Susan Allen, Vice President of Investor Relations Jim Torgerson - President, Chief Executive Officer, Director Rich Nicholas - Chief Financial Officer, Executive Vice President.

Andrew Weisel - Macquarie Capital Brian Russo - Ladenburg Thalmann Caroline Bone - Deutsche Bank Brian Chin - Merrill Lynch.

Welcome to the UIL Holdings third quarter 2014 earnings call. I will now turn the call over to your host, Susan Allen..

Thank you, Maggie, and good morning, everyone. Thank you for joining us to discuss UIL Holdings' third quarter 2014 earnings results. I am Sue 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 presentation or presentation, 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.

With that said, I will turn the call over to Jim Torgerson..

Thanks, Sue, and good morning, everybody.

I think once you look at our quarter, there are a lot of things going on, but once we eliminate the one-time items in the third quarter, both in 2014 and 2013, we actually had, what I would consider, a fairly normal quarter considering we have the electric distribution decoupling and then the seasonality of our gas business.

And as a result of that, we are narrowing slightly our guidance to $2.17 to $2.33, excluding all the nonrecurring items, and Rich will talk about the details of that in a few minutes.

As we have reported, the consolidated net income was $12.5 million dollars or $0.22 per diluted share for the third quarter of 2014 and that was compared to $5.1 million or $0.10 per diluted share for 2013.

Consolidated income for the full year, or year-to-date was $1.35, or $77.3 million net income, compared to $74.90 million or $1.46 per diluted share in 2013. There were a number of nonrecurring after-tax expenses.

Obviously the acquisition related expenses in our attempt to acquire PGW in the quarter, we had about $900,000, after-tax, or about $0.02 a share. Year-to-date, it's about $0.22 a share. We also recorded some reserves related to the transmission ROE proceedings at FERC.

In 2014, where we recorded $3.2 million or about $0.06 a share to reflect the orders so far, on the first complaint and then looked at an estimate going forward.

We recorded $1.5 million dollars or $0.03 a share charge in 2013, and then in 2013, we also had some electric distribution disallowances from the rate case decision that came in initially in August of 2013 of $10.5 million or $0.21 a share. Some of that, if you remember, got reversed later in the fourth quarter.

So there's a lot of things going back and forth right now. But excluding the nonrecurring items, our adjusted net income was $16.6 million or about $0.30 a share, compared to $17.1 million or $0.34 a share. The one big item that impacted our earnings so far this year has been uncollectible expenses.

We have incurred expenses, $3 million net charge after tax above what we incurred in 2013. And the main reason is the cold winter weather increased customer bills, mainly on the gas business, but also we had some write-offs in the electric business for a bankruptcy. So we had higher write-offs and you are now seeing that flow through in the quarter.

As a result of the winter, we have a 90-day period, where we can't really do too much. When we shut people off and then if they don't pay then we end up writing those off at some point. So that flowed through much in the quarter.

The year-to-date net income was a $93.3 million of $1.63 a share, excluding the nonrecurring items when compared to $86.9 million or $1.70. So net income was actually up 7.4%. Earnings per share were down because of the additional shares we have outstanding as of this point. Going to page four of our deck.

The strategic initiatives we are following through, one is growth through the investment in electric and gas infrastructure. As we have been talking for several years, we have been replacing our aging infrastructure in both the electric and the gas business. And that will continue into the foreseeable future.

We are also adding new natural gas heating customers through the extension of mains and also those that re online and that's supported by Connecticut legislation. We are pursuing now investment opportunities in renewable generation. We are expanding our LNG facilities. We have purchased one LNG facility, which we are operating under contract.

We purchased that in the third quarter and we are also working on some renewable projects that are expected to begin in late 2014. And then the PGW acquisition, we will give you a quick update on that. The independent consultant is Concentric. The reports are complete. They have been publicly released last week.

On October 27, the City Council announced that it would not endorse the sale of PGW to UIL and the next day on October 28, we responded by saying that we would make a determination whether to exercise our rights to terminate the agreement and make any determination on future actions within the next couple of weeks.

As you probably are aware, we have the right to terminate since July 16 and that was because City Council has not passed an ordinance that would allow the acquisition to occur. And if the ordinance is not approved by City Council by the end of this year, December 31, then the asset purchase agreement will automatically terminate.

Turning down to page six. With the gas heating customers, we added 9,400 households and businesses through September 2014. We actually have executed contracts that total about 15,500 at this point, and another about 500 or so are contractor that are in progress. So we are on track. At least close to meeting our target.

One of the considerations will be the weather in December, how much pipe we can get in the ground and actually hitting our target of 16,000, but we are pretty close right now. Through the end of September, we are running at about 97% of our year-to-date target.

And you can see on page 7, the growth in the gas business that comes from the Comprehensive Energy Strategy. These are the projections that were made in that CES that was done, I guess a year-and-half ago or so now. As I said, we are pretty close to be on track with the 16,000 it looks like for this year.

Again, weather is going to be a determining factor, I think, on how many we actually get. But with the contracts we have in hand and those that are in the works, we should be pretty close. Then you can see, based in the Comprehensive Energy Strategy, the blue shows the Connecticut piece and the Berkshire gas is growing as well.

We are adding roughly 1,500 customers in a year. On the transmission ROE proceeding, I think most of you are aware of the challenge to the transmission base ROE, where the 206 complaint that said the current ROE 11.14% was not just and reasonable.

In the initial complaint, the commission issued an order a couple of weeks ago saying that the base ROE applied to the refund period from October 2011 to December 2012. Keep in mind, this goes back to the complaint that was filed at the end of September in 2011.

So the 10.57% is the base ROE waiting for that refund period and it's the refund period going forward. But that's subject to the second and third complaints.

There is also cap of 11.74% ROE and as we read it on the total company transmission ROE, not on individual projects and there are rehearing requests related to the initial complaint mainly around that issue of, is it on initial each individual project or on the company as a whole.

Again our reading of the order from the commission was that it was on the total company. The second complaint was filed at the end of December 2012, and then the refund period for that was January 2013 to March 2014. FERC settlement procedures were terminated. We haven't had an evidentiary record yet established.

The hearings are scheduled to begin next June and an initial decision by the administrative law judge would be expected by the end of October 2015, commission decision, after that. The third complaint was filed end July 2014 with the refund period set for August 2014 to October 2015.

In the request, this third complaint was that the financial markets have changed. The ROE should be reduced again. Transmission orders are requesting consolidating the third complaint with the second complaint.

And as I said, we recorded a reserve of $3.2 million after-tax in the third quarter and that's in addition to the $1.5 million we recorded in 2013. Now from a regulatory update.

Our gas distribution rate case for Connecticut natural gas, we had a final decision much earlier this year in January, which ordered a private letter ruling request on the 338 (h)(10) issue which is for those of you aren't aware, we had a 338 (h)(10) write up of the assets when we bought them from Iberdrola in 2010.

And so the assets were treated, you know, as a stock purchase that was treated as an asset sale. We wrote up the assets to the purchase price which gave us a significant tax benefit and that's ongoing because we now can deduct full amount of the purchase price.

The result of that was the elimination of the accumulated deferred income taxes, which is a deduction from the rate base. And then we filed our case.

This one said, the accounting would say that that $2million deferred income tax is no longer part of the rate base and we have a higher rate base that was being challenged by the Consumer Council and then the commission ordered to get a private letter ruling to state that if they put in place any mechanism that would reflect the former rate base, which would include the deferred income taxes, which would be a lower rate base, that that would be a normalization violation which our witnesses and experts said it would be.

Consumer Council and Attorney General's office claimed that wasn't the case. So the commission said, we will get a private letter ruling. We have been debating that and we are in settlement discussions currently with the Consumer Council to try to resolve that. And we have not filed the request for a private letter ruling yet.

We have been going back and forth with the commission. Our Comprehensive of Energy Strategy, again there is a regulatory settlement agreement that's been file with the Public Utility Regulatory Authority in Connecticut as of October 23.

What this would do, it would take a portion of non-firm margin credits and use those to offset the contributions in aid of construction, should there be one for our customers to expand gas mains.

We are also asking for different methodology in aggregation so we can look at basically a two-mile radius in determining what a group of customers really would be for gas expansion projects and also to streamline some of our reporting requirements.

We also had a draft decision on October 2 on the generation service charge and this goes back like 10 years for cost that we hadn't recovered, errors, collections that just, number of different items over the 10-year period on generation. The written exceptions have been filed. Oral arguments are going to be scheduled for today.

Now the draft decision, they were disallowing not the recovery of the gas cost under contract but some of the carrying charges, primarily going back, as I said, about 10 years or so, in some cases. So if draft decision holds we would have a pretax charge of about $3 million.

And with that, I am going to turn it over to Rich Nicholas to talk about the financial results..

Thank you, Jim. Good morning, everyone. Thanks for joining us today. We look forward to seeing many of you at the EEI financial conference next week in Texas. As you could see, there were several moving parts this quarter. I am going to focus in on the core business, excluding some of the one-time items that the Jim has already talked about.

And also recall that we did have the equity issuance last October that did have a dilutive effect on the quarter comparison of about $0.03 a share and on the nine months year-to-date of about $0.19 a share. So moving to slide 11, electric distribution net income excluding the one-time items, up $300,000 for the quarter.

As you recall back two years ago, we had a two-year electric distribution rate case. The second year of rate increases went into effect in August 2014. So the benefit of that although offset somewhat by the uncollectibles that Jim mentioned earlier.

You will also see that uncollectible effect in the nine months year-to-date, we are actually down $1 million net income period-over-period. But for the 12 months ending September 30, the distribution return on equity normalized for the one-time items at $9.52. We did see one significant bankruptcy for a large commercial customer in the period.

And then there were also some large medical coverage our people were able to defer their bill for medical reasons that ultimately went uncollectible. On slide 12, I will talk about electric transmission for a moment.

Again putting aside the reserves for the various ROE proceedings, electric transmission up $100,000 in net income for the quarter over quarter, driven by a higher rate base but that was offset in part by lower AFUDC allowance for funds used during construction, as our transmission construction work in process was lower for the period.

Similar effects in the nine months ended September 30 as well. Overall return on equity for the transmission excluding the reserves about 12.1%. If you were to include the reserves, it will bring it down to 11.73% Turning to our gas business. Seasonally the third quarter is typically a loss quarter.

Very little more heating degree days and we did see that affect of the high bills coming out of polar vortex last winter. So we saw the benefit of the increased margin, certainly at SCG, CNG is decoupled.

But now some of those higher bills have gone uncollectible and we encourage additional charge-offs of about $400,000 there for the quarter-over-quarter. Year-to-date, you do see the benefit from the cold first quarter in particular as well as increased customer growth from conversions and a small increase in the normalized use per customer.

Looking at the heating degree days. While the third quarter was 30% warmer than normal and 20% warmer than last year, very little impact in the quarter, again because of the lack of heating degree days. But year-to-date, compared to 2013 we are almost 10% in heating degree days. Turning to slide 14.

We do the break out of the various components impacting margin. And you can see in the year-to-date, the benefit from weather of $6.7 million there, normalized use per customer being up year-to-date, but decoupling at CNG coming out of their rate case, we have a regulatory liability where we owe customers that $1.2 million back.

And that will be trued up at year-end and adjustments to rates, either positive or negative will take place next year. Right now of 12-month ending September, return on equities at SCG and CNG, you can see in the 9% to 10% range and on a weather normalized basis, kind of mid8s to mid-9s. Turning to slide 15.

The corporate segment, where we include the acquisition related costs for PGW, related to both the bridge financing as well as our legal and investment banking fees are included there but if you were to exclude those acquisition related expenses, the corporate segment had an increase in the loss of about $700,000.

That was really driven by the third quarter reversal of the tax benefit that we had booked in the first quarter and if you recall, we have talked about it each quarter now that the full year ultimately that will net to zero and the differences will be seen up in the individual components.

But due to the different effective tax rates and the different income streams, we do see these quarter-to-quarter variations, but for the full year that will not have a net bottom line impact.

Also at corporate, some of the assets that we now use across all of our business segments, primarily computer systems, are held at the holding company and the business units receive a capital carrying charge. In the return, that's included in that capital carrying charges booked at corporate..

And so that's why for the nine-months-to-date, you do see the positive impact there. Turning to our updated earnings guidance on slide 16. Excluding the nonrecurring items, the midpoint of the $2.17 to $2.33 range is $2.25, the same as it was in our prior guidance. But we have brought up the low-end and reduced the high end.

No change in the individual operating components. We do have in the to-date acquisition related expenses and the transmission reserves noted in the nonrecurring item regulatory which would bring the bottom line guidance of $1.80 to $2. With that, I will hand it back to our operator, Maggie, for Q&A session..

(Operator Instructions). Our first question comes line of Andrew Weisel with Macquarie Capital. Your line is live..

Great. Good morning, everyone..

Good morning..

Good morning. .

First question on the strategic initiatives slide. You added extension to mains in LNG. I know those are the things that you have talked about quite a bit today and on previous calls.

My question is, is there any spending related to those two initiatives in the current 10-year CapEx plan? And if not, would that be something that you might add next week at EEI?.

I believe there was a slight amount for LNG, particularly at our Rocky Hillside. We just bought the Milford site, so that will be reflected in the update at EEI. The renewables, we had a small amount in there as well. And that too will get updated for a couple of things, renewable projects that we are working on.

So we will give some highlights to that next week at EEI. But there are going to be changes as a result of the renewables and LNG..

Okay and extension to mains was the other one that I mentioned..

Main extensions, probably while we have obviously have that in there. So it's just a matter of refining that and I don't know that there is going to be significant changes there. But that's more of refinement, I would say, than anything new..

Okay, great. Next question, at CNG, a little surprised that you are in settlement discussions about the treatment of the tax issue in the rate base, just because I thought that it was more of a binary outcome that based on the IRS decision, it will either be included or it won't be.

So can you talk to some possible outcomes of these settlement discussions? Could it be some sort of a middle agreement? And if so, is that something that would fly with the IRS?.

The settlement discussions are private. So I really can't get into that right now. We are looking at some broad parameters around a lot of things with CNG and our gas operations. So to talk about a number of things there..

Okay, not just the Private Letter Ruling..

Correct..

Got it. Okay, great and then just very quickly on Philadelphia.

Have you spoken to City Council in the last week sine they put out the recommendation? And I know you want to wait until you had a more final decision, but what would you need to hear to make it more clear cut whether it's worth continuing to pursue versus pulling the plug?.

We haven't had any substantive discussions with City Council members. I didn't talk to the President. At the time, they are making their announcement. We are going to see how things go over the next few days and then we will make some decisions on that.

And we want to take a measured approach to this and not just react to the announcement the City Council put out. So we have people on the ground that are talking to various folks. So we will be making a decision in the not too distant future..

Great. Look forward to lot of updates next week. Thank you..

All right..

Our next question comes from the line of Brian Russo with Ladenburg Thalmann. Your line is live..

Hi. Good morning..

Good morning..

Could you may be talk about any gas pipeline or transmission project opportunities up in the Northeast, in and around your service territory where we are obviously seeing a lot of pipeline project announcements to get the low-cost gas from the Marcellus up to the Northeast? Just curious to know what you guys are strategizing internally about?.

Sure. You may or may not know, but we actually buy 74% of our gas for LDCs from the Marcellus shale today. We have had discussions through the Nesco process with all the parties regarding any new gas pipelines that would occur and whether the Spector's line or Kinder Morgan's lines to see how we could participate in that, what the need is.

The Nesco process, I think you all are aware, was to have the companies sign up for the gas capacity and put it on the electric bill.

And then the capacity could be released for the electric generation, with also the provision through that we would have some participation in an equity position in whatever gas pipelines could be built to meet electric generation needs, primarily. So we are talking to all the parties about that.

We had an assignment had letter that we sent among Northeast Utilities, National Grid and ourselves talking about this Nesco process and a lot of those things are still out there. Massachusetts, I think, you are aware, put a hold on things for a little while.

Now that the elections are over, we will see how this all can play out in the not too distant future. But we know there is a need, I think everybody knows there is a need, for additional pipeline capacity, not just for the LDCs for our future growth, but clearly for the generation of electricity.

And so we are currently working with all the parties to make sure that happens and then we really do want to get an equity position, if it's feasible into these new projects..

Okay, great. So there are opportunities out there.

You are speaking with various entities in evaluating, but to reiterate, what you said you would like to take an equity interest in some of these projects, if economic and possible?.

Yes. We would like to look at that. Sure. And we are not evaluating anything yet. We are still talking. There is nothing to evaluate at this point yet. But yes, we would be very interested in that..

Okay, great, and then just lastly.

Just remind us what the impact would be if the impact to rate base or earnings were when you wrote the assets out in the prior acquisitions to reflect the 338 (h)?.

Just a moment. We will get that number for you..

Okay. The rate base for CNG right now probably would be $50 million or so lower if we didn't elect the 338 (h)(10) and for SCG, it would be about $35 million lower. Obviously that's come down from when we originally acquired and then there are some other tax issue that go through it.

If you were to convert that rate base change into a revenue requirement for CNG, it's still around $3 million..

Okay, great. Thank you very much..

Sure..

Our next question comes from the line of Caroline Bone with Deutsche Bank. Your line is live..

Hi, guys. Good morning..

Good morning..

Most of my questions have actually been answered on PGW deal and Nesco.

But I was wondering if you could maybe comment on some preliminary guidance as to how lower discount rates and extended mortality rates could impact pension expense next year?.

Right. That's a great question. We are watching that very closely. As you know, the only discount rate that counts is the one on the last day of the year. So make your prediction. 10-year rate was around 3% at the end of last year. It's obviously come down. While we don't track it 100% with our bond portfolio, it's a reasonable proxy.

The mortality tables, in prior versions when they were introduced were phased in over time. We also look at your own unique circumstances of your workforce. So we haven't done anything out yet on the potential impact for that, but we will certainly with the fourth quarter earnings results when we update guidance for 2015..

Okay. I think that's it from me. Thanks very much..

All right, Caroline. Thanks..

Our next question comes from the line of Brian Chin with Merrill Lynch. Your line is live..

Hi, good morning..

Good morning..

I know you mentioned this in an answer to a prior question just a moment ago, but maybe if you gave a little bit more just quick take thoughts on the results of the election. Obviously there was a little come from behind victory with Baker over Coakley for the governorship.

Say, like two cents thoughts on how that might affect the outlook going forward?.

I don't know that it is going to change our outlook dramatically. When you look at our result, because you know, obviously Berkshire gas is small gas utility in Massachusetts where I think and I don't know the result of this, but the desire is to have gas transmission pipelines built through Massachusetts.

I think sine you have a new Governor, he may take a different stand right now. And we will see which way they want to go. I think the current governor didn't want to see much gas pipelines coming in, even though they have a need and they took a hiatus in looking at it.

So to see what would happen, I think maybe they will change things a little bit now that there will be a new Governor coming in January. So we will see where he wants to go with it. Don't know the reading on that yet..

Got it. That's it. Thank you very much. Most of my questions were asked and answered already..

All right. Thanks..

We do have another question line of Andrew Weisel with Macquarie Capital. Your line is live..

Thanks. Just a quick bookkeeping one.

The reversal of tax benefits in the first quarter, is that completed now? Or will that have an impact in the fourth quarter and then next year? Will we assume similar lumpiness? Or would it just be more straight line in terms of the tax rate by quarter?.

So the first part of your question, there is a small piece left to occur in the fourth quarter, nothing material. And then it really depends on the weather and the earnings patterns of the gas versus electric. If we had a year like this year, you would see a similar pattern..

Okay, great. Thank you..

And we have no further questions in queue at this time..

Okay. Well, I want to thank everybody for participating. Obviously, if you have further questions, Michelle and Sue will be happy to help you out and we will be looking forward to seeing everybody at EEI next week and hopefully you will all have a good weekend and thanks for participating today..

That concludes this morning's teleconference. You may now disconnect your lines..