Northeast Gets Govt. Approvals

Northeast Utilities’ ( NU - Analyst Report ) unit, Connecticut Light & Power (“CL&P”), has received approvals from the Connecticut Public Utilities Regulatory Authority (“PURA”) to implement its System Resiliency Plan. The main objective of this program is to supply uninterrupted power to consumers in any situation. The company intends to start this program in the forthcoming spring.

As per the program, the company will primarily focus on three particular areas including trimming of trees, hardening the electrical infrastructure along with fixing the coated thicker-gauge wire known as "tree wire", and toughening the utility poles, cross-arms and allied system equipments for structural hardening.

System Resiliency Plan comes under Northeast’s five-year Infrastructure Strengthening Plan with investment of $300 million. The primary focus of this program is to improve service-reliability while minimizing the impact of severe weather on the supply of utility.

In the event of strong winds and snow fall, branches of the trees often fall on the electricity distribution and transmission lines and poles. In Connecticut, supply of power is disrupted primarily due to the damage of electrical equipments related to these reasons.

Recently, Northeast Utilities and another utility company Pennsylvania-based PPL Corporation ( PPL - Analyst Report ) suffered badly due to Hurricane Sandy. The companies had spent a substantial amount to repair their existing facilities and construct new utility delivery systems in the parts of Connecticut and Eastern Pennsylvania.

Northeast intends to utilize a major chunk of $300 million for the tree-trimming activities. In addition to its usual Vegetation Management Program, the company plans to deploy $32 million for the tree-trimming purposes in 2013.

Currently, Northeast’s capital spending primarily focuses on the development of its transmission and distribution infrastructure. The company’s capital expenditure is expected to be roughly $7 billion for 4 years till 2015. Northeast plans to deploy $3.5 billion for its electric and natural gas distribution assets and $3.2 billion for the electric transmission purposes.

We expect Northeast to file for a distribution rate hike with the Connecticut PURA in the near term. It is a regular practice for the regulated utility companies to recover its invested funds from the consumers through rate increase.

We consider Northeast’s merger with NSTAR as a positive catalyst for future growth and it will continue to enjoy the benefit out of that in the near term. In addition, the company’s numerous projects will provide attractive financial growth over the forthcoming years.

However, we are skeptical about the stringent regulations and risks associated with the delay and cancellation of several important projects. We expect Northeast’s fourth-quarter and full-year 2012 financial and operating results to be negatively impacted by Hurricane Sandy. The company currently has a Zacks Rank #3 (Hold).

Hartford, Connecticut and Boston, Massachusetts-based Northeast Utilities provides energy delivery services to residential, commercial and industrial customers in Connecticut, New Hampshire and Massachusetts.