阿莫林 (AEE) 2002 Q1 法說會逐字稿

Welcome to the Amerene Corporation earnings conference call. During the presentation, participants will be enlisted on this note. Afterwards, we will conduct the question and answer session. At that time, if you have a question please press the "1" followed by the "4" on your telephone. The reminder of this conference is being recorded on Monday, April 22, 2002. I would now like to turn the conference over to Warner Baxter, Senior Vice President of Finance Amerene Corporation. Please go ahead, Sir.

Thank you and good afternoon. I am Warner Baxter, Senior Vice President Of Finance Amarian Corporation. Herewith me today is our President and Chief Operating Officer Garry Rainwater. Also present are Control and Chief Accounting Officer Buddy Lawrence and Bruce Stankey, Manager Of Investor Relations. Before we begin, let me cover a few housekeeping details. This hour long call is available to anyone who wishes to hear it for 48 hours by dialing a playback number. The announcement we receive carries instructions replaying the call by telephone. In addition, we would like to welcome everyone listening to this call on the internet. Broadcast will be available for up to 5 days on www.amerene.com, our website. Broadcast of this information contains time sensitive data that is accurate only as of the date of today's live broadcast. Redistribution of this broadcast is prohibited. I will see to let you know that comments made on this conference call may contain statements that are commonly referred to as forward-looking statements. Such statements include those about future expectations, beliefs, plans, strategies, objectives, and financial performance. We caution you that there are various factors that could cause actual results to differ materially from those projected in the forward-looking statements. For additional information concerning these factors, we ask you to read the statement in the release we issued today and in filings with theSCC. Again let me thank you for joining us. We will be briefing our remarks today to give you an opportunity to ask questions. Before I discuss first-quarter earnings, Garry Rainwater will update you on some of our operating and regulatory matters.

Thanks Warner. Good afternoon and thank you for joining us. As you know, this morning we reported 2002 first-quarter earnings of 42 cents per share compared to earnings of 43 cents per share last year. Our quarterly earnings for 2001 included a one-time charge of 5 cents per share related to the adoption offacts 133. Warner will discuss earnings in greater detail later in the call; but as you know, earnings were down primarily due to extremely mild weather we experienced in the first quarter of this year. Despite mild weather, sluggish energy markets, and soft economic conditions, we maintained our focus on our core energy business and delivered solid results for the quarter. We continue to make investments in our core energy business for the future. On the unregulated generation site of our business, we will add another 470 megawatts of combustion turbine generators this fall. At this time, we have no further planned unregulated generation additions. We continue to evaluate the market conditions and investment opportunities. We also continue to invest in our regulated utility business. By this summer, we will lay down 240 megawatts of combustion turbine generators; and we are making additional investments in our transmission and distribution operations so that we can continue to provide reliable service to our customers. Looking ahead - due to increasing demand, we continue to see a need to make significant investments in our energy infrastructure for our regulated business. With regard to our nuclear operations, recently there has been a quite a bit of news related to corrosion on a reactor vessel Hedge on one of our First Energy's nuclear plants. As a result, we along with all other nuclear operators with pressurized water reactors were asked to provide information on the structural integrity of our reactive vessel Hedges. Our vessel Hedgeby a similar design was built by a different manufacturer. Over the past several years, we have made numerous inspections on this vessel Hedge and have found no signs of the type of corrosion discovered by First Energy. As a result, we fully expect to operate currently normally until our plant refueling outage this fall. Further we do not plan on extending our outage due to this vessel Hedge matter. Turning on to regulatory matters - in this quarter, our electric rate case in Missouri continued to advance. First a little history for those who are not familiar with this - for the past 6 years, our Missouri retail electric customers have benefited from innovated incentive regulation plans. That regulatory framework allowed customers and shareholders to share earnings of certain regulatory returns on equity thresholds. The result - electric rate is approximately 18% below the national average in 2001, the second lowest rates in the nation for a major metropolitan market as defined by the Bureau of Labor Statistics, customer service rating among the best in the nation; solid returns on equity for shareholders, timely investment in infrastructure to assure energy reliability, and finally meaningful productivity gains. However, the most recent plan expired on June 30, 2001; and in July, the Missouri Public Service Commission Staff filed an electric complaint case. In their filing, the Staff proposed a return to traditional service regulation. They also proposed a significant reduction in our annual electric revenues at low return on equity. On March 1st of this year, the Staff revised their previous recommendation and proposed an annual electric revenue reduction between 246 million and $285 million. The recommendations incorporate a return on equity ranging from 8.91% to 9.91% as well as a significant modification to the depreciation policies of the company. We simply do not believe the facts support a rate reduction of this magnitude. Missouri Public Service Commission is not bound by the Staffs recommendations. On May 10th, we will have the opportunity to file the rebuttal testimony to the Staffs position, including our proposal for an incentive regulation plan that we believe will result in a win-win situation for all stake holders. Hearings are scheduled to begin on July 11th with a last hearing date set for August 2nd 2002. Following a negotiated settlement in this case, we do not expect a final order from the commission until sometime in the 4th quarter. As you can tell from the discussion and others you have had with us, we are very focused on preparing for this case. However, we will continue to have discussions with all pertinent parties with the objective of negotiating a new incentive regulation plan. One final note before I turn the discussion over to Warner, a key component of our core energy business strategy is remaining a financially strong company. During the quarter, we took steps to assure we maintained and enhanced our already strong financial position and financial flexibility. In particular, we assured $345 million of conversional rate equity security units and $230 million of common stock. Our offering was very successful. It also was a pleasure meeting with many of you during our recent financial presentations and discussing our strategies for achieving performance leadership. Thanks for our investors support, this financing will allow us to continue to have the financial flexibility to operate effectively in this changing energy market place as well as pursue market driven growth opportunities so that we can continue to bring value to our shareholders and customers. With that, I would like to turn the discussion over to Warner.

Thanks Garry. Now on to the discussion of earnings results and related financial matters. As Garry mentioned today, we reported ongoing first quarter 2002 earnings of 42 cents per share compared to first quarter of 2001 ongoing earnings of 48 cents per share. As Garry discussed earlier, that first quarter 2001 number excludes the impact of the adoption of files 133 of the accounting standard that requires recording the standard value of deliberative financial instruments and financial statements. Our lower earnings were principally driven by the extremely mild winter weather we experienced in 2002. The impact of the mild winter weather reduced earnings by approximately 9 cents per share. Weather bill decreases electric residential sales of 5% and commercial sales of 2%, and gas sales drop 5%. In addition, industrial sales were down 6%, primarily due to the continued soft economy. Despite the normal winter weather, total electric revenues increased 17% for the quarter compared to the year ago period. This is primarily due to higher energy in sales; however, the company realized role of margins on these sales compared to the prior year due to lower energy prices. The low weather-related margin in the first quarter of 2002 was offset by organic growth and by lower estimated customer credits related into incentive regulation. Credits of $15 million or 6 cents per share were recorded in the first quarter of 2001 under the companies incentive rate plan as Garry mentioned expired on June 30, 2001. On the expense side, operations and maintenance expenses increased for the quarter. This was primarily a result of higher fuel and purchase power costs associated with higher sales, higher employed benefit costs resulting from unfallible stock market performance for investments in the companies benefit plans, minimizing health care costs, as well as higher tree-trimming expenses. These higher expenses will partially offset by lower gas purchases due to lower sales. With regard to financing matters and as Garry just pointed out - in March, we issued $345 million of adjustable conversion rate equity security units and 5.7 million shares of common stock valued at approximately $230 million. Due to the strong investor demand, undividedgreen issues were exercised on both offerings. These offerings are estimated to dilute 2002 earnings by 12 cents per share. In February, we estimated that ongoing 2002 earnings per share would range between $3 and 15 cents and $3 and 45 cents per share. However, as stated in our year-end conference call, this estimate did not incorporate the diluted impact of the March finances. As a result, today we revised our 2002 ongoing earnings per share estimates to a range of between $3 and 3 cents and $3 and 33 cents per share - down 12 cents per share on both ends of the range. This estimate seems a future form of incentive regulation for our Missouri electric operations, which could include electric rate reductions and additional customer credits from Missouri retail electric customers. The estimate remains contingent upon the number of issues and factors, which include changing energy market and economic conditions and resolution of pending regulatory matters many of which we have discussed already. As you know, the resolution of those issues could differ materially from the assumptions used in our 2002 estimate. The objective of our March financings was simply to strengthen our already strong balance sheet. It was a proactive move on our part as we clearly recognized the need for financial flexibility and strength in this changing energy market place. Ultimately, we believe that our strategic focus on our core energy operations and regulatory issues complimented by maintaining our financial strength will reap rewards for our shareholders. This concludes our opening remarks. Now, we will open the session of the questions.

Thank you ladies and gentleman. If you would like to register questions, please press the "1" followed by the "4" on your telephone. You will hear a 3-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the "1" followed by the "3." If you are using a speakerphone, please lift your handset before entering your request.

[indiscernible] please for the first question.

Our first question comes from Gregory Gordan with Goldman Fax. Please proceed with your question.

Thanks. Hi Warner.

Hi Greg, how are you doing?

I am doing good. Just two quick questions. First, I guess despite the poor weather in the first quarter, you are still comfortable not withstanding the costs of the financing with your pre-existing range. Could you discuss a little bit how you are still on track despite the fact that you hadbelieved on the weather.

I think a couple of things Greg. One, while we did experience little weather, we certainly mentally hoped for return to normal weather conditions in the second half of the year, also the remainder of the year; but as you probably know, we had seen some recovery from the energy prices; and so we believe that will be helpful. Couple that with our share of continued focus on cost control among other things, we think that our range, which is, you know, range of between $3 and 3 cents and $2 and 33 cents and 30 cents per share range. We are comfortable with that range won't fall.

Actually, then the second and last question is have there been any ongoing or new conversations with the staff around the potential core settlement or does this ride get into further litigated route at this point?

No. We continue to have discussions with them, with staff, and many other pertinent parties to the case; and as you know, we can't go on to the details of those confidential discussions; but no we continue to have a discussion with them, and we are hopeful that we can reach a reasonable negotiated settlement. So as you know, we are preparing for our May 10th filing; and so obviously, that is right around the corner; and so, we will continue to move forward with that and prepare incase we do have to go to litigation; but we still see a reasonable possibility of getting this thing resolved in a negotiated settlement.

Okay. Thanks Warner.

Sure.

Thank you. Good afternoon all. Could you update us a little bit on your combustion turbine construction program and both on the regulated and unregulated side, may be even focusing on the 2002 projects as to where they stand, are they still on schedule, and may be you can quickly outline the projects that you are building right now; and then where you stand in terms of your plans for 2003 and beyond?

Sure, I mean, I will start with it now and let Garry add a few commentaries. With regard to 2002, we will be adding 470 megawatts of unregulated generation and 240 megawatts of regulated generation consistent with what we disclosed at the end of the year. Also those projects are still on schedule, on target for cost purposes among other things. Looking beyond that, we do not have any further plan unregulated asset additions; and as we stated before, we do see a potential need to add some generation to our regulated business due to increasing customer demands. That's down the road. We did mention in our year-end conference call that we had options on units out in 2004 and 2005 time period. Those units are still under study. They were originally set out to be units that we are going to use in our unregulated business due to what we perceive as capacity age in the generation side of our business to the extent that they won't be used. They will likely be used in the regulated side. We still continue to have, with regard to those units, approximately $22 million ofnon-countable cost that we would chose not to move forward; but as I said, the utilization of those units are still under study. Garry, do you have anything further to add to that?

Doug, I think Warner has summed it up pretty well. Everything that is under construction right now is on budget and on schedule. As far as the need for those units in 2004 and 2005 on the regulated side of the business, we still are very short on capacity; so I think it is likely that we will want to use those. We will either need to do that or we will need to buy something from off system.

With regard to the 470 megawatts up, I think it is at the Elgin site - that is contracted or not contracted at this point or say summer 2003 I guess is what you would be looking at?

At this point, it is not fully contracted; but as you know Doug, when we look at those units, we manage those units on a portfolio basis. We will blend those with our base-load units; and so with regard to theCTGs that weadd/had, we don't see how it contracts specifically out for those units; but we manage it on a portfolio basis. So that we can take those base-load units and effectively blend those with the CTGs for the peak periods and try and sell some of our base-load generation during those off peak periods.

Would you be looking to contract those at some point during 2002 or 2003?

Yes we would. Part of our.

I mean that on a package basis?

Yes, and a part of our strategic plan is to firmly answering to long-term sales contracts for all units that has been consistent with what we have done in the past. Looking aHedge in 2002 just to give it a little color, we stated at the end of the year that we were approximately 75% hedge for 2002. In fact, we are 85% hedged today for 2002; and looking beyond for 2003 currently, we are approximately 75% hedged; and I am talking specifically about our unregulated operations both base load and peakers.

Okay. And any comments on Amerene energies results for the quarter?

Nothing specific, Dough, with regard to the results. We don't give specific numbers down on a quarterly basis for them; but I will say at the end of the year, we had estimated that they would come in around 18 cents per share for 2002. Surely from what we see and what we said today, we are very comfortable with that estimate; and certainly with the recovery of some of the energy places, we might be able to do a little bit better than this, but it is still a little bit too early to say.

Okay. Thank you very much.

Sure.

Tell us what your March 31st capitalization ratios were firstly; and secondly, it looks like there is a big drop off on the income tax line; and then the outlook for the expenses for the remainder of the year as we mentioned tree-trimming and pension costs were ahead of budget.

I guess with regards to this capitalization, you will find specifically to the finance that we did in March.

Kind of, where did your capitalization ratios go?

Okay, I am sorry. I understand. Prior to the issuance in March, we were basically at about 50-50 equity to debt. Subsequent to that issuance, we are now right around 52% equity; and that is where our cap ratios are. With regard to income taxes, you know basically our effective rates for the quarter is right around 39 to 40% which is consistent where we are historically. Last year, we were just a little bit above that. So that is why you see a little bit of the drop, but the 39 to 40% is where we have historically been for the last several years; and with regard to theowning cost as we stated at the year end, it certainly, as we look ahead, we will continue to see pressure with regard toowning cost, in particular in the employed benefit areas as you know with regard to both the pensions andnotepads. The stock market performances and benefit plans does affect those costs as well as the medical trim rates, so we expect to see those continue to rise. Tree trimming on the other hand - we continue to make investments in tree trimming, but the one thing that mild venture does permit you the ability to do is actually to do a little bit more of tree trimming; and so what we did was accelerate our program because it is easier for our guys to get and do the trimming when the leaves are not on the trees. What we will do, that will save us cost later in the year because we would not have to be working overtime in those days because we are a little bit ahead of our plan; but we do not see any more of, I mean, tree-trimming expenses, basically our timing as opposed to something that is indicative of tremendous increase in expenses for the year. Paul Rick, McDonald Investments Given the pressure from the benefit side, are there other liabilities you can use to help kind of off set that and are you pursuing those?

Other liabilities in what regard? You mean with regard to specifically employee benefits or other costs? Paul Rick, McDonald Investments Just other costs corporate wise.

Oh sure. I think one of the things that we continue to do is manage 1, our Hedge count levels. We continue going into this year. We have put some fairly tight restrictions on how we are going to grow our Hedge count levels and only for those that are absolutely necessary. 2, as we look at our maintenance job each season, we look to manage as effectively as possible those averages and keep our costs under control and especially the overtime associated with those things. So we will see some liabilities but we have got to deal with that. But you know, the employ benefit cost while we have seen them go up in the first quarter they were expected, and so we incorporated those increased costs in our earning estimate going into the year.

The next question comes from Vedula Marty with FAC capital. Please proceed with your question.

Good afternoon.

Hi Vedula, how are you doing?

I am doing well, thank you.

Great.

A couple of things I want to clarify. With respect to your hedge ratios that you indicated 85% for 2002, 75% for 2003, can you clarify exactly the amount of capacity applied to and the exact capacity of your output, what exactly does the 85% and the 75% refer to?

The 85% and 75% refers to specifically the unregulated capacities about business, and those capacity figures approximate around 4400 megawatts.

Now when you call unregulated capacity, do you also include the Illinois Generation of Health and Contract Practices.

Yes we do.

Okay. If you were to focus more on the new unregulated CTs, can you breakdown overall further in the sense of how much of what kind of ahedge ratio you have for those.

Now, we do not break it down that way because there are several flaws I think in answering to those questions. We basically do that on a portfolio basis supported by strategies to take those CTGs, blend them with what when we acquired sets was a very heavily base loaded mix of units. So basically, we manage our hedging on a portfolio basis; so we do not have any specifics on the CTGs on a standalone basis.

Okay. You indicated that for Amerene energy, you are looking about 18 cents up. You are may be a little bit better depending on market conditions. With the completion now of the unregulated generation buildup, can you give sense what the growth strategy is for Amerene energy or will it be considered kind of right now in a steady state whereby 2002 results should be somewhat indicative of future results.

I think with regard to Amerene energy, we would look at suitable operations now as sort of a steady state. As you know and consistent what we have seen in the past, they clearly contribute to our earnings; but they are basically there to be asset optimizers; and so with regard to Amerene energy, we, I don't know if you would say 18 cents should be indicative of future operations, a lot of that as you know is contingent upon forward prices as well as plan to build ability not only in our system but certainly others around us. Certainly Amerene energy is doing exactly what we want them to do. They are optimizing our assets, and they have been just really on the forward sales that we look to; but in those times when we have either schedules or unscheduled outages, we would access the market and basically provide us with pure cost of purchased power at what we believe are effective market rates. They are currently operating as designed.

Okay, because what I am trying to get out here a little bit is in the past when you referenced a growth rate, obviously Amerene energy, you know starts from a fairly small base and helps contribute to the earnings growthprojectory. Can you, you know, remind us or help us here in terms of what you would consider post, you know, resetting the bar on the right case at this point? What you would consider your growth rate target or an achievable growth rate?

Sure. I think that we are committed to 5% earns per share growth rate.

My last question have to do with the current proposed sale of. By there has always been a lot of press around that; and I am wondering if you are able to find, so quote out an attractive price from your perspective?. Would you require giving your most recent commencing? Would you need to access the equity markets again should in fact that opportunity present itself?

You know I guess with regards to specific opportunities in particular with regard to that I mean it is impossible to comment on that because of the principle and the structure of the transaction among other things if that would ever occur whether to be for any other opportunity for that matter; and so obviously, the finances that took place in March as we said before clearly increases our financial flexibility to operate in the markets that we operate currently in today. This certainly increases our financial flexibility as Garry stated earlier to pursue market goal and growth strategy and investments pursuing to that. So again, it would be very much tofraction circumstances as to whether we would have to access the capital markets any further.

And I guess, my last question related that can you, you know, review for us here criterion for an acquisition regards to accretion dilution, you know, effects on growth rate and that kind of things?.

I think and I acknowledge what Garry said on a couple of things; but clearly when we look at investments, we look at several different things. 1, would be the investments that would be consistent with our core energy focus, and we would look at investments that are very strong and tightly visually based; and with regard to sort of what runs to the bottom line, we clearly would look at investments that would bring ultimate shareholder value. Accretion is a very important aspect in driving shareholder value; and so ultimately, we would look in for investments that would be accreted at the end of the day.

Okay. Thank you very much.

Welcome.

The next question comes from Sam Brothwell with Mayor Wedge. Please proceed with your question.

Hi good afternoon. You guys gave a couple of key dates on the process; and unfortunately my other line rang as you were giving those out. Would you mind just running through that again real quick?

Sure. On March 1st as you know, the staff filed their position although revised position in the case. On May the 10th, we will have the opportunity to file a rebuttal testimony to that; and then between May 10th and July, there will be, I guess, several rebuttal testimonies filed by not only us and the staff but also other parties to the case as well as some legal briefs. Bottom line beginning on July the 11th and to the extent we get to that point, hearings will commence on this particular case. They will run through various weeks throughout July, and the last hearing date is currently scheduled to be done on August 2nd.

Okay. Thank you very much.

Sure.

Hi guys how are you doing?

Hi Andrew.

Could you just give us a little detail on just a widespread on the earnings guidance for 02, the 303, first of 333, and then have one other question after that.

Sure. Well I think, you know, obviously when you look at the widespread, I think that there are a number of factors that did go into that. Certainly, as we stated that factor into that relates to a potential future andcelebrate regulation plan, which obviously has some variability associated with that. Clearly, we have seen some volatility in the energy markets that results in obviously some variability around in a particular point in time with regard to an estimate. We have seen the economic conditions being soft and what we hope to see some recovery, and we are seeing evidence of that. Those things are, I guess, some of the main variables. We look for such a wide range going into 2002.

Is it possible to give it a type of percent or whatever it may be on, you know, how much is one item versus the other?

No. I do not think it is really possible to give any more color than what we have provided. I think as we have said before with regard to the incentive plan, we do believe we have incorporated a meaningful incentive plan incorporated to our guidance and one that we think is fair to all state quarters. So, but other than that, nothing more. This question was discussed in the past.

Is it possible just to give us what may be the biggest components of that not, you know, not obviously the exact amount; but, you know, if we are watching for figures during the year, you know, which one is the biggest variable I guess?

No. I think it is really impossible to give a significant or any kind of variance or anything like that, but it suffices to say that the earnings rate or the elective rate case in this area is a big deal as the staff has put their position out there; and so, you know, you can balance it whatever way you choose to balance it from there.

Okay and then to stop one last question, which I think is pretty simple for one for your guys; but just on the dividend policy given what may or may not happen during the rate case if you can just give us some guidance as we, you know, get into whatever is generally the biggest parameter for the rate case while we need to watch out further?

As we said on our road show, we are committed to maintaining the dividend. We realize that is why most of our stockholders buy our stock, and we are still committed to that dividend and how that relates to the rate case?. My expectation is that we will resolve the rate case at a level where we maintain that dividend. It is hard for me to imagine that won't happen.

Great. Thank you very much.

Hi Warner and Garry, this is Jack Schreiber from SIL Cap. Can you hear me?

We can hear you fine Jack. Thank you.

Warner, you had mentioned seeing some signs of an economic recovery that is sort of a $64,000 question, which we are all resting with. We are just wondering if you could elaborate on that. What are you seeing because if you are just looking at, you know, commercial sales being down 2% for the year and looking at the residential sales being down, I realized that chunk of that was weather.he just should have talked to us as to what you see in the economy and which are the specific sectors of the economy you are focused on?

Well, I will say, you know, when you look at the residential and commercial, I would not say a portion I would say all that is weather.

Okay.

We are clearly seeing organic growth on our service territory with regard to those two sectors. Secondly, with regard to the industrial sector -- yes, we do see the industry sales going down; but when you look at some of the national averages, you know industrial sales being down over 10% throughout the country, you know, we are not as affected by those things; and looking at, I guess sort of specifics, I mean, we continue to see strength; and certainly in our service territory with regard to not only the hospital sectors and some of the high-tech sectors in their service territory, they are not being significantly affected or the universities; and we have a very strong following of universities as sort of our customers. When you look at some of the bigger companies that certainly have some of our customers, we continue to see strong growth of companies, like and the alike. Those things, you know, continue to give us some hope and signs that the economy is recovering. Housing sales continue to be strong throughout our service territories; so those are signs, which are, you know, it is likely from our perspective, things are going to turn around on the dime. I think our belief is consistent with what you hear some of the accounts that will be a relatively slower recovery but recovery nonetheless.

And when do you think we will really see that recovery slope through with respect to, you know, a growth in overall sales, and is there anyway that you could give us what the different classes of customs that would have been on a sort of whether normal life suggestive basis.

I guess with regard to residential well let me try and take that question in a couple of different ways.

Sure.

One with regard to, I guess, the economic recovery and how it has affected our customers again. We have a pretty diverse customer mix with residential, commercial and industrial.. So from an economic standpoint, we are not heavily weighted on the industrial category at all; and so frankly, that is where we are going to see any sort of economic downturn. From the residential commercial standpoint, we are not seeing any of that; and as I said, I think we typically target 1 to 2%, right closer to 2% growth in our service territory. I think that would be consistent with what you would see, you know, sort of a rather normalized basis with regards to residential and commercial sales.

At 1 to 2% turnover sales causing 1 to 2% customer growth.

Turnover sales. Close to 2%.

Great and then for the Amerene owner can you talk us about this $16 million increase and the other operating expenses? How much have they had to do with the acceleration of the tree trimming? How much of it had to do with the increase in the employee benefit cost and just sort of reiterate for us what level of increase in employee benefit cost was originally included in the February 4th guidance?

Sure. Let me try and come as close to I can on the $16 million. I think with regard to tree trimming, you try looking at an overbudget by $2 to $3 million that we spent again. That will come back later in the year and that is merely tiny. With regard to employee benefit, we see that from $5 to $6 million range with regard to those; and then when you look at some of the other pieces in the of abnormal inflationary practices associated with labor, the Hedge counts are basically pretty flat; and so we expect to see labor going up just because of this normal wage rate increases.

Okay and then 5 to 6 was fully embedded in the original 315 to 345.

Oh yes.

Okay. Weren't you going to have the ROE at UAE for the last 12 months?

The last 12 months, I believe the ROE for UAE approximated around 30.5%; and I don't have it right in front. But it is 30.5% plus or minus if you understand.

Okay and when you talk about the full year 2002 guidance being premised on more normal weather and the rest of the year and higher energy prices. I guess what you are saying is you guys can basically eat the 9 cents a share in the first quarter as we are suspecting normal weather for the rest of the year; but on the higher energy prices, can you talk to us about whether or not it is generally consistent with energy prices that existed for the first quarter of 2002 or is it more consistent with the energy prices that we are seeing now for the rest of the year?

Let me try and give you a little color around that and if you are with regard to that the first quarter of 2002 when we went through the year and we looked at the spring and winter of the 25 and 30 dollar category with the summer by range of somewhat between 30 and 50. I am quoting 5/16 and sort of visible prices in energy and in the fall it was around 25 to 30 again. That is what we had talked about at the end of the year. A were seen here in the spring. It is really good if the numbers come and maybe right around that and maybe slightly above that. Most recently we started seeing summer prices really sort of trending up. So in the first three months of the year, we did not notice too much movement from that estimate. Looking at summer though we have seen some increases in our summer prices. Probably what we are seeing now visibly in the market prior ranging around 45 to 55 dollars and so it is up about 10% and in the fall you might see some level of increase but you know they are still hovering around quite close to 25 to 30 dollar range. So, we do see some recovery in the summer prices as we see it here today.

And it is so when we look at sort of what you guys are looking at should we think about those higher prices being embedded in our guidance in all setting. It is weather had in the first quarter or do we think about adding incremental quotient.

I am not sure if I understand.

What I am saying is we are short 9 cents this year for our weather in the first quarter to that 9 cents and you guys are sort of thinking that I will sit by the higher energy prices the rest of the year.

We think that is certainly an opportunity for us to disclose the covering the dimensions that we lost in this first quarter absolutely.

Okay great; and then Baxter, this is the final question on the regulatory front. Some of us who follow this were focused on May 10th being a date some of us are now sort of looking more towards this rebuttal filing and the hearings. Is there a certain point in this schedule whereby if we do not sort of see material progress towards a negotiated outcome that where, so the litigated path takes on so much momentum that the odds of a settlement reduce substantially?

I guess that there is no way I would comment on that. Note that we don't really have any specific milestones here that were bright lined that you have to be looking at.

Now what matters to us is that what happens at the end of the day.

Clearly, I would suggest to you that from a negotiation standpoint, it would be difficult for us to expect the step and the other end of the interest to make meaningful progress with regard to negotiations and negotiated settlements till they really see our case right out in front of them. As the schedule is played out now, they have had the opportunity that is the staff has had the opportunity to lay out their case; and so well we will have our opportunity to present what we believe would be a very strong and compelling case here on May 10th. And incorporated in that would be in itself a great regulation proposal as we said before. Regards to the bright lines Zakka, I don't quite like put it that way. We could go all the way up the day before hearings frankly to get it done. That's not what is important, both Garry and Chuck and I have been working very hard as well as many others to try and bring this to a satisfactory conclusion; and so we are working hard with all the parties, and then so let us hope we will continue to do this.

So then if I can say that a hearing is sort of if there were bright line that's the one we can point to?

Well, I would suggest even if you go to hearing, it does not clear the ability to having a settlement after the hearing; and obviously, I have decided to try do it before the hearings; but you know in the history of State of Missouri regulation, I know that the people in other companies have gone all the way up to hearings and in fact have been in the middle of hearings and then negotiated a settlement. So, again I am not trying to be coy, I am just trying to tell you the facts as I see them. I think that I won't put out a whole lot of bright lines out there.

Okay.

And as you know, we are not going to be one and I am sure the staff and the other end of dealers as we just totally done it. I would not want to be sort of dealing with this in sort of the public eye with negotiated settlements or about their confidential nature, and so we do prior won't see it very much in the way of discussions from you and authorities up until the time it is done; and if it is not done, then we go to the litigated settlements, then we feel confident that we can still come to a satisfactory resolution at that point as well.

Okay and just on the bottom end of your range is it safe to think that the bottom end of your range factors in, I mean, you say that this range factors in some sort of incentive, TBR. Is there a material difference between the bottom end of your range and something that we have seen from the staff in terms of high single digits, low double digits early?

Well I guess as I agree with Zanders asking questions, we are not sort of in the position to give specific color around those things.

Okay.

But I will suggest to you that so the way we think with regard to rate modification as result of this case are not approaching the staff levels.

Okay and I want to just know the final question. On the equity ratio, there is 62% equity, what kind of equity credit are you guys allocating to the converge? Is that consistent with what the rating agencies are doing?

Well, we do not know that 52% is its straight per blocks, that has nothing to do with allocation of equity credit. We have classified in our financial statements, the convertibles as debt so that 52% that I stated to you reflects those as debt. The credit rating agencies, it is our strong belief that they would give us an equity credit for that; and so from that perspective, they would not view it as a 52% equity company; they would view it higher.

Okay, okay, so then, okay great. So that goes back to the earlier question that may be with these strategic opportunities that you see before you, there is the flexibility already embedded in the capital structure to absorb some of these opportunities.

Well, as you said before that financial flexibility is one of the key strategies that give us opportunity to develop and pursue market driven opportunities and investments but also to manage our existing bills.

Great. Warner thanks so much.

I appreciate that.

Here is the followed question from Paul Wilson with McDonald Investments. Please proceed with your question.

You have indicated that you are seeing some higher summer pricing, but we have also seen gas movement in from what I understand this spotty spreads are a kind of flattish. To what extent are you able to participate in that the higher price is given with the higher gas prices as well. Well I think that obviously that is the higher gas prices obviously affect.. Now I guess that certainly the cross-reference of the CTGs but bottom line higher gas price CTGs in addressing, but they have increased the business. The overall gas cost that we have to purchase from them is relatively nominal in the bigger picture. Our gas prices allow us to generally have been driving energy prices that which allow us to bring more margins to the bottom line. You said that about 85% hedged on the portfolio have you got or you feel similarly hedged.

Yes.

Thank you, very much.

Hello.

Hello, Rosemary how are you?

Fine thanks. How are you?

Doing fine, thank you.

I have a question with regard to the classification of the changes in allowed equity return as you get to single digits based on the equity that you know have dedicated to the regulated business in Missouri. What does a 1% change mean to you in terms of earnings, and also I am not sure that I got the relationship of the lower end of your estimated earnings somehow correlating with the staff position. In other words, there is a lower end of your projected possible earnings for O2 take into account any level of the staff numbers, and that this may be a repetition - I apologize for that?

I will answer to your both questions. With regards to a 1% change in our way on a pretax basis, those make for about $40 million; and then with regard to the lower end of the range, you know again, we are factoring in a future andsyngrade regulation plan that is in fact in tradition of rate making model, and so you know how you deal with and address the numbers that that we both have numbers, but there are kinds of two different models that you can follow.

Thank you.

Sure.

Hi I have tuned in a little late. I heard your comments on your hedging for 2002. Do you have any O3 guidance that you can give to us?

Yeah we did provide that it was 75% David.

75. Thank you.

Sure.

Gentleman I sum up. There are no further questions at this time. Please proceed with your presentation or any closing remark.

Okay. Thank you.

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