道明尼資源 (D) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Dominion's second-quarter earnings conference call.

We know have Mr. Tom Chewning, Dominion's Chief Financial Officer in conference.

Please be aware that each your lines is in a listen-only.

At the conclusion of Mr. Chewning's prepared remarks we will open the floor for questions, at that time instructions will be given as the procedure to follow if you would like to ask a question.

I will now turn the conference over to Tom Chewning, Mr. Chewning, you may again.

Thank you, Lindsey.

Good morning and welcome to Dominion's second-quarter 2006 earnings call.

Joining me this morning are Tom Farrell our President and CEO and other members of our management team.

This morning I'll review actual second-quarter 2006 results, give an update on our credit metrics, outline the electric, natural gas and oil hedges we have added since our last call and provide assumptions for the third-quarter of 2006, as well as our earnings outlook for the reminder of the year.

Tom Farrell will then review operational performance and other matters.

Concurrent with our earnings announcement this morning we published several supplemental schedules on our website, we ask that you refer to those exhibits for certain historical quantitative results, as well as our operating assumptions for the third-quarter.

From time to time during this call we will refer to certain schedules included in our quarterly earnings release or to pages from our second quarter '06 earnings release kit, both of which were posted this morning to Dominion's website.

That website address is www.dom.com/investors.

Let me start by providing the usual cautionary language.

The earnings release and other matters that may be discussed on our call today contain forward-looking statements and estimates that are subject to various risks and uncertainties.

Please refer to our SEC filings, including our most recent annual report on form 10-K and quarterly report on form 10-Q for discussion of factors that may cause results to differ from managements projections, forecasts, estimates and expectations.

Also on this call we'll discuss measures about our company's performance that differ from those recognized by GAAP.

You can find a reconciliation of these non-GAAP measures to GAAP on our investor releases website under "GAAP reconciliations."

Our second-quarter 2006 results were solid.

Dominion had operating earnings of $0.84 per share in the second-quarter of 2006, compared to $0.99 per share in the prior year.

Operating earnings were lower than last year primarily due to the absence of business interruption insurance income.

Last year's second-quarter included $0.25 per share of business interruption income.

This year's second-quarter included none.

Normalizing for the earnings impact of BI, our quarterly earnings compare favorably with last year's second-quarter.

Schedule 5 of our earnings release provides reconciliation of the second-quarter 2006 to second-quarter 2005.

On a GAAP basis, earnings per share for the second-quarter of 2006 were $0.46 per share compared to $0.97 per share the prior year.

These special items warrant explanation.

During the second-quarter, we recorded an $85 million non-cash after tax impairment on a Dominion Capitol subordinated note.

While we still have some remaining Dominion capital assets they now represent less than 1% of Dominion's total assets.

We also recorded $37 million non-cash after tax expense relate to the elimination of hedge accounting for interest rate swaps connected with our trust preferred securities.

Dominion, as well as other companies was impacted about an accounting technicality around how hedges should be documented under FAS 133.

These instruments have been and will continue to be effective economic hedges.

We have redesignated these swaps using an alternative method of hedge documentation and they will qualify for hedge accounting going forward.

A reconciliation of our GAAP to operating earnings for 2005 and 2006 can be found on schedules 2 and 3 of our earnings release.

Adjusted debt-to-capital includes a 55% at the end of the second-quarter compared to 56.4% at the end of the first-quarter.

FSO to interest for the 12 months ended June 30, 2006 held constant at 3.7 times compared to the 12 months ended July 31st, the calculation of these measures can be found on pages 34 and 35 of our second-quarter earnings release kit.

Adjusted operating cash flow, that is operating cash flow excluding working capitol changes for the second quarter of 2006 was approximately $640 million, compared to $605 million last year, and we finished the quarter with over $3.4 billion of available liquidity.

Since our last call, we have continued to follow our practice of disciplined hedging.

Of mentioned we have hedged an additional 10-BCF equivalent to 2009 and in New England we hedged an additional 50 megawatts of power generation in 2008 and 400 megawatts in 2009.

Details of our current electric, coal, natural gas and oil hedge positions can be found on pages 30 and 31 of our second-quarter earnings release kit.

Dominion recently reached an agreement in principle on its outstanding business interruption insurance claims for hurricanes Katrina and Rita.

We expect to record between $175 and $185 million in after-tax income in the third-quarter.

Schedule 6 of this morning's earnings release provides details of our third quarter earnings drivers and assumptions.

Please note that in addition to the assumptions we normally provide for the quarter, we have also listed several items in the third quarter of 2005 that you should keep in mind when developing an estimate of 2006 third-quarter earnings.

Third-quarter 2006 drivers that are expected to compare favorably to third-quarter 2005 includes the previously mentioned recovery of business interruption income our contributions from our merchant generation businesses and lower Virginia fuel expenses.

Offsets include return to normal weather and a scheduled refueling outage at our Kewaunee nuclear station.

We are affirming full-year 2006 operating earnings guidance of $5.05 to $5.25 per share.

Although income from business interruption insurance claims is less than our original guidance, other factors in our E & P operations, as well as strong contributions from our other operating units are expected to make up for the shortfall.

Production is running ahead of our 2006 budget and we are adding 11-BCF equivalent to our May 2006 forecast.

This adjustment is reflected on page 30 our earnings release kit.

Additionally, we will not spend substantial dollars for off-shore insurance premiums that had been included in this year's budget.

We had spent a relatively small amount of money on a $50 million catastrophe bond that provides some level of protection for this wind storm season.

The benefit of these budget expense savings is reflected in our third-quarter lifting cost assumption, provided on schedule 6 and will be reflected in our fourth-quarter assumptions as well.

Dominion Energy should continue to realize higher margins on extracted products and natural gas production, and we have less unrecovered Virginia jurisdictional fuel expenses, along with positive merchant margins in Dominion generation.

Now I will turn the call over to Tom Farrell for his comments.

Tom.

Good morning.

As Tom mentioned, when you are normalize for business interruption insurance income, this year's second-quarter compared favorably to last year's second-quarter.

Our collective success year-to-date is the result of our continued focus on operations across our business units.

At Dominion Energy, for example, through-put on our wet gas system increased approximately 12 million cubic feet a day year-over-year or 7%, providing greater gathering by product and production opportunities.

Generation achieved a year-to-date nuclear capacity factor of over 92% and our utility large coal units achieved the highest ever year-to-date capacity factor of 84.3%.

Production from our merchant plants grew 12% year-to-date over the same period in 2005.

Dominion retails quarterly net income was the highest second-quarter performance since its inception and grew 93% over last year's second-quarter.

We continue to balance our focus on today's operations with an eye on future growth opportunities.

For example, in June, FERC approved the expansion of our Cove Point LNG terminal in Maryland.

With the second expansion the station's storage and through-put capacity will almost double with storage increasing from 7.8-BCF to 14.6-BCF and through-put increasing from 1 to 1.8 million decatherms per day.

Construction will begin this quarter and commercial operation is expected sometime during the second-half of 2008.

Also during the quarter we received a positive response from Dominion transmissions open season for the Dominion hub project that could lead to substantial storage and transmission expansion of our system.

We expect to be in a position to discuss the details of these projects later this year.

In our first-quarter call and at our May 22, Analyst's meeting, I mentioned that a settlement had been reached regarding the New England Forward Capacity Market, formerly known as LICAP.

That settlement has now been approved by FERC.

We believe the Forward Capacity Market will have the intended effect of supporting the reliability of existing capacity, as well as encouraging additional capacity ads to the New England market.

In Virginia we continue to move forward with our proposed 5 to 600 megawatt coal plant in Wise County.

On June 30, we filed a petition with Virginia State Corporation Commission to establish the allowed return on investment we will require to proceed.

With the continued strong growth in our service territory, Dominion deliveries electric new connects are trending 2.5% higher year-to-date than last year's first two quarters.

We made several oil and gas discoveries this quarter.

Gas was found at West Cam 130, an exploratory well on the shelf in which Dominion owns a 50% working interest and is the operator.

At and Claymore, operated by Kerr McGee in which we own a 31.5% working interest.

Oil was discover by Murphy at Thunderbird and our share there is 25%.

Our onshore programs continue drilling at a record pace.

We have drilled 562 net wells through June 30, with the success rate of 95%.

Annual production year-to-date continues to exceed our initial expectations.

We have produced 231-BCFE in the first six months of 2006.

A 17% increase over the first six months of 2005.

And 7% higher than the mid-point guidance ranges for the first six months of 2006.

I will now turn to our ongoing asset review process and then touch briefly on our strategic outlook.

But first I want to comment on our long-term incentive plan.

Some of the investors have expressed concern that since our long-term plan is in part tied to achieving return on invested capital targets we would be reluctant to consider divesting any assets that have higher returns.

The plan design anticipated this potential situation and the board compensation committee has the discretion to adjust return on invested capital targets to reflect changes in the composition of our business mix and associated risk profile.

With that in mind, for the past 18 months we have been analyzing our portfolio across all four business units with the objective of improving returns on invested capital as compared to our risk-adjusted targets.

For example, at the end of 2004 we divested our E & P British Columbia assets.

In March of this year we announced the sale of two of Delivery's LDCs to Equitable.

We expect that transaction to close by the end of the first-quarter of 2007.

We have also entered into negotiations to sell a relatively small non-strategic asset at Dominion Energy.

The details of which we will be in a position it share in the third-quarter.

At Dominion Generation we were also investigating the sale of four of our merchant plants.

Stateline, a coal fired plant in Indiana, along with Armstrong, Troy and Pleasants, all gas-fired peaking units.

These plants represent 7% of our generation capacity and about 3% of our 2005 overall production.

Given current market valuations for these type of assets, we anticipate that a transaction will not only improve our return on invested capital, it will be accretive to earnings and our credit metric.

At our May Analyst Conference, I mentioned that we were conducting a strategic review of our assets in order to find the optimal composition of businesses, core Dominion over the longer term.

Recently we have seen transactions with favorable indicative valuations in markets where we have attractive assets.

Notably the Anadarko Kerr-McGee acquisition, as well as Northeast Utility's sale of several generating facilities to energy capital partners.

These indications are encouraging and we will factor them into our decisions.

We have been narrowing our strategic options and will reach a resolution within the next four to seven months.

The same deadlines we gave you at our May conference in Boston.

Our company is delivering on expectations, a pattern we intend to continue.

As Tom discussed, we expect year-end 2006 results to meet our $5.05 to $5.25 per share guidance.

I will turn the call back over to Tom Chewning for concluding remarks.

Thanks, Tom.

Just a reminder that our forms 10-Q will be filed with the SEC later today and our third-quarter earnings release is scheduled for Wednesday, November 1st.

This concludes our prepared remarks and we are happy to take your questions now.

Lindsey.

At this time we'll open the floor for questions. [OPERATOR INSTRUCTIONS] Our first question comes from Dan Eggers with Credit Suisse First Boston.

Hi, good morning, guys.

Good morning.

First question, just with the comments on Stateline and then Peakers, and looking at [indiscernible], I guess youd talked previously about one of the ways to balance the business was to grow generation and the regulated operations to balance off E & P, can you just give a little thought is there any change in that or is this just an opportunistic look right now?

Dan, that is certainly one of the options we have to balance E & P is to increase other parts of the business and we are talking into that consideration as we go through the strategic review.

With respect to these four power plants, looking forward, we are looking at them as we are across all of our other assets.

We are intent on making sure that we have the best performing assets that Dominion can have and operate in the Dominion family as we go forward, where ever they come from.

These plants operate well.

We have great personnel located at each them, but they don't keep up with the rest of our companies' goals on return on invested capital.

So as we go through the strategic review we're not going to slowdown on our focus on returns on invested capital.

So your point is certainly correct, but we're taking that into account as we go along, but we're going to continue to look at individual assets.

Okay.

I guess with Palisades sale and Point Beach coming, two assets that fit pretty well with assets you already own, and Palisades having come and gone, I guess if you have any comments on your look at that asset?

And, I guess with Point Beach and it's proximity to Kewaunee, is that still fit within assets you would be interested in buying?

Point Beach is certainly an asset we would be very interested in as we go along through the process.

I'm sure others will be interested in it as they were in Palisades.

We were certainly interested in Palisades and I won't comment on what other folks do.

We're unable to get to where they got.

Okay.

On, I guess, one last one on E & P, volumes ahead of schedule and you guys are drilling a lot of wells, we're seeing other E & P companies having to raise their CapEx budgets and 20% to keep volume targets in line at beginning of the year or even seeing some volume reductions.

Are you guys seeing any sort of need to revise CapEx plans for this year, next year as you guys look out at it continuing to rise service price environment?

Duane, would you like to cover that?

Sure.

Dan, we would anticipate by the end of year that we would be pretty much in line as to what we had forecast.

To the extent that we might go over a little bit, we, as always, like we did last year, we clean up some assets at the end of the year to balance it.

So we don't see any dramatic change from what we forecast.

Are you seeing a lot of pricing pressures in that, Duane?

As far as --

We're seeing the increases flatten out in a lot of areas both onshore and offshore.

In fact, for the first time ever, I think we had a -- we picked up an extended rig without an increase.

So we're seeing some flattening, and also if you remember onshore, we do so much program drilling -- so much program drilling that some of the cost increases that we see, we can get some additional efficiencies out of program that offset some of that.

So we feel very good about the numbers we gave.

Okay.

Thank you, guys.

Thank you for your questions, Mr. Eggers.

Our next question is from Steve Fleishman with Merrill Lynch, sir, please, go ahead.

What are the book values or tax values of these plants that you are selling in total megawatts?

I don't think we have that right at hand.

We would be glad to get that to you.

I will say this, Steve, that we're exploring sales and what we expect to receive from market transaction would be accretive whether we used all the proceeds to retire debt or whether we modeled it 50/50 stock buyback.

From a book standpoint, these plants are fairly new to us or we acquired them in the not too distant past.

So we're not certain about what sort of book gain or not that would be.

Okay.

Just do you have a number on what these plants earned in let's say 2005?

We haven't broken out individual plant performance in our earnings announcements.

Okay.

It would seem that one of the issues you guys have talked about is concern if you do sell assets for example like E & P assets of tax leakage.

Could sales like these or some others be a way to help limit that issue with respect to looking at E & P?

Steve, first, I wouldn't anticipate that we would have a book loss on these plants and if, so probably not anything major.

Okay.

However, if we ever sell any asset and create gains we also would be looking around to see if there was any special opportunity to sell something that was drag on ROIC(ph) which could potentially have a book loss, but there is no -- nothing that comes to mind right at the moment.

But obviously that's one of things that any good company would do would be to try take a look at opportunities both sides, plus and minus on book value.

We are certainly taking that into account as we go through the strategic review.

Okay, and then I guess, I may have missed your comments on this issue, but with respect to the insurance for, I guess, September onward, you mentioned you have issued some catastrophe bonds.

Are you done with your coverage, or you still have a lot of work to do?

We are done with our coverage.

Okay, and it's a mix of actual coverage and catastrophe bonds?

No.

Not on onshore(ph).

The only thing we have on offshore at this point is the catastrophe bond.

And the total, you said $50 million?

Yes.

So is that effectively your total coverage?

Yes.

And do you plan to take more coverage before?

No.

Okay and then last question is, in the quarter the merchant was up like $0.19, merchant generation margins, can you give a little more flavor on what was the main driver of that, or pieces of that?

Yes, Steve, this is Mark McGettrick.

The two main drivers, price was about two-thirds of that, up lift on our north east assets and then run time was about the other third, mainly driven by Millstone and Kewaunee.

Thank you, guys.

Thank you for your questions, Mr. Fleishman, our next question from Paul Ridzon from KeyBanc McDonald Invest.

What did you spend last year on insurance in the gulf?

I don't have that number for you.

I think the important part here is that we had a substantial amount of premiums this year, probably quadrupled what we had paid last year for offshore insurance in our budget.

The reason that we didn't use that money to acquire offshore insurance coverage from our traditional markets were that the terms changed so dramatically on us.

For instance, all that was offered to us was about half of the amount or quarter of the amount that we had the previous year in terms of capacity.

The cost per potential dollar payout was over 30 something percent.

The deductible period was 90 days and the Company would have to pay the first $25 million after that deductible.

If we went back and applied those same kind of math to the hurricanes Katrina and Rita, it really wouldn't be a winning proposition to us.

So we felt that buying that insurance was nothing more than turning that money over to the underwriters as a gift.

Between the catastrophe bonds and those kind of monies that we would have spent, we feel that we are in a reasonable position this summer, obviously we're not looking for hurricanes and we would suffer certainly beyond the number of days that we have of the usual amount of latitude we have for loss production, but really we're in a much better risk production than we were in the past two summers in the gulf in terms of wells that have been hooked up and producing.

And that was where some of our loss was.

The second part of our loss last year prominently in Katrina and Rita were onshore facilities.

So we feel that even though we don't have our traditional coverage that we're able to handle the liquidity and the lost temporary earnings that would come from a storm like we had last summer.

And in Boston you gave indicative kind of '07, '08 earnings power.

Is there any update to that given current strips?

Current strips have gone up-and-down and we follow it daily, and as of yesterday afternoon, we get the mapping report, we're well within the guidance ranges of -- not guidance ranges but forecast ranges excuse me.

Freudian slip.

But actually there has been a lot of movement, but very little change to the forecast net, because you've had commodities move differently than the assumptions we use.

For instance, oil and natural gas had disconnected with oil going up and natural gas going down particularly in the front-end, but not so much in the latter years and also coal has come way down.

The short answer is that it hasn't really changed much, the numbers that we projected in the forecast we gave for '07, '08 and '09.

And then, on the settlement on the the BI, kind of any indication of your happiness with that settlement?

What you think, in order to get a settlement you may have left on the table versus your claim?

We're pleased with the way the settlement worked itself out.

It was a fair compromise on their part and/or our part and we'll get it wrapped up here very shortly.

Okay.

Thank you.

Thank you for your questions, Mr. Ridzon and our next question comes from Hugh Wynne with Sanford Bernstein.

I had a question, if I could, regarding your other operations and maintenance expense, I'm looking at page 18 of the earnings release kit, where you have your summary of operating results and I see that that line item, other operations and maintenance increases by almost 50% or almost $250 million in Q2 '06 versus Q2 '05, and when I trace it back into the various segments, it seems that about $200 million of that is attributable to an an increase in O&M at the generation unit and maybe $100 million or so with the E & P unit.

I was wondering if you could just explain what caused such a substantial increase in O&M expense in the quarter?

Hugh, this is Joe, in generation the principle drivers of the increase are that in 2005 the sales of our excess emission allowances were credited to O&M, and also, there was a reclassification of a trading contract that impacts O&M, but is offset in revenue and the other energy and related commodity line items and that's detailed in the 10-Q.

So to update you through six months of 2006, I suggest you look at that when it's filed after the market closes today, and if you have further questions, give us a call and we'll be happy to walk that -- walk through you with that.

I'm sorry Joe, I get the first one, sales of excess emissions allowances were credited to O&M last year, what was the second one?

There was a re-classification of a trading contract, actually I think it went from trading to non-trading.

So results in 2005 are different than they are recorded in 2006, but the net effect is offset in two other line items of the income statement.

And that documentation is in the 10-Q, so I suggest you give us a call after that is filed this afternoon.

Thank you.

Thank you for your question, Mr. Wynne, our next question from Leslie Rich with Columbia Management, please, go ahead.

Hi, I wondered if you could talk about the coal plant that you filed for in Virginia.

You said you filed with the commission for recovery.

Is that at the specified ROE or how do you propose to recover that?

Leslie, there was legislation adopted in 2004, which encouraged folks to look consider building a coal fired power plant in the southwest corner of Virginia, which is where our primary coal country is.

We have a consortium of partners and we have filed, and what this statute permitted was a pre-determination of what the returns would be during the course of construction, obviously being constructed and thereafter.

What you would peg it to, because it's tied to our default customers in Virginia.

So we have made that filing at end of June, I believe the hearing has been set in October.

And so we'll go through the process there We're very comfortable with what we have asked for.

They will fairly compensate us for the risks associated and be fair to our customers in Virginia.

And we think the commission will see it that way.

And what would your timeline be for approval and construction and operation?

Well, we're hopeful that it will be approved this year.

We're still in the permitting air -- air permitting process and the other procedures you have to go through, but we're looking at a 2011 kind of a commercial operation date.

Okay.

And so the idea it would be sold back to your part of your Virginia generation that is dedicated to your customers?

Yes.

That is part of the statute.

It has to be dedicated to your Virginia customers.

In exchange for that, you get a rate of return approved in advance, along with the cost of construction, et cetera.

Great.

Thank you.

Thank you for your questions Miss Rich our next question comes from Paul Fremont with Jefferies.

Sir, please, go ahead.

Thank you.

Really two questions, one is, in terms of use of proceeds on the power plant sales, should we assume that the more likely use of proceeds there will be debt paydown?

And the second question is, on the production guidance, I guess, it looks to me as if all of that is happening on the natural gas side.

Can you tell us where among your properties that -- the increase in production is coming from?

And also, it looks to me as if the out years '07 and '08 production levels are unchanged from what you gave back in May?

Paul, I'll, Tom Chewning, I'll answer the first one.

Although our estimates of a transaction for the plants that we are exploring for sale indicate that use of proceeds to retire debt 100% would actually be accretive to earnings.

That is not necessarily how we would use those funds.

We certainly have an option of doing that, but at this point we haven't made a decision and we think that our credit metrics are improving to the point where that's certainly not a necessity for us.

I am going to ask Duane Radtke to talk about the production increases for this year and also about future year's production.

Sure, Paul, the 11B's are about two-thirds offshore, one-third onshore, in most of the offshore is from Devil's Tower, Triton Gold Finger, which is oil.

I didn't break it out by commodity, but my guess is that it's about half-and-half or maybe a little bit more weighted to the oil ultimately and the NGL's.

As far as going forward, we didn't change because obviously that will come when we give guidance in '07, '08, but certainly, we haven't seen anything to change our forecast and feel very good because of the additional discoveries that Tom Farrell mentioned that we had in the second-quarter.

Just to confirm here, I'm looking at the liquids guidance on page A8 of your May presentation.

That looked like it was 23 to 23.5 and that looks to be unchanged in the quarter press release on page 30.

So the number that looks to be going up is natural gas which is going from 3.10 to 3.20 back in the May presentation to 3.22 to 3.29.

That's correct, Paul.

Thank you.

Thank you, our next question comes from Paul Patterson with Glenrock Associates.

Please, go ahead.

Good morning, guys.

Hey, Paul.

I'm sorry if I missed this, but what was the total amount of businesses interruption insurance that was -- that's now in guidance for 2006?

Third-quarter guidance will be between 175 million and 185 million.

And that's what it its for the year?

Yes and that's an after tax number.

And then with respect to the cash flow statement, the changes in the net realized and unrealized derivatives, which is like 241 last quarter and it's about 234 now.

What are the drivers in that and when does that reverse?

Paul, this is Steve Rogers, the derivative assets and liabilities, the drivers really are a rolloffs of hedges that were in -- that were out of the money in OCI in the past, they just rolloff and settle throughout the year, and that is what's causing the change in those assets and liabilities and the impact on the cash flow statement.

Great and then finally the catastrophe bonds, what's the cost associated with that $50 million worth of bonds

Paul, that $50 million will cost us about $7 million total.

Okay.

And Dominion Capital, what's left in that?

I mean there was a write-off associated with that this quarter and just what do you have left in that business now?

Paul, we started the divesture with $3.6 billion in assets.

We have had a number of write-offs, including this one that totaled just over 900 million.

We have successfully divested over $2 billion of assets, and what we're left with is slightly under 500 million, which as Tom Chewning said earlier is a little bit less than 1% of Dominion's total assets.

It really consists of about for or five different investments and about 150 of that 500 is, they are tax assets held on Dominion Capital's books.

Great, thanks a lot.

Thank you for your question.

Our next question coming from Daniele Seitz with Dahlman Rose.

Hi, I was wondering about two things.

One the fuel recovery proceedings.

Could you give us an update on that?

Certainly.

As you, I'm sure are aware, the law changed and actually become effective on July 1st.

The law changed recently, and what it does is returns us to traditional fuel clause recovered mechanism effective next July 1st.

So in other words, the July that we just went through is the last July we will have where we're not guaranteed recovery of our fuel expense, and we'll be going through that over the course of next eleven months.

When we get to July '07 the fuel will be reset in the traditional manner with a one-year forward look and then will be reset in July of '08, July of '09, et cetera.

We won't be filing anything on that until sometime after the start of the year.

Okay.

And it could be on the forward-basis?

It will be on a forward-look.

And you don't have any estimates at this point where it will be?

No.

It's too early to tell.

The cost point project, that is on the same schedule as it was before or it seems like delayed by six months, or was it exactly the same schedule you had before?

We're on the same schedule that we had for over a year.

And what was roughly contribution to earnings you were anticipating from that?

In your long term forecast?

$0.08 per share 2008 and double that in 2009.

Similarly, the LICAP potential impact, do you have an assessment of that at this time, or is it going to be known as you go along?

[inaudible] We haven't quantified that, but we did provide on May 22 the information on the capacity positions in the Northeast that we have contracts with already and the capacity positions that are open.

So with that information, and the price points that have been agreed by the settlement, you can calculate what that impact would be in terms of earnings lift for Generation.

Great.

Thank you so much.

Thank you, Daniele.

Thank you for your questions, Miss Seitz, our next question from Doug Destapler(ph) with Dukane(ph) Capital.

Please, go ahead.

I appreciate your comments, Tom, on the business interruption insurance and the increasing cost of premiums, and I was wondering if because of that it all changes your hedging philosophy?

Yes, it does in the sense of what we did was actually before this particular year, we backed off hedging as much in the gulf as we used to, because as you know, once we hedge it, we would have to dehedge it if storms come through.

Exactly.

That's been more or less -- we had already done some hedging so we couldn't get out of it, but we started backing off last year.

So how should we think in terms of your past hedging strategy?

I think it's kind of 12 to 18 months ahead, a year in advance or something, what should we expect to see as far as hedging production overall goes?

We haven't changed the overall philosophy, Doug.

We've just hedged less in the gulf, particularly oil.

As we've gone through the course of last six months, last year, actually and we'll continue to look at that as we go along, but the overall amounts, which include our electric production, of course, and the onshore should follow in the same range, which will be 65 to 80% as we enter the year.

Very good.

Thank you both very much.

Thank you.

Thank you for your question, sir.

Our next question comes from Paul Ridzon with KeyBanc McDonald Invest.

Please, go ahead.

Yesterday, NiSource indicated they are seeing significant natural gas distribution demand destruction and well above their budget in disconnects for non-payment.

Just wondering if you could discuss what you are seeing?

They had indicated it was wide spread throughout their entire service territory.

We haven't seen anything like that.

I don't know what is going on with NiSource.

Can't comment on it, but we're not seeing anything like that.

Fair enough, thank you.

Thank you.

Thank you, sir, ladies and gentlemen, we have reached the end of our allotted time.

Mr. Chewning, do you have any closing remarks?

Thank you, Lindsey.

Id like to thank everybody for joining us this morning.

Please enjoy the rest of your day and the rest of your summer.

Good morning.