samples, the data, you do the analysis, you factor in the comments of the public, and the DOE makes the decision. So right now, I would say, we think that, that is still a realistic timeframe.
Okay. Now the community outreach you've done in the past few months and the open houses you will be doing in the coming months, will that in any way, help speed along the DOE approval? Or the site evaluation committee? Or is that independent, just trying to gain support and the best approach for you guys to take.
Thomas J. May - Chief Executive Officer, President, Trustee and Member of Executive Committee
Yes, they're really quite independent, the DOE is, by their nature, completely independent, and will conduct its own analysis and studies in accordance with their procedures and requirements. And we are doing this as really kind of good citizens, good stewards of the state, of the committee, as we always have and everything PSNH has ever done inside of New Hampshire. So this is really all about creating better understanding in the communities of the value of the project, the impact of the project. We will have topical overviews or what it would look like if the lines run through a particular area, we'll be able to see that using kind of a GIS or global information systems, super imposed transmission lines on that. So this is really about learning more about the project and building a greater trust level to the public.
Great. Next question is on, the cost of the project went up from $1.1 billion to $1.2 billion, and now $1.4 billion. Given your agreement with Hydro-Québec, how does that affect the earned ROE? And what you'll be collecting from HQ? Is there any upside to your earnings or downside to your ROE because of these higher costs related to undergrounding the line?
Jay S. Buth - Chief Accounting Officer, Vice President and Controller
Well, in regards to the ROE, the ROE level is set by contract, so there's no change to the ROE, particularly during the construction of the project after the project is complete and in service, the ROE would flow off of the base ROE of the region by a band [ph] of I think it's 140 basis points, 142 basis points. Now to the extent that the project costs $200 million more, the equity base has now gone from essentially $600 million to $700 million, so you're earning 12.56 on a higher equity base, so that would definitely be more earnings for the company. Then you would look up the increase in that capital to $200 million spaced over 3 years, a $25 million pick up in 2015, $100 million pick up in 2016 and a $75 million pick up in 2017.
Paul Patterson - Glenrock Associates LLC
Okay. And then also [indiscernible]**, that editorial about that specific piece of land and everything, we've -- you know what I'm talking up, with research in Northern Pass, does this alternative proposal that you have, do you think that deals with that and that specific sort of crucial area.
Yes, Paul, this is Lee. Yes it does, actually. The original proposal we had was essentially going under about 100 feet or so, 115 feet of that land underground. So you -- visibly, you would see nothing on the land that is in conservation. But this new route doesn't go near there, it goes underground. It goes away from it. So this resolves their issue that they had in the editorial.
**Shaheen - Gregg editorial
**Shaheen - Gregg editorial