美國電力 (AEP) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the AEP first quarter earnings conference all. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, instructions will be given at that time. If you should require assistance during the call, please press zero, then star. As a reminder this conference is being recorded.

I will now like to turn the conference over to Mr. Armando Pena, Senior Vice President. Please go ahead, sir.

Thank you and good morning, all. We're here to discuss AEP's earnings for the first quarter of 2003. I expect you have seen the press release that we issued earlier this morning, but it is also available on our web page at aep.com.

The earnings release and other matters that may be discussed in the call today, contain forward-looking statements and estimates that are subject to various risks and uncertainties. I urge you to refer to the SEC filings including the most recent annual reports on form 10-K and the quarterly reports on form 10-Q for a discussion of the factors that may cause results to differ from management projections, forecasts, estimates and expectations.

Also, on the call we will discuss the measures about company performance that is ongoing earnings versus reported earnings that differ than those recognized by generally accepted accounting principles or GAAP. You can find the reconciliation of those non-GAAP measures also on our investor relations section of our website at www.aep.com.

There are several members of management here but I will turn the proceedings over to Linn Draper, CEO of the company to lead an opening presentation and then there will be time for questions at the end.

Thanks Armando, and good morning. Let me review with you the results of operations for the first quarter, then I will ask Susan Tomasky to highlight the current financial profile of the company before we open up the call to your questions.

AEP reported earnings for the first quarter of $440 million or $1.24 a share compared with a loss of $169 million or 52 cents a share in the first quarter of last year. There were some special itemed in both periods. You may recall that in 2002, we recognized the loss in the sale of Seaboard and City Power of impairment of goodwill.

In the first quarter of this year, there are three major special items; first, a gain of $242 million after tax from the implementation of SFAS 143. This reflects the reversal of previously accrued costs related to removal costs for non-regulated plants upon retirement, for regulated and nuclear plants, these costs will continue to be accrued through depreciation rates.

The second major special item is a loss of $49 million after tax from the cessation of marking to market certain energy transactions per EITF 9810. These previously recorded amounts will be fed back on an accrual basis, as these energy transactions are set.

The third special item I will highlight for you is a $26 million after-tax gain on the sale of the back office for the Texas Retail Energy provider. So on a reported basis, the earnings of $440 million represents a significant boost to our balance sheet, a 12% increase in retained earnings after dividends.

Now, let me go to ongoing earnings, 61 cents a share for the quarter, compared to 59 cents last year. We have an average of $356 million shares outstanding now, compared to our average of 322 million last year. So the dilution effect is about 6 cents, the analysts consensus was 51 cents.

This was quite a good quarter for us. Earnings were on track for the year, still within the range of $2.20 to $2.40 a share that we have discussed before. I'll highlight in my discussion several lines of the earnings breakdown on page 6 of the earnings release.

Ongoing earnings from utility operations found on line 16 were 86 cents a share compared to 71 cents last year, this 21% improvement after dilution was driven by a surge in contributions from system sales shown in line 6, reflecting both increased demand from favorable weather and higher energy prices. Volume and realizations were both up. These same factors resulted in higher transmission revenues in line 8, up 31% to $111 million. The integrated utilities growth margin, line one was nearly flat, despite an increase in sales of 4%, due to higher fuel costs not recoverable under frozen rates and higher capacity payments to Ohio Power through our system pool.

For the Ohio companies, line 2, the sales growth was a bit less than 4%, but the fuel recovery was favorable and the capacity payments from the other east companies were higher. The Texas wires business, line 3, showed improvement from low growth and E-COM revenues that in 2002 were not recorded until the fourth quarter.

While the Texas supply business, line 4 shows growth from center supply contract and the higher output of our must run generating units in IRCOT. The $34 million drop in gross margin reflects a $40 million reserve for a potential fuel disallowance in Texas Central and Texas North companies.

In utility operations, line 7, titled "other wholesale transactions" we reflect the power book in the west, which we are exiting as we announced last fall. You will notice a drop in gross margin reflecting the settlement of the Snohomish contract earlier this year.

On the expense side, ONM, line 11 is almost flat year-to-year. We had higher incentives from better performance this quarter and higher expenses from a number of storms that weren't budgeted, but otherwise, the expenses are under control, and I still expect to see a reduction in ONM for the year versus 2002. Again, in summary, for the quarter, ongoing utility operations yielded 86 cents a share compared to 71 cents last year, including the dilution from new shares.

Let me now turn to the performance of investments, which in total were a drag of 21 cents a share for the quarter. You will find that in line 28, we were 11 cents worse than last year. I want to highlight the results for AEP energy services which includes the gas assets and transitional gas trading book, and also the UK operations which include Ferry Bridge, and Fiddler's Ferry generation and the European trading book.

For AEP energy services line 17 a negative $15 million in earnings for the first quarter, reflects the volatility in the gas market, as a result of weather, operational constraints and historically high gas prices. I point out that this effect of high gas price was more than offset by power sales in the Midwest from our coal fleet. This is a seasonal factor for AEP energy services and I expect it will be limited to the quarter.

We're on track to deliver the results projected for the year of a negative $15 million. This 2003 projection is better than earlier forecasted by $5 million because we've moved the Snohomish contract settlement to other wholesale transactions. That's in the other wholesale transactions line in the utility operations, as part of our power trading transitional book. It earlier included the entire trading transitional book under AEP energy services. Only the gas book now remains at AEP energy services.

On a quarter-to-quarter basis, the 2002 negative $48 million include the losses that we experience when we're actively trading gas. The UK operations of 2003 at line 20, a negative $39 million reflects the deterioration in those markets when compared to the first quarter of last year and I'm sure you're all familiar with that situation.

The first quarter results include the interest cost of debt associated with the triple F plants which was fully paid off in early April. We anticipate results for the full year to be in line with the forecast, negative $104 million. So, the ongoing results for the first quarter were 61 cents a share, line 30, 86 from utility operations, and a negative 25 cents from investments, and the parent company costs.

Finally, let me address a couple of other issues, the trading book and nuclear plant outages. The trading book net fair value decreased in the first quarter from $250 million at the beginning, to $145 million at the end. The net power value is $272 million and the net gas value was negative $127 million. For the transition book, the fair value of power was $136 million at the beginning of the quarter. We settled the Snohomish contract and did other transactions to keep the book flat, and the book now stands at $67 million. The cash will continue to flow in as the book matures. Due to the gas losses we booked last year, the transition book for the gas fair value showed a negative $167 million at the beginning of the quarter.

A number of assets were liquidated during the quarter with positive cash flow, and consequently, the fair value at the end of the quarter was negative $246 million. This cash will flow out as the book matures, but as we've said, these cash outflows in gas are offset by power inflows and reductions in inventory, so the changes in working capital for the year are still projected to be zero.

Now a word about our nuclear outages. We have outages at the Cook plant as a result of fish intrusions from the lake last week. Unit two has begun its refueling outage scheduled for May 5th. Unit one could be back on line next week, pending an NRC inspection. We also have an outage at unit one of the South Texas plant which we don't operate, but we own 25%, or 350 megawatts of this unit. I expect that unit will be out until August, we've hedged the lost output and we'll see a higher cost for the replacement power. This impact will be will be largely offset by a higher E-COM non-cash revenue.

Before taking your questions let me ask Susan Tomasky, our CFO to give you a financial summary of the company at the end of the first quarter.

Thanks, Linn. We made an extraordinary turn around in the financial profile of the company during the first quarter.

During a 30-day period in February and March, we executed the issuance of 1.1 billion dollars in common stock and 2.5 billion dollars of long-term debt. We also extended the lines of credit that mature in May.

In the first quarter, we completed ratings reviews with the agencies and all of our ratings are now stable. The result of all of this activity is a more robust balance sheet, ample liquidity and very little short-term debt.

Let me elaborate a bit. At the beginning of the quarter our total capitalization did not change much, about $20 billion -- I'm sorry at the end of the quarter our total capitalization did not change much but the composition had significant shifts. Most notably the equity ratio increased from 41.5% to 48.5%. We've netted cash on hand against outstanding debt and our debt ratio consequently stands at 51.5%. This is well within our target of 50 to 55%.

With the issuance of common stock and long-term debt we paid off bridge facilities and commercial paper and prefinanced some of the debt maturities for the year. We have removed all refinancing risks from our profile for this year. Our liquidity position stands at $4.3 billion. This includes $2.5 billion in lines of credit that mature in 2004, and 2005 and 2006 as well as $1.7 billion of cash on hand.

Outstanding commercial papers around $125 million, and it continues to roll well with average maturities of about two weeks. We have a very small amount of floating rate debt in our portfolio, only about 6%. The weighted cost of our total debt is 5.8%, with an average life of 10 years. Cash flow from operations for the quarter was excellent.

Internally generated funds were approximately $770 million which is, of course, a vast improvement from the negative $20 million that we saw last year. The internal cash breaks down as follows: $220 million from ongoing earnings, $350 million from the depreciation and deferred taxes and $200 million from working capital. The working capital primarily consisted of inventory reductions of about $180 million.

Security issuances of $3.7 billion and asset sales of $74 million resulted in total sources of cash of about $4.5 million. Cash uses were $325 million per cap ex, $203 million for dividends and $3.4 billion for debt retirement.

The overall cash flow result was an increase of $570 million in additional cash. We had approximately $1.8 billion in cash at hand at the end of the quarter. So after a very good first quarter, we're maintaining our earnings guidance in the range of $2.20 to $2.40 per share. Our cash flow projections and capital structure targets for the year remain as we have given you earlier.

Before we take your questions, I want to mention a couple of changes in the finance department that I -- that you may have already heard about. Armando Pena, has advised us that he wishes to step down from his job as Treasurer and Senior Vice President, Corporate Finance. Before everyone stands in applause to wish him well, let me assure you that Armando will continue to be with us. He will continue to serve Senior Vice President for Finance Policy and will continue to work very actively on investor relations issues.

We permitted Armando to make this change, only because we have a very able successor for him, Jeff Chattis as whom you all know will assume all of Armando's responsibilities and will be our new Senior Vice President and Treasurer.

We have a second change. We have added to the financial group, Steve Smith, who will be a Senior Vice President, also reporting to me, and Steve's job will be to continue the efforts that we've been making and accelerate them significantly to improve and modernize our accounting, reporting and forecasting activities. That is the sum of the changes that we've made.

We think that we will be able to continue to serve our shareholders well, and improve our performance in that regard and now we'll be happy to take your questions.

Thank you very much, ladies and gentlemen if you wish to ask a question, please press the one on your touch-tone phone. You will hear a tone indicating you have been placed in queue. If you have pressed the one prior to this announcement, we ask that you please do so again at this time.

You may remove yourself from queue at any time by pressing the pound key. If you are using a speaker phone, please lift up your hand set before pressing the number. Once again, if you have a question, please press the one at this time. One moment for the first question. The first question comes from the line of Robert Rubin from Deutsche Bank. Please go ahead.

Good morning, Robert. Robert? [ silence ]

Mr. Rubin, your line is open.

Do you want to go on and maybe Robert will come back.?

Yes, sir. One moment. Next question comes from the line of Neil Stein from John Levine and Company.

Let's see, a couple of questions. Just first want to verify, I think you said the lost earnings from STP are going to be offset by higher E-COM. Could you explain the mechanics of how that works?

Yeah. The nature of the -- This is Tom Shockley. The nature of the calculation associated with E-COM has several different factors and one of the factors that gets rolled in is average fuel cost. As the fuel cost changes from the loss of the nuclear fuel to the replacement power that gets caught up in the calculation and offsets a portion of the increased power costs.

That's an earnings effect and not a cash effect. E-COM is non-cash.

And, are you fairly confident you will be able to collect this either in '04 or '05?

We -- legally, we're very confident of the E-COM calculations. One never knows what happens in a regulatory proceeding, of course, but we would not be taking it into earnings if we didn't think the calculation was correct.

Have you discussed this with the regulators? I guess it's kind of a unique situation.

Well, it's not actually, done by Center Point as well. It's certainly known to the regulators. We've talked to them about it. They haven't commented on any aspect of what's going to go into any eventual workout of the securitization, so we think it's appropriate to identify as with respect to all of this some regulatory risk around it, but we do not believe that it is -- as I said, we believe the calculation is correct. They are well aware of it. Center Point does exactly the same thing, and we believe that it's a fair assertion of a claim for recovery.

Do you have a rough forecast of how much the additional E-COM might be over and above what you originally said it would be for this year?

No.

Okay. Let me move on, I guess my second set of questions relates to ONM. In the past you talked about a goal of cutting ONM by 300 million gross and I guess, 200 million on a net basis. When do you think we'll start to see progress in terms of seeing the lower ONM show up in the results?

I think we're seeing it already. As I indicated earlier, we have the extraordinary storm damage and other things in this first quarter but we have reduced force by a couple thousand people compared to last year. I would remind you that that spread across utility and non-utility operations, but we are clearly seeing a substantial reduction in ONM.

How much was it for the storm costs? I missed that.

We're looking for the number. Just a second.

Sure.

About $8 million.

So, I guess, if you adjust for that you still would have been flat for ONM year-over-year. Will it be in the second quarter or third quarter that we'll really start to see this progress towards achieving this $200 million net goal?

Yeah, I think that's right. And what will affect that is the success of our system sales and other programs that have incentives associated with them to the extent that we have very success programs, we pay those incentives and it's not entirely obvious how much the ONM has been reduced.

It's also important to remember that as the $200 million is associated with a reductions against significant projections increases, that we and others in the industry were expecting as far as, you know, pension costs and things like that. So the fact that we are remaining flat suggests some improvement in the absorption of ONM costs.

Thank you very much and congratulations on a very good quarter.

Thank you.

Thank you.

Next question comes from the line of Paul Ridzon of McDonald Investments. Please go ahead.

I wonder if you could comment on the outlook for the UK or any change you've seen in the outlook since December 31st, and then secondly, given the strength of this quarter, whether you're comfortable, perhaps, tightening your $2.20 to $2.40 range or if you are going to -- the common theme this year, everybody, even though they are blowing through the numbers is at the same conservative stance.

Let me take this and I will ask Holly to comment on the U.K. It's early in the year. We clearly had favorable weather, very good sales early in the year. We are not, at this point, prepared to make a change to our range of $2.20 to $2.40. Holly do you want to make a comment about the UK?

Well, as Linn mentioned, the UK is on track for our forecasted loss for the year. The market remains fairly depressed, and we have -- believe we have accurately anticipated what will occur in the balance of the year and we are managing our assets according to our plan and our positive with regard to cash flow.

How are potential further asset sales, can we see more of those in the coming months is there -- you know what are the likely targets there?

Actually, we have mandated an advisor for the divestiture of our Mexican power plants, [Ajillo]. We are working actively with our partner on the sale of our Chinese power plant, [Pichon]. We've also begun the process to mandate an advisor for the divestiture of our IPP project here domestically in the U.S. and we have mandated an advisor for the sale of our AEP coal assets.

Can you tell us how much equity is in each of those?

Bette Jo indicated that she will get back with you on that. Okay, I'm sorry. I don't have it in front of me right now.

Thank you.

Thank you.

Next question comes from the line of Elizabeth Barilla from Merrill Lynch, please go ahead.

Thank you. Just following up on triple F. Could you tell us more specifically what your capacity factor and pricing assumptions are for that plant this year in coming up with that loss projection?

There isn't a simple answer to that because the capacity factor and loss are driven by the market prices, our fuel input and how we're going to manage our emissions constraint, the sulfur bubble, but in round -- in broad numbers we are still looking at probably around a 40% capacity factor and a forward-view of mark prices consistent with what we are observing currently.

Would that be something in the area of, say, 17 pounds per megawatt hour?

I can't really give you specific insight because, of course the price pattern fluctuates throughout the day, the number of hours we can operate. There's not really a good average price that would be indicative for your planning purposes. We actually track it hour by hour.

Okay, and the system sales for the quarter, it looks like the margin was around $17 a megawatt hour. Would that -- is that correct?

The realization? Yes.

I'm -- yeah. Right. On the -- yeah, the realization.

Yep.

Okay. For the rest of the year, would you be looking at something higher than what's built into your projections right now, which I think is just a little under 14, given where gas prices are?

We have not adjusted our public forecasts.

And on the EITF 9810 adjustment, is that truly all one time, meaning it's a reversal of earnings that were booked in the past or is there anything that would have been sort of current?

No, it's a one-time adjustment we will see it flow back through earnings on an accrual basis as those transactions are performed on and liquidated.

And over how long a period of time would that be?

It's very significantly dependent upon the book. We may be able to give some color around that. I don't have it handy. We'll see if we can do that for you separately.

Thank you.

Next question comes from the line of Jay Yanello of UBS, please go ahead, sir.

Good morning. Could we have a few more details on the potential fuel adjustment disallowance and I might have lost you on energy services. Can you give us another visual of what happened in that segment during a quarter and with the trading book? Thank you.

Let me do the first one quickly and then we'll turn it over to Tom and Holly for the other. With respect to -- this is a fuel proceeding that has to do with the final fuel proceeding prior to the commencement of competition in Texas and it was ALJ decision. Needless to say, we believe it's incorrect and we're entitled to it and we'll pursue it through the commission, $40 million, because we believe that -- however, because we do have an action by the ALJ, disallowing that portion of it, we felt it was appropriate to take a reserve because it's fuel that belongs in ongoing. Holly and Tom, do you want to --. Some details in AEP energy services.

As Linn mentioned, AEP energy services includes all gas activities, both the operations of HPL, as well as the transitional gas trading. In the quarter, we saw some pretty dramatic price movements, and the -- our positions relative to that are reflected in the earnings number.

Furthermore, we do have some fairly complex tax adjustments that were also reflected in this number that ultimately resulted in the reported loss.

Okay. Did -- are there exposed positions still? I guess I'm trying to dig a little deeper. Is there some exposure still? Are things out of whack and did not got closed off our closed out?

No, no, I would not describe it that way. Our transitional gas trading is flat and we did not have any price risk exposure associated with that activity. Operationally, what we saw was a need to cover physical deliveries to one of our large customers from the cash market, and it resulted in a loss that was -- with regard to that particular contract.

Okay. Were the -- how much were the tax adjustments, roughly?

I think it's -- as best I can recall, subject to further confirmation from Bette Jo, I recall it to be around $16 million negative.

Okay. Thank you.

Next question comes from the line of Lee Anderson from Stanford Bernstein, please go ahead.

Yep. Good morning.

Hi.

In your energy services, working off the last question, could you just talk to the performance of the pipeline companies, sort of how higher gas price maybe helped or hurt through put?

Well, we did see some pretty dramatic volatility in gas prices in February and March. We believe it was driven in major part by deliverability issues in the Gulf Coast region. We managed our deliveries to our large full requirements customer [INTECH], both from our own storage assets, as well as on the markets.

That particular contract, which is the one I alluded to in the last response is a full requirements contract, and consequently, when we had to cover our positions for delivery to that customer, the -- we did not realize our anticipated margins that were reflected in our forecasts.

How about the two pipelines, what would -- what was the through put on those?

I don't actually have the -- the specifics throughput relative to forecast in front of me.

Okay. And I know we're only a couple of months into your strategic repositioning, I guess but you seem to have accomplished a lot.

Could you just highlight a couple of maybe top five sort of items left on the list to do and short of provide ud maybe a financial -- I mean what financial impact that could have on the company?

It would be very difficult to quantify the individual pieces at this point. But clearly, our top priorities are maintaining our credit ratings, which involves the execution of the business plan that we have identified, as well as the addressing over the appropriate period of time the divestitures. So, I would then put the divestitures as another priority.

We clearly have priorities within maintaining our current established earnings base, including generation availability, maintenance of service. That is a very significant source of focus of our attention.

We continue to believe -- to put a high emphasis on maintaining our risk management standards on an enterprise basis and then the financial sector, it would be the ongoing reductions in ONM and cap ex which is a very, very, high priority. The systemic disposition of the non-core assets, which I mentioned, which are scheduled to happen over -- scheduled, perhaps a more precise a term but are anticipated to action as we are executing them over the end of this year, and into next.

We have, obviously issued our equity and we have already accomplished our strategy with respect to liquidity. So that's how I would -- as well as the change in the dividends. So that's where we are for the rest of the year.

Can I just ask one last question of the OEM. I think going into the year, you talked about some pressures on ONM, actually from some issues but yet you've seem to have been able -- but at least you think you are offsetting that. Is that the case?

Yes.

Yes.

All right. Thanks.

Next question comes from the line of Andre Mead from Lazard. Please go ahead.

A couple of questions. On the South Texas project, I think I understand what you said vis-à-vis the fuel costs and the impacts on E-COM. Basically your fuel costs rise because you're not producing as much with the cheap nuclear resource and that goes into the calculation of E-COM.

You book a non-cash or more non-cash earnings now, you will collect it in cash in 2004, when you do the true-up. Is that basically correct?

That's right.

Yes.

Now what about on the --

Can I just add one thing?

Sure.

That there is a -- we get all of this stranded generation costs in the true-up. Portions of the E-COM that may be associated with other factors could well -- you could end up recovering as a wires charge over a longer period of years, but -- so that's a detail, but it's something that I wanted to make sure --to clarify.

yep, I understand. What about potential capital costs to fix the problems at the South Texas project. Let's say your share of, you know, repair costs is $100 million in capital, how is that reflected in your -- the book value and how does that get factored into the stranded cash calculation in 2004?

This is Bob Powers, Executive Vice President of Nuclear Generation.

Can you hear Bob?

Yes, I can.

The repair costs of South Texas are not expected to the order that you described. Our best estimate from our owner/operator is at this point a few million dollars would be our portion or portion of the shares of the repair costs for South Texas.

Now does that -- does your book value -- I guess this is for any capital additions year by year. Does your book value get adjusted yearly for, you know, both depreciation rolling off and capital additions rolling on?

Yes.

Yes.

Okay and then you start '04 with the net book value at the time?

Right.

Okay. That's all.

Okay. Thanks.

Next question comes from the line of Brian Fideo from Salomon Smith Barney.

Can we get the transition rate and the VAR?

What -- with regard to the bar, it is zero. We have flattened those books and we're keeping them flat and it does not utilize any VAR.

The VAR net zero, is each book zero or is it a combined amount that equals zero? Each book?

Each book, gas and power. To the extent that we settled with Snohomish, we had a couple of days where we were reflattening that may have utilized something, but it's essentially zero. We keep the books flat.

In terms of the duration, the vast, vast majority is in this first year for power liquidation, as well as for gas, however, I have to say that we do have lingering liquidations out for several years.

So on average, a year and a half to two years?

I would say that would be a representative average in terms of the anticipated liquidations, yes, across those books.

Okay. If you could also comment as well, it seems like sales to the industrial sector were down year-over-year is that just because of the economy or some other factors playing into that?

It's mostly the economy. There have been a couple of industrial customers in the last two or three years who have either left the system or installed co-generation facilities, but clearly, industrial sales are reflective of a weak economy.

Okay. Great. Thank you very much.

The next question comes from the line of Mark Aversman from Ohio Ferris. Please go ahead. Mr. Mark Aversman, your line is open. We have a follow-up question from Elizabeth Barilla from Merrill Lynch, please go ahead.

Can you talk about whether you've had -- I guess two questions relating to Texas. One is if you could give us an update on the status of your plant divestiture in Texas and secondly, whether there have been any discussions or indications from the commission as to how you deal with the lag period, where you are not booking E-COM in '04, but they haven't decided the stranded cost true-up and what happens from an earnings standpoint.

Elizabeth, this is Tom Shockley, and with regard to the lag period, we have not made a call yet as to whether or not we will try to be pursuing a remedy with the commission or not.

With regard to the status of the disposition of the plant, and as you know, this is the methodology that we have chosen to take to establish our stranded costs and we stay on that track. The commission has had a number of different hearings, as they move forward through this and we're waiting now for a final determination from the Texas Commission on May the 9th with regard to them ratifying this method for us to move forward to establish our stranded costs. We will be pursuing the sale of these assets, you know, as soon as we get definition there.

Thank you.

Next question comes from the name of Kit Konolige from Morgan Stanley. Please go ahead.

Thanks. Good morning, guys.

Good morning, Kit.

I don't know -- I don't know if I heard this directly or not, but can you define for us what the change in cash, your cash position was with respect to all of your trading books in the quarter?

We got the -- 250 and 145.

Pages are turning, Kit, hang on just a second.

You're talking about the net fair value of the contract, Kit?

I'm talking about how much cash. You know you added collateral. Cash that was in the trading business, 12/31, versus cash in the trading business 3/31. Okay.

We are holding -- at the end of '02, we were holding collateral of $147 million and at the end of the first quarter, we are now holding collateral of $260 million. The collateral that we had posted at the end of '02 was $73 million, and the collateral we are now holding while -- holding at the end of March is $64 million.

That we have posted.

I'm sorry. Posted.

So, let's see, your net cash increased moderately?

Yes.

And do you have -- would you expect that trend to continue or do you expect the cash to stay flat going forward?

Well, in addition to having an uptick of cash held associated with collateral, we did settle with Snohomish and that was a pretty substantial positive liquidation. I think as an indicative number, you've seen our aggregate asset and liability decline from $250 to $145 reflecting -- subject to further analysis.

$100 million of assets liquidating in the quarter, but to be clear, we do have some balance sheet assets reductions that are still classified as receivables and so that full amount has not yet been realized in cash.

We said for the year, Kit, that we expect the working capital change would be zero.

Right, right, right. Okay and can you tell us what the -- at the end of the year, the liability and the asset for trading -- the trading book was both -- each of those was somewhere in the neighborhood of $2 billion. Can you give us an idea how that's changed in the quarter?

Yeah. We --

Go ahead.

We have assets at the end of March of approximately $1.9 billion, liabilities of $1.8 and the net is a differential of 145 that I mentioned to you.

Right. And that's on track with what you expect for your discussion of -- of how quickly the book runs off?

Yes. Yes, it is. I -- I should be clear, however, we will continue to have amounts reflected on our balance sheet associated with ongoing system sales activities that, according to accounting rules, must be reflected as mark-to-market transactions.

Right. Right. Let me quickly ask one other area. Can you give us some color on how you are hedged for power sales from your physical generation over the summer, both in Texas and in the Midwest? In other words, how much have you sold forward, or how much is, you know, looked in or whatever term you want to use, and how much is subject to spot sales?

Yes. I -- I would say that the broad answer is we're approximate -- for the balance of the year, we're approximately 92% hedged in the east, our utility operations in SPP are 100%. And with regard to IRCOT, as you know with the mothball generation, we're actually in a short position, and we have hedged or partially hedged a large portion of our delivery obligations to Centrica and so we have covered our short position there.

Mm-hmm. Mm-hmm. And can you give us an idea of what the -- so hedging that position now, I assume, would have led to a shortfall with respect to what you would have anticipated the earnings to be in that Texas generation situation?

As a consequence of STP?

Yes.

Yes.

Can you give us any idea what that is?

Well, I don't think it would be substantial enough to affect our guidance and, in particular, I would draw your attention back to the fact that it is offset through our E-COM calculation for reported earnings purposes.

Okay. I think -- I think there was some sense from you guys that the E-COM for the entire year would amount to about 30 cents in EPS. Is that -- would that be higher now as a result of this STP situation?

It could be.

Yes.

Mm-hmm.

But we don't have a number, yet, Kit. We're still sort of watching that situation.

Okay. All right. Thank you.

Our last question comes from the line of Tim Bond from Conseco Capital. Please go ahead. [ silence ] Mr. Tim Bond, your line is open.

Well, it looks like Tim is not there. Can we go on to the next one?

That was the last question. We turn over the conference over to Mr. Pena. Please go ahead, sir.

All right, well, thank you very much. This call has been recorded, so the operator is going to give you some details for playback if you care to listen back later. And we thank you for participating today.

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Participants dialing 1-320-365-3844 or for international calls, again, those numbers are 1-800-475-6701 and with the access code of 681204. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.