Feb 12, 2015
Executives
Jeffrey R. Kotkin - Executive Officer Thomas J.
May - Chairman of The Board, Chief Executive Officer, President and Chairman of Executive Committee Leon J. Olivier - Executive Vice President of Enterprise Energy Strategy & Business Development James J.
Judge - Chief Financial Officer and Executive Vice President
Analysts
Daniel L. Eggers - Crédit Suisse AG, Research Division Julien Dumoulin-Smith - UBS Investment Bank, Research Division Travis Miller - Morningstar Inc., Research Division Paul Patterson - Glenrock Associates LLC Steven I.
Fleishman - Wolfe Research, LLC Graham Yoshio Tanaka - Tanaka Capital Management, Inc. Caroline Vandervoort Bone - Deutsche Bank AG, Research Division Michael J.
Lapides - Goldman Sachs Group Inc., Research Division Andrew M. Weisel - Macquarie Research
Operator
Welcome to the Eversource Energy Earnings Call. My name is John and I'll be your operator for today's call.
[Operator Instructions] Please note that the conference is being recorded. And I will now turn the call over to Jeff Kotkin.
Jeffrey R. Kotkin
Thank you very much, John. Good morning, and thank you for joining us today.
I'm Jeff Kotkin, Eversource Energy's Vice President for Investor Relations. In addition to the news release we issued last night, we have posted a slide packet on our website at www.eversource.com, and have filed both the news release and the packet on our Form 8-K last night.
We'll be referencing those slides during our presentation. So I'm going to start by turning to the first slide, which is the slide after the cover, and say that some of the statements made during this investor call may be forward-looking as defined within the meaning of the Safe Harbor provisions of the U.S.
Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and are subject to risks and uncertainty, which may cause the actual results to differ materially from forecasts and projections.
Some of these factors are set forth in the news release issued yesterday. Additional information about the various factors that may cause actual results to differ can be found in our annual report on Form 10-K for the year ended December 31, 2013 and on Form 10-Q for the 3 months ended September 30, 2014.
Additionally, our explanation of how and why we use certain non-GAAP measures is contained within our news release and in our most recent 10-K. Now turning to Slide 2.
Speaking today will be Tom May, our Chairman, President and CEO; Lee Olivier year, our Executive Vice President for Enterprise, Energy Strategy and Business Development; and Jim Judge, our Executive Vice President and Chief Financial Officer. Also joining us today are Phil Lembo, our Treasurer; Jay Buth, our Controller; and John Moreira, our Director of Corporate Financial Forecasting and Investor Relations.
Now I will turn the call over to Tom.
Thomas J. May
Thanks, Jeff. Good morning, everybody.
Thanks for joining us on our first earnings call as Eversource Energy. As you are all probably aware, we had a great fourth quarter, a good strength to finish the year very strong, and part of that strong finish was announcing our new name.
Been in the works for about 1 year now. You've probably heard me before say when we started this venture almost 3 years ago, we -- I found 6 separate companies [ph] doing things all their own independent way.
Didn't think that made a lot of sense. Told our board that we had 3.6 million customers and they all want the same thing, a great service from a great service company.
And we've been working on that for almost 3 years, integrating those 6 companies, standardizing, simplifying, significantly improving the service level, both our reliability, our responsiveness. And as part of that, we've been preaching the one company mantra.
And I thought the best way to do that is to get rid of all those old-fashioned brands and start with a new modern brand. And ergo, we now gave birth to Eversource Energy.
Our brand is all about customers, it's all about making the right energy investments. We are, as I've said 100 times, in the service business.
I'm a nut about service and we want to be the source of all of our customer's energy needs, and we think we can have a lot of fun with the name going forward to make it work to our advantage and to let the customers know that we are -- they are first in our minds and they're what we're all about. Before I leave that topic, I would remind you all that effective February 19, we'll change our ticker symbol from NU to ES.
We're excited about that. Just to let everybody on this call, I think, will be in the New York Stock Exchange a week from today, ringing the bell as we transition over to ES.
And we will ask our shareholders at our annual meeting this spring to formally change the name. We'll be doing business as a little while, but we will formally change the name of Northeast Utilities to Eversource.
So with that introduction, I would move you to what is Slide 4, which talks about the components of our business. I think you all are familiar.
We view our business and we run our business as 3 separate and distinct business units. We've got our transmission business, which we are excited about and it continues to grow.
New England is in an interesting situation. You know we're in a bit of an energy crisis in New England, and everybody recognizes that we have underspent on our infrastructure even though we have done a lot on the electric transmission side.
There's more to do with -- we're going to achieve all of our renewable goals. And of course, on the gas side, last winter really exposed the weaknesses we have, the deficiencies we have, the underinvestment we've made on the gas transmission side.
A little later in the presentation, I'll hand it over to Lee, who will give you an update on some of the exciting things we're doing. Obviously, we've made great progress with Hydro-Québec on Northern Pass.
They started in Canada very aggressively, licensing their side of the line. And we're going to be working very hard in 2015 to ensure that we get this over the finish line and the people of New England get the much-needed capacity that the region needs plus the fuel diversity of this project plus the renewable benefits.
And I think everybody is recognizing that -- Genetica [ph] has recognized that they want to count that as renewable. And I think that the new governor of Massachusetts is of like mind -- let's just get the carbon out, let's not be fussy about what we say qualifies or doesn't qualify.
So we're excited about that. We're also working with our partner, Spectra Energy, on the Access Northeast project.
We think it's unique. There's a lot of stuff happening in the marketplace and a lot of conversation about the need for big pipelines.
We think we have the perfectly sized pipeline and that we are not just relying on pipeline to solve the problem, but also using -- peaking gas, LNG, which we have 3 facilities and with expansion, we think we will solve the problem in the most economically viable way of doing it. On the electric distribution business, a key to it is to be sure that we earn our returns.
Jim will probably talk some more about that. But we've had -- he's had a very, very busy year on the regulatory front, a very successful year.
And we've removed a lot of uncertainty, deferred costs, storm cost, about $0.5 billion worth that now are earning assets for us. Now we're not only recovering them, but they're in rate base.
And I have a simple model that says that if we keep our customers happy, our regulators will be happy. And if our regulators are happy, our shareholders will be happy.
We're happy to announce that we have had the best reliability ever in the history of the company and, most importantly, in Connecticut, which has had some problems in the past. Again, we had a record year in terms of not only how few outages we had, but when we do have an outage, how quickly we snuff it out.
And that has not gone unnoticed, it is showing up in our J.D. Power numbers and in other places.
And on the gas side. We continue to grow, we've been very fortunate.
We had a good year this year. We met and exceeded our goal for how many customers we were going to hook up in the 2 states.
But we expect to add close to 150,000 new customers over the next 10 years. And this was all kicked off by Connecticut's wonderful Comprehensive Energy Strategy that they adopted in 2013, so it's exciting.
We are not only happy that we were able to execute on our plan this year, that we're able to step forward and play a leadership role in solving our regional energy situation, that we've been successful on the regulatory front, but we think we set ourselves up for many, many years to come of good results for our shareholders. And with that, I'll flip over to my favorite slide, Slide 5.
I had mentioned that we had a good fourth quarter. We were running through the first 3 quarters -- we were running a little bit behind the industry.
And so I was glad we had a sprint, a good fourth quarter. We came out a little bit ahead.
And you can see of the EI index and we really outperformed the S&P 500 for the year, and that let us continue to build on this track record we have that -- on the 5- and 10-year basis. We're almost double what the industry has done, and we're very proud of that.
And as I had spoke earlier, the $3 billion of potential investment we have in Northern Pass and Access Northeast in the future, we think will fuel more of this growth. That, and our gas expansion initiatives.
So we're -- we think this is good news, we think we've done pretty well in the past, but we don't spend too much time in that glory. We reflect on it for a moment and then we move forward and say, "What are we going to do going forward?"
That's the important thing. How do we outperform for the next 5 years?
The next slide, Slide 6, I think is important. Some people sort of take it for granted, but I think one of the reasons our industry is in favor is because it has such a predictable flow of dividends.
As I look across the industry in general and I see what's happening at Coca-Cola and McDonald's and all of these other consumer favorites who are seeing their sales shrink, their profits shrink, but we start to look a lot more attractive against even the GEs of the world. And I think that when you can demonstrate that not only you can grow your dividend, but you can grow it at twice what the industry is doing, that you really deserve a premium.
And we think we are obviously a premium stock and we intend to live up to that reputation. Last week, our board voted to increase the dividend by 6.4% to $1.67, and we just think that this growth rate puts us in a special class within our industry.
The last slide. I'll mention Slide 7.
Is again a slide -- I used it last year at our Annual Shareholders' Meeting, obviously you can see I'm going to use it again this year. The merger that we entered into, really has set the bar for what value can be created if the right parties come together and use the best of both, which I think we have.
I think we've taken the best elements of NSTAR and the best elements of Northeast Utilities, we blended them together to create Eversource Energy. And we've -- we put a plan in place, we executed flawlessly on that plan.
It is the three-legged stool we talked about with great opportunities going forward. And of course, we are in the right geography, as I mentioned before.
The world is looking at New England and saying, "You're so close to Marcellus, you should have low energy costs. You got to do something about it."
And now, I think all the governors are listening to us and the business communities, looking towards us to see how we can help them to resolve these issues and get us competitive with the rest of the country. So -- and bottom line is, we're excited that taken a $9 billion enterprise when we put the companies together, turn it into a $17 billion enterprise with record levels of reliability and customer service with great prospects going forward, we're pretty excited about it.
I'm very proud of where we are as a company. I'm excited about what lies ahead.
And with that, so that you can get some sense of what lies ahead, I think I will turn the discussion over to Lee. Thank you.
Leon J. Olivier
Okay. Thanks, Tom.
What I'll do is I'll provide you with an update on New England's power markets and our major capital initiatives and then turn the call over to Jim. First, turn to Slide 9, and we'll cover the impact of last winters' extreme volatility in today's doing in power market.
The scene of the slide shows you what happened to market prices for both natural gas and power last winter. Also, prices averaged about $140 in megawatt hour, or $0.14 a kilowatt hour in the first quarter of last year.
And many marketers were caught short, especially during the second half of January, when they had to enter into high-priced markets to acquire enough energy to meet their fixed price requirements. Hundreds of millions of dollars were lost and some marketers went out of business.
Retail customers on the variable rate contracts saw their $0.09 per kilowatt hour suddenly jump to more than $0.20. Marketers did not make that same mistake this year.
They priced in a very large risk premium to safeguard against what happened last winter. As you can see from the slide, average increase in fixed price -- prices from the fall to winter of this year was 60% compared with about 27% last year.
That is why you are seeing a lot of New England utilities with $0.14 and $0.15 per kilowatt hour default in standard service rates this winter compared with $0.09 and $0.10 last winter. The principal cause of this price escalation is the shrinking level of available pipeline capacity to deliver natural gas to power plants on cold winter days.
We believe that this winter's risk premium will only get larger until the winter constraints limiting natural gas availability to power plants are relieved. New England's interstate pipeline system and level of LNG storage in New England are just inadequate for a region that continues to increase its dependence on natural gas for heating and power generation.
Moreover, the problem is getting worse as New England continues to lose its non-gas-fired generation. At the end of last winter, Vermont Yankee was retired, bringing to 1,400 megawatts the amounts of nuclear coal and oil generation that was shut down in 2014.
That's about 5% of the regions projected peak load. Turning to Slide 10.
You can see that plant retirements are pressuring capacity prices as well as energy prices. Cost coming out of New England's annual capacity auctions have escalated considerably in recent years, particularly in Eastern Massachusetts and Rhode Island.
As many of you know, last week, the New England ISO held its forward capacity auction for the 12 months beginning June 2018. The results were good for plan owners but expensive for consumers.
Because it was determined to be deficient, Southeastern Massachusetts and Rhode Island cleared new generation at nearly $18 a kilowatt month. Beginning in mid-2018, compared with $3 per kilowatt month today, and $7 a kilowatt month beginning in 2017, the rest of New England cleared at about $9.50 per kilowatt month compared with $3 today.
What this means to New England electric consumers is that total capacity cost have risen from an average of $1.2 billion a year for the years 2011 through 2013 to about $3 billion a year for the 12 months beginning June of 2017 and approximately $4 billion for the 12 months beginning June 2018. And remember, this is an addition to the wintertime energy price spikes on the electric side we are seeing as a result of insufficient pipeline capacity into New England.
The frustrating thing is that significant natural gas supplies have never been closer to New England and when natural gas itself is relatively inexpensive in much of the nation. The low cost and abundant natural gas supplies are wonderful for our 500,000 gas distribution customers since our Massachusetts and Connecticut gas utilities have storage and long-term contracts with interstate pipelines that ensure the delivery of adequate supplies from the Marcellus and other sources even on the most frigid of days.
For our gas-heating customers, commodity cost continue to be very attractive. The problem is really the electric side, and policymakers understand this.
We're losing our non-gas-fired power plants. We don't have enough electric transmission to bring in alternative sources and we don't have enough natural gas transmission to keep many of our regions' modern gas units online when temperatures fall below freezing.
Additionally, we believe that pretty much all of the new generation capacity that's being bid into the ISO auctions will be fueled by natural gas. The New England States Committee on Electricity is very focused on these issues and was charged by the New England governors to implement both gas and electric transmission infrastructure improvements.
Currently, NESCOE is working with states in Southern New England on a regional procurement process for clean and renewable power. Collectively, these 3 states, Massachusetts, Connecticut and Rhode Island, have legislative authority today to solicit 600 to 800 megawatts of clean and renewable power.
We believe this process will occur this spring. Separately, several states are reviewing how to enable construction of additional natural gas pipeline capacity.
NESCOE's work on a gas infrastructure initiative was put on hold last year, while Massachusetts studied alternative approaches to meeting the state's demand. The Massachusetts study has been completed and it indicates a need in the Baystate alone for 600 to 800 million cubic feet of new pipeline capacity.
And Massachusetts is not alone in concluding that more natural gas transmission into New England is needed. Connecticut officials also understand they need more natural gas for their merchant plants.
Maine already has secured expresses of interest for up to 200 million cubic feet a day. With the momentum building, we expect the gas infrastructure initiative to move ahead.
As Tom mentioned earlier, we have the 2 best projects to address New England's drive to increase its firm natural gas supplies and its access to clean energy. Those projects are Northern Pass and Access Northeast.
On Slide 11, you can see that we expect the U.S. Department of Energy to release its draft environmental impact statement on Northern Pass project in April.
Once that draft is released, the DOE will solicit both written and oral comments on its findings before the report is finalized. Assuming that the draft is issued in April, we expect to file our state application with the New Hampshire Site Evaluation Committee around mid-year.
The committee will have up to 2 months to determine that the application is complete, and then up to 12 months to rule on it. While we wait for the release of the draft EIS, we will continue to reach out to various constituencies in New Hampshire, including the neighbors of our proposed 187-mile route to understand any concerns they may have and try to address them.
As part of this effort, we expect to work within the ISO New England process to review additional project options that are consistent with the DOE what they are now reviewing. We continue to project that we will receive both the state and federal approvals in mid-2016 and we'll be able to commence construction in the second half of the year and complete the project in the second half of 2018.
Turning to Slide 12. We continue to estimate a cost of approximately $1.4 billion for Northern Pass, but that could change depending on conditions attached to the regulatory approvals.
The project continues to offer enormous benefits to the state of New Hampshire and to the region as a whole. Those benefits would include: a new baseload source of megawatts that would access one of the world's largest source of hydroelectric power; the elimination of 3 million to 5 million tons of carbon emissions annually; the creation of 1,200 construction and related jobs, many of which would be in Northern New Hampshire, where unemployment is high.
Additionally, we are currently recalculating our estimates based on escalating prices for both capacity and winter energy in New England. We believe the Northern Pass is likely to bring the region savings well above $300 million annually.
And if you take a step back and look at all the benefits to the state of New Hampshire, they're significant. In addition to the jobs noted above, there would be property tax income of nearly $30 million a year based on today's rates.
We're also continuing to explore additional value we can provide for the state over and above New Hampshire's share of the energy and capacity cost savings I noted earlier. In total, there would be several billion dollars of benefits to the state of New Hampshire over the next several decades.
Turning to Slide 13, in Access Northeast, I will remind you that this project is a $3 billion upgrade of Spectra's existing natural gas transmission system in New England. It is being designed to deliver at least an additional 1 billion cubic feet per day of natural gas to the region.
Unlike other natural gas transmission projects that have been announced in recent years in New England, this project is geared to serve both the LDC and the natural gas generation needs for the region. Spectra's energy pipelines in New England, the Algonquin [ph] and Maritimes and the Northeast pipelines, are uniquely situated to deliver increased quantities of natural gas to the region's newest and cleanest fossil generators since pipelines connect to more than 60% of the region's gas-fired units.
In December, we and Spectra announced the alliance with Iroquois Gas Transmission to provide the New England gas distribution companies and generators with additional access to Marcellus shale gas. The alliance will allow natural gas to move from the Iroquois system in Eastern New York to exit Northeast facility in Western Connecticut and then to New England's generating plants and retail customers.
With Iroquois, we will connect to about 70% of New England's gas-fired plants. Turning to Slide 14.
You can see the conclusions of a comprehensive analysis that was conducted for us by ICF International on the impact of Access Northeast. This analysis, which will be released shortly, shows the dramatic impact that nearly 1 billion cubic feet a day of gas would have had last winter if Access Northeast had been in service.
It we would have lowered power cost by an estimated $2.5 billion. Even in a normal winter, we believe it would lower cost for New England electric customers by over $1 billion.
That would result in a very quick payback period for a project that would cost about $3 billion. Turning to Slide 15.
In terms of a time table, we hope to conduct an open season shortly and enter into contracts with various New England electric and natural gas distribution companies by the middle of the year. These contracts would then be submitted to state regulatory authorities for review and approval.
Also this year, we will begin work with regulators to determine the tariffs that would permit the electric distribution companies to contract with Access Northeast to develop capacity to fuel the region's gas-fired plants. We hope to file our formal signing application with FERC in 2016, and to receive FERC approval in 2017.
That would allow Access Northeast to enter service by November of 2018, achieving the schedule would require regulators and state policymakers to act expeditiously. On a separate note, I've discussed previously our efforts to parlay our success siting and building major transmission projects in New England into a business line to partner with others around the country who might want to tap into our experience, our expertise, inventive relationships of our transmission business.
We continue to speak with a number of other potential partners both inside and outside the Northeast. Now I'd like to turn the call over to Jim.
James J. Judge
Thanks, Lee, for that comprehensive update on the challenging New England market and our solutions. And thanks to all of you for joining us on today's earnings call.
My comments today, as noted on Slide 17, will include a discussion of our fourth quarter and full year 2014 financial results and our operating performance for the year. We had a pretty full regulatory agenda in 2014, as Tom mentioned, so I'll cover various regulatory developments including key elements of the Connecticut Light & Power rate case; NSTAR's recent settlement of several items pending before the Mass DPU; NSTAR's successful resolution of a long outstanding issue involving supply-related bad debt cost recovery and basic service rates; the status of the Merrimack's scrubber proceeding and our motion to stay; the current status of the ongoing NSTAR Gas rate proceeding and the transmission ROE proceeding before FERC.
I'll also cover our expectations for 2015 as well as our financial outlook over the longer term, including the major drivers and some details around projected capital expenditures and transmission rate base through 2018. I'll conclude with a summary of how we've delivered on all the commitments that we've made since the merger.
Now to begin, please turn to Slide 18. Yesterday, we reported financial results for the fourth quarter and full year 2014.
As highlighted in yellow, earnings per share for the year, before integration costs, increased about 5% to $2.65 from $2.53 in 2013. And our fourth quarter EPS of $0.72 compares to $0.57 on a recurring basis for 2013, that's an increase of 26%.
The increase in the quarter is particularly noteworthy, given the declines that we experienced for both electric and natural gas sales of 2.8% and 4.8%, respectively, as heating degree days in our service area for the quarter were about 10% below last year. The most significant positive driver for the quarter was the $0.14 impact of low O&M cost, primarily reflecting a decline in labor related costs including pension, a lower level of bad debt expense, cost savings from our IT restructuring and the acceleration of other merger-related integration initiatives.
Another positive driver in the quarter was the higher level of transmission revenues, which added $0.05 to our results in the quarter, reflecting ongoing transmission growth and the reversal of $0.03 of the $0.10 charge we took in the second quarter of 2014 to the FERC's review of the ROE earned by the New England transmission owners. We made that change as we think we now have more clarity on how the return should be calculated.
Electric distribution revenues provided $0.02 for the quarter, including the impact of new rates for Connecticut Light & Power that became effective December 1. Factors that partly offset the impact of these positive drivers were increases in depreciation and property taxes, which together, reduced earnings by $0.05 and were driven by our continued investment in our electric and gas system infrastructure and a $0.01 negative impact from all other items.
Turning now to our operations. As you know, service quality and reliability are always a key focus for us.
And the metrics on Slide 19 really show the key measures of our system reliability. Looking at the great trend here, 2014 was the company's best year on record in terms of reliability, as Tom mentioned earlier, and that's after 2013 had previously been our best year ever.
The steady and dramatic progress indicates that our customers are experiencing 29% fewer outages than they were back in 2011. And when we do have an outage, it is now 32% shorter in duration.
Significant improvements. It's also important to note that we've achieved these great operating results in 2014 while continuing to take cost out of the business.
It's a model that works well for us and one that we expect to implement well into the future, providing quality service while maintaining our reputation as a disciplined spender. At this point, I'd like to provide a brief update of the various regulatory items we've been involved with over the past several months, as listed on Slide 20.
First is the base ROE proceeding before FERC. As a reminder, in October 2014, the FERC issued an order on the first of 3 complaints, which confirmed that the base ROE should be set at 10.57% and that a utilities total of maximum ROE should not exceed the top of the new zone of reasonableness, which is 11.74%.
The FERC ordered the New England transmission owners to provide refunds to customers for the first complaint and set the new base ROE prospectively from the order date. In late 2014, those refunds began, and we expect the refund process to be completed by the third quarter of this year.
In November, FERC issued an order consolidating the second and third complaints for hearing and decision. There will be a single decision for the issues raised in each complaint, and there are 2 different refund periods that the administrative law judge and FERC will have to consider.
The hearings before the ALJ are scheduled to begin on June 23, with a decision from the ALJ expected by the end of November. The FERC estimates that it can issue its orders absent a settlement by September 30, 2016.
There's more to come on this, but our guidance assumes that the 10.57% base ROE approved by FERC in the first complaint will remain in effect. Next on the list is CL&P's distribution rate proceeding.
Back in June, CL&P filed an application with the Connecticut Public Utility Regulatory Authority to increase distribution rates effective December [indiscernible] 2014. The application requested an increase to base distribution rates as well as increases for the annual recovery of previously approved 2011 and 2012 deferred storm restoration costs and electric system resiliency costs.
In December, PURA issued a final order approving a total distribution rate increase of $135 million, which includes a return on equity of 9.02% in the first year and 9.17% in later years. It also requires a 50-50 earnings sharing mechanism for the next 100 basis points over the allowed ROE.
PURA allowed the case to be reopened for further review of certain deferred tax matters that effectively reduced CL&P's distribution rate base in that proceeding by approximately $170 million. The PURA accepts CL&P's tax treatment, it would provide an additional $22 million in revenues.
Much of the rate increase related to Connecticut Light & Power's recovery of 2011 and '12 storm cost is over 6 years with a full return. The decision also allowed similar recovery treatment of $31 million of additional storm costs that were primarily incurred in 2013.
In addition, PURA approved the establishment of a revenue decoupling reconciliation mechanism effective December 1, whereby actual base distribution rate recovery is reconciled with a preestablished revenue requirement level on an annual basis. Although we were disappointed with the allowed ROE, the ROE was certainly consistent with PURA's rulings in other recent cases.
And we do believe that the decision will allow CL&P's distribution segment to significantly improve its financial performance in 2015 and beyond. Moving on to the comprehensive settlement agreement between NSTAR and the Massachusetts Attorney General's Office that was filed with Massachusetts DPU in late December.
This settlement resolves several pending matters. In fact, 11 open dockets in total, including costs associated with our safety and reliability programs that were filed with the DPU for the periods 2006 through 2011.
We expect the settlement approval decision from the DPU in March. Under the settlement, NSTAR Electric will refund $45 million to customers in 2015 and we adequately reserved for those refunds.
Another positive development occurred just last month when the DPU issued an order allowing NSTAR Electric to adjust basic service rates to fully recover the supply-related portion of bad debt costs. An initial DPU decision several years ago would've disallowed recovery of that bad debt cost on a fully reconciled basis.
But we were successful in appealing the decision to the courts. We're currently reviewing the DPU's decision with the Mass AG's Office, so more to come on this.
Also in December, NSTAR Gas filed an application with the DPU requesting a $34 million increase in base rates, effective January 1, 2016. The overall requested rate changes are necessary due to the significant infrastructure investment that the company has made.
Additionally, earned ROEs at NSTAR Gas have been in the 7% range for some time primarily because its distribution rates are by far the lowest in the state and have been frozen in recent years due to rate settlements. A procedural schedule has been issued, public hearings kicked off in January and we anticipate the decision around October.
So we're still in the early stages of the proceeding. Regarding New Hampshire generation, on December 26, we filed a notion -- a motion to stave [ph] proceedings with New Hampshire PUC regarding cost recovery for the scrubber project in order to allow collaborative and legislative efforts to progress that may resolve the issues currently under consideration.
The PUC has accepted our motion and we have commenced those discussions. We continue to believe that all costs and generation, investments approved and incurred on behalf of customers should be entitled to cost recovery.
To conclude my regulatory update, I'll note that Connecticut regulations require a rate review every 4 years. So we're currently anticipating that Yankee Gas will likely file for new rates in mid-2015 to be effective in early 2016.
Now I'd like to move to Slide 21 to provide some guidance on what we expect as we move into 2015. The future looks very bright as evidenced by the guidance we noted in last night's earnings release.
We expect to earn between $2.75 and $2.90 per share this year and some of the earnings drivers include: one, high distribution revenues to reflect the rate increase that became effective to CL&P; revenues will reflect the implementation of a decoupled rate structure with the return on the storm cost balance. Transmission revenue will continue to be a solid and stable driver to our earnings growth as we move forward with the various projects that I'll cover in a moment.
Also, as a reminder, 2015 will not have the net $0.07 negative impact of the ROE charge that we took in 2014. We expect to add another 2% to our gas-heating customer base in 2015.
From an O&M perspective, we reduced our O&M in 2014 by 7% and 3% in 2013, a performance that is well above our guidance and certainly well above what other utilities are providing. In part, is driven by acceleration of certain merger integration initiatives into 2014.
We expect 2015 O&M reductions to be in the 2% to 3% range, but remain comfortable that over our forecast period through 2018, it will average about 3% annually. In 2015, a reduction in the discount rate used in calculating our pension costs from approximately 5% to 4.2% will be somewhat of a headwind in 2015 after it was a positive earnings driver in 2014.
Lastly, higher depreciation in property taxes in the distribution segments will continue to have a negative impact as they reflect the ongoing investment we make in our system infrastructure. Higher interest costs and lower base ROE on transmission will also have a negative impact in 2015.
Moving to Slide 22. You can see that we've grown earnings nearly 8% on average over the past 2 years, and we're pleased with where we're heading looking in the longer term in terms of earnings prospects.
In yesterday's earnings release, we forecasted a long-term growth rate of 6% to 8% for earnings per share that's based off of 2014's recurring earnings of $2.65 a share. We expect to achieve this growth over the period from 2015 through to 2018.
The key long-term drivers are: one, continued growth in our FERC-regulated electric, and now, gas transmission businesses including our Access Northeast project with Spectra Energy; two, continued O&M reductions, which, as I said earlier, we expect to average about 3% annually over the forecast horizon; three, gas expansion and system upgrade opportunities in both Connecticut and Massachusetts; four, revenue growth from modest distribution rate relief; five, offsets include higher depreciation in property taxes, again reflecting our infrastructure growth and higher interest costs. I'll note that there are no new equity issuances that are planned throughout our forecast period.
Slide 23 provides an overview of the progress we're making on a couple of major electric transmission reliability projects in Connecticut. The Interstate Reliability Project should go into service late this year and enhances our reputation as a premier transmission developer.
Also, we expect to make our initial state citing filing on the Greater Hartford projects later this month. On Slide 24, you'll see an overview of actual transmission spending for 2014 and our plan for 2015 through 2018.
Last year, we forecast approximately $3.7 billion in electric transmission capital spending from 2014 through '17. This year's forecast shows electric transmission investments of approximately $4.7 billion from 2014 through 2018.
After accounting for depreciation and deferred taxes, we expect our transmission capital program to add more than $3 billion to our transmission rate base by the end of 2018. Moving on to Slide 25.
Another contributing factor to our earnings growth is our natural gas expansion and the acceleration of the replacement of aging infrastructure. Legislation in both Connecticut and Massachusetts provide us with important regulatory vehicles to expand our gas infrastructure to meet growing customer demand.
We expect new customer growth to continue. For the second consecutive year, we added more than 10,000 customers, driven in large part by conversions to natural gas for heating.
The earnings contribution from our gas operations drove by nearly 20% in 2014 to $72 million. We expect to increase our gas segment earnings by 50% by 2018 and double the gas segment earnings by 2023, as our customer base continues to grow and we make additional investments in our infrastructure.
Slide 26 provides a look at our rate base by business segment today, and where we expect it to be by 2018 given the growth of the transmission business, expansion of our gas operations and continued investment in the electric distribution business. I should add that this projected rate base, which we project will increase 37%, does not include the Access Northeast project.
Before concluding my remarks, I'd like you to turn to Slide 27 for a quick review of the commitments that we made a few years back at the completion of our merger and how we've done against them. On average, our 8% earnings growth and 6.5% dividend growth over the last 2 years have certainly exceeded the industry.
We have exceeded our target to reduce O&M cost. We have maintained our strong credit ratings, which were among the best in the industry.
Reliability and service quality has improved to a level that is the best in the company's history. We continue to grow our business through transmission and gas expansion opportunities that are available to us.
We also continue to advocate for customers, proposing the Access Northeast project and Northern Pass as very meaningful and cost-effective solutions to address the energy crisis we are facing in our region. That concludes my formal remarks.
Now I'll turn it back to Jeff for questions-and-answers.
Jeffrey R. Kotkin
And I'm going to turn it back to John just to remind you how to enter questions. John?
Operator
[Operator Instructions]
Jeffrey R. Kotkin
First question this morning is from Dan Eggers from Crédit Suisse.
Daniel L. Eggers - Crédit Suisse AG, Research Division
Just as a kind of a follow-up to the update on extension to the growth rate. Can you just explain to me, I guess, is Access Northeast in that number both is contributing to the growth and then how is it getting reflected in the CapEx plans that you guys laid out in the slides today?
James J. Judge
Sure. Dan, the Access Northeast is in our earnings projection.
Obviously, the spending is in the back-end of the forecast. We have not disclosed the annual capital expenditures associated with it.
We've given kind of the rest of the business, CapEx detail. The reason for that is we have a partner, Spectra, here and we have not sort of formally announced the cash flows collectively.
So we're trying to be respectful of that.
Daniel L. Eggers - Crédit Suisse AG, Research Division
Okay. And then I guess, just on the New England full station [ph] for clean generation, where do you guys stand in that process and what is the talk maybe of some transmission investment above and beyond what's in your CapEx budget related to those projects?
Leon J. Olivier
Dan, this is Lee Olivier. That process is on the electric side is still being worked through NESCOE, the NESCOE organization.
I think we can expect more information on that in the March time frame from the standpoint of what the schedule will be this year. But we do expect that they would have a schedule that would conclude either late third quarter or early fourth quarter in the selection of projects that would be funded through the NESCOE process.
This is on the electric side. We have a number of other projects that we have ready for that NESCOE process, some of which would potentially interconnect into Maine and bring renewables down and then connect into New York.
So we have a number of other transmission projects that would connect with renewables and some of which could connect into, kind of, run of the river [ph] clean energy as well. So we'll be ready with potentially over another $1 billion of projects to enter into that process.
Daniel L. Eggers - Crédit Suisse AG, Research Division
So the way we should think about that update probably being about 1 year from now, realistically, once the NESCOE process gets done then you guys can assess what you would need to do? Is that a fair assessment?
Leon J. Olivier
Yes, it's -- I think potentially late this year. So if they run a bid process in late spring, they announce winners in the late fall or we'll say the October time frame, potentially November time frame, we would be able to announce where we stand at the end of that process.
Daniel L. Eggers - Crédit Suisse AG, Research Division
I guess, 1 last question. You guys talked about the effect on the customers of the higher FCM clearing prices this year.
Was Northern Pass, and ergo, HQ part of that bidding process from a capacity perspective and, if not, does that create some relief next year for your customers as you think about the bidding process?
Leon J. Olivier
Yes, again, they were not part of that bidding process. They did bid in some other assets, but Northern Pass wasn't one of them and they would bid into the next forward capacity market auction.
Jeffrey R. Kotkin
Thanks, Dan. Next question is from Michael Weinstein from UBS.
Julien Dumoulin-Smith - UBS Investment Bank, Research Division
It's actually Julien here. So actually a quick clarification on the last question from Dan just before I get going.
If you did bid into the next FCA, you wouldn't be able to take advantage of the exemption from MOPR, right? The 600-megawatt renewable exemption?
Leon J. Olivier
I believe so. We're still looking at that determination, but I believe so.
Julien Dumoulin-Smith - UBS Investment Bank, Research Division
Okay, all right, great. And then just going back to the New Hampshire process in general.
What's the time line here? Just, if you think about like a go, no-go decision in terms of holding the Merrimack proceeding sort of in advance here, I mean, when we get a view as yes, we're successful, or no, we're going back to sort of the prescribed track?
And then when do we get a -- hopefully when do we get a view as to all of this kind of coming together in terms of gelling? That's been in various issues.
James J. Judge
Yes, Julien, this is Jim. I would expect over -- certainly over the next couple of months, there hopefully will be progress there that could be announced, because obviously, the proceeding is held in advance and the PUC update is looking for periodic updates as to how it's going.
So it's certainly I think near term process is not likely to sort of drive on definitely.
Julien Dumoulin-Smith - UBS Investment Bank, Research Division
Great. Excellent.
And then Access, you talked about kick-starting a process early this year. Do you have any initial feedback?
Are customers able to afford and are they stepping up for your products just as you think about the electric generators, particularly in the context of now having a firm pay-for-performance requirement that they'll need to meet in the time period in which the project will come online? Have you noticed a difference in re-activity [ph] of the generators?
Leon J. Olivier
It's a little premature at this point because we will -- we have not announced our open access process. We will do that perhaps as early as next week, we'll announce that.
And then at that point in time, we'll be looking at whatever other LDCs that want to sign on -- LDCs, generators, EDCs and other major uses of gas. So I think it's premature to predict exactly where our generators will be in this process.
Julien Dumoulin-Smith - UBS Investment Bank, Research Division
Great. And did I hear you say on the reserves for the ROE case, you took them back?
What drove that?
James J. Judge
I think we announced at the -- when we booked the charge for the ROE case that we're very conservative in terms of what we booked. And one of the conservative positions that we took back then had to do with how the cap impacts your incentive ROE and based upon how they refund and calculated based upon how the other utilities interpreted the order, we adjusted it to be consistent with everybody else's expectations in terms of how that 11.74% cap impacts your transmission portfolio.
Julien Dumoulin-Smith - UBS Investment Bank, Research Division
Got you. And was there any data where they came out of FERC, in particular, that would have driven that view?
James J. Judge
There was certainly the refund that we've calculated and the other utilities have calculated are based on that. I believe there was some language in a MISO order that seems to suggest that our interpretation was correct as well.
Jeffrey R. Kotkin
Next question is from Travis Miller from Morningstar.
Travis Miller - Morningstar Inc., Research Division
Generally on that 6% to 8% earnings growth number that you put out for the forecast, how do you think about the dividend growth off of that? Obviously, we have a lot of CapEx investment coming up and just wondering your thoughts on that trade-off between the CapEx and the dividend?
James J. Judge
Sure. We are reconfirming the -- we're confirming the earnings growth of 6% to 8%, but we also are confirming that we expect the dividend growth to be consistent with that.
We think dividends can grow 6% to 8% over this time frame. We have a conservative payout, about 60% or slightly below it.
So we are retaining a lot of earnings every year to basically fuel our capital programs. So we're confident that we can grow our earnings and dividends at that 6% to 8% level going forward.
Travis Miller - Morningstar Inc., Research Division
Okay. Would that imply, do you think, higher payout ratio as we get to, call it, 2017, 2018?
James J. Judge
It should be roughly the same, 60%.
Travis Miller - Morningstar Inc., Research Division
Okay, great. And then just real quick.
How much was the pension contribution to the O&M savings, in the fourth quarter or for the full year, to everyone?
James J. Judge
We had -- IT outsourcing savings, we had an actuarial pick-up on workers comp, other labor-related savings, but the pension expense was a contributor to the fourth quarter, as it was all year. I don't have the number but it was a significant piece of the $0.14, for sure.
Jeffrey R. Kotkin
Our next question is from Paul Patterson from Glenrock.
Paul Patterson - Glenrock Associates LLC
Just on the Northern Pass, the regional funding opportunities, could you elaborate a little more on just sort of the potential process in that and the amount?
Leon J. Olivier
You're referring to the NESCOE process, Paul?
Paul Patterson - Glenrock Associates LLC
Well, in the slide that you guys had, there was the -- you mentioned participant funding and in the opportunity for regional funding associated with the Northern Pass project and I was just wondering how that might actually take place?
Leon J. Olivier
Yes, okay. Well, the NESCOE process envisions kind of, at least now, 3 different products.
One would be for renewable energy, that's Class 1 renewable energy, wind is the contributor there. The other one would be for clean energy and you have Connecticut that, through statute, is allowed to procure up to essentially 250 megawatts of clean energy.
I think Rhode Island is another 100 megawatts, so there's about 350 megawatts of clean energy. The third part of this thing is infrastructure.
And it's about deliverability of energy. So it's basically funding of infrastructure, which is transmission that interconnects with either clean energy, which is usually coined as hydro or renewable energy.
So the way that would break down is, is that Northern Pass could play a role in the clean energy portion of this. And it could also play a role inside of the deliverability infrastructure portion of this.
So at this point, we have to see exactly how much of each the NESCOE process will call for. But that's how it can fit in, in either into the clean energy products of approximately 350 megawatts or into the deliverability infrastructure that would interconnect into hydropower unit of that.
Paul Patterson - Glenrock Associates LLC
Okay. But how much in terms of -- how much of the funding, of the $1.4 billion, I guess, should we be thinking of coming from the regional versus the participant funding, I guess?
Leon J. Olivier
I think it's too early for us to tell. We really have to see how that NESCOE RFP process is laid out, how it's structured to determine.
And really it's going to be ultimately HQ that's going to determine that because it's essentially HQ owns the rights to that line and is the entity behind the participant funded project. So it's really up to HQ to determine how much of that project would run through that NESCOE process.
Paul Patterson - Glenrock Associates LLC
Okay. And then just to make sure I understood your answer to Julian's question with respect to the forward capacity auction 10 [ph].
Your expectation is that this line would not be MOPR, is that correct?
Leon J. Olivier
We're evaluating that now. But it's hard to say, but I think we would believe it's not MOPR-ed.
Jeffrey R. Kotkin
Our next question is from Steve Fleishman from Wolfe Research.
Steven I. Fleishman - Wolfe Research, LLC
So just a clarification on Access Northeast with respect to your growth guidance. Can you either be specific on what -- how much earnings come from that or percent of growth rate or maybe if, for some reason, it got delayed or didn't happen, would you still be within the 6% to 8% range?
James J. Judge
I would say, worst-case scenario, if it didn't happen at all, we'd be at the very low end of the range.
Steven I. Fleishman - Wolfe Research, LLC
Okay. And then you'll give us more info once you know exactly what your interest is and the like?
Is that...
James J. Judge
Once we know what our interest is and once we and Spectra are comfortable with the cash flows to disclose it, we'd do it probably together.
Steven I. Fleishman - Wolfe Research, LLC
Great. And just in terms of the FERC ROE thing, just so I understand, so you're now assuming as the others that the cap is not unreasonable, and this cap is across your whole transmission business not project by project, is that the change that you made?
James J. Judge
That's correct.
Steven I. Fleishman - Wolfe Research, LLC
Okay. And just in the pending case, is there any way you can give a sense of kind of if you used the methodology that they have been using, what the risk to ROE would be, or is there chance they don't use that same exact methodology?
James J. Judge
There's certainly a chance that they don't. We actually filed testimony on this on February 2, the transmission owners did and we applied the new methodology that FERC uses, this two-step discounting cash flow analysis, and think that applying that methodology supports the 10.57% that we're currently earning and then we provided a number of other analyses that has alternative benchmark methods that tended to support that level of returns as well.
So we remain confident that, that will be the likely outcome in that proceeding, but it's a proceeding with the long tail as you know, it goes through late '16 before we get a decision.
Steven I. Fleishman - Wolfe Research, LLC
Okay. One last question on Northern Pass.
You talked about how it's $1.4 billion but depending on conditions it -- that could change. Is it possible that, that $1.4 billion could become a lot bigger?
What's -- is there any way to give us a sense of the range of potential change on that?
Leon J. Olivier
Steve, I think right now it would be hard to do that. We've had -- are having discussions with key stakeholders in New Hampshire.
We're looking at various configurations that are consistent with what the DOE is studying right now and I think it'd be premature to say how much bigger. Is it likely to be larger than 1.4 billion?
Yes. I just can't tell you how much bigger because there's a -- just a big range of options around that project that we're evaluating right now.
Jeffrey R. Kotkin
Next question is from Graham Tanaka from Tanaka Capital Management. Graham?
Graham Yoshio Tanaka - Tanaka Capital Management, Inc.
I just wanted to get a feel, if I could, for the long-term growth projections and how much would be organic, and how much just simplistically will be coming from the large projects? Just to get a feel for your incremental growth.
James J. Judge
We don't sort of look at it that way. We -- as I mentioned, the latest project that was announced, to Access Northeast, if that were not to happen, and we certainly think it will, it would put us at the low end of the range.
But we have a lot of major projects in there including $900 million increase in spending and transmission that we've disclosed here today. So I wouldn't know where to draw the line, what's a major project and what's not, but this is basically all organic.
It's all projects that are part of our core business that we execute and there's no acquisitions in here or anything along those lines. This is bread and butter work that we typically include in our forecast and have a pretty good track record of actually implementing and executing well.
Graham Yoshio Tanaka - Tanaka Capital Management, Inc.
That's great. Just on the balance sheet side.
Just wondering what could be happening, what the range of leverage change -- change in leverage might be over the course of these projects? What would the balance sheet look like, say, in 2018, 2020?
And then if you could comment on the decline in interest rates. It looks like your new debt is 120 basis points lower than retired debt, which is great, and how that might reflect in -- how that's -- what that's doing to balance sheet and your earnings growth projections?
James J. Judge
Certainly, the projects that we're looking at in the back end, whether it's Northern Pass or Access Northeast, is likely to involve some financing at the parent, not at the operating companies. But in general, we target a capitalization ratio that's essentially a 60/40 and we continue to be very conscious of our credit ratings and the significance of those credit ratings.
So we expect to maintain that high-quality rating that we have currently. So cap structure, we don't see major changes, the second question, Jeff, can you clarify for me?
Jeffrey R. Kotkin
Graham, could you just repeat the second part?
Graham Yoshio Tanaka - Tanaka Capital Management, Inc.
I just was wondering what would happen to the balance sheet at the end of the project? Are you suggesting that the cap ratios won't change much?
And then I was also wondering about the decline in the yield curve, the interest rate yield curve and what that would do, what you assumed in your projections for earnings growth and the balance sheet in terms of if interest rates go back up or if they stay low?
James J. Judge
The balance sheet, you could sort of do a pro forma based on what we've given you here for our capital expenditure forecast through 2018. So we have a 35% or 40% growth in our rate base in that time frame.
And we have done a lot of financings, so we've gotten a lot of low cost debt historically. And we obviously have some debt financing going forward associated with these projects.
But we don't see it significantly impacting our balance sheet whether interest rates stay where they or actually go up.
Jeffrey R. Kotkin
And Graham, we have a financial review as posted up on our website that lists every debt issue on the system, and you could see what the rate is and what the maturity is. So you could take a look at those versus where the markets are currently.
Graham Yoshio Tanaka - Tanaka Capital Management, Inc.
Yes, I guess, I just was wondering if rates went up a lot in this forecast period, if that would impinge on returns much, and you're saying -- suggesting that you've locked in a fair amount and the interest rate sensitivity is not that significant?
James J. Judge
It's not that significant. We have -- rates tends to be cost based.
So to the extent our financing cost go up, certainly in the transmission business, you get timely rate relief and we have distribution rate cases planned as well. So to the extent we get increased pressure on our interest cost going forward, it's likely to result in higher rates to customers and, therefore, we're somewhat insulated against it.
Jeffrey R. Kotkin
Next question is from Caroline Bone from Deutsche Bank.
Caroline Vandervoort Bone - Deutsche Bank AG, Research Division
Actually most of my questions have been answered, but just 2 more. The first is on your gas customer growth projections and what that assumes with regard to oil price?
Is that kind of the current 4 curve embedded in the outlook or do you guys assume that oil prices increased to levels that we saw last year and before?
James J. Judge
It assumes our current level. Obviously, the economics get tempered a bit when you're seeing a major decline in oil prices, but we continue to have great demand from our customer base.
And we've got 2 states that are interested in seeing conversions to gas take place. So while the economics might be impacted slightly, we expect to achieve those targets given where oil prices are today.
Caroline Vandervoort Bone - Deutsche Bank AG, Research Division
And then my last question, this is a little bit more general, but things have obviously worked out quite well for you guys since the 2012 merger and now you've changed your name and so I'm just wondering, if you could comment a little bit on your current thinking on M&A opportunities in the space?
James J. Judge
Sure. We continue to be a disciplined bidder.
If you look at the transactions that Tom led, as CEO, the merger that formed NSTAR, was accretive in the first year. The merger that formed now Eversource was accretive immediately as well.
So we look at opportunities based upon the value to the company and it's highly unlikely that we will do a transaction that would be dilutive to shareholders going forward. The name change really had nothing to do with sort of being constrained by Northeast in our title.
It truly was, as Tom indicated earlier, trying to build -- bring together 6 different operating companies, each of whom had their own identity, a culture, a brand and it really was driven by that. So the speculation about it being driven by an appetite to have a bigger footprint really isn't based on the situation here.
Jeffrey R. Kotkin
Next question is from Michael Lapides from Goldman Sachs. Michael?
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
A couple of things. Just from a modeling perspective or understanding what you're assuming in your multi-year guidance, are you using the max on those zone of reasonableness, the 11.74% is kind of weighted average transmission ROE across the system?
James J. Judge
We're assuming the 11.74% is the cap for the transmission portfolio in total, not project-by-project.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Right. But I guess, not necessarily the cap, but I'm trying to think about what kind of the weighted average would be and just trying to think about if -- you have some projects that when they were granted, actually had way above that level, the Middletown, Norwalk, et cetera, those are now adjusted downward as we understand it and then the base ROE was a little bit different prior to incentives.
Just trying to kind of think through from a what the end guidance for kind of an average transmission ROE across the system, trying to keep it a little simplistic.
James J. Judge
Sure, the base ROE, as we've talked about, is 10.57%. I would think when you look at the various incentives that we earned on a number of the projects, the returns are likely to approach about 11.5% on a going forward basis.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Got it. Okay.
Second, when I look at -- I got a little confused by some of the comments about CapEx on transmission because if I go back and look at the appendices in the Analyst Day from 2014, and look at 2014 to 2017 transmission CapEx in that slide, and then I look at 2014 to 2017 transmission CapEx in today's slide, they're virtually unchanged. I mean less than $100 million.
So I'm just trying to make sure I'm getting my arms around your commentary about higher expected transmission expenditure going forward. But when I just look at '14, '15, '16 and '17, the net number, the some of the 4, isn't really very different.
James J. Judge
I would agree. We've added 2018 this year, which is number order of magnitude of about $900 million.
But yes, the transmission cash flows, the transmission portfolio near-term really hasn't changed from what we -- changed that much, subtle shifts year-to-year. But, in the aggregate, you're right.
It's in line with what we've previously disclosed.
Jeffrey R. Kotkin
Yes. Michael, I would add that if you take a look at the components of it, which was in Jim's slide, you'll see that there is -- Northern Pass -- a lot of Northern Pass spending that was earlier in the forecast, what we gave you 1 year ago and now it's later in the forecast, particularly in '18, so obviously, there are a whole lot of other projects that have been added in those intervening years that get you up to the same amount.
So I think you have to look category-by-category to see how that occurred.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Got it. And last thing, just on -- and thanks, Jeff for bringing up Northern Pass.
Can you just give an update on where we are in the FERC EIS process, and then what is entailed when you make your filing at the State of New Hampshire?
Leon J. Olivier
Okay. In regards to the EIS process, we would expect to have the draft to EIS in the April time frame.
And it could be late March, beginning of April, but we expect to have it in April. And what we will do is we will take that, we've obviously been working on our filing for the Site Evaluation Committee in New Hampshire, we will take the information from the EIS.
We will incorporate that, as appropriate, into our filing application. Once we get ready to file, we put out a notice, which is a 2-week notice that basically says we will conduct hearings in the 5 counties in which the line is in, so that's 5 different locations.
It would take about 2 weeks to run through the kind of a town hall meeting process in New Hampshire and then there's about a 30 days or so where you solicit feedback and comments, you take that into consideration, then you make your filing. And then the state has essentially -- it's got up to 60 days to accept your filing as complete and then they have up to 12 months' time frame in which to render a decision.
Obviously, in the interim of all of this, in the background of this, is that we will be having discussions with various key stakeholders in the state to try to reach what we think is an acceptable configuration and other aspects of the project in terms of economics of the project for the state. So that will all be going on in background.
We hope to reach a conclusion on the background discussions later this year.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Got it. And just big picture on Northern Pass.
I mean this is the second or third time, where it was kind of -- you've kind of pushed the CapEx out significantly into the outer years. What's your level of conviction that you're kind of getting closer to having a finalized schedule for Northern Pass versus a -- "Hey, this is still very much in an early estimate and things are likely to move around a lot whether it's on time line or cost?"
Leon J. Olivier
I think on the schedule, I'm very confident in that schedule. It stacks up very well with the processes.
Obviously, this project has evolved over the last 5 to 6 years. We know a lot more about the technology.
We know a lot more about the political situation. We have worked extensively in the communities in which the line would be placed or built.
Needless to say, the energy environment in New England has changed radically. There is, by and large, consensus everywhere that the project is needed.
There is still some, obviously, disagreements about the configuration of the project, which is the things that we have been working on. So I'm actually very, very confident that, that's a good estimate.
I think the $1.4 billion, as I've said earlier, it's likely to be more than $1.4 billion, but it's premature I think, for us to forecast that today. I would think perhaps within the next 6 months, we will have a much better sense of that because we'll be closer to what we believe is an acceptable configuration for the key stakeholders in New Hampshire.
Jeffrey R. Kotkin
Next question is from Andrew Weisel from Macquarie.
Andrew M. Weisel - Macquarie Research
On Access Northeast, I think you said, to an earlier question, that the open season would be first geared toward electric generators and then LDC customer next. My question is if NESCOE doesn't move forward at the pace you laid out, is there a point where you would start to move forward on the project for a smaller LDC-only one [ph] and if so, at what point would you make that decision?
Leon J. Olivier
Just, Andrew, when we do our open season, it'll be for both LDCs, EDCs, it will be for generators and any other large users of natural gas. So it will be for all of those.
And so we'll run through that process, we'll see what comes out the other hand. We know there are other EDCs that we have talked to in the region that had reviewed the project.
I think it's the right project for the region, so we know there will be EDCs that will sign on and we know that there will be LDCs that will sign on. And so really once we come out of that, we believe we will have a demand for gas that will support a larger configuration and at which point in time, we will propose the configuration through the regulatory bodies and ask for either approval to go ahead, very similar to what you would do on the LDC side of the business, or we will determine if -- what an alternative process is with the policymakers and regulators of the states.
Andrew M. Weisel - Macquarie Research
So does that mean that with or without Massachusetts signing on to the NESCOE initiatives, the timing would be fairly unchanged?
Leon J. Olivier
Yes, I think that our timing is good because there will be, like I said, we know there will be some LDC demand. And the conversations we have had with the leadership of key states, they indicate that we need to move on, that the sooner this project gets to service, the sooner we start realizing that $1 billion of savings a year.
And also we don't talk much about this, but the ongoing retirements that we have in New England and the shortage of gas for the existing plants, it's going to provide a significant threat to reliability. ISO New England has made that statement.
That this is not only an economic issue where people pay a lot of money, but it's a real challenge to the reliability of the region's grid. So the governors understand that, and they want a solution so we're confident that we, working with the key policymakers of the region, will come up with that solution.
Andrew M. Weisel - Macquarie Research
Okay, sounds good. Then lastly, I want to ask quickly about bonus depreciation.
What do your rebates forecast in your cash flow assumption to assume around bonus depreciation?
James J. Judge
Bonus depreciation in 2014 was about $500 million. So there's a little bit of an earnings drag associated with that, $0.01 or $0.02.
Great cash flow impact for 2015.
Unknown Executive
It's about $175 million impact in accumulated deferred income taxes, Andrew.
Jeffrey R. Kotkin
Next question is from Felix Fermin [ph] or maybe Ashar from Visium.
Unknown Analyst
Just to clarify on an earlier comment. You kind of said that without Access Northeast, we expect to grow around 6%.
And then as that project comes on in '18, we expect to see a bump in EPS around there. Is that -- can you just clarify that?
James J. Judge
The question was without Access Northeast in the forecast horizon, where would earnings likely be? And I did say the low end of the range.
I want to point out that the cash flows for Access Northeast are likely to be beyond the time frame here, there'll be, certainly, spending in '17 and '18 but also in 2019. So the comment that I did make was -- it would be low end of the range without that project.
Jeffrey R. Kotkin
That's it in terms of questions this morning. We really appreciate everybody joining us.
If you have any additional questions, please call John or me later today or tomorrow. Take care.
Operator
Thank you, ladies and gentlemen. This concludes today's conference.
Thank you for participating. You may now disconnect.
Jeffrey R. Kotkin
Thanks, John.