美國電力 (AEP) 2003 Q2 法說會逐字稿

Ladies and gentlemen, good day and thank you very much for standing by. Welcome to the American Electric Power second-quarter earnings conference call. At this time, all participant lines 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 need assistance during the call, please press star and then zero. An operator will assist you. And as a reminder, this conference call is being recorded. I will now turn the conference call over to your host, Mr. Armando Pena. Please go ahead, sir.

Good morning to you all. We are here to discuss AEP's earnings for the second quarter 2003. I expect that you have seen the press release that we issued earlier today. It is also available on our webpage at AEP.com.

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

Also on the call, we will discuss the measures about company performance that is ongoing earnings vs. reported earnings that differ from those recognized by generally accepted accounting principles or GAAP. You can find the reconciliation of these non GAAP measures on our investor relations website at AEP.com as well.

There are several members of management here but I will turn the proceedings now over to Linn Draper -- CEO of the company -- to lead an opening presentation and then there'll be time for questions. So, Linn, it is all yours.

E.LINN DRAPER, JR.: Thanks, Armando and good morning to all. Let me review with you the results of operations for the second-quarter and for the first half of the year and then I'll ask Susan Tomasky to highlight our current financial profile before we open the call to your questions.

Ongoing earnings for the second-quarter were 44 cents a share. Reported earnings were also 44 cents a share or about $175 million. The analyst consensus was 40 cents. This is a good result even compared to the 56 cents we earned in the second-quarter last year. Right from the start for the quarter we had to face a 9 cent dilutive impact of a higher average number of shares outstanding. 395 million compared to 326 million last year.

The sale of SEEBOARD last July we moved an 8 cent contribution in the second-quarter of 2002. On top of that, weather was cooler than normal and we're still experiencing a delay in the recovery of the economy.

For the year-to-date period, ongoing earnings per share were $1.05. We are maintaining our earnings guidance for the year of $2.20 to $2.40 a share.

Let me talk about utility operations for the quarter and year-to-date first. Then I will talk about the investment segment.

The details for utility operations for the quarter are on page 6 of the earnings. Utility operations produced good results despite continued weakness in the economy, cooler weather and outages at our nuclear plants. Our coal-fired generation performed well and was available for higher volume of sales to the wholesale market to offset lower retail sales.

Compared to last year, gross margin for the quarter was relatively flat at $1.7 billion and operating expenses were also relatively flat. 2003 net earnings of $225 million for the utility operations were slightly below last year's 237 million as shown on line 16. Total domestic retail load for the company was down 3.4 percent, primarily as a result of lower residential sales -- about 7 1/2 percent -- and industrial sales 4.8 percent a percent. These figures are shown on page 8 of the press release.

Cooling degree days were down 31.1 percent year-to-year and 16 percent below normal. Retail margins at the regulated utilities -- line 1 -- were about $64 million lower than the second-quarter last year, primarily due to below normal weather.

The outage of the Cook plant due to an unexpected fish intrusion and a plant refueling resulted in higher fuel cost. Both units at Cook are back in service and running well now.

For the Ohio companies -- line 2 -- margin was lower by $15 million. Residential load was down 11 percent due to unfavorable weather and industrial load was down 5 percent again reflecting the continued economic slowdown.

The Texas wires margin -- line 3 -- was up $59 million primarily from $52 million of ECOM revenues that in 2002 were not recorded until the fourth quarter. You'll recall that these non-cash earnings associated with stranded cost recovery reflect a difference between the actual price received from the state-mandated auction of 15 percent of generation capacity and an earlier estimate of market prices derived from the Texas public utility commission model.

These revenues are regulatory assets recoverable in cash through a 2004 true up process established by the Texas deregulation law.

The Texas supply margin -- line 4 -- was down $38 million principally due to the outages at the STP nuclear plant Unit 1 of which we own 25 percent. All the repair work at the unit has now been completed and the plant operator has reloaded the fuel. The unit is anticipated to return to service in August.

On the expense side, O&M expenses -- line 11 -- were $20 million lower. Taxes other than federal income taxes in line 13 were 12 million lower from -- primarily from reduced staffing which resulted in lower payroll taxes.

Capital cost -- line 14 -- were higher by $17 million, reflecting increased interest expense as we've reduced the amount of floating-rate debt on the balance sheet.

Finally, federal income taxes -- line 15 -- were lower by $21 million.

So earnings for the quarter from utility operations were 57 cents as shown in line 16.

For the year-to-date -- as seen on page 9 of the earnings release, line 16 -- ongoing earnings from utility operations were $534 million compared to 465 million for last year. This improvement comes from ECOM revenues in the Texas wires and (indiscernible) success in optimizing our coal-fired generation fleet in the East and effective reduction in O&M cost.

I should highlight our effort in controlling O&M. For the utility operations, you note on line 11 reduction of $24 million in 2003 year-to-date. This reflects a year year reduction in staffing of about 2000 employees, also reductions in outside services and overheads. And it offsets our increased cost for storm damage of about $10 million, plant outages of about 16 million, and pension and post-retirement benefits of about 27 million.

We are doing more with less.

I expect that for the year we will deliver the projected $94 million in reduced O&M expenses for our utility operations.

Now let me talk about the performance of the investments. I'll start with the second-quarter on page 6 of the earnings release.

Earnings from investments for the second-quarter were a negative $47 million dollars or 12 cents a share as shown in line 28. Essentially unchanged from last year. This result reflects improved performance, given that we no longer have the $25 million positive contribution from SEEBOARD -- shown in line 23.

Let me highlight two of the investments -- line 17, our domestic gas business and line 20, our UK business. Line 17 includes the domestic gas operations and the trading transition book for gas. For the second-quarter it shows a $24 million loss compared to $32 million last year. Gas operations continue to have lower margins as a result of scaling back gas optimization and marketing activities in line with our reduced risk appetite.

This has been somewhat offset by lower staffing and interest cost. We had a negative event in the transition book from a dispute with a counterparty which terminated its positions and required reflattening our book at a cost of about $6 million. We now anticipate that for the year losses associated with the domestic gas business will exceed the $15 million originally projected but we expect this will be offset by the improved outlook for our UK business.

During the second-quarter, our UK operations improved significantly, compared to the corresponding period in 2002. Posting a net income of $3 million compared to a loss of $12 million last year. This improvement was driven primarily by a strong quarter from our coal and freight procurement group and reduced interest expense as the debt associated with the plant was retired in early April. We have seen better mid-term power prices but significant liquidity issues in the UK market continue and the uncertain environmental regulations are still concerns. So we expect this market will remain a difficult one in the foreseeable future.

Year-to-date -- shown on page 9 of the press release -- our UK operations posted a loss of $37 million, driven by a $40 million loss in the first quarter due to the continued deterioration in the power markets during that period and higher O&M costs which included the closure of the Nordic trading office.

We projected a loss of $103 million for the UK operations in 2003. While the UK power markets still faces a very tough future (indiscernible)expect a better performance for the year, based largely on the elimination of the interest expense. This will be largely offset by a reduced outlook for the gas operations in the US.

Before we take your questions, let me ask Susan Tomasky, our CFO, to give you a summary of the financial profile of the company at the end of the second-quarter. Susan.

In my remarks, I am going to discuss our current liquidity position, cash flow and cap structure. We're not prepared today to discuss earnings for 2004, but we do expect to do so in the fourth quarter.

Our liquidity position remains quite strong. We have total available cash and credit facilities in excess of $3 billion. Our credit facilities total about 2.8 billion and we have about 1 billion in available cash. Of the credit facilities, 300 million are due to expire in October and may be extended as needed for our UK operation.

We have no other lines maturing until May of next year.

Our commercial paper program had about 500 million outstanding at the end of the quarter and it continues to do well, with some maturities now extending beyond year-end. The total credit facilities in cash on hand, less the commercial paper, leaves us with a net liquidity position of about $3.3 billion.

As of yesterday, commercial paper outstanding was 385 million and cash on hand was about 1.4 billion. So our net liquidity position today is now about $3.8 billion.

Let me say a few words about cash flows for the first half of the year. On our website, you're going to find a table with all the numbers that I'm going to discuss. For the year-to-date, cash flow from operations was about $800 million and for the second-quarter, 25 million. We're still on track to deliver our year-end projection of free cash flow of about $130 million.

Going back to the year-to-date, let me walk you through these numbers. Cash flow from operations begins with the reported net income of $615 million. Then we add back depreciation and deferred taxes of 706 million. And then we deduct four items. First, 193 million -- which is the net from the FAS 143, which you recall is the reversal of previously accrued removal cost for nonregulated plants upon retirement, and also the cessation of the EITF 9810 -- which is the marked-to-market of certain energy transactions.

Second factor netted out is the 108 million from non-cash ECOM. A third factor is 48 million in marked-to-market changes and then fourth, 190 million for working capital changes.

So the total cash flow from operations has been 800 million year-to-date. The negative changes in working capital of 190 million includes 90 million paid to the Williams Companies as settlement for power and gas transactions and about 50 million in increased fuel inventory. The fuel inventory increased for the six months of the year reflects about 165 million reduction in the first quarter, largely coal, offset by $210 million increase in the second-quarter that's mostly related to filling gas storage facilities.

External sources of cash year-to-date include the sale of equity securities of 1.175 billion and long-term debt issuance of about 3.55 billion and about 1 billion in -- I'm sorry about 1 billion in the second-quarter. We have substantially completed our (indiscernible) for 2003 but will continue to focus on refunding existing liabilities as the operating utilities as appropriate to take advantage of lower interest rates.

Capital expenditure year-to-date are $650 million. Other uses of cash were 1.7 billion in debt maturities, 225 million pay down of the minority interest financing for the gas pipeline, 2.7 billion reduction of short-term debt, then 340 million for common dividends.

Cash on hand at mid year was about 1.2 billion -- essentially unchanged from the beginning of the year. Capital structure at the end of the quarter was approximately 53.8 percent debt and 46.2 percent equity. The debt ratio increased a little over 2 percent from the end of the first quarter to finance the working capital charges that I just mentioned and also because we paid down a portion of the minority interest financing for the gas pipeline, which we count as equity in our calculations. We're still within our target range of 50 to 55 percent debt.

This concludes our prepared remarks and we're now ready for questions.

Absolutely. Ladies and gentlemen, at this time if you have a question, please press star then 1 on your touchtone phone. You'll hear a tone indicating you have been placed in queue. You may remove yourself from queue by pressing the pound key. If you're on a speakerphone please pick up the handset before pressing the numbers.

First questions in queue is from the line of ALI AGHA from Glenrock Associates.

I wanted to ask you guys a little bit more about the UK. Was the majority of this substantial improvement because of the debt retirement? Is that the case?

Yes although there was also some improvement in operations. Tom, would you like to address that?

Sure. You're right on -- the majority of this came from this particular line item not having to reflect the interest (indiscernible) since it was paid off.

Okay, now you guys were projecting a negative 103 million and it looked me like this was a possible number for the quarter. Is that correct?

Yes.

So that would mean you'd have a substantially lower number. I mean, if it simply (indiscernible) situation then it would seem to me that you guys -- that we could -- that this could be something that we don't really have to worry about as much as I guess you guys talked about in the past.

I think that's it. Well, we always worry but to be perfect -- to directly hit that, that's correct. We're seeing significant improvement in that area. There are still issues. It's still a difficult market within which to operate. There are, certainly, challenges going forward. It's a plant that has performed extremely well over the course of this year and we are extremely pleased with that and we think that it is -- we're certainly on top of the management of it.

I guess I am a little confused about those. You guys probably planned on reducing the debt extent that -- reducing the debt there.

No that was not in our original forecast. At the time we did our forecast, we certainly knew that we were going to raise the equity but we hadn't made decisions as to the uses at that point.

(indiscernible) (indiscernible) (indiscernible)

I guess not only that that would mean that you can't reduce debt somewhere else.

That's correct.

So it's really a shifting that's happening there of where that loss might show up.

That's fair.

And that pretty much answers it. That seems to be the majority of what we're looking for as opposed to some of these other operational improvements that you mention (indiscernible) clarity on that.

(indiscernible) that's true. Yes.

Kit Konolige from Morgan Stanley.

Actually Isabel (indiscernible). Just wanted to get some clarity on the ECOM earnings in Texas. I guess (indiscernible) you guys booked about 50 cents now you have to target for this year seemed to be around the 30 cent mark like year-to-date you booked about 28 cents so I wanted to know first of all if there was any update to that forecast for the year?

I think you maybe got a pretax number.

It says in your release these are earnings number and on your cash flow statement I guess the ECOM year-to-date were up to 108 million.

That is a pretax number.

A pretax gain. So where are we for ECOM for an after-tax pure earnings basis?

Probably about 18 cents.

So your 30 cent mark, then, is still probably accurate.

Yes.

And can you discuss data on the status of your trading portfolio and how the net assets and liabilities and where that stands?

Tom, will you address that, please?

Got it. Let me give a summary of where we stand as of June 30. We've got total net assets of 1.8 billion, offset by net liabilities of 1.57 billion so the net mark in the book is $239 million.

Great and is the timing for the portfolio to unwind still -- still unchanged? Are you still on target for that?

Yes we are. Let me clarify. The number I just gave you was the total risk management portfolio, the (indiscernible) line we normally refer to is the transition book and it is still on track.

Right and then one final question for the -- I guess it sounds like '04 guidance is going to come out in the fourth quarter. Is the -- I know that you guys had said originally you're going to try to get out maybe by the end of the second quarter or August. Is the reason for the delay issues surrounding I guess taxes and what goes on there with -- I guess the loss of ECOM and timing on the asset sale and then what goes on in the UK? Are these sort of a two biggest moving parts in your mind or are there other questions that still need to be resolved?

Those are two pretty important moving parts. I would actually probably say that (indiscernible) continuing to watch the investment, to watch the summer performance and the evolution of the economy -- which is also a very important factor for us is are important is well.

Andy Smith from Lazard.

Question. If you can update us on the Bama (ph) gas storage litigation -- I think you guys were in arbitration last time we talked. Little background on that would be great.

Are you talking about with the Bank of America?

Yes, exactly, with the collateral that was related to the pad gas in storage. I think you guys indicated at one point that resolution at that would could potentially impact the sale of those assets basically you need to get that done before the sale could be completed.

Couple of different issues in there. First of all, with respect to the B&A (ph) litigation it is really actually in litigation not arbitration and that continues on about the pace that litigation typically does -- which is kind of slow. The resolution of the pad gas issue and the specific B&A issue is actually related but less important than this shoring essentially addressing issues related to the Enron bankruptcy. And that continues to be something that we discuss as a possible settlement with the Enron parties and that -- I don't have any update in terms of time but we continue to work on it pretty aggressively.

And do you still believe you got to get all those issues resolved before any sale can go forward or is there some sort of indemnification you guys could carafe (ph) into a sale -- that might allow a sale to take place.

If, at the point we are in discussions, I don't want to preclude the possibility that we can move forward. Our current plan, however, is that we have retained an adviser with respect to LIG, we're going to move separately for right now with respect to LIG, that's partly in order to give us a little more time to resolve other issues. I do think, however, that it affects value. So it is an extremely valuable asset -- it may will be sellable we haven't yet tested the market on HP outside don't have much to say in that regard but it does affect value and at this point we have a preference to resolving these issues ourselves as opposed to absorbing that effect.

Just a follow-up with that since it sounds like you've separated the LIG and HP assets I believe you guys had talked in the past about those two assets working better together, effectively as a package. Is really the only change -- first on (indiscernible) is that correct? Second piece of that is really the only change at the litigation issue is why you've chosen to separate the two?

Actually that's not the only reason. We certainly think and we bought them both because we thought they worked well together and I think that it's fair to say that there may be some buyers out there who would be with the interested in both of them certainly the preliminary indication but it is also the case that people are looking at gas assets for different reasons and the universe of potential purchases includes everything from financial to strategic buyers. And folks may have different reasons for buying these assets. So the universe may overlap but it is probably not identical. As a consequence, because of these other issues, as well as the fact that there may be different buyers from different strategies and our desire is to move forward as quickly as we can with divestitures where we can, bring the value back in the door, that -- those are the reasons that inform that decision.

Paul Ridzon from McDonald Investments.

Just a few questions. The first is, how do you expect the balance of the 12 cents of ECOM to flow in the balance of the year? Just an update on the asset sales you touched on that a little bit and then just kind of surprised at this magnitude of the industrial decline. If there's any large single entity, there are a couple of entities that might be attributable to or weather's just widespread?

We booked the ECOM (indiscernible) year so that's how you'll see come it in. Your second question was on asset sales. Is that right?

Any update or any thoughts, outlook -- timing.

I don't have much more to say other than we continue to be on track for the schedule that we have published. Other than -- except we are moving ahead with LIG. It is still likely that LIG will close in 2004 but it may be earlier than 2004. The rest are being pursued actively along the lines that we previously talked about and there's really not anything new other than the retention of an adviser as I said with respect to LIG. Your third question was (indiscernible) industrial load? (ph) Well certainly it is true that in our forecast we had anticipated a return to more normal economic conditions earlier than we're seeing. That and that is reflected in industrial load. We also saw some additional decline, although it may well be more weather-related then economy-related in the residential load for this year. And it probably is. I would not say that the industrial decline is in any particular sector. It's actually pretty broadly based across both of our regions and among all our industrial base.

Eric Selman (ph) from Sanford Bernstein.

Just a quick question on the system sales margins. They seem to be down in the second quarter for the system sales from 13.6 to 11.90 megawatt hour basis. Is that due primarily to increased coal sales or (indiscernible) or is there another reason?

No. That's just mild weather.

So prices were lower this year?

Prices were lower, absolutely.

All right. Thank you.

Asher Kahn from Forsythe.

My question was answered. Thanks.

We will move on to Ali Agha from Burnham Securities.

I have a couple of questions I want to clarify. With regards to going back to the UK for a second, my understanding is that (indiscernible) prices year-over-year were down so when you look at EBIT from those businesses were they actually down year-over-year?

In the UK?

Yes.

I'm sorry -- where are you seeing prior power prices down year-over-year.

In the UK, based on other data -- not from your numbers but just my understanding that UK power prices (indiscernible) were actually down slightly.

Tom, do you want to answer this? I don't think our date is the same but --

Sure, (indiscernible) let me ask (indiscernible) give us some thoughts.

(indiscernible) stuff has been broadly similar in the first two quarters from last year and we are seeing some improvement now and with that a fairly active July but I wouldn't say that that was -- that we don't see an appreciable difference from last year.

So EBIT was generally flat -- is that a fair statement?

We don't really release EBIT on UK, I'm sorry, Ali.

Fair enough, let me come back to system sales. Again my sense was, most of those are being sold in the (indiscernible) market and, again, I thought the power prices in ECAR (ph) were higher -- I was surprised by a statement that the prices were actually lower.

It's true in the first quarter -- not the second. And you're right -- most of the price most of sales were in ECAR. And then, looking at your -- the other investment businesses and you talked about the fact that you are proceeding forward with some of the sales and so on. If you take a medium term to longer term look when should we expect those losses to ultimately disappear from your income statement? Is it a a two-year process, one-year, three-year -- how should we be thinking about that? Well we have talked about the disposition occurring over the next two years and so I think that you should assume that -- with respect to all the lines that are disposed of -- that, assuming no debt, that has to be reflected elsewhere in the earning statement, that we are going to -- that that's the timeframe that you should see those go away.

So that would mean by the end of calendar of '04? Is that fair?

Yes.

Andrea Feinstein from Angela Barton (ph).

First question on the (indiscernible), have you started to look at what the new carbon trading rules are going to do to your outlook for those assets over the next few years? And could you give us a little bit more insight on how you're looking into that pretty significant change in that market? And then I have a couple of follow-up questions?

Tom (indiscernible).

I think, obviously, it's something we're keenly aware of and watching closely and I think some of the improvements we've seen in the power prices in 2005 and beyond are the beginning of people starting to reflect the anticipated cost those regs (ph) into the market prices so in that sense, in spite of some of the improvements we've seen in power prices (indiscernible) for coal-fired generators we're not -- we don't view that as substantial improvements in our generation margin because it is (indiscernible). SUSAN TOMASKY

You're going to increase cost SUSAN TOMASKY margin won't really change. Have you made any estimates as to what kind of carbon emission allocation you guys are getting -- there's a lot of debate over there as to how that's going to be done and who's going to get hurt or benefit from that?

Yeah,we're constantly making estimates and revising them, the debate is raging on and I think is still quite uncertain.

And then on -- away from the UK -- Susan, if you could just come back to the CFO numbers that you were talking about -- I just want to make sure I got some of the details correct. If I have my numbers right, you had operating cash flow in the first quarter of 770 and I think you said 25 million in second quarter. Is that right?

Right.

Could you talk broadly with us or specifically if that's possible as to why the magnitude of the change quarter for quarter?

Well, a lot of it really has to do with the cash uses in the second quarter.

Okay.

The other factor is that the second quarter is also always the weak quarter for AEP because of the weather.

That's true -- the cash uses we can go through again --

Yeah, I bet you went through that very quickly, could you go through that again real quick for me?

Sure. Let me just walk through the whole thing again.

That would be great.

We've got the net income of 615 million, and back to depreciation and deferred taxes of 706. And then you deduct 193 million which is the FAS 143 as well as the EITF 9810. That's together. You deduct 108 million of non cash ECOM, you deduct 48 million in marked-to-market changes and then you deduct 190 million for working capital changes.

So you're saying -- I mean when -- I guess when I look at those factors and I look at them first quarter versus second quarter.

Lot more cash coming in the door than we had in the first quarter and we had uses.

Lot more negative second quarter (indiscernible) second quarter (indiscernible) Williams payment was a negative big working capital (indiscernible) fuel is a positive SUSAN TOMASKY first quarter and second quarter we actually acquired a lot of gas inventory and that's a $300 plus million swing.

What would be helpful offline? I'll go through that same exercise specifically for first quarter and specifically for second-quarter.

And my last question is where do things stand on Ohio from a regulatory settlement perspective?

Henry, why don't you address that?

In Ohio (technical difficulty) last quarter, there is an effort to try to find a way to transition to competition more gently and effectively what that means is an effort to extend the transition period for several years. Dayton already has reached a settlement. We are in discussions with the Commission to see if we can create a framework so I think what you'll see in Ohio, probably for two or three years past December of 2005, is a continuation of some sort of fixed or predetermined rate structure covering both generations as well as wires.

Any sense on timing.

I would hope that we would be able to resolve this over the next several months.

Susan Voorhees from J.P. Morgan.

Good morning. I had a question with respect to your Texas Supply/REP business. Can you -- is most of the decline there due to STP or or there other factors that work there?

Primarily STP.

And that is expected to get back up online it sounds like between August 15 maybe September 30th at the latest?

Well we still think it's August. That's our best guess.

And in terms of the retail electric provider business there, do you have any comments with respect to how that's going, is that going along with SUSAN TOMASKY

We're not in the retail collector provider business.

Just in terms of supply of the without STP, let me rephrase.

We hedged our supply obligations and we -- that has gone fine. There aren't major swings in there associated with STP from the (indiscernible) situation.

Kit Konolige from Morgan Stanley.

My question has been asked and answered.

(CALLER INSTRUCTIONS). Charles Fishman from A.G. Edwards.

The higher cost associated with the outage, your plant outages as well as the storm damage, put you off track for the O&M savings that you forecasted for the year?

No we believe that we're capable of absorbing that. We're certainly hoping for non additional storms.

And that number was still -- was about 100 million?

Yes.

Abdullah Murtee (ph) from SEC Capital.

Couple of things this morning. If you addressed this I apologize. I'm looking at the cash flow sources and uses. The change in marked-to-market over the quarter looks like it's about $117 million on a cash basis in terms of a negative changing cash.

I'm sorry -- could you speak up? I'm having a hard time hearing you.

On your sources and uses of the cash flow the changes in marked-to-market -- looks like in the second-quarter there was a change of 117 million net outflow of cash. Wondered if you can explain that a little bit and what that translated into on the income statement in terms of a positive or negative effect?

Can we get back to you on that (indiscernible) a lot to do that.

That will be fine. And, secondly, in terms of the cost reduction program, am I misrecollecting or were we, originally I think late last year (indiscernible) $200 million?

That is a total number if you include the utility operations and the investment. One of the things that we did when we adjusted was to take some of the -- basically some of the O&M expenses into the green box -- the investment sheet -- so basically you're still talking about $200 million across board.

So you're simply talking about a subsection of the 200 million (indiscernible)

Right.

And I guess my last question is: what right now is the status in terms of the CEO search and timing and that kind of thing at this point?

I think it's pretty much the same as we announced several months ago, Abdullah, there is a search under way. It will compare internal and external candidates. We expect that that will conclude with the naming of a new CEO sometime around year end or slightly thereafter but that is proceeding in an orderly fashion and I still expect that my departure would be at or before the shareholders meeting next year.

Peggy Jones of ABN AMRO.

Could you review the timing for our regulatory developments in Texas with regard to the sale of the plants and the true up filing and so forth?

Sure. There's been one change which is that we have moved the date -- due date -- for indicative bids to early August of 2003. That was from this month and that has to do with a pretty long list of bidders who had expressed an interest in signing confidentiality agreements in order to participate. We do expect the final bids to still be due in October. And by January 2004, we will be working for first refusal option. The period for that should be ended if we stay on that schedule. There are a lot of -- sort of other interim dates but possibly the next significant date would be the Sept. 2004 true up filing which is made by the PUCT -- it's a 180 day process with a possible extension. We then should see by June of 2004 the approval of the STC surcharge SUSAN TOMASKY

Yeah, but Susan, you're talking about something in September of '04 and then you went back to June '04.

June 05 -- sorry, STC surcharge and then July 2005 would be the sale of the securitization bonds that we have on our current schedule, assuming that the regulatory proceedings follow the process that we talked about.

Okay. I am sorry, I lost my train of thought. That's it -- thanks very much.

Zack Masalas (ph) from Zimmer Lucas Partners.

I just wanted -- can you break out your CapEx by environmental vs other?

I think we would like to get back to you --we don't actually have that sheet right in front of us. But we certainly SUSAN TOMASKY (indiscernible)

Also in terms of AEPES subsidiary that has HPL in LIG just wonder -- can you break out today's results by pipeline vs. other activity which I assume is primarily trading -- gas trade activity?

I'm not sure that we're prepared -- we're not prepared to break that out. Really the way we're looking at it from a management perspective is we have the gas pipeline and the optimization on the gas pipeline and then there's gas transition book activities and as we said, there was about a $6 million counterparty dispute in the transition book that contributed to the negative for AEP Energy Services for the quarter.

Paul Ridzon from McDonald Investments.

Talk a little bit more about the Ohio process and what are the key points that you're going to try to bring up in maybe some potential upside as you go through this process?

The issue in Ohio is one, clearly, from the regulatory point of view and a customer's point of view is to stabilize the rates for fear that rates would rise dramatically from a corporate point of view. We are going to try to maximize the realization we can achieve in Ohio and that really will become the focus of the debate.

Could you characterize how you view the negotiating positions? I understand you basically have the option of going to market if you want and the Commission is very much opposed to that because of as you said the concern about stability. So do you think that you can use that to your advantage to (indiscernible) concessions?

The issue of us going to market is one where the Commission would determine what they believe is market so that while that is an issue to be discussed, I think we're trying to reach an amicable solution here, where we can protect the shareholders for AEP and satisfy the needs of the customer as well.

Could you give this more flavor on the level of talks you've had or how deep into the process you are?

The discussions are involving a fairly broad base of participants -- both consumers as well as the regulators -- and they have not been overwhelmingly active to date.

David Grumhauf from (indiscernible) Capital.

Couple of questions. On the system sales how much were those impacted by the Cook outage if at all? And when you look out for the rest of year are you still -- your guidance that you gave I guess in New York is that still pretty much in line where you expect to be on that front?

Regarding the Cook outage in the East we had the capacity with coal to govern the system sales so so there is an opportunity cost associated with the Cook outage and our estimate is it's going to be somewhere in the range of between $20 to just under $30 million.

And for the rest of the year? SUSAN TOMASKY

(indiscernible)

Another question. Could you give us an update on the regulatory front with various states? Any changes what you told us in New York, if any?

No I believe -- I believe the regulatory status is that (indiscernible) we had indicated we have certain rate freezes that are expiring and the only active effort is the likelihood of filing (indiscernible) in the fourth-quarter this year.

We have no further questions at this time. Please continue.

Well, I think that concludes our presentation. We're looking forward to seeing many of you on our field trip next Tuesday in Columbus. We have a few full house. So we're going to have an exciting two days in Columbus and then visiting the (indiscernible) plants. And then now I will turn it back to the operator to give you some details about you can listen to this call later on.

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(CONFERENCE CALL CONCLUDED)