Northeast Utilities (NYSE:NU) has invested $70m in its natural gas delivery system in the first half of the year and has raised its projected natural gas capital expenditures for this year to about $180m from $170m due to more anticipated work serving new customers, according to Leon Olivier, Northeast Utilities executive vice president and COO.
“Over the first six months of 2013, we converted more than 5,600 Yankee [Gas] and NSTAR gas customers,” he said, adding, “We had initially projected adding a record 9,100 additional natural gas heating customers, but through June, we are ahead of our expectations.”
In June, Yankee Gas and United Illuminating’s gas distribution business filed a joint infrastructure expansion plan in Connecticut, he said, noting that state lawmakers have enacted legislation that contains key provisions implementing Gov. Dannel Malloy’s energy strategy.
United Illuminating’s parent company is UIL Holdings (NYSE:UIL).
Key sections of the bill provide various tools to encourage the rapid build-out of the state’s natural gas infrastructure, he said.
In a July 8 statement announcing his signing the legislation enacting the energy plan, Malloy said: “This strategy builds on our effort to improve energy efficiency, increase the number of clean energy projects and expand opportunities for natural gas service. With this legislation in place, we will be able to speed up our efforts and continue to drive down the cost of heat and electricity for families, reduce operating costs, and make our businesses more competitive.”
The statement listed various actions that the state is taking in order to implement the recommendations in the Comprehensive Energy Strategy, such as the state Department of Energy and Environmental Protection (DEEP) releasing a request for proposals for long-term energy contracts from solar, wind, biomass and other “Class I” renewable energy projects in the New England region to obtain cheaper prices for these clean energy sources.
According to Olivier, about 31% of the homes and 40% of the non-residential facilities in Connecticut currently heat with natural gas, and the most prevalent alternative is fuel oil, which today heats about half of the homes in the state and is twice as expensive as natural gas on a BTU basis.
In the joint filing, Yankee Gas and the state’s other two natural gas delivery companies have estimated that a total of 280,000 new heating customers could be added to the state’s natural gas distribution systems over the next 10 years, reaching 50% of the homes and 60% of the non-residential customers.
“We also noted that such a build-out would have far-reaching benefits for the state, including $2.8bn of net savings expected over the next 10 years, creation of nearly 5,000 jobs by the end of the 10-year period and nearly 1 million ton of reduction in greenhouse gas emissions,” he said.
On July 16, the DEEP found the plan to be generally consistent with the state’s comprehensive energy strategy goals, Olivier said, noting that the DEEP requested some “relatively minor modifications, which we filed last week.”
Utility regulators are now reviewing the plan and that review should be complete by the middle of October, he said.
The impact on Yankee Gas would be dramatic, he said, noting that the plan calls for the company to increase its annual investment in connecting new customers more than three-fold – from $26m a year now, to more than $50m a year by 2016 and $90m a year by 2023.
“Over that period, we would expect to connect approximately 80,000 customers to the Yankee Gas system,” he said, adding, “By the end of 2023, we expect Yankee Gas to have nearly 300,000 customers, compared with the approximately 215,000 customers today.”
The new legislation would allow the company, subject to regulatory approval, to implement a capital tracking mechanism to recover incremental investment without a full general rate case, Olivier said. Revenues would be collected primarily from higher sales and temporarily higher rates on new customers.
Critical to the plan is additional natural gas supply, he said, adding that the June filing asked the Connecticut Public Utilities Regulatory Authority (PURA) to approve agreements reached with the Algonquin and Tennessee pipelines that would allow Yankee Gas to secure about 127,000 decatherms per day of additional capacity beginning in the winter of 2016/2017.
“We are optimistic that PURA will approve those commitments this fall,” he said. “Our gas plan will produce very significant benefits to Connecticut’s economy and our customers and shareholders.”
Northeast Utilities on July 29 reported earnings of $171m, or 54 cents per share, in 2Q13, compared with earnings of $44.3m, or 15 cents per share, in 2Q12. The company also said that 2Q12 results included approximately $91.5m, or 30 cents per share, of after-tax charges related to the April 10, 2012 closing of the merger between Northeast Utilities and NSTAR and related merger and regulatory settlement agreements.
In the first half of 2013, Northeast Utilities earned $399.1m, or $1.26 per share, compared with earnings of $143.6m, or 60 cents per share, in the first half of 2012. Excluding merger and related settlement costs of $92.6m, or 38 cents per share, Northeast Utilities earned $236.2m, or 98 cents per share, in the first half of 2012, the company added.