美國電力 (AEP) 2007 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the American Electric Power second quarter 2007 earnings conference call. At this time, all lines are in a listen-only mode. Later there will be a question-and-answer session and instructions will be given at that time. If you do need assistance during the call today, please press the star followed by the zero and an operator will help you offline. As a reminder, today's call is being recorded.

At this time, I'd like to turn the conference over to Julie Sloat. Please go ahead.

Thanks, Kent. Good morning and thank you for joining us today to discuss AEP's 2007 second quarter earnings. If you've not seen the press release issued earlier today, it's available on our web page at aep.com and a pod cast will be available on our web page at the conclusion of this call. In addition the financial schedules included in the press release package, 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 is also available at aep.com that includes a consolidated balance sheet and statement of cash flows as well as full income statements for our utility operations, MEMCO operations, generation and marketing and corporate and all other business segments. 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 report on Form 10-K and quarter reports on 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 from those recognized by generally accepted accounting principals, or GAAP. You can find the reconciliation of these non-GAAP measures on our investor relations website at aep.com. I'll now turn the proceedings over to Mike Morris, Chairman, President and CEO of the Company to lead an opening presentation and then there'll be time for your questions. Mike?

Julie, thanks a lot and to all of you on the phone thanks for being here with us. We're quite encouraged by the quarter performance of American Electric Power for the second quarter 2007. And of course that adds for a relatively comfortable first half of the year, calendar year 2007. As you know, from looking at slide three we had earnings of $0.64 a share which takes us up to $1.33 a share on the ongoing basis year to date. And with that, of course, we're happy to reaffirm our ongoing earnings guidance for the year of $2.85 to $3.05. A number of interesting things going on in our space, as I know you know. We joined Senator Bingaman and Senator Specter along with others to be supportive of the Low Carbon Economy Act of 2007. It's always unique to see how the politicians come up with these catchy titles. But the fact of matter is we think the Bingaman bill is probably the most logical, the most balanced and the most realistic of the many things being bantered about in Washington, D.C., by not only folks in the House, but people -- excuse me, folks in the Senate but people in the House as well. We think the dates are reasonable, the targets are accomplishable, equally important it does subscribe to the whole theory of a safety valve, which we think is critically important on a national basis so that all utility customers will have to deal with carbon constraints as we go forward. We'll have some predicate upon which to make capital investments, buy offsets in the market or continue to push the technology forward.

We are very aware that there are some who think that's probably a false hope, that it would better if there were no safety valve. But we're of the opinion that that leads to be an almost uncontrolled and unknowable cost of carbon going forward which we think would not be in the best interest of anyone. Customers or investors in the utility space. So we're encouraged by that and, of course, because it is global warming and they - Senator Bingaman has whole heartedly adopted what we call the IDEW/AEP global approach, we're quite encouraged by all of that as well.

I think you all saw, as did we, with a great deal of interest the ongoing activity in the most recent PJM auction for capacity '08 and '09. The numbers came in extremely strong and we were quite pleased by that for two reasons. One, for our customer's benefits because we have chosen to be a self-supplier. We continue to save our retail customers a lot of money quarter to quarter, year to year and we think that's exactly what we should be doing for them. And equally important, excess capacity that we have over our retail demand was put in that marketplace at those relatively high numbers of on average $111 a megawatt day. So we're quite encouraged by the PJM auction and the way that it came out. That, of course, leads me to the never-ending update on the Ohio Regulatory activities and regulatory activities throughout our system. For the most part, the state of Ohio continues to debate, discuss and think through potential approaches for the post-2008 rate stabilization period. You have heard us say many times before that it is our impression and our hope that we can craft a reasonable compromise that will allow for us to receive market or near market prices without the rate shock that may come to that with our customers. That might sound like an extension of rate stabilization. We'll continue to work on those goals and share with you everything that we know as soon as there's some concreteness around those discussions.

In Virginia, I think you know that the beginning of this month we filed to adjust our environmental reliability tracker. We filed for a fuel adjustment which is provided for under the new Virginia law. And of course, made our filing in support of the West Virginia integrated gas combined cycle plan in Virginia as well. Oklahoma, the rate case activities are over. We await an order and hope for the best there as we always do. In Indiana, very much impressed with the adoption of the depreciation case associated in a settlement with the Indiana Consumer Council. Quite encouraged by what we see going on in Indiana and, of course, as of July '07, the fuel cap went away in Indiana we'll continue to pursue fuel cost recoveries in that state as well. Lastly, and we think encouragingly, on a transmission front we continue to move forward. The electric transmission Texas LLC hearings have closed. We think from all we can tell from those hearings that the Texas commissioners, for the most part, were in favor of the project. One of the major concerns, of course, is the overall cost to the retail customer in Texas. We understand that. We think that we adequately answered the questions that were asked by the commissioners. To demonstrate that those particular projects will allow for a much more competitive wholesale market in Texas and save the customers money. We're encouraged by the activities of what we now call the path joint venture. I think you all remember that as our I-765 project, the PJM has approved it. The FTR, of course, had preliminary approvals of it before and we continue to pursue those.

Later yet this year we expect to put in front of the Michigan commission, MISO and others, the Michigan 765-kV study that we've done in association with ITC. We think that's moving relatively well. Southwest Power Pool and their determination of the issues that would need to be built in a transmission sense to help for the general flow of power in that market area went really quite nicely for us. We think that the 765 lines that they in fact did put into their final study overlaid almost particularly those that we had suggested to them in our submittal to their requests. So, we're encouraged by the way the transmission projects move forward. But we don't want to build in a false hope or false time line. We would hope that the ETC goes forward very quickly. We would hope that the path project, which the PJM would like to have in place by 2012 can be done on that time line. But as you see, every day when you look at the paper it's very difficult to build these facilities. We great Americans want to have all of the energy in the world. We'd like to have it as cheaply as we can, we just don't want to know where it came from or how it got to us.

On the generation project updates, as you know, we have filed in West Virginia and now Virginia the facts supporting the integrated gas combined cycle. It is as we thought it would be, 20 to 30%. More costly than the advanced pulverized coal designs. But it is, we still believe, the most appropriate way to handle an unknown carbon requirement as states look at a 30, 40 year physical life on a plant. Red Rock out in Oklahoma moving forward in hearings. The Turk plant application's in front of all three SWEPCo jurisdictions moving along nicely and we're happy to announce for our customers at SWEPCo that we actually brought into operation the Madison plant on July the 12th. All in all, the plans that we have spoken to you about over the last two or three years have continued to move forward in a very constructive way. We're encouraged by the core utility concept investment strategy that we're employing. We were encouraged by the kind of rate treatment that we're seeing in most jurisdictions and we'll continue to work daily on building those relationships. Now, as to a great deal more granularity on the actual quarter and year to date performance, I'll turn the speakers over to Holly. Holly?

Thanks, Mike. Turning to the quarterly earnings, our GAAP earnings were $0.45 and ongoing earnings were $0.64 for the second quarter of '07. GAAP earnings were less than ongoing by $77 million, primarily due to re-establishing a cost of removal reserve when we returned to regulation in Virginia. We did this in accordance with FAS 71. Our earnings from utility operations increased 50% quarter-over-quarter, $0.40 in '06 compared with $0.60 in the second quarter of this year. It was driven in major part by favorable weather, increased usage, customer load growth and strong off-system sales combined with well-controlled expenses. Our non-utility operations showed a $6 million improvement year-on-year, comprised of a $7 million decrease in MEMCO's performance, which was more than offset by a $13 million increase in our generation and marketing segment. MEMCO's decrease is due primarily to a return to more normal performance in barge operations. The second quarter '06 results, as you may recall, were remarkably strong as a result of pent-up demand in the marketplace coupled with a shortage of barges. Our second quarter this year at MEMCO was more representative of normal operations. Additionally, in the first half of the year we experienced a decrease in northbound back haul of imported products, primarily steel and cement. We've also experienced anticipated increases in operating costs, specifically fuel, labor and port costs. The increase in generation and marketing is primarily due to favorable marketing contracts executed with municipal and co-op customers in ERCOT.

Turning to our utility operations on a cents per share basis, weather produced a $0.03 positive impact compared with normal weather and a $0.04 improvement year-on-year. This increase was primarily attributable to our eastern and Ohio operating custom -- companies. The addition of a large industrial customer, Ormet, in January 2007 and new municipal customers at INM and Apco are of note. Additionally, our off-systems sales were $52 million higher this quarter due to higher power prices and lower than anticipated fuel and emissions costs. O&M decreased $26 million, in major part due to an insurance surplus as well as lower storm costs year-on-year. In summary, things are on track and proceeding as expected.

Turning to the year-on-year comparison, our GAAP earnings were $1.13, and ongoing earnings were $1.33. As you've already heard, the GAAP earnings are less due to the establishment of the reserve in Virginia. As you will recall in the first quarter, our year-on-year earnings were $0.28 lower. We expected this decline and there were a couple of big items that drove the difference. By the end of the second quarter, our year-on-year gap has narrowed to $0.07 and, as Mike has said, we are comfortably on track and remain within our guidance.

Turning to cash flows, our forecasted cash balance at the end of 2007 is expected to be $205 million. Year-to-date, our investing activities of $2.1 billion are attributed to $1.8 billion of planned CapEx which is on track and on budget, as well as the completion of purchases of two major gas fired plants in our eastern footprint for a total of $427 million totaling over 1,500 megawatts. Turning now to capitalization, we ended the quarter at 60.7% on a debt to cap basis on a GAAP basis. On a credited adjusted basis we were at 58.3%. s you know, our goal is to maintain our debt to cap ratio on a credit adjusted basis at or below the 60% range. One other matter of note is we've met with the commissions in Texas and Kentucky. And in discussions with them have concluded that it is in our rate payor's best interest to mitigate the otherwise burdensome costs of Sarbanes-Oxley 404 compliance by de-registering our two Texas companies TCC and TNC as well as Kentucky Power. These smaller companies would have been unduly burdened by the cost of compliance. But let me assure you, as well as we have assured our commissions, that financial statements for these companies will continue to be available on our web site in the same time period as the SEC filed financial statements. And with that, Mike, I could turn it over for questions.

Thank you very much, Holly. Operator, we're ready to begin the Q-and-A session.

Good. Thank you. (OPERATOR INSTRUCTIONS) And our first question this morning comes from the line of Dan Eggers with Credit Suisse. Please go ahead.

Good morning.

Good morning, Dan.

First question on the INM, it was nice to see that get resolved. On our numbers it's about $0.05 of EPS in the second half of this year and $0.10 on a full year basis. You guys didn't change your depreciation outlook or your guidance. Is that just the assumption it fits within the range? Or something we need to address at some point?

Spot on, Dan. It's fitting well within the range.

Okay. And then on the PJM capacity auction, could you just remind us about how much capacity you guys have available that you can bid on a full capacity basis that isn't committed back to income at customer base?

Actually, the way that the PJM work because we are a self-supplier part of a settlement that Craig Baker and the team worked out was that we could put 1,300 megawatts into that marketplace minus the wholesale committed contracts that we had for that excess supply. We did that and did it successfully.

And given the fact that those results were also ahead of probably what everybody was expecting from an auction perspective, is this going to affect or cause a need to reconsider growth rate as we look out over the next couple of years?

I think it would be premature, Dan, to begin looking at growth rates as we go forward. We're surely constantly reviewing those things and we'll share a lot of that with you come the October time frame.

Okay. And I guess one last question related to the Bingaman support and I think it's very good you guys are getting proactive on this front. How have you talked to them about the idea of going forward with the polarized plants in Arkansas and in Oklahoma relative to a broader carbon plan and the exposure that would come with those new plants?

We continue to, as you know, look at a post combustion approach by 2011. We'll have a real solid flavor for that after the test, validation test, I should say, at our northeastern station. We'll know a great deal about what to do with both Turk and Red Rock going forward as they come online in the mid-20s, the mid teens, I should say. And presuming that chilled ammonia is the best approach that'll be incorporated ultimately in those processes as we go forward. We think that really is a very reasonable approach. As you know, we would love to go and integrate a gas design out west, but with the lower ranked coals we haven't found a vendor yet who will stand behind the performance of the gas fire which we think is essential for our customers as well as our shareholders. We're very happy with the ultra-super critical. And I must admit that the environmental community has been very understanding of that. And I think that's a real tribute to Dennis Welch and our environmental group for trying to build a bridge and an understanding of what we're trying to accomplish of American Electric Power. We're not in any way, shape or form running from the challenge. We embrace the challenge. We just want to make sure that the answers that come out politically, or the requirements that come out politically have some realism based in them. And that's one of the reasons we're so strongly supporting Senator Bingaman and his colleagues.

Great. Thank you, guys.

You bet, Dan, thanks for the questions.

Thanks. And we have a question now from the line of Elizabeth Parrella with Merrill Lynch. Please go ahead.

Thank you. Couple of questions. First on the fuel and ENEC under-recovery this quarter. Can you give us an idea on which jurisdictions are driving that and what your plans are in terms of addressing that from a regulatory standpoint including now in Indiana, potentially?

Holly?

Elizabeth, I'm not sure I understand your question in terms of --

Well, you had a $32 million drag in the second quarter which was I think a lot more than in the first quarter. And I don't know whether that's mostly Indiana now that the fuel clause is unfrozen. Can you seek to recover that or are thee some other jurisdictions where that's going to get resolved in the second half or is that something that's continue to be a drag?

I'm with you now. Part of it is Indiana. And you're right, we have re-opened the fuel clause there. We also received and have taken a reserve associated with the ruling from an ALJ in Texas around the claw back of proceeds from the sale of surplus emissions allowances at SWEPCo.

And that really is an event that stretched over a number of fuel recovery years. So it would be wrong for you to build into your model that kind of a fuel drag going forward. We feel better about fuel than we have in a long time, Elizabeth.

Is that claw back you mentioned that you took a reserve for, is that the $25 million that's referred to in the press release?

It is.

And that's in that fuel under recovery fee?

It is.

Okay. One other question for you. The Red Rock proceedings, I guess Chesapeake has been an intervener and I was wondering if you could give us a handle on whether you think that becomes something in the process or not. Just how you're thinking about that.

It's interesting. If I'm a large gas producer in Oklahoma, I'm going to intervene in any coal plant because that's going to put price pressure on my gas well heads So we understand why Chesapeake is in the proceeding. Whether or not it'll have an impact really has so much to do with the way that the commission sees the overall need for solid fuels in the Oklahoma generation mix going forward. And again, if you're anywhere near where we see the gas model going forward over the next 20, 30 years, it would be in Oklahoma's best interest to have a solid fuel plant. OMPA believes it, OG&E believes it, obviously PSO believes it. The real issue, can the commission come to that same conclusion. So Chesapeake was in there padding their own bed, which I guess you'd expect them to do. Trying always to get the highest price for the gas they produce at the cost of the Oklahoma consumer. We just don't think that's right.

Okay. And if I could ask maybe one other question on the numbers. You mentioned in the first half results, which I think were a factor in the second quarter, the lower FTR income of about $48 million in the first half. Is that something that we should expect continues as a year-over-year in a factor in the second half?

It's really too soon to say. It's something we're analyzing. Those numbers are falling short of what we have anticipated. Not enough to have us change any guidance. But it's something that I know we'll have a more refined view on given our relatively limited experience with just two years behind us by the October meeting.

Okay. Thank you. You bet, Elizabeth, thanks for your questions.

Thanks. And we have a question now from the line of John Kiani with Deutsche Banc. Please go ahead.

Good morning, Mike, Holly.

Good morning, John. Mike, can you just walk through some of the steps we can expect in the state of Ohio over the next year, year-and-a-half or so as you all work with other companies and with other individuals in the state to try to come up with a new rate structure? Sure. And let me start by saying I hope it doesn't take a year to a year-and-a-half because we'll be so deep into the soup by then we would have had to have made a decision and I know you're familiar with that.

Between now and the end of '08.

Right. Where we find ourselves, John, is in very serious discussions with the executive offices here in the state, with the new governor who he and his team deserve a great deal of credit for quickly understanding the magnitude of this particular issue here in the state. Working in conjunction with the PUCO I think that the executive office is, as I say, well up the learning curve. We continue to be in a dialogue with our fellow utilities where there's been a general meeting of the minds on approaches that would be acceptable. We continue to share those concepts and ideas with the leadership in both the House and the Senate. This is a bipartisan Ohio economic go-forward undertaking that I think everyone again is working as diligently as they can towards some conclusion. My hope would be that we would see a proposal from the legislature and/or the governor's office sometime yet this summer. I would hope that we as a collective group of interested people, meaning our residential represented customers, our industrial commercial customers, the utilities and the politicians could come to some reasoned conclusion yet in 2007 so that if in fact legislation would be crafted, it would be done toward the latter part of this year, early next year as you know, 2008 is national political year. Ohio will be a pivotal state in those national debates and dialogue. And it would be better for all of us to have this really put away come late '07, early '08. And I think that'd be in the best interest not only of our customers, the Ohio economy, but our investors as well.

We still feel very comfortable about the notion that everyone understands the price of electricity in Ohio is going to go up to be more reflective of what's happening in the marketplace. As you have heard us say many times before, John, we are seeking for that place where we can take care of our investors by moving to market. And do that in a way that doesn't shock the Ohio economy and the many customers that we serve throughout the regions of the state that we provide electrical power. We think that's doable. What we would try to do is stairstep in rate increases, something bigger than we did in the last RSP. And whatever shortfall that yielded between market prices and those stairsteps would be held as a regulatory asset. We think it's essential for investors and our customers that that regulatory asset be supported by a securitization or assurance of recovery method that's different from the classic regulatory asset and we'll continue to push for those things. We find the balance in there we think to be well struck. Making certain that those who have invested in American Electric Power get the realization of the benefit of the power plants that we so eagerly manage day to day, while at the same time making certain that our customers have available to them all of the energy that they need. And the time line as I said I hope would be closed by '07 or very early in the '08 cycle.

And then, that's helpful Mike. And then your '09 guidance, if I remember correctly, does not assume any meaningful change or upward shift to reflect the market reality for power and natural gas prices today and that it just assumes another extension of the rate stabilization program, is that correct?

Plus the recovery of fuel.

Right. And so, is it safe to say that perhaps in the earlier '08 time frame you might have better clarity on what the growth is going to look like and the earnings are going to look like in '09 apart from just the assumption that there's an extension of the rate stabilization program?

Our hope would be, John, that by the October EEI session we can share with you a more solid view of what 2008, 9 and beyond might look like. We will by then I hope have enough understanding of where the dialogue in Ohio is that we will have made a filing to the PUCO, not dissimilar from what our colleagues have all done at Dayton, Cincinnati and Akron, so we will take that approach as we go.

Great. Well we'll look for that in that time. Thanks, Mike.

You bet, John, thank you.

Thanks. And we have a question now from the line of Paul Patterson with Glenrock Associates. Please go ahead.

Good morning.

Good morning, Paul. How have you been?

All right. I want to touch base with you for the O&M for the quarter. The insurance surplus and the storm cost restoration differences, how much was from the insurance?

About 14 million, Paul.

Okay. And the favorable contracts on the merchant side that you guys signed, how are they accounted for? Is there mark to market benefit from that or is that just, how does that work, I guess?

A sizable benefit was from mark to market.

Does it come back in the form of a accrual? Do we have an accrual offset over time or how does that work?

No.

It's not hedged, it's just --

It is hedged. We will bring it in, hedge it off and realize the benefit.

Okay. So you're booking to benefit now and there really is no adjustment going forward?

And let me be clear. The book of business they started with the vast majority of that is accounted for on an accrual basis. So is it a blend of the ongoing earnings from that business or blend of mark to market from some new contracts executed as well as accrual earnings that are realized over time.

Okay. But the number in this quarter was pretty much a mark to market, the increase quarter over quarter was pretty much via the mark to market?

Quarter over quarter, yes, we did sign a size -- but the majority of that increase was due to signing up the large customer.

But then I think, Paul, as Holly said, we try to hedge that off so that we can remove the volatility of the contracts going forward. As you know, the whole accounting scenario around power contracts is confusing to say the least. And you need to be, in the old days you needed to be a Philadelphia lawyer, in this sense you probably need to be a Washington, D.C., accountant to understand them.

Right. I wanted to ask you about Ohio a little further and the OCC support of the first energy auction, it appears.

Yes, sir.

Does that mean, I don't know how much you can tell me, but does that mean in terms of the residential class of customer that there'll probably less of an issue in terms of going to market from your perspective since you have this sort of interesting situation where the OCC sort of supports the auction concept or whatever?

Boy, that's a really interesting question, Paul. I'm not certain the logic behind the OCC supporting the auction. I think if you look at most recent auctions for actual power prices as well as capacity in any one of a number of jurisdictions, that probably leads to some pretty substantial residential potential, residential increases which I can't imagine politically why that doesn't raise a bit of a debate and concern. And you'd only -- you'd better ask the OCC how it is that they see this as being a rational approach. There's been a strong push by the OCC from the very beginning to go to market on the whole belief that -- and it's a belief that we all share, once you get there and people see the potential prices and projects get built and excess capacity comes to the market, you'll have a better supply demand equation than you have today. If you get there, as you know prices might trend down. I expect that's the logic behind the OCC's view. We have asked that question of her before. And it does seem to be that she's enamored by that process that that might well be the ultimate outcome. I wouldn't read too much into the notion that she supported the FE undertaking. At the end of the day if FE is successful in the approach that they have proposed, it will be because the PUCO agrees with them and lets them go forward and we're all watching them with a great deal of interest.

Okay. I appreciate it. Thank you very much.

You bet, Paul. Thanks for your questions.

Thanks. And we have a question now from the line of Rudy Tolentino with Morgan Stanley. Please go ahead.

Hi, just a little extension on Paul's question about the merchant energy business. Can you just tell me what your plans for that is, if you intend to expand it or sell it off?

We have no plans to bundle up any of our assets and put them in the marketplace. We like the merchant energy space. We play in a very unique way compared to most others. It's always the excess generation from the existing fleet. We play a little more directly in the merchant energy business down in the ERCOT Texas market area with some budding success. But you won't see us move into a major merchant play role. And you surely, I don't think, other than assets that are for sale in Texas from the mothballed gas plants of the old CSW fleet, you won't see us trying to monetize any of our asset base. We see no need for it and we see no logic in it.

Okay. And just remind me, that in the line 17 to generation and marking, from what I recall, that's your DIPP's that you own, does that include the Texas assets too, the old Texas north assets?

Yes, it does. The share of the Oklaunion plant that was previously dedicated to Texas north.

Okay. So that's in that generation and marketing line.

Yes, it is.

And I take it are you also going to expand your full requirement offerings in ERCOT and trade around the asset or are you going to sell strictly sell output from the asset?

In fact, what you described as trading around the asset is how we signed up some of those municipal customers that I mentioned earlier. So, yes, that is exactly the model we're following.

I think it's safe to assume that whenever we sign a long-term contract, we bring the supply to match it and then our commercial operations grew constantly works the benefits of those contracts as we go forward adding value, taking value to the book as often as we can and making certain that we're fully covered so that the risks are very low but take advantage of any market movements that make those contracts more valuable for our investors.

So you'd also gone to the ERCOT market and buy supply contracts and then to serve retail -- full service load, is that -- I take it is that what you're doing?

We're not really a retail provider. What we are doing is matching up our market opportunities with large wholesale loads. And then in trading around the asset, as Mike has described, will enter into a commitment and hedge it off with market purchases or we may use our own generation and then when the price looks good hedge it off later. But we are a wholesale market supplier to predominantly municipals and co-ops on a full requirements basis.

We find that a much more logical market space simply because the buyer is very familiar with the challenges and is more than willing to accept some of the cost increases that might come through the general play of a contract term rather than a retail contract with a retail consumer who would get very puzzled by the fact that SOx or NOx credits may cost more as time goes forward and those entire undertakings. Again, we're very comfortable in that space and to Holly's point, we expect commercial operations to constantly take whatever economic gain out of those contracts that they can.

Okay. So do you look to expand your wholesale presence in ERCOT?

Yes, I think we will expand that presence. But again, just to put a fine point on it, I'm very comfortable staying in the wholesale space because of our ability to administer it, our ability to mitigate credit and other risk exposures. I don't see us moving into retail.

Sure, understood. Thank you very much.

You bet. Thank you.

Thanks. And we have a question now from Daniele Seitz with Dahlman Rose. Please go ahead.

Thank you. I was just wondering if you could compare the price of new capacity in line with the new coal plants that you are planning on and compare them to the best estimates on the IGCC at this time?

Daniele, I think as we've said with the filing in West Virginia, you were looking at 2.2, $2.3 billion, 629 megawatts, $3,500 a kilowatt. And what we try to do at American Electric Power is tell the whole of the story. That, of course, includes the work that we would do on our side of the construction undertaking itself. Meaning substations that need to be built, coal handling facilities that need to be built, transmission facilities that need to be built. And so we think that's a very conservative all in cost. Much of it will be tight and tied down as we go forward and those are the kinds of things that we'll share with the commissioners as we go through those hearings. We think that compares very favorably to the concept that that's available in a pulverized coal, super critical, ultra critical coal place. Quite honestly we think that's a very comparable number to a new nuclear station. We have yet to see anyone come forward with actual construction costs on new nuclear. We've heard a lot of vendors, vendors like to sell low and charge high. So we don't put much credit in vendor's numbers today. If a vendor's willing to sign a guaranteed contract at those kinds of numbers, that would be different. But from what I hear from those in the nuclear space, not much of that is happening.

What we said all along that we thought integrated gas would be 20 to 30%. More costly than the more traditional pulverized coal. That really has proven to be the case. And again the issue here is in an unknown global warming scenario, in a plant that's going to have a 40-plus year physical life, this probably is the best approach. It's the most cost effective way to do SOx, NOx and mercury. We think it will ultimately prove be the most cost effective way to carbon capture and storage as well. And we're in a very, very comfortable space with the Virginia, West Virginia commissions. And we'll see what the ultimate determination is. We stand ready to go forward and build those stations. In fact, quite encouraged by the announcement of Southern Company just this week that they will begin breaking ground for their Orlando undertaking. What that tells us is that regulators in different jurisdictions are beginning to see the benefit of that long-term thinking. As you know, Daniele, you and I have had this conversation many times. This is not a short-term business. When you put a couple of billion dollars to work, it's going to be there for a long time providing environmentally responsible and we believe cost effective electricity to our customers.

And the current coal plants, the one that you are building currently are going to build, the 30 to 40% below that number?

Well, no. When we look at -- if you're talking about the ultra-super critical plants out west where we're getting some final numbers out there.

Right.

They are a bit cheaper than the integrated gas. Again, as you would expect them to be. But we haven't factored in the post combustion carbon capture and storage there as well. We continue to look at the overall math of a global warming scenario with the Bingaman-like bill and it tells us that integrated gas is cheaper than the ultra-super critical long-term and very price competitive with a natural gas fired facility which, of course, has carbon and we'll have to capture and store it as well. It's an intriguing equation. As you know and you heard us say many times before, all four of these plants which we hope to build, and I want to underline that, hope to build, are subject to in-state regulatory approval without which we will not build those four stations which we think would be il--advised and ultimately in the disinterest of our customers in Oklahoma and the SWEPCo territory or in the Ohio power territory and or Appalachian.

Thank you.

You bet, Daniele. Thank you.

Thanks. And we have a question then from the line of Paul Ridzon with Keybanc. Please go ahead.

Holly, you indicated that your FTRs were below plan. What other big deltas versus plan are you seeing? Can you give us a quick snapshot of that?

I would say the one thing to maybe spike out as fuel continues to be favorable year on year, probably the unanticipated positive offsetting the FTRs would be the fact that despite high oil prices the synfuel plants continue to run. And on a year-on-year basis that's keeping us at or even slightly below the low end of our forecasted coal price increase. Those two tend to offset each other. And as you know we have active fuel c'auses everywhere but Ohio. So none of those causes us to move away from our current guidance.

What was the mark to market on the Ormet contract?

We did not mark Ormet. It is a load served by Ohio Power. But what I can say is that it is a very large load, about 500 megawatts of capacity. So on a year-on-year basis what I'd like to do is if you could give Julie a call afterwards we could give you color around the size of that Ormet contract for us.

But I think it's safe to say that through negotiations with Ormet and the public utility commission led by our Craig Baker and the Ohio power team we're really pleased with the Ormet contract. Very happy with the way that worked out.

What was the mark to mark resale on the quarter? That kind of was my question.

On that contract specifically?

On total.

That contract's not marked. And I don't have the total mark to market earnings. But it'll be in the Q.

Okay. Thank you.

Okay.

Thanks. (OPERATOR INSTRUCTIONS) And we are showing a question from the line of Ashar Khan with SAC Capital. Please go ahead.

Good morning.

Good morning, Asher.

Hi. Holly, question for you, and I don't know if you can answer it on the call. I was looking at the slide which shows the incremental rate relief composition.

Yes.

For the year 2007 last quarter the secured number was 161 and we are now at 294. And I was trying to see, do you know what's happened? What's gone into the secured column in the last three months, it's an increase of about 133 million? I was trying to see if you could quantify what increase was in the secured which happened in the last three months?

Pretty sure I can give you some of the big chunks. We had the Virginia rate case which was 24 million, Virginia E&R was 60 million, our Texas North rate case was 7 million, the Indiana depreciation, as Dan mentioned earlier, was 30 million. And so what are we up to there?

We're up to 120 or so.

Or so.

Okay.

And I guess the other might well have been the implementation of the 4% in Ohio.

Okay.

We'll make sure that we follow-up with you to give you actual data as best we can. I think Holly gave you a pretty good run down of the bigger numbers.

That is very helpful. I really appreciate it.

Okay, thanks.

Thanks. (OPERATOR INSTRUCTIONS)

Well, if there are no more questions, let us close by simply saying thank you very much for your attention, your questions and we're pleased to report a very solid quarter and a very comfortable first half of the year and reaffirm our forecast of 285 to 305 down to year '07. Thank you very much.

Great and thank you and ladies and gentlemen, this conference will be available for replay starting today, Tuesday, July 31 at 12:30 P.M. eastern time. And it will be available through next Tuesday, August 7 at midnight eastern time. And you may access the AT&T Executive Playback Service by dialing 1-800-475-6701 for ones in the United States or Canada, or from outside of the United States or Canada please dial 320-365-3844 and then enter the access code of 879864. Those numbers, once again, are 1-800-475-6701 for ones in the U.S. or Canada or 320-365-3844 from outside the U.S. or Canada. And again enter the access code of 879864. And that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.