CenterPoint Energy Inc (CNP) 2001 Q1 法說會逐字稿

The conference is about to begin. Following today's presentation will be a formal question and answer session and instructions will be given at that time. Until that time, all lines will be in a listen-only mode. Good Morning and welcome to the Finance Teleconference. At this time, the conference will be recorded at the request of Reliant Energy. I would like to introduce today's host, the Director of Investor Relations, Mr. Dennis Barber. Sir, you may begin.

Thank you. Good morning and welcome to Reliant Energy's first quarter 2001 earnings conference call. Thank you for joining us today, whether by phone or by webcast. This morning, we have Steve Leadbetter, President, Chairman, and Chief Executive Officer, leading our discussion. Also participating in the call will be Steve Nave, Vice Chairman and Chief Financial Officer. Additionally, there are other members of management present to assist in answering any questions you may have, which we will take up after the prepared remarks. Before Steve begins, I need to make a couple of preliminary comments about the call. Our unregulated subsidiary, Reliant Resources, is currently in registration with the Securities Exchange Commission to do an initial public offering of approximately 20% of its common stock. Because of that pending registration, we are restricted in what we can say about our unregulated businesses except as they presently exist within Reliant Energy today. As a result, our comments this morning will describe the earnings results of our combined businesses. Also, any projections or forward-looking statements made in this call are subject to the cautionary statements on forward-looking information in the company's SEC bylaw. With that, I will turn it over to Steve Leadbeater. 00:1:44

Thanks, Dennis. Good morning, everyone. I would also like to thank you for joining our first quarter earnings call. I am very proud of the accomplishments this quarter. We had reported adjusted earnings, as you are aware, $274 million, or $0.94 a share, which is double the earnings from a year ago. Our outstanding performance was due mostly to improvement in our wholesale energy segment as well as improved results from our gas distribution companies, our gas pipelines, and our gathering operations. In a moment, I will turn you over to Steve Nave who will go over numbers in more detail. But first, I would like to mention a few highlights and issues that we have been grappling with. 00:2:35 Our wholesale business had an exceptional quarter. We continue to reap the accretive benefits of the acquisition of our mid-Atlantic assets, which we purchased last year and were not included in the first quarter results in the year 2000. In addition, we had increased operating income from our western operations as compared to an operating loss the previous year, and continue to improve by trading and marketing activity - we had a robust contribution from that segment this quarter also. While I am talking about our wholesale segment, I would like to spend a few minutes on the California situation and let you know where we think things stand at the moment. 00:3:28 There have been some very significant events in the last couple of weeks. We had a victory in the NAN Circuit Court Of Appeals on 04/05/01. As you may recall earlier this year, a district court judge issued a preliminary injunction that required us to sell power to the California ISO even though the ultimate purchasers P,G & E and Southern Cal Edison were not creditworthy. We appealed the injunctions of the NAN Circuit, and the court concluded that we demonstrated a substantial probability of success on the merits and issued a stay order. Then, on April 6, 2001, the 407_____ clarified his order of February 14, 2001. In a 3-0 ruling, Park ordered that the credit protections provided for in the ISO tariff are applicable to all energy transactions with the ISO, including emergency energy transactions. What this means is the combination of the NAN Circuit stay and the Park order means the ISO can no longer compel us to sell energy to parties that are not creditworthy. Also on April 6, 2001, P, G & E announced that it was filing for bankruptcy protection. This was not unexpected, and we believe that the bankruptcy process will be an important part of an overall solution to this situation. Then, on 04/09/01, Southern Cal Edison and Gerber Davis signed a memorandum of understanding, which provided, among other things, that the state would buy SCE's transmission lines for almost $2.8 million. Definitive agreements still need to be written, and then approved by state and federal regulators as well as the California legislature. I am encouraged that Gerber Davis and Edison were able to reach an agreement, and I believe that this deal could be part of an overall solution. We understand that Edison will use any proceeds that it receives to pay off its creditors, which should be good news for us. While the ultimate solution of the California situation is not in hand, we are encouraged by recent developments and will continue to participate in the process to help draft a market-oriented solution.

Moving on to our regulated business in the first quarter, we had significant improvements in the earnings of the gas distribution companies, pipelines, and gathering operations. These increases were primarily due to weather as well as improved margins. The electric utility continues to experience a steady increase in residential and commercial demand, although operating income was lower in the first quarter than last year due to increased operating expenses and taxes.

I would like to spend just a few minutes on recent regulatory developments here in Texas. In our last case for rates that will be charged beginning in January 2002, the administrative law judge issued a proposal for final decision that would require that we do a number of things; but first, it required that we flow back excess mitigation, i.e. the excess mitigation that we have been booking relative to stranded cost. If in fact that recommendation is implemented, this could be as much as $290 million a year. Second, the order would reduce our revenue requirements by an additional $156 million compared to what we was requested. We believe that even if we are ultimately required to provide an early refund of the excess mitigation, we believe it will ultimately be freed out in the stranded cost throughout in 2004. As you know, regulatory and legislative changes are unpredictable, but we believe, both in Texas as well as California, that we have strong positions and will continue to be very active in helping shape appropriate regulatory and legislative policy.

As to the progress on the IPO of Reliant Resources, we are beginning our roadshow this week. We expect to complete the offering in early May, and then we would anticipate that the spinoff would occur within 12 months of the IPO. 00:8:02 To sum it up, I am very pleased with the progress that we have achieved so far in 2001 and believe that we will continue the strong performance for the remainder of the year. And now, I will turn it over to Steve Nave to provide more details on the first quarter results. Steve! 00:8:23

Thank you, Steve. We are $0.94 for a diluted share in the first quarter of 2001 versus $0.47 cents for the first quarter of the year 2000. Going forward, we are going to report earnings on a fully diluted basis - that will be a common feature, and will be our practice prospectively.

I would like to first talk about the electric utility. Operating income and HL&P fee was $186 million for the first quarter versus $202 million a year ago, declining due to increased O&M expenses of $38 million. There are a number of things, but I will highlight a few O&M expense categories: Pension and benefits - a $11 million dollar increase, and you will hear this or see it with respect to some of our other business units as we revalue the assets in our pension plan. With the decline in the stock market, we had to raise pension expense slightly. Transmission cost increase of 8 million - this is programmatic. It is pursuant to a tariff, which the PSE approved a few years ago, and there is an increasing level of cost allocation that phased in through time and a $8 million dollar impact of that. Factoring - a $5 million dollar expense. Of course, factoring is revenue-related. Some IT costs and generation _____ of which about $10 million - those are primarily timing-related. We also had increased other taxes of $13 million dollars. Roughly half of that is revenue-related and half of that is around increased ad valorem taxes.

With respect to revenues, decreased revenues as a result of something called the GLO program (GLO is the General Land Office in Texas). That is a program that was a component of SB7 that in effect allows state agencies to purchase electricity at a lower rate, and that impact is negatively $12 million. We benefit from the same program in our retail unregulated marketing business, so there is offsetting that occurs with this reduction. Positives for the quarter - we had $21 million of positive revenue growth. Steve made reference to the sales. We continue to see very good customer usage and very good customer growth. Residential customer cannot increase 2.5%. Usage was up 3.1% on a weather normalized basis; that is notwithstanding the fact that we, quarter over quarter, have raised rates roughly 24%, all of it around increased fuel costs. This is very interesting, and I think it indicates the continued robust nature of the Houston economy that we have seen that sort of customer response notwithstanding significantly higher rates. And then you can see there is a fairly significant weather effect Q over Q in that residential sales in the aggregate, given all those factors, were up 15%.

Commercial sales were up 6% and then firm industrial sales were down 3%. I think we are seeing the effects of the higher commodity prices and how natural gas input prices are impacting some of the chemical producers along the Houston Shift Channel.

We had lower D&A expense of $20 million quarter over quarter. $15 million of that was associated with the amortization of our impairment, and then we fully amortized some regulatory assets, which resulted in a reduction of about $7 million year over year.

Moving to the wholesale energy segment, we had an operating income of $260 million versus an operating loss of $22 million in the first quarter of last year. This increase was primarily due to increased revenues from the energy and ancillary services and, as Steve mentioned, the addition of the 4300 MW of generation in the mid-Atlantic region, which we acquired in May 2000. Very strong commercial and operational performance in our trading book - gas volumes were up 40% to 767 BCF, prior sales were up 171% to 76 million MWh, and improved growth margins across all of the commodities that we trade - gas, power, oil, weather, whatever. These results were partially offset by higher operating expenses to support our generation. In essence, keeping the power plants on line is in addition higher expenses for the mid-Atlantic assets, which we did not have in the first quarter of last year, and higher expenses associated with air emissions in California of $21 million dollars, basically to buy Knox credits to allow us to run the plants. With the sector of receivables in California, we currently are at the level of $337 million. We took a $38 million provision in this quarter against this receivable balance. You may recall that we reserved $39 million in the fourth quarter of 2000. I am sure we will get questions about this. Essentially the P,G&E bankruptcy filing has not affected the level of reserves that we have been taking. Our methodology is based significantly upon the probability of bankruptcy and has been, and so we are comfortable with our level of reserves. In addition, in the wholesale energy segment, we had equity income from our Eldorado plant in Nevada, which we own jointly with a partner, that increased $12 million quarter over quarter.

Moving to the natural gas distribution business, we finally had a favorable equator in our gas businesses. We had operating income of $135 million versus $105 million a year ago. You all may remember that we hedged our gas exposure and benefitted from that in the first quarter of 2000 possibly $12 million. We were partially hedged this year. We just could not find or did not find enough liquidity in the market at favorable prices to fully hedge and as a result we got a $1.4 million dollar hedging loss in the first quarter of 2000. But fortunately, we were not able to fully hedge and we had great weather - the weather was 6% colder than normal - it was 30% better than the first quarter of last year.

Moving to the pipelines and gathering of business, we had operating income of $39 million versus $32 million a year ago. We had increased margins both at the pipes and in the gathering business. I think we have made previous reference to the fact that with increased drilling activity, the gathering business is looking very healthy right now. Its operating income was up $2 million, a $4 million increase at the pipelines.

Moving to our European energy segment, ERNA, we had operating income of $18 million for the quarter versus $33 million a year ago. This reduction is associated with the opening of the Dutch market to competition and lower margins associated with F-margins were basically in line with our expectations in terms of 35_____. We partially out stepped this decline through increased margins from sale of ancillary services and increased margins from this repeating.

Our other operations segment includes our unregulated retail marketing operations, our communications business, our e-business group, and corporate costs. We had an adjusted operating loss of $33 million versus an operating loss of $9 million last year. In anticipation of a spinoff, we recorded a $101 million dollar pretax non-cash charge related to the redesign of benefit plans for the employees that are transferring.

In summary, I think we had a very good quarter, both in terms of our financial performance as well as our operating performance. With respect to the outlook of going forward, as Dennis mentioned, we are in registration; as a result, we are going to be very cautious in any statements we make that could create problems for us through that process. I think all I am comfortable in saying in terms of future outlook is that in recognition of the previous guidance we had given for the year 2001 for our EI, we indicated that we expected to able to grow earnings 10-12% for this year over the year 2000. I think at this point in time, we feel comfortable that we are likely to exceed that 10-12% of range. I think that is about all the guidance that I can provide you.

With that Dennis, I believe, we are ready for questions.

Mr. Cornet, we are ready for questions. If anyone would like to ask a question at this time simply press * 1 of your touchtone phone. If you are using a speakerphone, you may need to lift your handset, then press * 1. To cancel a question, or if the question has already been answered, press * 2. One moment, while the questions register. Our first question comes from David Frank. You may ask your question.

Hi, Steve! Congratulations on the quarter.

Thank you.

I wanted to ask you about the reserve taken in the first quarter. I guess you took a $38 million reserve in the first and you took, I think you said, a $39 million reserve in the fourth. Are you going to just continue to reserve approximately $38-39 million per quarter, or do you feel that now you have adequately reserved for those $338 million in receivables that you have?

David, I will certainly answer that question, but I will tell you just a couple of thoughts out. One is, you know, effects change, I guess we might relook at the amount that we have reserved against historical receivables, but given our assessment of the situation today I do not anticipate any change.

Actually, I have _____ 43 feature is accounted. The work resorted is based on the current receivable balance is so, I mean, to the extent that changes in those receivable balances will affect the reserve.

Clearly, the changes in the receivable balances are changes, and as this bankruptcy process evolves and we have a better read on the probability of recovering and so forth, we clearly will respond to that, plus or minus.

Okay, but with a reserve of about 8 cents, it looks like in the quarter after the reserve you would have seen adjusted earnings somewhere around a dollar or two.

Well, add the $39 million back.

Okay. Is that your question?

Yeah. Well, my other questions had to do with the guidance, but I think you prefaced pretty well in the first part and you did not want to comment too much, so I will pass off for the next question. Thank you.

Our next question comes from Andre Knead. You may ask your question.

I think I have few questions. First is some stuff related to the deregulation in Texas. You mentioned that the judge in his initial decision said basically lower rates to buy the excess mitigation. It looks like in 2000, you over-earned by about $335 million, which is offsetting some of the year's stranded costs. Do you have a total number you collected through both the excess earnings and the prior accelerated depreciation? I guess it started in 1997-98.

The key motive mitigation is ........

Yeah.

I think it would take us a few minutes to pull that out, if you would like for us to just come back to you on that.

Yeah, that will be good. Did you have any in Q1?

Mitigation?

Yes.

Yes.

How much was that?

We will pull that out, too.

Okay. And what I heard recently was there was a move in Texas to change the price to beat, so it fluctuates with changes in either fuel or the pool price, and the last I heard this was still under discussion. Can you give me a status update and, if it is final, how the mechanics work?

It has gotten for you the fastness of the commission has in place for dealing with the different issues, which I think, I can't remember what they intend calling the action that they take, but it is basically an interim order. That process can well be rolled into a final order this fall. Under that process, there is an adjustment mechanism to the price to beat, a combination of a starting point, which will determined this fall also based upon the current energy prices and then will be adjusted on a go-forward basis based upon changes in natural gas prices.

Okay. So you believe it will be final in the fall, but it looks like it will be likely that the price to beat is an adjustable rather than fixed.

Yes. However, there is every intent, I mean, everyone understands the problem in California and the fact that you cannot disconnect wholesale and retail energy prices.

Okay.

That dabbles into details, if I could work properly, we will continue to pursue modifications to this that we believe will be more appropriately reflect , but fairly the intent is like the same market, so I think that we will start out with every opportunity for a viable functioning retail market.

Okay, great. In your gas distribution business, great quarter. You beat your full year 2000, I believe, already. Last year, you had some losses from exiting competitive retail jurisdictions. It looked like it was probably approaching 50 or 60 million. Are you out of those areas now or did you decide to stay in some? Is there anything in Q1 related to that?

No. We are out of those businesses. There is nothing in Q1 that is reappearing there.

Okay, and it looks like the weather in Q1 was a little above normal. Was Q4, 2000 above normal? It looks to me like it was a little below.

Q4 of 2000?

Yeah.

We have to go back and look at that. I think it was ...

It was...

A little bit below.

A little below. Okay. And finally, I just wanted to check that I have the plans coming on line this year correct. It looks like you just have two plans. We should expect this year Desert Basin in late summer and Ascala towards the end of the year. I believe that is it. Am I missing any? As far as online.

That is Aucilla, in Florida, and Aurora.

Aurora Midwest? And what about Desert Basin? Desert Basin is coming on this year, you were correct...

Okay, so it has started. And...I believe that is it. Thanks. Thank you.

Our next question comes from Elizabeth Pereira. You may ask your question.

Yes, thank you. You mentioned a cumulative impact of adopting status 133. Could you talk about what the impact was on ongoing earnings in the quarter and how we should look at that going forward? The impact of going on status 133 was basically taking the reversal of what we have taken in the first quarter on our then security. That was about $60 million - I think the number is correct - and in that there was just a small amount related to the trading business and we would expect it to be really in the noise level and not have a material impact based on what we have got on our books today.

The piece related to the Zens was that a cumulative impact or was that an ongoing impact? --That is a cumulative, but we do not expect it have material impact ongoing, either.

Okay. And in the trading business over at Resources, you were saying it was kind of more of just noise rather than any thing significant. -- Yeah.

Thank you.

I have got a response to the question about mitigation. To date, we have mitigated $1.5 billion of standard cost that is comprised of $650 million of redirected TMD 59 depreciation and then $950 million of excess depreciation or amortization. Next question comes from Terry Hue. You may ask your question.

Hi! I know that you said that you cannot give forward guidance on the wholesale or the energy results, but if you could, could you break down for us a bit as far as the earnings contribution for this quarter over the year-ago quarter - the very substantial swing? How much would be the mid-Atlantic asset, how much is California, how much would you separate out as just trading profits, etc.? If there is some way just to give us some sense as to what are the components of the earnings...

Perry, I am sorry, but I do not think we are going to be comfortable in doing that.

Okay, not even in broad terms, like where the earnings are coming from? Did you ever give some guidance on the California component other than the receivable amount that you have built up?

I think, you know, in the past we have generally talked percentages...

Right...

In response to that question, we have done that once before.

Right, but you are not prepared this quarter to do that.

I would prefer not to do.

Okay. What was the balance, the California receivable balance, at the end of the year?

Around 370-380.

And the amount now at the end of the first quarter is how much?

337.

So it has gone down.

Yes.

As far as the excess mitigation and the comments that you made in the introductory remarks, the $290 million is your flowback of excess mitigation, that is on an annual basis, as you said. What exactly does that mean when you have cumulative amounts of $1.5 billion that has been collected, the $290 million, was that what the commission computed as amounts that you have to give back to customers and is that the total amount, or is it going to be a reevaluation of your standard cost and then they will decide how much has to be flown back? I did not quite understand that.

Yes, a give back, over a period of time, it is what the number represents. I cannot recall the exact time frame that they will ______ 65 it back over, besides what it does is it the ______ 65 calls are affecting the .......

I think it is 10 years...

Yeah! it is 10 years. ______ 65 you know, whatever you got, is all an estimate. You still have the ultimate _____ 3018 after recovering in 2004, when you end up trying to market it.

Right...

But the market decides what you are really should be charging the customers _____ (over lapping voices).

Right...

(over lapping voices).

I think that the key point, Terry, of this issue is that under the legislation it we will recover its standard costs. In effect, all of this discussion is coming about because of higher gas prices and this is _____ on whether there are standard costs or not and the issue is have we over-mitigated. Now we will come out in the wash with the two, including the effect of the caring on sums which are, you know, cash that moves back and forth.

So the $290 million is their initial estimate? Because, for Texas Utilities I believe it is a very large number. Is it comparable to their number? Is this the number they have come up today, $290 million, that you have over-mitigated?

No, that would amortize the other mitigation over, I think, a 10-year period...

Oh, over 10 years. So each year...

...Recognizing that you will never get to the end of the 10-year period, you will have a big true (over lapping voices).

Right, so it is $290 million per year, the one-year amortization of the 10 years that they have computed. Is that right?

Yeah, that is right. That is the way to look at it...

All right...

...and it relates to the mitigation numbers that Steve (over lapping voices)

Right... and I believe Texas Utilities says that as well, that the legislation is so clear that they cannot rewrite it. Therefore, you are entitled to recover whatever amount unless they determine then that this stranded costs are something else. Right?

That indeed there is truer way process, essentially, in 2004, where we will then know whether there were or not standard costs and the appropriate quantification of that will be put in place.

And then finally the last question, you said that on the Wires case they talked about a reduction of revenue requirement of $156 million...

: ...over what was requested...

Over what was requested. What are some of the components that led to that number?

There were a lot of moving parts, Terry, but if you think about this, these cases were very complex from the standpoint that they were little bit of adopting or setting it right will go into effect January 2002 and so, for the first time, they actually are using a projective forecasting test year and around that you are including number of years of capital expenditure, you are including anticipated increases, and the request we were asking for was for using an end-of-period rate base and what happens in the Sanders recommendation, _______ 72 with all the projections that were being made on the basis of end-of-period rate base, so that is all of the moving parts to have it basically fit into the final recommendation of the examiner.

Thank you.

This is Joe _____ to jump in and add a little bit of information to Andre's question. Andre picked the right three projects on the unregulated portfolio measure regions with the gross of two others. Now Shelby County facility, we are currently adding six million thousand, adding capacity to an already running facility - 89 MW - to be mounted essentially right now, and sometime towards the end of the year, September-October timeframe, our Channelview facility will have the first 441 MW out of 781 MW up and running for our plant. Next question comes from Andrew Levy.

Hi! Can you hear me?

: Yes.

Okay. So how are you doing? I just wanted to make sure I got this straight as far as the IPO. Is not May 15, if for whatever reason you cannot price the IPO for our light resources, is that when the numbers become still? Is that the right date?

It is, I believe, May 14, 2001.

May 14, 2001, I am sorry. Okay. And just back to Terry Hue's question. So basically the amount that we were talking about earlier, that is basically what gets pulled out of the rate base for our calculation, is that how it works?

Yes.

Okay.

The amounts that have been mitigated if the examiner's recommendation is available.

And do we get a final decision on, what, April 25th, 26th, or something like that?

That will be in the fall.

Oh, fall... but we have got the interim decision coming up? Or maybe that is just for TXU?

No, there will be an interim decision at the end of this month maybe.

Okay. Thank you very much and good luck with the IPO. Next question comes from Kim Sidal. You may ask your question.

Thanks. Good morning, guys! Good quarter. My question really had to do with the _____77, just trying to get a rough breakdown on the wholesale business. I did not know if these are percentage-wise, like you have got, like east versus west?

Gee, Kim! I just do not think we are going to go there today.

Fair enough. Maybe you can just give us an update on if you shall continue with the losses or discontinue operations in Latin America. Where are you guys on that in terms of those asset sales? We are going to continue to see losses this year?

Well, we will sell the balance of our portfolio this year. And we have been in continuing discussions with people - there are three dozens, the largest is our engineer generated plant in Argentina; there is a small distribution business in Argentina, and then a very small coke calcining business in India. I think anything you are going to see is not likely to be highly significant - I would put it that way -- and our objective, very strong objective, is to dispose of those remaining properties by year-end.

Okay. Thanks a lot.

Our next question comes from Fredulo Marti. You may ask your question.

Good morning.

Good morning.

A couple of things. One, you had indicated that the equity coming from Eldorado improved by $12 million quarter over quarter. I am wondering if you can give us the actual comparisons quarter over quarter.

Maybe if we have a few minutes, okay?

Okay. Because, as I recall, last year it was operating problems and those kinds of things, so I just wanted to try to get a sense of how things are operating there right now and any sense you can give us in terms of the outlook there for one _________.

On Eldorado, the one operating update would give -- if someone is looking for the numbers, it is not really worth getting into the data -- is that the Eldorado facility is currently down on maintenance. Some people heard that, that we had a blank failure, and messed some other things up, but while we got it down, this the right time for it to be down. So we doing some other maintenance on that steam turbine as well. It is expected to be up on or about June 1, which is the right time for Eldorado to be back up for this summer and most people have reiterated to us for a pretty attractive for summer pricing , so I expect it to do well this year.

Do you have any commitments here in the April-May timeframe while it is down, because we have heard that it is like 100 degrees in Phoenix and we might be starting a little early this year in terms of similar hot weather. Are there any commitments that need to be filled in elsewhere or you would have normally filled in Eldorado?

We have no specific commitments for Eldorado. If you get those kind of temperatures, all that is just opportunities lost. You need to do the maintenance sometime, so it is going to be some.

Okay. Otherwise, in terms of the quarter, you indicate under other operations an operating loss of $33 million, and that is where, you know, the holding company retails and communications as things are. Is there any kind of a breakdown you can give us amongst that group, and is $33 million on a quarterly basis a decent run rate for the year 2001?

Fredulo, I think it may have been you who asked, I remember, at our fourth quarter call. We talked generally about level of loses at that segment for the year; as I recall, we said roughly $150 million and I would say we are more or less on track with that projection. I think that is probably what I will offer now.

And do you indicate that it can only be about half of that?

Yes, I think that is what we said previously, yes.

Okay that is still like it.

Yeah.

All right. And will those Eldorado absolute comparisons be available?

Okay, just a second. It looks like there is essentially no contribution at all in the three months in the first quarter of last year, actually a $149,000 loss.

Okay, and in this year it is $12, 000,000 positives?

Yeah.

Okay. Thank you. Our next question comes from Andre Mead.

A quick followup on Fredulla's question. He said half of the other loss, more or less, is from retail. Now this is the start up clause from getting your H,L&P retail portfolio ready for it to be competitive. Is that correct?

Yes, it is. The Texas retail, yes.

Yeah, okay. And I assume there are also some expenses for the pilot project?

That is correct.

Do you have any preliminary results of that? How successful have you been at attracting customers outside of Houston?

Yeah! my partner will give you a report on that. I am not going to be so specific, as a qualifier. I think that we you found is just personal. We are happy with the market share we have achieved. The two markets will resume, I think: Dallas, the TXU market, and the T&P market, the modest-sized market here southeast of Houston. We were pleased with the market share today. I think it is fair to say that all competitors have been a bit tentative in this market, waiting for final word making to our prices to be _____, and what have you. So, I think we have all entered the pile of increasingly rigid attitude to business and we are required to change to test marketing systems and operating systems. No competitor that we perceive out there has a way of really making a market-share grab today.

Okay and this is part of your business is going with the RRI spinoff, correct?

That is correct.

Okay, that is it. Our next question comes from Mavlin Terry.

Hi. Could you just elaborate on the California receivable balance declining from yearend to the end of the first quarter. I understand the difference is $38 million of reserves, but I assume you have booked significant revenues associated with California power sales in the first quarter. Why is it that the receivable has not increased? Is it a delay in billing, or what?

Since that time, the bulk of our power sales have been bilateral contracts to parties other than the ISO and the PX, those sales including sales to California Department of Water Resources. There has been a great deal of liquidity in the market and that is why even though we have had sales you do not see accounts receivable increasing because they are going into the hands of creditworthy counterparts.

Okay, so it is not necessary that you have been paid in full, but you are just not accounting for the unpaid balances that are receivable, is that correct?

What we are saying is that we are not doing business with the non-creditworthy entities anymore. That was static or frozen at the end of the year.

We have minimized it and we have had opportunities to do so because creditworthy counterparts have been in the marketplace.

And there have been some very partial payments against the ISO and PX

So how are you deciding the California receivables? Maybe I am misunderstanding your definition of California receivables. Is that just accounts for uncreditworthy parties?

Just the ISO and PX. We should have clarified that. We have receivables with others that are in good shape and so we have not kind of called them out for special attention. They are just part of the receivables in our trading book and against our assets overall.

So the California receivable balance is associated with sales only to the ISO and the PX?

It will also be my guess that everyone else, when you hear them talk about that, is really defining it the way we are.

Okay. You were only recently relieved of your obligations to sell to the ISO, but there was no increase in the receivable balance associated with sales to the ISO in the first quarter?

That is correct. The function of where we were selling our power, the burden was on emergency power that had not otherwise been sold in the bilateral market...

And if we had otherwise sold it in the bilateral market, you were not subject to that call during that period.

Okay. So you were not in fact making sales to the ISO?

That is correct.

Okay. Thank you. At this time, I am storing no further questions. I would like to turn the conference back over to Mr. Dennis Barber.

Thank you, that ends our discussion today. Before closing, I would like to mention briefly that the call will be available till 6:00 p.m. Central Time on Monday, April 23, 2001 and may be accessed by calling 888-568-0801. If you are outside the US, the number is 402-998-0230. You may also listen to an online replay of the call that will be available in a couple of hours by accessing our website at www.reliantenergy.com. Thank you again for joining us this morning and have a good day.