NORTHEAST UTILITIES SYSTEM
ANALYST PRESENTATION
--------------------
March 13, 2001
New York
This presentation contains forward-looking statements, which are statements of
future expectations and not facts. Actual results or developments might differ
materially from those included in the forward-looking statements because of
factors such as competition and industry restructuring, changes in economic
conditions, changes in historical weather patterns, changes in laws,
regulations or regulatory policies, developments in legal or public policy
doctrines, technological developments and other presently unknown or unforeseen
factors. Other risk factors are detailed from time to time in the two
company's SEC reports.
PRINCIPAL TOPICS FOR TODAY'S PRESENTATION
- -----------------------------------------
o Con Ed litigation status and improvements at NU since 1999
o Regulated businesses and industry restructuring
o Financial restructuring
o Unregulated businesses
o Strategic initiatives
NU LAWSUIT FILED IN SOUTHERN DISTRICT COURT OF NEW YORK
- -------------------------------------------------------
Key Points
- ----------
o Con Ed has materially breached Merger Agreement
o NU substantially more valuable today
o NU seeking recovery of more than $1 billion for its shareholders
-- Lost acquisition premium
-- Expenditures of time and money
-- Lost business opportunities
o Trial by jury sought
FINANCIAL COMMUNITY RECOGNIZES
TREMENDOUS STRENGTHENING
OF NU SINCE OCTOBER 1999
(NUCLEAR ISSUES)
----------------
October 1999 NOW
------------ ---
o Millstone 2 valued at $22 o NU to receive $1.2 billion from
million; Millstone 3 at $143 Dominion next month for
million by DPUC Millstone 2, 3
o NU, ratepayers faced $1.5 o Dominion to receive trust fund
billion cost for Millstone proceeds, small topoff and assume
decommissioning responsibility for Millstone
decommissioning
o Millstone remained under NRC o Millstone returned to routine
special review oversight in May 2000
o NU faced hundreds of millions o NU will now make money on joint
of dollars of claims from owner shares as a result of
Millstone 3 joint owners settlements, Dominion sale
RESTRUCTURING IMPROVEMENTS
--------------------------
October 1999 NOW
------------ ---
o PSNH restructuring settlement o Restructuring settlement approved
faced long road to secure by legislature, regulators,
approval state's highest court
o Value of NAEC 418-MW share o Seabrook value likely to be
of Seabrook pegged at $100 far higher at sale
million in NH settlement
o Securitization authorization o Over $2 billion of securitization
uncertain for stranded cost bonds approved and likely to be
recovery; CL&P, WMECO issued this spring, including
renegotiating more than 25 $1 billion of IPP buyouts, buydowns
high-cost purchase power
contracts
FINANCIAL IMPROVEMENTS
-----------------------
October 1999 NOW
------------ ---
o NU had been unprofitable o NU earned more than $205 million
since mid-1996 before extraordinary charges in 2000
o CL&P lost $400 million from o CL&P earned $148 million in 2000
1996 through 1999
o Unregulated energy businesses o Unregulated energy businesses
in the midst of a year with turned profitable in 2000
nearly $40 million of losses
o Yankee Energy merger pending o Yankee merger closed
RATING HISTORY - NU UNSECURED NOTES
-----------------------------------
Investment Grade
- ----------------
S&P/Moody's S&P
---
BBB+/Baa1 1995-BBB--
BBBB/Baa3 1996-BB+ (Millstone outages lengthen)
BBBB--/Baa3 1996-BB
BB+/Ba1 1997-BB-- (NH Restructuring order issued)
BB/Ba2 1997-B+
BB--/Ba3 1998-BB-- (Millstone 3 restart)
B+/B1 1999-BB+ (PSNH credit profile improves)
B/Ba2 2001-BBB (NH Supreme Court upholds PSNH settlement)
B--/B3
Moody's
-------
1995-Baa3
1996- Ba1 (Millstone outages lengthen)
1996-Ba2
1997-Ba3 (NH Restructuring order issued)
1998-B1
1998-B2
1998-B1 (Millstone 3 restart)
1999-Ba3 (PSNH credit profile improves)
2000-Ba1
2001-Baa3 (NH Supreme Court upholds PSNH settlement)
NU: THE REGULATED BUSINESS
- ---------------------------
o Largest electricity delivery company in New England
-- 1.13 million customers in Connecticut (CL&P)
-- 435,000 customers in New Hampshire (PSNH)
-- 200,000 customers in Massachusetts (WMECO)
o Largest natural gas distribution company in Connecticut
-- 187,000 customers (Yankee Gas)
o Extremely prosperous service territory
CT BUSINESSES PERFORMING WELL
- -----------------------------
o CL&P "overearned" its 10.3% allowed return in 2000 by 500 basis points
-- Decision on financial review expected in April; effects will be
prospective only
-- CL&P proposed sharing of earnings over 11.3%
o Sale of $1.4 billion of securitization bonds due this month
o Four-year standard offer contracts shield CL&P from supply risk
o Yankee rate case to be filed later in 2001
EXCELLENT PLANT SALES, SECURITIZATION ARE SHRINKING CL&P'S STRANDED COSTS
- -------------------------------------------------------------------------
DPUC Fossil Hydro CL&P to IPP, other
Allowed Plants Sell Plants Sell net $600 million stranded costs
Level for 6x Book for 7x Book from Millstone securitized
------- ----------- ------------ ---------------- ---------------
Non-Nuclear $1.9 $1.9 $1.9 $1.9 $0.5
Nuclear $1.7 $1.4 $0.8 $0.3 $0.3
---- ---- ---- ---- ----
$3.6 $3.3 $2.7 $2.2 $0.8
==== ==== ==== ==== ====
NH RESTRUCTURING ISSUES ALMOST RESOLVED; CORE BUSINESS STRONGER
- ---------------------------------------------------------------
o Regulatory relations strong
o Strong cash flow from amortization
o $500-$550 million securitization bond sale projected in early spring
-- Appeal to U.S. Supreme Court unlikely to impede sale
o Rates will fall incremental 10%, retail choice begins following
securitization
o Sale of fossil/hydro plants and Seabrook scheduled in 2002
MASSACHUSETTS RESTRUCTURING DONE; FINANCIAL PROFILE STRONGER
- ------------------------------------------------------------
o Return to profitability in 2000
o DTE approved $155 million of securitization bonds in February 2001
o Issuance expected in April
o DTE allowed 17% price hike in January 2001 to allow full pass through of
escalated standard offer and default supply costs
NU'S REGULATED BUSINESSES HAD A STRONG 2000
- -------------------------------------------
(Net Income ROE)
1999 ROE 2000 ROE
-------- --------
CL&P -2.8% 14.67%
PSNH 10.9% 8.4%*
WMECO -0.2% 18.3%
NAEC 19.8% 20.7%
*Excludes restructuring write-off.
SECURITIZATIONS AND MILLSTONE SALE WILL
ALLOW FINANCIAL MAKEOVER OF NU THIS SPRING
------------------------------------------
$3.3 Billion
------------
Millstone Sale
$1.2 billion
CT Securitization
$1.4 billion
NH Securitization
$500-$550 million
WMECO Securitization
$155 million
PROCEEDS WILL BE USED FOR MULTIPLE PURPOSES
-------------------------------------------
$3.3 Billion
------------
Retire Debt, Preferred
$1.3 billion
IPP Buydowns/Buyouts
$1.1 billion
Taxes on Millstone Sale
$300 million
Return of Equity to Parent
$600 million
PARENT WILL HAVE SEVERAL OPTIONS FOR CASH
-----------------------------------------
$600 Million
------------
$215 million to Repurchase more New investments Retain cash for
close out 10 mm shares (5 mm strategic use
share repurchase authorized; more
may be)
EARNINGS FROM OPERATIONS STABLE
- -------------------------------
o Earnings range remains $1.40 - $1.60 per share before nonrecurring items
o Upside from:
-- Full year of Yankee Energy earnings, lower share count,
use of free cash at NU
o Downside from:
-- Lower equity base at regulated electric subsidiaries
o Low payout ratio, predictable cash flows permit NU to revisit dividend
NU UNREGULATED ENERGY BUSINESSES HAVE GROWN RAPIDLY
---------------------------------------------------
(Revenue in Millions)
1998 1999 2000
---- ---- ----
$37 $649 $1.9 billion
WHOLESALE ELECTRICITY HAD THE LION'S SHARE OF SELECT REVENUES IN 2000
---------------------------------------------------------------------
Retail Electric/Gas 7%
Wholesale Gas 8%
Behind the Meter 5%
CL&P Wholesale Standard Offer 26%
Other Wholesale Electric 55%
WHOLESALE BOOK IS BALANCED IN 2001
----------------------------------
(As of March 1, 2001)
Sales Sources
----- -------
Other 23% Off Peak Spot Market 10%
Central Maine 7% Owned Units 10%
NStar 13% Committed Purchases 53%
CL&P 57% Nuclear Purchases 27%
SUPPLY IS EXPECTED TO FLOOD INTO NEW ENGLAND IN COMING YEARS
------------------------------------------------------------
(MW)
New Plant Coming
On Line Under Expected
Construction Today Demand Growth
------------------ -------------
2001 1,754 500
2002 3,169 490
2003 2,750 353
Cumulative 7,673 1,343
NU HAS A NUMBER OF STRATEGIC OPTIONS
- ------------------------------------
o Intensive strategic review under way
o M&A opportunities abound
o No sacred cows
o Shareholder value paramount
NU'S GROWTH STRATEGY FOR REGULATED BUSINESSES
- ---------------------------------------------
o Improve relationships with all regulatory bodies
-- Settle NH litigation
o Lock in long-term rate orders
-- 4 years in CT; 3 years in NH
o Improve service and move toward performance-based ratemaking
-- CL&P reliability in 2000 was best ever
o Promote increased use of existing assets
-- Explore expansion of electric transmission
o Expand, achieve synergies through M&A
-- Yankee Energy
NU'S STRATEGY TO BUILD UNREGULATED BUSINESSES
- ---------------------------------------------
o Build energy marketing business while containing risk
-- Select Energy leading energy marketer in New England
o Acquire generation to support marketing
-- Four Northfield Mountain pumped storage units critical to Select,
New England
o Build up HEC behind-the-meter business
-- Denron acquired in 1999 for HVAC skills
o Build up generation services business
-- Turned profitable in second half of 2000
-- Acquired E.S. Boulos in January 2001 for high voltage work
IN SUMMARY, NU IS A FAR STRONGER COMPANY TODAY
THAN IT WAS IN 1999 AND POISED TO DELIVER VALUE
- -----------------------------------------------
o Financially stronger and much less risk
o Merger termination frustrating, but legal case strong
o Northeast growth strategy in focus
o Regulatory relationships strong
o Financial performance solid
o Unregulated businesses expanding