阿莫林 (AEE) 2003 Q2 法說會逐字稿

Good morning and welcome ladies and gentlemen to the Ameren Corporation second quarter earnings release conference call. At this time I would like to inform that you this conference is being recorded and that all participants are in a listen-only mode. At the request of the company we will open the conference up for questions and answers following the presentation. I will now turn the conference over to Bruce Steinke, manager of investor relations. Please go ahead sir.

Thank you Jennifer and good morning. I am Bruce Steinke manager of investor relations here at Ameren Corporation. Here with me today is our President and Chief Operating Officer, Gary Rainwater, our Senior Vice President of Finance and CFO Warner Baxter, our Vice President and Treasurer Jerre Birdsong and our Vice President and ControllerMarty Lyons. Let me cover a few housekeeping details. This hour long call is available for one week to anyone who wishes to hear it by dialing a playback number. The announcement you received carries instructions on replaying the call by telephone. In addition we would welcome everyone who listen to the call on the Internet today. This webcast will be available for one year on www.ameren.com, our Website.

This call contains time sensitive data that is accurate only as of the date of today's live broadcast. Redistribution of this broadcast is prohibited. I also need 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 anticipated in the forward-looking statements. For additional information concerning these factors we ask you to read the forward-looking statements section in the release we issued today and in our filings with the S.E.C. Again let me thank you for joining us. We will be brief in our remarks today in order to give you an opportunity to ask questions. Gary will begin the call with an overview of our second quarter results and some operating matters and Warner will follow with a more detailed financial review. Here's Gary.

Thanks Bruce. Good morning and thank you for joining us. This morning we reported earnings of 68 cents per share for the second quarter of 2003. Compared to 80 cents per share in the second quarter of 2002. We believe these are solid results, given that our 2003 second quarter earnings were negatively impacted by very mild early summer weather. Especially when compared to the hotter than normal weather conditions that positively impacted our second quarter earnings last year. The change in weather reduced our earnings by approximately 25 to 30 cents per share, in the second quarter of 2003, when compared to the second quarter of 2002.

During the 2003 quarter, we also had lower sales of emission credits which reduced earnings per share by 5 cents compared to the second quarter of 2002. However the greater availability of our low cost generating plants combined with our continued focus on cost control helped to mitigate the negative impacts of weather and lower emission sales for the quarter. Building on our excellent power plant performance in the first quarter of 2003, the greater availability of our low cost generating plants, combined with some improvement in whole wholesale power prices and more low-cost generation available for sale due to mild weather resulted in higher interchange margins earned by AmerenEnergy our short term power marketer. For this quarter AmerenEnergy increased its contribution to earnings by 7 cents per share compared to last year. This fact combined with the additional multiyear contracts being entered into during the quarter show that our asset optimization strategy continues to deliver solid results to the bottom line.

On the expense side of the equation, we continued to see benefits from our voluntary employee retirement program during the quarter. In addition, our continued focus on cost control also helped improve earnings during the quarter. Warner will discuss earnings in more detail so I'll turn now to some other items of note in the quarter.

The integration of [CILcorp's] operations with those of Ameren continued to proceed quite well. We had our first real test this spring at several severe storms hit our service area. Our energy delivery personnel within CILcorp and other Ameren companies pulled together extremely well, and restored power to more than 500,000 of our customers in a safe and timely fashion. We expect financial system integration to be completed within the next few months, and operating systems to be integrated by the end of the year. As a result, we remain on target to achieving the general and administrative synergies we anticipated. The largest synergies of the acquisition are expected to come from the generating plants. While we're still early in this process, plans are well underway to achieve the fuel and operational synergies we expected. As a result, we continue to believe the acquisition will be accretive to earnings, in our first full year of operations, assuming normal weather conditions.

Last year at this time in the midst of settling the largest rate case in our history we never imagined we'd be as busy as we are this year on the regulatory front. Our Illinois Gas rate cases continue to proceed, as you know we've requested annual revenue increases of approximately $34 million for our three Illinois gas utilities. The Illinois Commerce Commission staff's current recommendation is approximately $20 million in aggregate revenue increases for these cases. Other parties have proposed lower increases in each case. Hearings were held in June and July with decisions in each case expected from the Illinois Commerce Commission by October. Rate changes are expected to be effective in November.

In the second quarter we also filed a $27 million gas rate increase request in the state of Missouri, for Ameren UE. We are principally seeking to recover expenses associated with gas system improvements including significant replacement of cast iron mains and unprotected steel service lines as well as cost for customer service system improvements that have been completed since our lacerate case. In our request we offered to phase in half of the increase beginning on December 1 of this year, and half beginning on November 1 of 2004. Our proposal also included contributions of $1.75 million to low-income energy assistance programs, and provision to not seek additional increases in gas delivery rates through November 1, 2006. The proposed schedule for this rate case would cause for the Missouri public service commission staff and other parties to file testimony in October followed by a settlement conference. There is no settlement a hearing would be held in January with a decision required by the Missouri Public Service Commission in April of 2004.

On the electric side of the business we continue to pursue the transfer at net book value of 550 megawatts of unregulated generation to our regulated subsidiary, Ameren UE to meet current generation capacity needs principally in the state of Missouri. Due to filings with the FERC and the ICC by interveners and concerns raised by staff the approval process has slowed. To address the issues raised in this case we've taken several actions. At FERC we've made filings which show that the transfer of these assets at net book value is within market parameters and is the least cost alternative.

In addition, to address the competitive issues that were raised, we've shown that due to the existing transmission constraints in the system, no other viable alternatives exist, to meet the capacity needs of our Missouri electric system. Finally, we've been strongly supported by the Missouri public service commission throughout this process. Not only is our transfer of these assets consistent with the Missouri electric rate case settlement we reached last year, but the transfer is consistent with the overall preference by the Missouri Commission to have dedicated assets serve Missouri electric customers. However, while the overriding purpose of the transfer of these generation assets is to address regulated generation capacity needs in Missouri, the Illinois Comerce Commission had to grant its approval of the transfer because our subsidiary Ameren UE maintains a small base of operations in the state of Illinois.

To address this matter, we have proposed to transfer Ameren UE's Illinois gas and electric service territory to our regulated Illinois subsidiary Ameren CIPS. By taking this action Ameren UE would become a pure Missouri Utility, and the Illinois Commerce Commission would no longer have jurisdiction over the transfer of the generating assets. As a result, and with the support of the Illinois Commerce Commission staff we withdrew our application to the ICC for approval of the transfer of the generating assets and the ICC is recently issued an order dismissing the proceeding. We are still moving ahead with the approval of the transfer of the generating assets with FERC and the S.E.C. under the provisions of the Public Utility Holding Company act.

Within the next few weeks we expect to file with the appropriate regulatory bodies for approval of the transfer of the Ameren UE Illinois Service Territory to Ameren CIPS. It is important note that the Illinois has already approved the transfer of the electric service territory to Ameren CIPS in prior proceedings. At this time we expect that the regulatory process for the transfer of the generating assets and the service territory will be completed by next summer. This delay in the transfer of the generating assets and the service territory will have no financial impact on the company, due to the fact that the rates are frozen in Missouri and Illinois until 2006.

We also continue to pursue the extension through 2006, of the electric supply agreements between our Illinois distribution subsidiaries, Ameren CILco and Ameren CIPS and our generating and marketing subsidiaries. We already have approval from the Illinois Commerce Commission obtained as part of our CILcorp order. With regaurd to [inaudible] and the MidWest Independent System operator or MISO, regulatory proceedings are still pending before the FERC and the Missouri public service commission. Last week the FERC issued an order that could potentially eliminate Ameren's as well as other utilities through and out revenues effective November 1st, 2003. Reversing the administrative law judge's previous decision on this matter.

To substantially mitigate the impact of these lost revenues the FERC's order explicitly permits companies participating in an RTO to seek collection of lost revenues through other rate mick nisms. We intend to seek a rehearing and also seek recovery of any potential lost revenues according to the principles outlined by FERC. Pending the resolution of various regulatory issues we are still planning to be a member of grid America and MISO by later this year.

Finally as many of you know most of our union contracts expired in the second quarter of 2003. I'm pleased to report that we have reached constructive new contracts with some of our unions and have reached constructive tentative agreements with most others. Discussions continue to proceed well on the few remaining negotiations following the pattern of those that have already been resolved. Don't want to get into the specifics of the agreements until all of our contracts are completed, but negotiations have focused on work rules, benefit cost sharing, wages, and pension benefits.

To wrap up, we are focused on successful resolution of many regulatory matters. CILco's integration is on target. Wholesale prices remain above year be-ago levels and our optimization strategy continues to yield solid results. The bottom line is we continue to remain on target to meet our goals for 2003. With that I'd like to turn the discussion over to Warner.

Thanks Gary. Now on to a more detailed discussion of earnings results and other financial matters. In the second quarter of 2003, we reported net income of $110 million, or 68 cents per share, compared to 2002's second quarter net income of $115 million or 80 cents per share. Net income for the first six months of 2003 was $211 million or $1.32 per share, compared to $174 million or $1.22 per share for the first six months of 2002. Excluding the gain from the adoption of statement of financial accounting standards No. 143, we reported net income of 193 million dollars or $1.21 per share, in the first six months of 2003.

Net income decreased $5 million or 12 cents per share, in the second quarter of 2003, compared to the prior year period. As Gary discussed earlier this decrease was primarily due to the extremely mild weather in the second quarter. Which reduced earnings by 25 to 30 cents per share versus the prior-year period. For the quarter, cooling degree daze in our service territory were about 39% below 2002 and 26% below normal. Based on this data, we estimate that second quarter earnings were approximately 15 cents below normal due to the mild weather in 2003.

As a result, in Ameren's pre-acquisition service territory weather sensitive residential electric kilowatt hours decreased by 17% and commercial electric kilowatt hours decreased by 8% in the second quarter of 2003 compared to the second quarter of 2002. However, we did see some improvement in industrial sales in the second quarter of 2003. As they were up 6% versus the second quarter of 2002. Also, heard in the comparisons to last year's second quarter were lower sales of emission credits. You will recall that we have earned and continue to accumulate emission credits as a result of early environmental compliance. Last year, electric energy Inc., a 60% owned subsidiary sought a large block of emission credits that generated earnings of 10 cents per share in the 2002 second quarter, while Ameren had no emission credit sales during the period. For the second quarter of 2003, combined emission credit sales by EEI and Ameren contributed only 5 cents per share. Consistent with our normal level of annual emission credit sales we still expect to generate additional sales of emission credits in the second half of 2003, that will approximate $15 million or 6 cents per share.

Net income was also reduced in the second quarter of 2003, as a result of increased dilution and financing costs outside of those incurred in the connection with the CILcorp acquisition which reduced earnings by 4 cents per share. Higher depreciation resulting from increased capital additions reduced earnings by 3 cents per share during the second quarter of 2003.

In addition, CILcorp operations in the 2003 second quarter reduced earnings by about 3 cents per share. Given the cyclical nature of CILcorp's operations coupled with the fact that we are still early in the integration process and synergy realization, these results were consistent with our expectations. We continue to believe CILcorp will be accretive to operations in the first full year of operations. Ameren nergy on behalf of Ameren UE and AmerenEnergy Generating Company, continued the positive trend this quarter.

Earnings in the second quarter of 2003 increased by approximately 7 cents per share over the second quarter of 2002, and were 10 cents per share on an absolute basis. As Gary mentioned the increase in earnings on interchange sales was principally due to greater availability of the company's low cost generation plants and higher power prices. Our average realize he interchange sales price increased approximately 16% in the quarter which was driven primarily by the higher natural gas prices. But a contribution of 31 cents per share to date in 2003 AmerenEnergy's earnings contribution already exceeds our guidance of 20 to 25 cents per share. At this time we expect AmerenEnergy to contribute 45 to 55 cents per share to earnings for 2003. Up from a 20 cent per share contribution last year.

In the second quarter of 2002, we recorded an 11 cent per share charge related to social program contributions required as part of our Missouri electric rate case settlement. This improved current year earnings in comparison to the prior year more than offset the negative impact of 2 cents per share in the second quarter of 2003, resulting from the additional rate reductions that went into effect on April 1st, 2003.

Other operations and maintenance expense comparisons excluding CILcorp were also favorable in the 2003 second quarter due to the lower labor costs resulting from the voluntary retirement program instituted at the end of 2002 and lower plant maintenance cost which in total lowered expenses by approximately 11 cents per share.

This completes my discussion of the main factors impacting our second quarter 2003 earnings. Today we also reaffirmed our 2003 guidance for earnings per share before the cumulative effect of a change in accounting principle of $2.80 to $3.05 per share. This guidance excludes the gain of 11 cents per share related to the adoption of FAS 143. As Gary stated earlier, given our solid first half of 2003 we remain confident of achieving our 2003 goals. Consistent with our past practice, as we get through the peak summer cooling season we will refine as necessary our earnings guidance.

In all cases our guidance is subject to among other things plant operations, timely integration of Ameren CILco, weather conditions, energy market and economic conditions and other risks and uncertainties outlined in our forward-looking statements. Finally, in July 2003, Ameren Corporation entered into two new credit agreements for $470 million in revolving credit facilities to be used for general corporate purposes including support of our commercial paper programs. The $470 million in new facilities includes a $235 million, 364-day revolving credit facility and a 235 million dollar 3-year revolving credit facilities. These new credit facilities replaced our existing 364 revolving credit facility which matured in July 2003, and a 200 million facility which would have matured in December 2003.

This transaction was oversubscribed and very well received in the market. Further, in these new credit facilities we were able to obtain less restrictive covenants in the area of pension funding and other enhancements. With regard to pension funding and as we have discussed before Ameren does not have any minimum ERISA pension funding requirements until 2005. This completes our prepared comments. We will be happy to take your questions.

The question and answer period will begin at this time. Should you have a question, please press star 1, on your touch tone telephone. If you wish to withdraw your question, please press star 2. Your question will be taken in the order it is received. Please stand by for your first question. Our first question comes from Doug Fischer of A.G. Edwards. Please pose your question.

Thank you, and just wanted to clarify, you're now looking for 45 to 55 cents from AmerenEnergy. What was your prior expectation? I was a little fuzzy on exactly what you're saying there Warner.

Hi Doug. Our prior expectation for the year was 20 to 25 cents for AmerenEnergy.

Has that shifted you in the range for the year?

Well, I think with regard to the range as we said before, we're overall reaffirming our guidance of 2.80 to the 3.05. Of course AmerenEnergy is going to produce what we believe to be very strong results, and as we've said earlier on, the impacts of weather have negatively impacted that, compared to normal it was 15 cents. On a year-to-year basis, that number was between 25 to 30 cents, largely due to harder than normal weather in the second quarter of last year. But a better comparison is really the 15 cent per share metric.

So the right way to think about that is you've lost some to weather through the first half, but AmerenEnergy should more than make that up for the year?

I think that's a fair assessment, Doug.

Okay, thank you, Warner.

You're welcome.

Our next question comes from James [Heckler] of Credit Suisse First Boston. Please pose your question.

Good morning, emission credits, last year you mentioned total company had realized a benefit of 10 cents per share or is that in the second quarter of last year?

Yeah, James, this is Warner, that's correct it was 10 cents per share last year and that was all from EEI, our subsidiary.

Right. The AE had none itself.

That's correct. Last year, that is correct. Whereas this year, we have 5 cents per share that we have earned of which 2 cents came from EEI and three cents came from Ameren.

Okay. And you're expecting to sell 15 million more in the second half '03?

That is correct.

And that's not an earnings number, that's actual sales of credits?

That is actual sales of credit, 15 million and that would convert to about 6 cents per share in the second half of 2003.

Okay.

Primarily from our typical Ameren sales that we would make, which would only approximates $20 million on an annualized basis.

That leads to my next question going forward, should we look at around $20 million to be expected in future years?

Yes, James, as we said in the past obviously we use these emission credits to meet our environmental compliance needs. And then to the extent that we have excess credits available we look to monetize those assuming market conditions are appropriate. And over last several years we have been around that $20 million metric. So looking ahead that's probably not an unfair assessment at this point.

Thank you very much.

You're welcome.

Our next question comes from Philson Yim of Morgan Stanley. Please pose your question. Philson Yim your line is live.

Sorry about that had the mute button on. Wonder if you could talk about weather impact in the third quarter last year over normal. Have you quantified that?

Philson, I have not quantified the specific number last year, compared to normal. As we looked at it last year, compared to the prior year, the pickup was around 11 cents. Compared to normal, my guess is that it wouldn't be quite as robust as that. 2001 in general was a pretty normal year overall. But when you look at it on a quarterly basis, that 11 cent pickup is probably a little bit strong. So it will probably come off of that compared to normal a little bit.

Okay, great. I wonder if you could talk about in that new 45 cent to 55 cent guidance, how much of that is -- would you say from increased generation, available generation, how much is that is from higher prices?

My sense is, I haven't broken it down as to what's driving it as much as the availability. But in general, what we're seeing from a price perspective, as you know if in the first quarter we probably saw prices go up about 90%. Here in the second quarter as we said, they're up about 16%. So when you average, it is somewhere between 50 to 60% year to date.

Right.

As we look out for the rest of the year and you like by your 5 by 16 on-peak prices for synergy they look to be up compared to the prior year about 15%. So that's clearly a piece of it. But then again at the same time, we do expect to continue to have very strong plant performance, and last year we had a little bit of slippage even with the first part of July last year was some power plant being out for some limited outages. Obviously generation will be up and looking well.

Great. One last question, with regards to accretion from CILco in the first full year of ops are we still getting 5 cents?

With regard to the first full year we said our guidance has been up to 5 cents up for the first full year of operations. Of course in 2003, we will only have 11 of the 12 months. And so with regard to our accretion estimates this year we're probably look at the lower end of that range, maybe a penny or two and then with some additional pickup as we pick up the additional month in January of this next year based on our existing synergy estimates and the integration plan that we have.

Okay, thanks very much.

Next question comes from Paul Ridzon of McDonald Investments. Please pose your question.

We had a pretty good pick-up on industrial sales. I wonder if this was a trend or a unique experience.

Paul, this is Gary Rainwater. I wish I could tell you for sure, but it's the first positive indicator that we've seen in about two years. We've seen industrial sales flat or declining for the last two years, and this is the first quarter they've been up. And from other things that I've read about the economy or seen, I think it's a positive indicator, that we're finding finally pulling out of the resection, we can expect to see some growth.

Was there a Cook outage -- not Cook -- I can't speak to that one.

We can't talk about Cook. We could talk about Calloway if you're interested in that one. We did have a Calloway outage earlier in the year but not this quarter. I think it was in March of the year we had an 11-day outage to repair a leaking pressure release valve. It's a kind of outage that we could have kept the plant online but to be sure the plant was fully available this summer we took it down to repair it.

And when is the next refuel?

The next refuel will be next spring of 2004.

We will not have one this year. And real briefly touching back again on a previous question when we talked about prices and generation. We did have a Calloway refueling outage at the end of last year in the fourth quarter. So clearly we will have more low cost generation for sale this year which has been factored into our plans all along.

So aside from the O&M pickup you should see just net benefit from improved pricing?

From both improved pricing and both -- and more low cost generation being available that will not only help our short term marketing sales but also help margins on our native sales.

And a nickel is probably a good number for refuel?

I think going into next year we haven't publicized specifically what the additional pickup would be or excuse me the reduction in earnings. Generally speaking, it would probably be closer to 9 to 11 cents per share.

Is that the fourth quarter of 2002, is that what you estimate the refuel cost?

In the fourth quarter of 2002, those refuel costs were probably by and large in total that but on a year on year basis obviously they were flat. We picked up about seven cents. Five to seven cents per share this year due to the lack of refueling outage and that is largely due to additional programs that Calloway had to put in place this year coupled with increased security cost associated with as we all know the worldwide events.

Thank you.

You're welcome.

Next question comes from Doug Fischer of A.G. Edwards. Please pose your question.

Thank you. Would you please explain please explain a little more fully this transmission issue with regard to revenue. I'm not sure I caught all of that. Maybe you could elaborate a little bit on exactly what that is, what your exposure is, and what avenues you might pursue to recapture any potential lost revenue?

Sure, Doug. I'll try to do my best. It's the whole [Archio] and the Grid America issue is full of several issues and somewhat complicated. What happened last week is we received an order from the FERC where a component of the overall approval process was really the recovery and transition of our through and out rates that we have typically been able to collect. As we move into sort of the RTO framework what we had filed and what had been approved by the administrative law judge was the continued recovery of those through and out rate through revenues which approximate around 20 million to $25 million per year for Ameren Corporation.

The order that was issued last week basically said the mechanism that we were seeking to recover those, the tariff was not appropriate and so technically, they would be disallowing those. However, the order was very explicit in saying look there are other mechanisms that companies that are going to be joining in on RTO may seek to recover these. Because as you know it is a longstanding policy of FERC to have these lost revenues approach and recovery thereof for companies. So what we will do is within the next several weeks is file for rehearing number 1 and 2, as outlined in the FERC order we will seek the other various mechanisms that they lay out for us to try and recover these revenues. We cite this -- we wanted to make sure we talked about it because we had saw depressed and the rags had mentioned this and we wanted to be clear as to what that effect would be on Ameren.

And when would that be effective, the order? I mean, is this something there's going to be a lag in terms of recovery?

We would hope not. We would hope frankly that there would be no change in ultimate recovery, and that's certainly what we're going to seek. The order would say it would have to be done by November 1st. So what we would expect is probably within the next several months we'll file for the rehearing and FERC will make some of the determinations, all in connection with the hope to try and bring not only this issue but a host of other issues both operational and regulatory, put them to bed so Grid America can then become operational sometime before the end of the year. I can't give you specificity on the time. They did say this would be effective November 1st. So this one element we expect to hear from them probably more rapidly than maybe some of the others, at least at this point.

All in all we do believe Doug that with regard to the nature of the FERC order, that we will have an opportunity to recover substantially if not all of these revenues that we mentioned here.

Thank you, Warner.

You're welcome.

Our next question comes from [Mitch Alney] of Mitchell Securities Corporation. Please pose your question.

Good morning. I had a question regarding the recent credit agreement as well as some of the refinancing that's been taken place down in the subsidiary level. I've noticed it last year, there was a $42 million preferred called in at the Union Electric sub well as a number of bonds being redeemed this year. If you could, go into a little bit what lies ahead in terms of continuation of that, specifically regarding some of the prefered that we notice that there is one 7.6% prefered that became callable six months or so ago. This appears to be expensice money and if there’s any reason that could not be called in whether it's part of your rate base or if there's a certain percentage of equity that that contributes to at the sub-level, could you go into that in just a little bit?

Sure. I'll turn overto the details to our VP and treasurer Jerre Birdsong. In general we try to be opportunistic especially in today's interest rate environment to take out potentially higher cost debt as appropriate. We've been able to capitalize on that here as you rightfully point out, not only last year but actually have been pretty active in doing so this year. Looking ahead, I think that there's certainly some debt which is going to be coming due that we will be able to refinance. And to the extent it makes sense to do on other issuances, opportunistically do that. We will consider it but we are not making commitment to that. You had specific questions on issuances. I think I'll let Jerre handle that.

Yes on the preferred stock that became callable in February that AmerenUE and it does reach the full equity credit by the rating agencies. And as the market for many of the replacements, for those types of issuances they don't receive the full credit. So we have not called that -- continued to receive the full equity credit for that one from the rating agencies. And any time that we have opportunities to take out securities at AmerenCIPS we do that or as we are trying to get the capital structure to more closely match the value of the assets, there, so when we have opportunities to take out maturities they are generally not replaced. However at Union Electric we will continue to replace there.

Are you telling me, then, that if I would look at AmerenUE's cost of inter-company borrowing, that it would not be fair to assume that even though there could be material savings by redeeming the preferred, that the company were not going to do that because of the equity credit?

Right. We could not replace that with something receiving equal equity credit and as cost effective manner as the one that already exists.

Okay. Is there a target for the equity component in that subsidiary? And where are we vis-à-vis that target right now?

In general, with regard to a target, I wouldn't say that we have a specific target. Generally speaking, the equity content that we have in issue around 55 to 60% on average, it's been that way over time and that's a level that we've been comfortable at. On an Ameren Corp. level, we basically continue to maintain a very solid balance sheet, 50-50 debt to cap and that's a metric we continue to be comfortable on. And so while we operate very closely look very closely at the subsidiaries we are mindful where we are at total operation.

Thank you very much.

Next question comes from Jessica [Rutled] of [Lazard] Asset Management. Please pose your question.

I was hoping you could talk us through a little bit more this transfer of the Illinois portion of UE over the CIPS and what that means for CIPS in terms of you know sort of rate base and balance sheet and just sort of how the whole process is going to work.

Sure. Let me try a little bit of that. Basically what it means, I guess several things. One, the asset value approximate $140 million, approximately. That's both electric and gas with a large part of that being electric. So that obviously will be transferred into rate base over in our Illinois service territory. With regard to the -- how it affects things from the Missouri side, by transferring both those customers and its service territory over there what it does do is frees up additional capacity face in Missouri because we are capacity short in the state of Missouri. So it really satisfies a couple different things. One, we're able to transfer the service territory and the Illinois Commerce Commission staff and others and the Commerce Commission has already approved that. And at the same time it takes care of some capacity needs indirectly if you will in the state of Missouri. With regard to the overall timing of that, we will be filing for approval probably within the next 30 days, and we'll be seeking expedited approval for that transfer from both Illinois, Missouri and the other appropriate regulatory agencies. Hope to have that done first, and then the overall generation asset transfer which actually works, you know, hand in hand with this, to be done by the summer of next year.

Does transferring that piece of UE’s territory over to CIPS increase the power that CIPS is taking under the full requirements contract with Genco?

Yes, it ultimately will do that.

And is that an automatic process or does it have to get a series of approvals as well?

That will be part of the overall approval process.

And do you expect FERC or anyone else to raise any significant objections to this?

No. At this point we do not. Of course you know I can't speak for FERC or others but we think as we said before not only with regard to the existing -- to this particular transfer, we don't believe that there will be specific problems, but also with regard to the contract extensions for both CILcorp and CIPS that has already been approved by the Illinois Commerce Commission and we believe ultimately that is the least cost alternative to seven in our service territory.

One more question for you since we're talking about basically increasing the through that agreement, back to CIPS, does the Genco currently have enough unsold capacity that it basically has room to be sending more power to CIPS and less to whoever else?

Yes. The answer to that is question yeah. That's all part of our overall plan

Thank you much.

You're welcome.

Ladies and gentlemen, as reminder, should you have a question press star 1 on your telephone. If you wish to withdraw your question press star 2. Our next question comes from James Heckler of CSFB. Please pose your question.

I was wondering if you could comment on your expectation for pricing and synergy for the remainder of the year and perhaps into next year.

Sure. Let me try and probably give you a better sense for the remainder of the year and then probably a higher level with regard to next year. In general when compared to last year as I think I've said before we expect for the rest of this year, the synergy 80 prices to be up about 15%. Give you some metrics, say July through September, this third quarter, we would expect prices on peak to range between 35 and 45 dollars as we see in the open market today. And then they modify a little bit towards the end of the year, probably down to 30 to 35. Of course as we've said in the past, in many respects that forward curve is being driven by natural gas prices. Recently we've seen some leveling off and actually some decreases in gas prices depending upon what the storage situation is and certainly we have the entire month of August which could certainly drive usage of some of the gas fired generating plants. That could obviously change the forward curve, more likely upward as opposed to not, because we would expect gas prices could potentially go up.

From our perspective since we take into the markets the low cost generating fleet which are coal, that's certainly positive to the extent obviously our plants are running. Looking ahead to you know next year, again, we're probably still seeing in general prices improving a little bit over from where they were. Now, of course we had some aberrations and some very strong pricing in the first quarter. We do not see that same level of pricing occurring, at least at this point in time there. So in general if you take some of those what I consider some abnormalities out of the first quarter, you may find those price generally to be pretty much the same going into next year at this point in time.

Thank you.

You're welcome.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1 on your push button telephone. If you wish to withdraw your question, please press star 2. If there are no further questions, I will now turn the conference back to Mr. Baxter.

Thank you. And thank you all for participate pg in this call. Let me remind you again that this call is available through August 6th on playback and through the Internet. The announcement carries instructions on listening to the playback. The webcast will be available for one year. You can call the contacts listed on our news release. For those on the call who are financial analysts call Bruce Steinke, media should call Tim Fox. Numbers for both are on the news release. Again thanks for dialing the in.

Ladies and gentlemen, if you wish to access the replay dial 1-800-428-6051 or 973-7092088 with an id number of 300529. Thank you for participating and have a nice day. All parties may now disconnect.