美國電力 (AEP) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2005 earnings call. (OPERATOR INSTRUCTIONS). As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Julie Sloat, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today to discuss AEP's 2005 first quarter earnings. I expect that you've seen the press release issued earlier today. It is also available on our webpage at AEP.com. In addition to the financial schedules included in the press release packet, the web cast of this call will include visuals of charts and graphics referred to by AEP management during the call. An investor information packet will also be available at AEP.com today at approximately 1 PM that will include the consolidated balance sheet and statement of cash flows, as well as full income statements for our utility operations, gas operations, investments and parent company.

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 Form 10-Q, for discussion of factors that may cause results to differ from management projections, forecasts, estimates and expectations.

Also on the call we'll discuss the measures about Company performance -- that is, ongoing earnings versus 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. I will now turn the proceedings over to Mike Morris, Chairman, President and CEO of the Company, to lead an opening presentation. And then there will be time for questions.

Thanks to all of you as well for joining us this morning. I know you have a typical busy earnings day in the utilities space, as many of our friends are reporting -- I hope reporting as strong results that we feel we're going to share with you today. And Susan and I look forward to your questions and answers.

To give a quarterly update and talk about the things that are current, we can't lose sight of a couple of early events and first quarter of 2005, for us most importantly the sale of the Houston pipeline and the close within two days, which is quite an accomplishment for our finance team and our outside help in that endeavor, something we're very pleased about. And we surely don't want anyone to forget the early January final approval of our rate stabilization plan in front of the Ohio Public Utility Commission, two events that have been very constructive for the ongoing first quarter activities.

As I know you have seen by reviewing the press releases, our GAAP earnings were $0.90 per share; ongoing earnings $0.88 per share, impacted greatly by a couple of significant events that will continue to have positive impact on us as we go forward. And Susan will share much of that with you as she gives a more detailed presentation.

We're very happy to reaffirm our '05 guidance of the $2.30 to $2.50 per share. We continue to feel comfortable with that guidance as we did at the very beginning of making those statements.

The PJM activity continues to be of interest to us. During the first quarter of 2005, it was our intent and budget to produce 45.6 million megawatt hours. We actually produced 47.2 million megawatt hours. So we are quite pleased with the overall capacity and performance of our fleet, obviously allowing for greater sales into the marketplace, both to our customers and to the off system sales that we make through our activities in the PJM.

On the regulatory front, we have had some successes as it pertains to negotiated settlements with the PSO rate activities in Oklahoma. All parties have signed onto a very reasonable settlement that does have associated with it a small rate decrease. But equally important, a potential for an earnings increase as a few activities were settled in a matter, which will help PSO going forward, as well as a special allowance for $11.8 million for a continuation of our tree trimming reliability enhancement program in Oklahoma.

We take that as a very positive undertaking, not only because it shows our ability to negotiate reasonable settlements with parties, but equally important that the commission would support us in the tree trimming rider (ph) which in fact was approved. We're still awaiting the final OCC approval of that settlement and we hope that that comes in the not too distant future.

I can tell you that we are equally satisfied with the ongoing activities with the Texas Central wires case. We continue to have discussions with the parties trying to seek some settlement if that is all possible. But the commission itself in their open meeting of April 13 addressed all but the issue of the allocation, which I know those of you follow Texas matters are aware that the Texas legislature is having an ongoing discussion of a piece of legislation, which would actually help the commission in addressing those issues (ph) (technical difficulty) on allocation for companies not headquartered in Texas with operating subsidiaries.

We hope to bring some resolution to that case, either by way of commission order and/or by way of settlement, in the not too distant future. But again, what we see here is the substantially reduced financial negative impact, compared to the very early beginnings where numbers as large as 60-plus million dollars in rate reductions were being discussed.

We continue to pursue, as you know, our integrated gas combined cycle activities, not only the engineering and some of the design work early on and permit evaluations, and trying to understand all of the things that will need to be done to bring this very much-needed power plant with the incredibly improved technology to the forefront.

We have made a filing with the PUCO requesting that they give us some very different, yet we think balanced, rate treatment as we go into the process of building that plant. As we have said before, without that kind of upfront rate pass understanding, we simply will reduce our plans to go forward with that undertaking, at least in states where we can't find that approach.

As you know from press releases earlier, we have also asked the PJM to characterize the site in West Virginia, as well as the site in Kentucky for us, which gives us three potential opportunities to locate at least two of these facilities between now and the end of the decade, or surely soon into the early teens.

Lastly, we have made a filing with the FERC on it 30 -- I guess we will file on the 31st -- or did file on the 31st of March. I will get my months straight here in a second. Our requests to the FERC to continue to look at the adjustment in the SECA rates and allow for opportunity, as we have explained to many of you before, to make filings in the various state jurisdictions to adjust our transmission revenue and transmission rates to be reflective of the ongoing activities at the FERC.

We continue to feel very comfortable about the activities that we've experienced in the first quarter, and surely hope that we will be able to continue to work well within the year to see settlements and other progress in the very important regulatory arenas where we are doing business.

As you know, we continue to spend into the environmental improvements on our base fossil hydro plants, doing that with a great deal of success as far as schedule and budget is concerned, and still feel very comfortable about building into those requirements even in the failing of the Clear Skies initiatives, which we were very disappointed by. But as you know, the EPA has gone forward with the Care Rule and the Mercury Rule, all of which call for the same kinds of investments that we are making in our existing fleet.

With that, I will turn the microphones over to Susan and let her update you more specifically on the financial activity for the first quarter.

As Mike said, we are pleased report a strong first quarter. We have 355 million or $0.90 a share in GAAP earnings. And as the slide shows, that translated to 344 million or $0.88 on an ongoing basis. And I'll describe the reconciliation between the two in a minute.

Looking at the slide you have in front of you, which should say first quarter '05 earnings performance, you see a breakdown on a segment basis. On an ongoing basis, we showed $0.87 a share from utility operations. And that compares to $0.77 for the first quarter in '04.

In a minute I'm going to discuss some of the details around the utility performance, but finishing off the rest of the discussion with respect to the segment, we saw a $0.04 positive from investments. That compares with the $0.02 negative for last year, and the major factor contributing to that has to do with Houston pipeline, which had a positive $10 million performance prior to divestiture in first quarter '05, as compared to a $10 million loss in 2004.

Offsetting the $0.04 positive from the investment line is a $0.03 negative at the parent. And really, that has largely to do with the fact -- the elimination of the inter-company loans to investments that have been divested, and therefore the associated elimination and reduction of interest flowing to the parent as a result of those loans.

Let me take a minute to talk about two specific issues that are affecting the quarter. The Centrica earnings sharing and the effect of a recent decision regarding deferred taxes in CenterPoint before we get to the details on utility performance. Form with respect to Centrica, you should recall that we sold the Texas competitive business in 2002. And our compensation for that was taxed (ph), plus an opportunity to participate on an ongoing basis in the earnings performance of Centrica going forward through a period ending at the end of 2006.

Notwithstanding this agreement, there had been issues outstanding between AEP and Centrica, and as a consequence no payments were received. In the beginning of this quarter, actually the results ended in March, but in this quarter we were able to reach agreement with Centrica for both the current period and for the historic periods. For the current period, we received payment in 2005 which covers the period of 2004 of $70 million. And that resulted in a $45 million net earnings benefit, which shows on an ongoing basis.

You can expect to see continued payments in 2006 and 2007, covering the earnings sharing periods of 2005 and 2006, although of course that amount is not known. It is dependent upon the application of the formula to Centrica's actual business performance in that business during that time.

We also reached agreement with respect to amounts due to AEP on prior periods. Those prior periods are 2002, 2003. And for that, we received an additional $45 million, which contributed $27 million in net earnings or $0.07 a share. We did exclude that from ongoing basis -- ongoing earnings, because it pertains to prior periods.

Now that $0.07 benefit to GAAP income from Centrica was largely offset by another item having to do with carrying charges on deferred taxes for TCC in Texas. This is a result of the decision of the Texas PUCT and a CenterPoint securitization order, and in that order they required CenterPoint to offset the benefit of accumulated deferred taxes against the carrying costs on accumulated deferred taxes, against to the amounts to be securitized in their stranded cost case.

That has an effect on AEP in 2005 in two respects. First of all, we recognized in the 2005 GAAP earnings an adjustment of $17 million after-tax, or $0.05 a share. And that reverses carrying charges on the deferred tax portion of the carrying cost that we recognized at the end of 2004. That $0.05 negative, which when you net it against the $0.07 positive from Centrica, yields the $0.02 difference between GAAP and ongoing earnings.

There is also an ongoing effect with respect to the CenterPoint decision. We had told you to expect about $101 million this year in carrying cost associated with Texas stranded cost. That amount will be reduced to $88 million, and that is what we expect in this quarter. We booked about $22 million total. And that includes effect of the Texas decision.

So with those two sort of complicated items out of the way, let me talk a little bit about utility performance. And why don't we turn to the slide you have, which it says first quarter '05 utility operations performance.

While certainly $0.10 of the year-to-year increase is attributable to Centrica, as Mike suggests the underlying performance is also quite solid. Overall we saw retail growth. We did see margins down somewhat due to weather an coal costs. But the cost side performance was better year to year. Off system sales remained strong. In-plant availability was also strong.

Most of you were expecting to see negative weather impacts, and we did see that a bit. We basically saw a $0.02 versus the norm as well as a $0.02 versus 2004 negative weather effect. There was a growth on the retail customer side of about 1% across our retail customer bases. And we did continue to see continued economic improvement in industrial sales, and that bumped up the performance there.

The two together however, were not sufficient to overcome the combined effect of the mild weather and also increased fuel costs. We had higher coal costs, which reduced gross margins by about $50 million across the regulated companies in Ohio.

Texas Wires was better year to year, reflecting better residential and some commercial usage. The Texas supply business was negative by $20 million, very much as we expected, resulting from the divestiture of the generation assets and the must-run units.

When you look at the number of off system sales, you see that is down a bit, but in fact the overall performance was very positive. You recall last year we had a very significant optimization earnings, and that came from some activity around coal. We did not have those same market conditions this year. We did not expect to, as I think we told you. So overall you see that number down very slightly, and that really has to do with the difference in optimization. You also recall the first quarter last year was an extremely robust year for off system sales, so overall we feel pretty good about this.

You also see on third-party transmission that that number is down. That has a lot to do with the elimination of the through and out rates, which was substantially offset by the SECA rate. I say substantially because there is a difference between those two numbers. 2004, which are you are comparing it to, was a particularly robust year.

The SECA rates were set in reference to 2002 numbers, which you may recall was a particularly slow year for our economy across the Board, having followed to 11 -- 9/11. That number is going to go up by about $5 million, we expect, in successive quarters. Obviously all of this depends upon volume and performance across the system. None of that of course, as Mike suggests, affect our overall view with respect to guidance.

Let me talk a little bit about cash flow. You have three slides in your packet on cash flow. I'm not going to redo all of them, but let me mention a couple of high points. First of all, cash on hand at the end of the quarter is $1.258 billion. Cash flow from operations, as you can see here, is $673 million.

On the slide that says first quarter cash flow from operations, I wanted to call your attention to the pension contribution number. We did, I believe, indicate to you that we would be seeking to fully fund the remaining liabilities on our pension for this year, and that we would be doing it at around cost of -- we estimated at the time to be around 400-plus million dollars. You see this $102 million payment for the first quarter, and we're going to continue to pursue that goal through consecutive quarters for the rest of year.

If you go to the next slide, the first quarter cash flow from investing activities, I will call out two points -- first of all, the asset sale proceeds reflects HPL and Centrica. And the CapEx number, 465 million, very much on track for our ambitious capital budget for this year.

Last, on the next slide, for first quarter cash flow from financing activities, we did have about $520 million of cash outlays that primarily have to do with the share repurchase program. What is not reflected in these numbers, because they are quarter numbers, are the $550 million of parent debt that we completed -- repurchase that we completed on April 15.

Finally, if you go to the slide on capitalization, we're presenting to you the -- where we are, and that is 59.8 debt to cap on a GAAP basis year-end. And on a credit-adjusted basis, and the detail of that is provided, we are at 59%. We continue to vigorously pursue our goal of remaining in the 55% to 60% debt to total capitalization range for this year.

So with that, I want to turn it back to Mike and we will take some questions.

Operator, we're ready to go to questions please.

(OPERATOR INSTRUCTIONS). Dan Eggers with Credit Suisse First Boston.

Just quick question. How much of the Centrica contribution were you guys layering into your guidance for this year? I know you said it was part -- but what was the number originally?

$35 million.

So 35 originally. Is there any way you can help us understand how to back of the envelope forecast what that contribution could be in future years, just from a simplified mechanics perspective?

No, I really wish we could. We're just simply praying for Centrica.

If you see anyone anybody cheering for Centrica now, you know it will be us. I think the most important thing going forward is that in the resolution of these events, we have a much clearer formulation and understanding with Centrica as to how the sharing will go on the going forward basis, which was always part of the debate, and I guess why they didn't remit as they should have in the earlier years. But we're very satisfied with where we are.

Got it. On the $50 million of higher coal costs this year versus prior years, can you just refresh how much of that increase is going to be in jurisdictions where you have the ability to recover with a mechanism, versus where it is effectively on your dime?

Okay. Ohio is 24 -- 26 of that. The other is spread across the other jurisdictions. And it is going to take a me minute, but I might be able to get that for you.

As we have said before we really believe that roughly 70% of these costs are recoverable; 50% in the more typical utility fuel cost pass-through undertakings, of course which have a lag to them, and 20% recovered from the ongoing market activities. And as we look at our year-to-year spreads from off system sales, we see an uptick there, which we think has a lot to do with increased fuel cost. So we feel comfortable that we are recovering some of that.

And as we had forecasted, we thought that we would see a 10% increase year-over-year on the delivery cost of coal, and we're right in that neighborhood. Some days a little bit below it, some days a little bit above it.

The coal producing universe continues to do everything that they can to find a way free from their long-term contractual obligations with our Company. Obviously we do everything that we can to keep their feet to the fire. And at the same time, as you know, we're doing blend and extend contracts, which we think will really help us in the out years.

I would hope that in '07 that we would begin to see a softening of coal prices, as we see the benefit of the capital investments allowing us to diversify the type of coal that we burn, as well as the blend and extend contracts, we think giving us hopefully across advantage compared to other coal buyers.

As we said many times before, and we will say again, until they prove me wrong, I think we have the best coal buying team out there. Our intellectual capacity in that area I think is superior to the other buyers, and hopefully we'll continue to produce that for shareholders and customers.

Perfect. Thank you. Susan, one quick question with the cash balance, where it is. I know you guys are -- you have now spent the extra 500, 550 million at corporate. What is the targeted cash balance for this year?

It is about $500 million. And by the way, cash is never extra. Just so you know.

Susan doesn't want me to think there's any extra cash around. I'll build something.

No, I'm all for building. We're projecting cash balance around 500 million at year-end.

Kit Konolige with Morgan Stanley.

Let me just follow-up, if I could, a little on coal, just because you guys are so identified with it. What is your expectation for '06 coal costs? And then your thinking is '07 would start to show some improvement? Do I understand from that that '06 we should expect a step-up as well?

As we look at the '05 statements that we have made about coal, we still think we'll see a bit upward pressure in '06. Maybe not as dramatic as '05, because again will complete the addition of some environmental improvements at some of the bigger facilities which will allow is some of that coal diversity that we spoke of. And we are beginning to blend, into the extend contracts, terms that are considerably less expensive than the current spot market prices. So we should continue to see some advantage of that.

And as you know from conversations that we've had with you and others, we'll continue to look at those jurisdictions where we don't have active fuel recovery opportunities and blend that in with both the transmission rate requirements from the FERC through and out activities, as well as the general reliability spend on those areas, and go into the rate arena to make those kinds of adjustments.

So we don't yet see -- we will see a bit softening in '06 and considerably more than that we think in '07. But even as we continue to buy, although fully covered for what we believe we need in '05, we are always in the market opportunistically to buy coal. And we see some people willing to enter into agreements with AEP that again are priced better than what you would read in the current market prices. And we try to take advantage of that. But upward pressure in '06, not as much hopefully, and a softening come '07 and beyond.

How about delivery issues? That was the big topic last year. Is that pretty much back to where you're satisfied with it -- level of stock on-site and so on?

After the first quarter, as you know, last year our biggest issue was the rail. This year first quarter, our biggest issue was the river. And that had everything to do with too much water, not too little water. And we continued to struggle with river transportation in almost the entire first quarter.

As to fuel on-site, we feel pretty comfortable in our locations. A couple may be thinner than we would like, but we're really trying to determine is there a smaller pile inventory number that we could live with and operate with. And I will tell you again that our operators are doing an excellent job working their way through those requirements.

In the early January timeline, when not only were we recovering from a hellacious ice storm in Indiana and Michigan, we were really struggling with coal deliveries at a number of the facilities along the Ohio River. And this team, as they frequently do, demonstrated an incredible ability to continue operating those plants. I convinced them that 7-day inventory was just perfect. They don't believe me and they keep pushing back, but we're in reasonable shape at all of our facilities. One or two give us some concern, again just because of the river.

Now on the transportation side, CSX is doing a little bit better. As you know, we have a major contract shift out west with Union Pacific. They are a little bit behind on what they promised us they would do in the physical sense with rail enhancements. But in talking with their team, we're convinced that they will catch up. That is a PRB issue that is very important for our Rockport plant and a few others on the system.

But transportation is getting better. The rail folks tell us that they are spending money at a breakneck pace, and we encourage them to continue to do that. And as you know, to help them with the appropriate amount of incentive we have augmented some of our barge load -- offloading facilities at plants that previously were mostly served by rail, just make sure that they're as eager to improve their service to us as we are that they do that.

One final question on cost of production. How is your SO2 situation? And can you remind me is -- are SO2 costs deferred in the Ohio agreement as well, or is that just capital cost?

A couple of things. As you know, we continue to have a very solid bank of credits, both SO2 and NOx. We feel very comfortable going into this season that we're in a very, very strong position. In fact, I may take opportunity to optimize some of our current holdings if we see that price volatility as we saw a year ago in coal. So we feel pretty comfortable about where we are. As you know, the price continues to escalate. We think that is a good thing for those of us standing in line with credits that were bought years ago.

As to the Ohio issue, it really is an opportunity inside of the rate stabilization plan, not necessarily to defer, but to create a regulatory asset; not as to the SO2, but as to the other issues on the RTOs for the ultimate recovery as a polar charge in 2006 and beyond.

So the SO2 would not be part of that though -- (multiple speakers) to the extent you have to buy more for your bank if you did, or sell and take the profits, that would go to the bottom line?

That's correct.

Are you running at any different levels? I think last year I remember a discussion -- you spent about 50 million on --.

54 across the system.

Right. And this year it was going to be around 90 or 90 some million.

Yes, 93 for both SO2 and NOx, about 70 for SO2, 23 for NOx is the budget. The actual for this quarter was 10 million, 10.4 and we think we're running about where we expect to be right now.

Ali Agha with Wells Fargo Securities.

First question. When you folks had pre-announced your first quarter results and you had laid out the two drivers there, Centrica and the Ohio payments, as I recall the Ohio payments as well were not fully budgeted for this year. So those were also upside along with the Centrica -- the extra payment.

If I am right in that, Susan could you again remind us what are the offsets -- I know you mentioned that in Texas you can do -- book less returns going forward, but are there any other incremental negatives that you are seeing on the year that you had not budgeted for at the beginning?

Nothing that we have identified. All of our variables are pretty much the same. We can have additional storms. We can have availability issues in -- particularly during peak periods, off system sales. But there's really nothing new that we have identified that sort of hovers over us at this point. But those are still very significant variables, and we're very early in the year.

Also, Susan, the accounting for the Ohio payments, the payments that you received for activity prior to '05, or '04 I should say, the payments for '04 -- you booked those in ongoing earnings. But in the case of Centrica you put those not in ongoing earnings. Can you just explain the difference in accounting?

Well, the two are really not comparable. First of all, let me talk about Centrica. Centrica has two pieces. The prior period issues for Centrica, which is covering the 2002 and the 2003, which was the $45 million cash payment, that is what shows up as the $27 million after-tax effect in GAAP but which was excluded from ongoing. We did have a very substantial Centrica piece which covers the current period, and that was in ongoing. That was the $70 million cash payment, which translates to $45 million net earnings.

The Ohio situation is different. What we got from Ohio in our rate stabilization order was authorization to recognize -- and we were able to recognize on a current basis, non-cash. So we didn't receive that payment, non-cash earnings this year because we have been certainty of recovery of those. And those have to do with previously incurred environmental costs. And those will -- the cash for that is received in 2006. So they are from an accounting perspective -- really two, actually even three different animals.

And finally, also perhaps an accounting question. Now that you have filed your transmission rate case at FERC, will you start to book those as earnings ahead of the FERC decision? Or do you need to wait for the decision to make those changes?

There's no basis for booking those. We have to wait for the outcome of the decision.

Elizabeth Parrella with Merrill Lynch.

If we can go back to the Ohio deferrals question for a minute, I think in your prerelease you mentioned that the 2004 amount you booked was 29 million. And in today's press release, I think you indicated there was 19 million that was booked to the other income and deductions line.

That is pre and after-tax.

The 19 million is an after-tax number?

Yes.

Okay. So it is 29 million and it is all in that line?

Correct.

And will it show up there going forward in terms of these deferrals?

Yes.

The remaining piece in '05?

Yes, the remaining piece in '05 will continue to show on that line.

Just turning to HPL for a minute. That $10 million of income, was that all related to HPL? And it sounds like that was not treated as a discontinued op under GAAP.

That's correct.

But we shouldn't expect, that should be a zero line going forward, right?

It should be a zero line going forward, although there are some there continues to be interest income and cost allocations associated there, so there could be some nominal movement in that line going forward. But there are no future earnings to be taken from HPL.

Just lastly, going back to this 50 million increase in coal, just to be clear, is that -- that is prior to any rate recovery for the jurisdictions in which you're able to receive recovery?

No, that is really the negative effect on margin as a result of increased coal costs that are at least not on a current basis recovered in fuel.

But some of it could be recovered in future?

In theory, but I won't hold out for that. I think you have to think of that as really a reduction to current margin.

Okay. So that is really the piece that is just not recoverable?

That is pretty much right.

(OPERATOR INSTRUCTIONS). Rudy Pellatino (ph) with Prudential Equity.

Can you give us an idea of when you're going to file your securitization -- I mean your stranded cost recovery request in Texas?

We still have a couple of open issues that under the Texas restructuring law and implementation by the utility commission requires us not to be able to file. Most importantly, we're not at the final stage of the actual close of our sale of interest in the South Texas project. And we are delayed in our ability to come to final closure on our sale of the Okla Union plant because of an ongoing court proceeding between the bidders.

What we have asked the utility commission in Texas to do is to allow us to go through a constructive close, because we know the price for the Okla Union sale, we simply don't know the ultimate successor in interest because of rights of first refusal that have been exercised by our ongoing partners in that facility. versus Golden Spread, who led the original bidder and successful bidder, I should say, in the auction as managed by our Company and the consultants for the Texas commission.

Should they allow us to do that, and we hope that they will address that issue, it has been before them now for a short period of time, we would make a filing just as soon thereafter as we could. I cannot forecast when that would be for you. I'll tell you this though, if they were to agree with us and allow us to make a constructive close, if you will, of Okla Union, we will filed the stranded cost case days after that. We're very eager to get going with that event and would do that with great dispatch.

All right. Also, just wanted to clarify my understanding of the SECA revenue collection. I understand that earlier there were some questions of -- some of the customers were -- you had complained about the level of payments and that revenues weren't actually collected. Have you started actually collecting the revenues now?

Can I ask Craig Baker, who manages the FERC transmission activity for us to help us with this answer, because it is better for it to be factual than for us to swamp around trying to figure it out.

Rudy, this is Craig Baker. What has happened is we have been waiting for the PJM and MISO to have their billing procedures to actually start collecting from customers. That is in place. They have indicated that they will start billing with May billings.

David Reynolds (ph) with Tribeca Global Management.

Please forgive me if this question has been asked already. I just didn't get all of the call. There is a quick comment inhere about an unfavorable adjustment of the prior period calculation of carrying costs on Texas. Could we just -- if I remember correctly, you just recently started booking the carrying costs on Texas after having held off for a while awaiting the CenterPoint decision.

Right.

Why are we adjusting numbers now? What does that mean? Can you just give me a little more color on that?

We forgive you. We did discuss it a little earlier.

I apologize.

This is the kind of thing that is complicated and is it is worth saying twice. Basically what happened was that in March there was a decision from the Texas commission in a CenterPoint securitization order. And it had to do with the carrying cost amount that is calculated on accumulated deferred taxes.

They told CenterPoint that they would have to essentially take an offset against their stranded cost amount for the carrying costs associated with the benefit of accumulated deferred taxes. And as a consequence -- they have not indicated that before, so our prior calculations were based upon the substantive CenterPoint ruling. When that was identified in March, we concluded that that on a one-time basis we had to take that -- what is a $17 million after-tax charge.

You should also know that on a forward basis, the consequence for '05 is that rather than forecasting $101 million in carrying charges to be booked across the year, it will be a total of $88 million about.

My apologies for (multiple speakers).

No, I was kidding you. No problem.

(OPERATOR INSTRUCTIONS). Gordon Powell (ph), Natexis Bleichroeder.

Actually it is Ian Sinot (ph) on the line. I just wondered if you could give a little more color on the off systems volumes? Was most of that really coming from PJM? Was it more kind of in Ohio and within the other regulated territories, if you could expand a bit more on that?

Off system sales comes from the fleet. And it comes from either in ECAR or SPP. And we did see an increase in volume year to year, actually, in both. ECAR was up from about 7100 GW hours in '04 actuals to about 7400 in '05.

At this time I am showing we have no additional -- we have a follow up from Elizabeth Parrella with Merrill Lynch.

I was actually just hoping we could come back to this coal question for a minute. I know you have said you think the increase in delivery costs will be less than 10% this year. I think that works out to a little less than $3 a ton. And I think you purchase about 75 million tons a year, so that is about 225 million.

But I think you've also been indicating that about 70% of this is recoverable and 30% basically isn't, which would be something like 70 million or so -- 75 million for the year. But it has already been 50 million in Q1. Am I thinking about this right, or is there some mistake in how I'm approaching this?

I don't think there is a mistake in how you are approaching it. I think that really has a lot -- that there are timing issues in there, that it has a lot to do with how coal is burned under various contracts. And I think that what we said was we are expecting around a 10% increase year to year.

This is an area -- there's no question that is under pressure. Right now our best assessment of where we're going to be at year-end is pretty much at that 10% increase. But you're certainly right to identify this as an area of pressure.

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

That will conclude our call today. Thanks so much for joining us. If you online you can receive additional replay details if you would like to listen to the call again. Thanks so much.

Ladies and gentlemen, today's conference will be available for replay beginning at 12:30 PM Eastern Time today and running through the 5th of May at midnight. You may access AT&T's playback system by dialing 1-800-475-6701 or international participants dial 320.365.3844. And for either number, enter the access code 774615. (Repeats numbers). That does conclude our conference for today. Thank you for your participation and for using AT&T's executive teleconference service. You may now disconnect.