Susan Allen - Vice President, Investor Relations James Torgerson - President and Chief Executive Officer Richard Nicholas - Executive Vice President and Chief Financial Officer

Chris Ellinghaus - Williams Capital Andrew Weisel - Macquarie Capital Andy Levy - Avon Capital Advisors Chris Turnure - JPMorgan Paul Zimbardo - UBS

Good afternoon and welcome to the UIL first quarter 2015 earnings conference call. [Operator Instructions] I will now turn the call over to your host, Susan Allen.

Thank you, Tammy, and good morning to everyone. Thank you for joining us to discuss UIL Holdings first quarter 2015 earnings results. I am Susan Allen, Vice President of Investor Relations. Participating on the call today is Jim Torgerson, UIL's President and Chief Executive Officer; and Rich Nicholas, UIL's Executive Vice President and Chief Financial Officer. If you do not have a copy of our press release or presentation for today's call, they are on our website at www.uil.com. During today's call, we will make various forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. 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 filings with the SEC. I will now turn the call over to Jim Torgerson.

Thanks, Su, and good afternoon, everybody, and welcome to the call. Our first quarter was very interesting one. Obviously, you all know about our sale merger with Iberdrola, but we also had a great first quarter as far as earning go. The first quarter consolidated net income, and this is on Page 4 of our program, was $57.6 million or $1.01 per share compared to $55.5 million and $0.97. Now, this does include all of the expenditures that were made in relationship to both the Iberdrola sale and also the proposed acquisition of Philadelphia Gas Works and the transmission ROE proceedings. What I want to point out that earnings were about 4% increase over the 2014 first quarter, and recognizing that weather was nearly 20% colder than normal, but it was really only a little over 5% colder than the first quarter of 2014. And also we saw some very good customer growth that actually helped add to the earnings from our gas operations. So as I said, we had a number of one-time items. And when you sort through all that and looking at the chart at the bottom of that page, you can see that the consolidated earnings were up about 2.75%, excluding all the one-time items and the non-recurring items are related to the merger or acquisitions in both years for Iberdrola and also then Philadelphia Gas Works in 2014. And also we set up a reserve for the FERC ROE proceeding. The latest order really limited to the top of the range by project that we could then recognize an ROE on each project-by-project, so we elected to set up a reserve. We also want to mention that the New England transmission owners did file a petition for review with the D.C. Circuit Court of Appeals yesterday. Now, let me update you a little bit on Iberdrola sale. Let me give you a little bit of a history. The transaction does represent a total value of, depending on how you look at it, $50.97 to $54.53. The midpoint is $52.75 per share. And the midpoint of the premium to the closing price on February 25 is 24.6%, but the range is 20.4% to 28.8%. And then with a 30-day average closing price, 30 calendar day, the range on premium is 15.3% to 23.3%. We used, as I think we mentioned in the call a couple of months ago, that we were looking at the 2016 and 2017 earnings per share guidance at the midpoint, and that represented a 17.5% and 16.5% PE multiple off of those midpoints of those earnings projections that we provided guidance on. Now, the name Iberdrola USA is going to be renamed and the shares will be re-listed on the New York Stock Exchange, with shares representing the interests that UIL has today. So UIL will have 18.5% of the combined company and Iberdrola S.A. 81.5%. I've been asked to be the CEO of the combined company, and we will have offices here in Connecticut, also in Massachusetts. I will be maintaining the Office of the CEO in Connecticut, and then the current Iberdrola USA offices in Maine and New York. The Board will consist of three current UIL Directors, including myself, and up to nine additional directors. The approvals that are required -- transaction requires among other thing is UIL shareholder vote. And on the next page, we can go in a little more of the details. State of Connecticut, Public Utility Regulatory Authority, application was filed on March 25. They have 120-days statutory deadline, but they can make an option to extend it an additional 30 days. The regulatory time schedule has been established, we've already had a couple of hearings. They are proposing the proposed final decision, which formerly was called a draft, is expected at the end of June and the final decision is expected in mid-July at this point. Massachusetts DPU application was also filed on the March 25. There is no statutory deadline. The public common hearing is scheduled for the May 6, so early next week. Our expectation is that their decision will probably follow the Connecticut one. But we'll have to see what schedule they lay out at that May 6 meeting. Hart-Scott Rodino filing was made again also on March 25. We received the early termination notice on April 7, and the FERC filing was also made on March 25. The SEC S-4 proxy is expected to be filed in the second quarter of this year. And the UIL shareholder vote will be then determined based on when the SEC allows us to go effective. We still expect to close by the end of the fourth quarter of 2015. Not turning to Page 9, looking at UIL alone and we have our capital expenditure plan of $4.2 billion. And what important is the CapEx here will continue as is for those companies in the combined company going forward. So nothing will change in the capital expenditures that we see. And it's what we've gone over in the past, the biggest portion being the gas distribution along with electric distribution. So you're going to see electric distribution $1.2 billion, electric transmission about $600 million, gas about $1.9 billion, and then the shared services $300 million, and $80 million for distributed energy resources that we're working on. Page 10 has the rate base growth, and you can see we have about 7.7% compound annual growth rate for the five years through 2019. Gas growing at 8%, transmission 7.1%, electric distribution 7.7%, then we also have still the GenConn and UIL corporate in the lower section of that chart. Now, gas heating customers, as we said in our yearend call, we converted 16,266 households and businesses, meeting our 2014 goal. The target for 2015 is to convert at least 12,000 households and businesses. And through the end of March we've converted 2,000 customers. Now, keep in mine, that last year the difference between home heating oil and natural gas was about $2 per gallon on an equivalent basis. This year it's about $1. Now, oil prices have moved up a little bit, but it's about half of what it was. Now, natural gas is still much more cost effective than home heating oil, and there are a lot of benefits to customers on the use of natural gas. So we would still expect to hit the target we set this year, but it will be less than last year. And the comprehensive energy strategy still has goals. And keep in mind, the price advantage was significantly higher when that was set out. On Page 12, we have the transmission ROE proceeding. And I know this is a little busy chart, but hopefully it explains what's going on. And the first complaint refund period went from October 1, 2011, to the end of 2012. The commission determined a base ROE of 10.57% that was against the base ROE previously, which was 11.14%. And going forward that is being the result of the second complaint then the third complaint, which all are challenging, even the 10.57% and different components of that. There is 11.74% cap on total company transmission ROE, and as we've seen in the commission order that that cap also then applies to project-by-project. So that was one of the reasons we set up a reserve. Now, as I said the transmission owners in New England have appealed to the District Court in D.C. as of yesterday for a review of the orders. Now, we also have the second and third complaint periods, they've been consolidated for hearing purposes. The testimony has been filed, and the hearings are expected to begin in this quarter in 2015. The administrative law judge decision should be rendered within 12 months of the commencement of the hearing. So we're looking at the end of 2015, early 2016, and expect the FERC decision by the end of 2016. As I said, we set up a reserve of $2.2 million after-tax in this last quarter. I'm going to turn it over to Rich Nicholas, who is going to go over the financial results.

Thank you, Jim. Good morning, everyone. Thanks for joining us today. I'm on Slide 13, where we have the results broken out by segment for both net income and earnings per share. And as you see, gas distribution, a significant growth quarter-over-quarter driven by both the weather and customer growth, and overall if you exclude the non-recurring items related to the merger and acquisition cost as well as the FERC ROE, up over 2% quarter-over-quarter. So moving to the details on Slide 14, within the individual business segments. For electric distribution, earnings were actually down $2.7 million quarter-over-quarter, driven primarily by increases in employee expenses, in that case primarily pension, as discount rates were lower at the end of last year. Also kind of good news and bad news, good news we're living longer and the bad news is that increases pension expense when the higher mortality tables were implemented. And that was partially offset by updates in our pension demographics. Also the big driver there was higher depreciation and amortization expense, driven by a higher rate base, but as well as the state regulators allowed us to capitalize, what we have called Enhanced Tree Trimming, a major project after the storms. But it has a very short life. So high depreciation rates under the orders from the state regulators, and so you see a step up there in depreciation and amortizations expenses. Also outside service expenses were up slightly quarter over quarter. In the GenConn equity investment, which is included in our electric distribution segment report, their earnings were down by about $500,000 quarter-over-quarter and that was all due to the result of establishing a reserve, coming out of some litigation with one of the subcontractors around the construction of that project. All in, for the 12 month average distribution return on equity, 8.75%, and that compares to our allowed of 9.15%. On the electric transmission business, if you exclude the reserves that Jim talked for the ROE proceedings, we were essentially flat, slightly up on net income $100,000, primarily due to some rate base growth and allowance for funds used during construction. Overall, we're projecting our transmission rate of return now to be 11.36% for the year, excluding the reserves that has been established. Looking at the gas business now on Slide 15. Gas distribution benefited from the cold weather at Southern Connecticut Gas and Berkshire. As you may recall, Connecticut Natural Gas now has revenue decoupling coming out of their rate case last year, so the cold weather does not benefit the bottomline. On the other hand, if it was warm weather, the bottomline would not be hurt by it. Even though the polar vortex last year was very cold, we did see colder than both normal weather of almost 20% and colder than last year by about 5.6%. When you look at just the Southern Connecticut Gas and Berkshire Gas weather impact, that was about a $3.6 million improvement in gross margin quarter-over-quarter for those two companies. We did see a slight decrease in normalized use per customer, but when the weather is not extreme there is an interplay between the impact of weather and normalized use. And you see the decoupling adjustment in the table at the bottom of Slide 15, and that really adjust the weather and the NUPC impact at C&G to what was allowed in rates. On the good news side, certainly the customer growth -- the customers that were added last year contributed significantly to a $2 million improvement in margin, so overall, our gross margin up $5.5 million. Looking at Slide 16, now the average ROEs for the gas company, Southern Connecticut Gas right around 9.6% and that compares to a 9.36% allowed. CNG by 8.75% compared to a 9.18% allowed. CNG does not have much of an impact from weather normalization. There was a small period of time last year early in January for a few days, but Southern Connecticut you can see the difference there, if you normalize for weather, the average ROE was around 8.6%. The CNG allowed return again is 9.18%. Looking at our corporate segment where certain interest costs and capital costs are retained. If you exclude the merger and acquisition related items, net income was up $1.8 million quarter-over-quarter. And that's primarily due to the information technology investments we make at the corporate level that serve all of our subsidiaries. There is a capital carrying charge that's recorded at the headquarters, but that is charged out to the operating companies as an expense. Moving now to Slide 17, we'll look at earnings guidance for 2015. And while the total UIL Holdings consolidated excluding non-recurring items, we maintain the same $2.30 to $2.50 that we put out earlier this year. Some of the components have changed. Distribution, we've reduced by $0.05 a share, primarily due to the higher depreciation and pension related cost that we talked about earlier. Gas distribution benefiting more from weather and customer growth that we initially expected. We did raise that by $0.05, so again overall consolidated, leaving the corporate same, is $2.30 to $2.50. If you were to include the non-recurring items, the merger expenses that we have incurred so far and the regulatory reserves, the total including those guidance is $2.19 and $2.39. We have not reflected any additional merger-related costs, because they are milestone dependent and there is still uncertainty around when those milestones will actually be achieved. With that, certainly look forward to seeing many of you out at the American Gas Association Financial Conference in the next couple of weeks. And we'll hand it back to our operator, Tammy, for the Q&A session.

[Operator Instructions] Our first question comes from Chris Ellinghaus with Williams Capital.

Just a quick question. Do you have any estimate on what the weather impact versus normal might look like?

Through the first quarter, bear with me one second. If you look at just the SCG and Berkshire, it is about $3.6 million increase in gross margin.

And that's versus normal?

I'm sorry, because that was quarter-over-quarter. Bear with us a moment. It certainly would be larger, probably close to 4 times that since we were 20% colder than normal.

Do you think it's kind of linear?

Yes.

And have you gotten any feedback from Massachusetts yet in terms of what they think about review timing?

No, Chris, just that there is the public hearing to set the schedule next week. Other than that, no, we have not.

Our next question comes from Andrew Weisel with Macquarie Capital.

My first question is on the gas conversion. You gave some updates, but I'm wondering what you're thinking about the outlook for the year? How confident you are in that full year target? And maybe any commentary on the incoming call volumes?

We're very comfortable with the 12,000 that we set for the year. I mean, in the first quarter it was so cold, you couldn't even get any work done. So to get 2,000 in was actually, I think, pretty good. The leads have been kicking up now, because oil prices actually have gone up a little bit. And I think we're seeing more leads coming in. So I think we're still feeling pretty good about the 12,000 at this point.

Next, if you could elaborate a little bit, the reduction to the electric distribution earnings. The release talks about how it had to do with timing of projects going into service in 2014. I'm just wondering what changed since you gave the guidance in late February?

We closed out a lot of plants at the end of the year. And by the time you work that all through the yearend processes and get the 10-K out, the impact wasn't fully appreciated until after that.

So it was really just a matter of closing the books?

Yes.

Then lastly, to whatever degree you can comment, Iberdrola on their call two days ago, I think, it was talked about 900 megawatts of wind that would qualify for PTC. I believe you talked about 500 or 600 on the merger call. Is that something that you had been sort of privy to? Is that something that you were aware of or is that purely upside to the numbers that you gave on that merger call?

I'll just have to accept the numbers they gave you, because the numbers we had go back couple of months. So I'm sure they're just giving an update.

So that would mean if you were to -- not that this thing is mark-to-market for a pro forma guidance range, but this would be upside to the numbers that you provided?

Assuming they all get, if the construction occurs by the end of 2016, I think we were aware that they had close to 1,000 megawatts that got the PTC through 2014, but then we were using something in the 500 to 600 range to support the -- remember, we said we had about the 10% growth in earnings and we were using 500 to 600. So to the extent 900 megawatts comes in, yes, it could be a little upside, but it also could offset some other stuff too. So we'll see how much we can get construction between now and the end of 2016.

Our next question comes from Andy Levy with Avon Capital Advisors.

I wasn't going to ask question, but just a follow-up on Andrew Weisel's question on the wind. I'm just trying to understand, because 900 megawatts, I think it's been pretty consistent with what Iberdrola had said in the past. But based, I guess, on what their current level of income is at wind, plus the 900 megawatts, how do you actually get to the level that you projected in '17, because the numbers don't seem to match up, as far as it seems you would need considerably more megawatts of wind to get there?

Well, I think you also recognized that we are planning on transmission projects coming in at least getting started in the 2016, '17, '18 timeframe in Maine. So that would be incorporated into that along with the wind and then also looking at what the regulated activities would be or regulated operations would be providing, assuming you're going to have probably a rate case in New York at some point in not too distant future. So all those things combined got us to what we said was the 10% growth in earnings that we provided the guidance on.

But I think you also put out a 26% of your income was going to come from renewables and storage, if I wasn't mistaken. So if you kind of take your rate base that you kind of put out there and put a number on that, and then kind of where your guidance is for '17, it seems like you would have considerably more wind, or new megawatts in wind, from the level that they're at currently to achieve that. So again, just back to Andrew's question, I guess you were talking about there's potential upside. But I guess potential upside to 600 megawatts, but not potential upside to 26% or the level of renewable income you need to achieve your '17 goal. Is that correct?

All I can tell you, Andy, is that what I've just said about what we projected and what we were utilizing. So what Iberdrola came out with their 900, I agree there is probably 900 that has production tax credits, and our analysis included other things beside just the regulated business including transmissions.

Our next question comes from Chris Turnure with JPMorgan.

I just wanted to get more color on the Connecticut approval process for the merger. I'm wondering if you guys have yet offered a package of concessions or an initial offer to the regulators there and what that consists of if so. And I was wondering if you have an opinion on the start of the hearings that I think occurred last week?

Well, we made our application and our filing and incorporated what we believe are some positive aspects of it. Not anything to do with a package of stay-outs or anything like that. We'll go through the hearing process. We've had a couple of hearings already. Things will develop when the OCC makes their filing, which is due next week on the 7 I believe, or 8. And then we'll have a further hearings on the 14 and 15 and then late files and so forth. So that's where we're at right now. We haven't done anything beyond that at this point. We'll see how the hearings go and what if anything we want to do beyond that.

Could you remind us of what the outcome of the original transactions a couple of years ago with Iberdrola were, in terms of what was given to Connecticut, if anything?

We committed to make filings to provide financial information. We had a stay-out for about year-and-a-half I believe. That was pretty much it.

And then switching gears, could you give us an update on the clean energy initiative in New England? Any estimates that you guys might be thinking about in terms of total renewables procured there, or transmission procured in association with that, especially following the governors' initiative, kind of pullback from a week or two ago?

Yes, they're still looking at acquiring renewables, but the process hasn't really kicked off entirely yet. The governors' are looking to get renewables, but they're going to end up with a RFP that will go out not too distant future. And then people will start responding to that as far as the renewables, I would expect, obviously Iberdrola USA is in a good position with their renewables in Maine, but that will kick off shortly and we'll be responding to it.

Our next question comes from Paul Zimbardo with UBS.

Just a quick question, and I know it's a bit down the road potentially, but wanted to see if you had any updated thoughts on the potential for a YieldCo structure in the future?

It's certainly something that gives us great optionality down the road, if it's needed. We've got a lot of work to do right now to get to closing, and get the businesses moving forward, but it is something that we keep in mind, but it's not something that we've got to do right away.

I have no further questions in queue at this time. End of Q&A

Since there is no further question, we want to thank everybody for their participation today. And if you have further questions, please don't hesitate to give us a call. Thanks a lot for participating.

This concludes today's teleconference. You may now disconnect your line.