yankee gas securities analysts presentation
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Yankee Gas Securities Analysts Presentation. January 25, 2012. NU Safe Harbor Provisions. - PowerPoint PPT PresentationTRANSCRIPT
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Yankee Gas
Securities Analysts Presentation January 25, 2012
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This presentation contains statements concerning NU’s expectations, beliefs, plans, objectives, goals, strategies, assumptions of future events, future financial performance or growth and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, a listener or reader can identify these forward-looking statements through the use of words or phrases such as “estimate”, “expect”, “anticipate”, “intend”, “plan”, “project”, “believe”, “forecast”, “should”, “could”, and other similar expressions. Forward-looking statements are based on the current expectations, estimates, assumptions or projections of management and are not guarantees of future performance. These expectations, estimates, assumptions or projections may vary materially from actual results. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause our actual results to differ materially from those contained in our forward-looking statements, including, but not limited to, actions or inaction of local, state and federal regulatory and taxing bodies; changes in business and economic conditions, including their impact on interest rates, bad debt expense and demand for our products and services; changes in weather patterns; changes in laws, regulations or regulatory policy; changes in levels and timing of capital expenditures; disruptions in the capital markets or other events that make our access to necessary capital more difficult or costly; developments in legal or public policy doctrines; technological developments; changes in accounting standards and financial reporting regulations; actions of rating agencies; the effects and outcome of our pending merger with NSTAR; and other presently unknown or unforeseen factors. Other risk factors are detailed from time to time in our reports to the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update the information contained in any forward-looking statements to reflect developments or circumstances occurring after the statement is made or to reflect the occurrence of unanticipated events.
NU Safe Harbor Provisions
Yankee Gas: Connecticut’s Largest Natural Gas Distribution Company
Service Territory 2,088 sq. miles
Communities71 cities & towns
Total Customers206,000
Residential Customers181,000
Non-Residential Customers25,000
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Yankee Gas Earnings: 2005 - 2010
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In $
Mill
ion
s
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Natural Gas Distribution:Growth Opportunities in New England
• Very attractive opportunities in New England due to natural gas’ low saturation and cost and environmental advantages over competing fuels
o Shale gas is a “game changer” for the region
• Siting and economics regulated by states
• Delivery and regulatory model constraints need to be addressed in Connecticut to increase penetration
U.S. Connecticut
Natural Gas 53% 25%
Oil 7% 59%
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Natural Gas: Connecticut Has High Growth Potential
50%
31%
15%
4%
0%
20%
40%
60%
% C
T H
om
e H
eatin
g M
arke
t
CT Home Heating Market Penetration
#2 Heating
Oil
Natural Gas
Electric Heating
Propane
72%
53%48% 47%
31%
0%
20%
40%
60%
80%
% o
f p
en
etr
ati
on
of
na
tura
l ga
s
Natural gas penetration CT vs. other states
CTNJ NY RI MA
• Connecticut is significantly under penetrated and relies on higher priced fuels for space heating:
o Older housing stock
o Proximity to supply
o Price advantage is relatively new and made more dramatic by shale gas
• Increasing the penetration to 50% of the state would yield long-term benefits:
o Significant customer savings
o Reduced emissions
o Reduction in oil demand
• In the short-term, the investment in infrastructure to support such expansion would generate additional jobs (construction and craft labor)
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Natural Gas: Yankee Gas’ Growth Potential
• Approximately 55,000 non-gas homes and businesses are within 150' of existing Yankee Gas mains
• 25,000 Yankee Gas customers are low-use, do not use natural gas for space heat (11,000 of which are single-family homes)
• Connecticut residents are already realizing the benefits of natural gas:
o In 2010, Yankee Gas converted approximately 1,000 single-family homes and multi-unit apartments to natural gas. In 2011, that number doubled to approximately 2,000.
o Commercial and Industrial customers are switching from Interruptible to Firm Service
3.4
6.2 6.3
5.0
3.1
Yankee Gas (firm)
2007 2008 2009 2010 2011 Thru 9/30
We
ath
er-
No
rma
lize
d%
ch
an
ge
ye
ar-
ove
r-ye
ar
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Changing Dynamics are Shifting Historical Supply Paths
• Historically, the northeast U.S. has received the majority of its gas supplies from traditional production basins in the Gulf Coast and Western Canada
• The recent exploitation of shale gas resources closer to the market area, such as Marcellus Shale in WV, PA and NY is anticipated to provide large volumes of new production to the regional markets
• As shale gas production increases, supplies from traditional sources currently using the long-haul pipeline infrastructure serving the region will be displaced and flow to other markets
Traditional Supply Basins and Flow
Paths
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4 for 1 Benefits of Expanding Natural Gas Distribution
Increasing Natural Gas penetration to 50% of Connecticut
households
• Creates 4,800 construction jobs and 3,000 craft labor jobs beginning in 2012 and sustaining for 5-10 years
• Eliminates 5.5 million barrels of fuel oil consumption per year (38% of CT consumption and 3% of US consumption – equivalent to eliminating 200,000 – 300,000 vehicles)
• Reduces greenhouse gas emissions by 1 million tons per year (equivalent to building 800 MW of wind or 1,600 MW of solar) and reduces particulate emissions by 49%
• Injects $250 million per year into CT economy by saving customers up to $1,100 per year on their heating bills
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Our Expansion Plan Would Achieve a 50% Natural Gas Penetration For Residential, 75% for C&I After 10 Years
Phase I (2012-2016)
Phase II (2017-2021)
Convert 50-55% of existing prospects near mains
Focused main expansion targeting key anchor loads, while beginning to convert
new customers near these new mains
Convert remaining near main prospects achieving an 85% penetration
Continue to convert prospects on new mains
CT Residential
CT Commercial
CT Industrial
Natural gas residential penetration CT vs. other states
NJ NY RI MA
50%
75% 75%
Current level
Target level
72%
53%48% 47%
35% 35%
54%
0%
20%
40%
60%
80%
NG
res
iden
tial
pen
etra
tio
n %
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Customer Economics Are Compelling, But Obstacles Exist
$0
$10
$20
$30
$40
$50
$60
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
CT Wholesale #2 Heating Oil
Henry Hub + Tport
CT Wholesale Propane
No
min
al $
/MM
Btu
Difference increases from $9 to $28 per
MMbtu
Price Differential Forecast $ per MMBTU
Estimated Heating Conversion Economics
Type Customer Costs
Service already available
~$7,500 for heating retrofit
Service not available, but near gas system
~$7,500 for retrofit
~$1,000 - $3,000 for service and meter
Service notavailable, line extension required
~$7,500 for retrofit
~$10,000 - $15,000 for service, meter & line extension
Frequent Conversion Obstacles
• No local gas service in place
• Upfront customer capital with long paybacks
• Requirements for upfront customer payments on utility portion of expansion given a “pay as you go” regulatory philosophy
Price differentials, can lead to homeowner savings of $1,000 - $1,500 per year
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Three Legged Stool: All legs must be present for success
REGULATORY CHANGES
CUSTOMER INVESTMENT INCENTIVESUTILITY INVESTMENT
INCENTIVES
Incent customers to make ~$7,500 conversion in
their home heating systems
1. Enable more expansion capital to be built into rates while managing rate increases
2. Develop way for new gas customers to pay contribution over time instead of up front
3. Support LDCs to forward procure firm pipeline capacity in advance of load
Create mechanism(s)
for LDCs to earn a fair return on
discretionary capitalLeverage Public Resources to reduce investment hurdles
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Yankee Gas Initiatives to Meet Customer Needs
• Waterbury-to-Wallingford/LNG project completed November 2011
o Project completed at cost of $54 million; $3.6 million under budget
• Improves reliability, fills gaps in supply portfolio and eliminates system constraint in Cheshire area
• Increases vaporization capacity of Waterbury LNG plant
• Supports area’s growing customer demand
Improving Infrastructure:Distribution Integrity Management Program (DIMP)
• 82% of Yankee Gas’ distribution system is constructed of state-of-the-art plastic and cathodically protected steel pipe materials
• Continuing efforts to replace remaining 18% - cast iron and bare steel pipe
• Increasing annual spending from $15 million to $40 million to accelerate replacement program – approved in 2011 rate case
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Yankee Gas Projected Capital Expenditures
$29
$48 $50 $50 $52 $54
$36
$27 $27 $28 $29 $30$18
$20 $20 $21$22
$26 $26 $13
$28 $23
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
$130
$140
$150
2011 Proj 2012 2013 2014 2015 2016
Aging Infrastructure Basic Business
Peak Load/New Business Gas Supply InfrastructureWWL
$111
$125$116
$107
$123
$95
In
Mill
ion
s
2012-2016 Projected Yankee Gas Capital Spending$566 Million