愛迪生國際 (EIX) 2003 Q2 法說會逐字稿

Hello, and welcome to the Edison International conference call. The call will be available for replay at the following numbers, 877-693-4277 and also 402-220-0042. You will need to use the pin code 9300 to access today's call. And for your information, this call is being recorded.

Also, we'd like to advise you that Edison International is holding a simultaneous webcast of this conference call. This will be on the company's website in a listen-only mode for interested parties.

When the conference begins, you'll be on listen only, and there will be a chance for questions and answers at the end. In addition, if at any time during the conference you are in need of assistance, press star 0 for a conference coordinator. Thank you again for your patience. The conference will be beginning shortly. At this time I would like to introduce your host, John Bryson, CEO of Edison International. Thank you and go ahead, Mr. Bryson.

Thank you and good morning to all of you. We appreciate your interest. We will go through our second quarter earnings, and as usual we'll start with opening comments, then proceed to answer your questions. We should conclude the call within about an hour. Let me start by asking that we have the read the advisory statement with regard to forward-looking earnings from Barbara Matthews.

During this call we will make forward-looking statements about the financial outlook for Edison International and its subsidiaries and about other future events. Additional forward-looking information also is available now on our website at www.edison investor.com.

We believe these statements and this information to be reasonable and well-founded, however, actual results could differ materially from current expectations. We set forth important factors that could cause different results in Edison International's 2002 Form 10-K and subsequent 10-Q and 8-K reports. We encourage you to read those reports carefully.

Thanks.

All right. Edison International, and many of you will have seen our press release put out earlier this morning and our related filings, but we have reported earnings for the second quarter of $24 million, that is 7 cents per share. It compares with $665 million or $2.04 per share in the second quarter of last year.

Clearly a large difference. Two major items explain substantially all of that difference.

One was a one-time positive a year ago that most of you that have followed us closely will recall. That one-time positive amounted to $480 million for Southern California Edison, and it was associated with an adjustment that came as a result of a PUC decision last April. So -- that is, April 2002 relating to utility-retained generation.

This quarter we have an item that is a distinctive item, and that is an asset impairment charge that we're recording this quarter at Edison Mission Energy that is $150 million. And it relates to certain small gas and oil-fired peakers in the Illinois fleet at the Midwest Generation subsidiary of Edison Mission Energy.

If you take those two together, they explain $630 million of the $641 million year-over-year negative difference. Let me offer the comparison in another way that may be helpful to many of you.

If we exclude the EME impairment charge that is taken this quarter and we count that as part of core earnings, but if we exclude it, then this second quarter 2003 results are comparable in core earnings to the 54 cents per share for the same period last year.

Now let's dig a little deeper into the impairment charge. It was an additional $475 million asset impairment charge within Midwest Generation in Illinois, and that relates to the Collins plant.

The Collins plant is a large oil and gas-fired plant in Illinois, it operates substantially as a peaker. It has been leased so, the Collins station is treated for accounting purposes as an operating lease, leased back to EME at the EME level.

And as an operating lease, it is not subject to impairment for accounting purposes at Edison Mission Energy or Edison International. So, there is no impact on reported earnings of EME or EIX pertaining to the Collins impairment, but it is a charge that we've taken. So, only the smaller peaker impairment, the one that I identified at the outset, affects these reported earnings.

All right. Going on, other than this non-cash impairment charge, this second quarter at Edison Mission Energy was fairly flat as compared with last year's second quarter.

But incorporating the strong first quarter at Edison Mission Energy results for the first half for Edison Mission Energy exceeded those of last year excluding, of course, the impairment charge. And that strong operating performance is -- or strong operating performance, especially at the coal plants in the Americas region is the reason for the first half-year stronger performance there.

I want to point out that we have the bulk of our Edison Mission Energy earnings in the third quarter. So, those earnings are seasonal, and the third quarter will be important to the overall earnings outcome for the year. That seasonality, of course, reflects the summer peaking nature of those assets.

Turning to Southern California Edison, Southern California Edison produced $225 million in earnings in the second quarter. That's up from last year's $215 million after excluding last year's utility retained generation adjustment that I mentioned at the outset.

Of greater note at Southern California Edison and a real milestone is the fact that last month, the month of July, the PROACT collection, that is, the recovery of the wholesale power prices cost during the power crisis, was completed. So, that is now done, a vitally important fact for us.

And it was done nearly half a year ahead of the schedule that had been originally anticipated when Southern California Edison's settlement agreement was initially signed for recovery of those costs. With the full PROACT recovery, customer rates at Southern California Edison have now been as of August 1st lowered very substantially.

We put in place on that date an annualized $1.2 billion rate reduction. The rate reduction, and many of you have followed this in our previous announcements with respect to it, rate reductions that are now in place range from 8% to 19% varying across our customer class groups.

I want to remind all of you that an important remaining hurdle to completing Southern California Edison's recovery from the energy crisis will be the outcome of the California Supreme Court ruling on the TURN, the consumer group TURN appeal of our settlement.

It is important to note that court rules require that a decision be rendered within 90 days of the oral argument. The oral argument took place on May 27th. So, that means that we should have a decision by the end of this month.

The satisfactory result there would, we believe, position the utility to emerge from non-investment grade status later this year. And that will be another landmark.

Here's another key point that we reiterate at each one of these calls. With completion of the recovery and moving forward, we expect to head towards our ultimate goal of reestablishing a dividend. The common stock shareholders for Edison International,

The steps in process will be resuming dividends from Southern California Edison to Edison International. Their basis for the dividend, clearing the deferral of distributions on the Edison International quips and then finally meeting our goal of reestablishing the dividend.

We also expect, and let me go on from that point, another recent important development at Southern California Edison was signing of an option agreement with a company, Intergen, that will allow us to acquire the rights to Mountain View which is a partially completed in excess of 1000 megawatt combined cycle gas-fired power plant in Southern California.

The financial terms of the transaction are subject to a confidentiality agreement with Intergen, but for these purposes I wanted to comment on the unique transaction structure, the core of which is a cost-based contract between Southern California Edison and a subsidiary, a direct subsidiary of Southern California Edison.

On obtaining approval of the PUC for that contract, and we have filed seeking that approval already, when we get PUC approval we will seek FERC approval, and by securing FERC approval we will make the contract subject to the productions of the federal filed rate doctrine.

We think this structure will help support investor confidence and is approvals from both the state and federal regulatory bodies, and that investor confidence is essential to encourage investors to supply the capital that is necessary and will be necessary to build electric-generating capacity in California. This plant will be vitally important, we believe, to the stability of the electric system for our Southern California Edison customers and for people across California.

Then one final comment. I want to confirm that we still expect to meet our Edison International earnings target for the year of $1.40 to $1.60.

That is true even including the negative effect of a number of these one-time items, such as the asset impairment charge taken this quarter on the peakers at EME and the various items recorded throughout the year in the category titled, Cumulative Effect of Accounting Changes." Anticipated strong operating performance, particularly at the utility, should in fact allow us to perform at the high end of that range.

Now let me turn the call over to Theodore Craver, our Chief Financial Officer, to take you through additional material concerning the second quarter earnings and our liquidity position.

Thank you, John. I'm going to focus my remarks on five areas where we need to provide a little elaboration.

The first is starting with Southern California Edison numbers, looking at the year-over-year comparisons, which are a little bit difficult. In terms of the second quarter, SCE's earnings per share excluding the positive utility retained generation adjustment from last year was 69 cents, or 3 cents higher than the second quarter last year.

There was a refueling outage at SONGS in last year's second quarter creating a positive 13 cent variance for the year-over-year comparison. But partially offsetting that was a catch-up adjustment recorded last year in the second quarter but not repeated in this year's second quarter that produced a negative 8 cent variance.

Remember that in the second quarter last year the PUC as part of the distribution performance rate-making decision decided to adopt an electric rate adjustment mechanism to smooth out the effects of sales volume changes on utility revenues. And as part of that decision, they reached back into the second half of 2001 and provided a catch-up adjustment to make SCE's revenues whole.

When we look at the first half year-over-year comparisons, the EPS was 11 cents lower than in the first half last year. And these same two items are dominate in explaining that variance.

First on the SONGS refueling outages, you'll remember last quarter we talked about having a refueling outage in the first quarter of this year that was not in the first quarter of the previous year, and then this second quarter refueling outage just offsets that. So, the two refueling outages, while mismatched quarter-to-quarter, ends up netting each other out.

This leaves you with this sales adjustment catch-up that I just talked about that was in last year's numbers but not in this. And that 8 cents catch-up adjustment nearly explains all the 11 cents for the first half over first half variance.

The second area that I'd like to provide a little more elaboration is on the accounting related to the asset impairment charge that John mentioned in his remarks. As John explained, there's a difference in the accounting treatment on the impairment charge at the Collins station versus that for the eight small peakers.

The Collins station is actually in a sale leaseback structure. And as such, you would actually normally expect there to be no income statement impact from a write-down of the assets under the lease.

But because the Collins lease is guaranteed by the parent of Midwest Generation, which is Edison Mission Midwest Holdings, the sale leaseback rules prohibit operating lease treatment by a subsidiary if the parent provides a guarantee. Hence, the recording of the impairment charge at the Midwest Gen LLC level.

The guarantee does not prohibit the parent company from accounting for the sale leaseback as an operating lease in its consolidated financial statements. And hence, there's no income statement impact at Edison Mission Midwest Holdings, or at Edison Mission Energy, Mission Energy Holding Company, or EIX.

It is important to note that if for any reason in the future the Collins sale lease back structure is unwound and brought back onto balance sheet, then the after tax charge that now stops at the Midwest Gen LLC level would in fact show up in the reported earnings of Edison Mission Energy and EIX at the time it's consolidated back onto the balance sheet of those entities. Various debt restructuring activities, for instance, could potentially cause the Collins lease to come back onto the balance sheet.

A few other points to make on this asset impairment charge. First, the charges have a book or a reported earnings impact but do not have a -- any cash effect.

As such they also do not affect the tax allocation payments between EIX consolidated tax group and Edison Mission Energy or Mission Energy Holding Company. So, even with the charges, EME is still forecasting to receive around the same hundred million in tax allocation cash this year. And I'll go into that a little bit later on.

Finally, the impairment charge does not trigger any defaults or prepayment obligations under indebtedness of Midwest Gen or its affiliates.

The third area I'd like to provide a little additional information on, and we did this last quarter, as well, is in the area of the performance data around the two major merchant assets that we have in the U.S., Homer City and Midwest Gen.

First, on Midwest Gen, regarding the pricing we provided in our guidance an outlook that the so-called around the clock or 24-hour flat price as being $22.15 at Midwest Gen. The actual year-to-date average market price for the first half has been $28.31. Our actual realized price, which is a little different than the market price, was $25.58.

And the reason there's a difference between the actual observed market price and our realized price is that we started a hedging program back in 2002, which carried on into the early part of 2003, and that average hedged price was about $24.60 for the hedges.

At Homer City, providing the similar numbers, we had in our guidance an assumption of $28.85 for this 24-hour around the clock price. The actual observed market price in the first half was $41 and change. Our realized price was just short of $36.

And again, this is principally due to the fact that some of the hedges that we laid in over the course of late last year and early this year averaged at $35.40. We have, in terms of the rest of the year, we have somewhere around 50% hedged at Midwest Gen and slightly more than around a quarter hedged at Homer City.

In terms of 2004, we are starting or we did start in the second quarter to put some hedges on for the 2004 period and don't want to go into a lot of detail here, but very roughly in the neighborhood of about a quarter of the merchant exposure is hedged so for 2004.

With the Exelon coal release which was announced on June 25th, Midwest Gen will be -- will have 42% of their coal fleet under contract versus the 52% of the coal fleet that is currently under contract. So, we're moving towards a 60/40 merchant coal to contract coal split in 2004 from the 50/50 split that we have here in 2003.

And you'll remember that we have one other election announcement to be made in very early October. This regards the Collins station and the peakers where Exelon has an option contract for the 2004 plants.

The fourth area that I'd like to provide a little elaboration on is the earnings outlook.

Our year-to-date earnings per share is 25 cents for the first half, which incorporates a number of these special negative items such as the peaker impairment charge of 46 cents, discontinued operations, loss of 1 cent and 3 cents from the cumulative effect of accounting change from the adoption of FAS 143 in first quarter at Edison Mission Energy.

However, we still expect to be at the high end of $1.40 to $1.60 EPS guidance that we gave at the beginning of the year, so we're able to absorb all of these negatives that I just mentioned primarily due to stronger than expected operating performance at Edison Mission Energy, particularly in the Americas region, and very solid performance at Southern California Edison.

Just so you understand the pieces that we're watching, there are a number of important items in play this third quarter that we have our eyes on. There are various regulatory proceedings at Southern California Edison that will be very important, not the least of which is the general rate case.

Additionally, there's a department of water resources revenue requirement true-up proceeding that's underway and various other ones.

One thing I should note, we've gotten a number of questions on this, just to make it clear that the rate reduction that John mentioned that went into effect on August 1st does not have any impact on our earnings. That rate reduction is really tied to the fact that the PROACT balance has been fully recovered. And so, the reduction in receipts from the rate reduction is also just offset against the less need for applying the collections to the PROACT balance.

Other things that we have our eyes on for this third quarter are the summer power prices at Edison Mission Energy and, of course, the debt restructuring at Edison Mission Energy.

The final area that I'd like to provide some information on that we do every quarter is the cash and liquidity situation at our various operating companies. At Southern California Edison at the end of the second quarter the cash balance was $1 billion. It actually moved up to a billion and a half at the end of July.

And we forecast the 2003 year-end cash balance to be $1.5 billion, this is versus the $1.2 billion forecast that I gave you last quarter. Remember that really just for forecasting simplicity these numbers assume no dividend coming up to EIX, but that's just a forecast assumption.

Turning to Edison Mission Energy, at the end of the second quarter the cash balance at Edison Mission Energy Corporate was $302 million, this compares with the $31 million that we reported at the end of the first quarter. And virtually all of that difference is due to a drawdown of $275 million from our -- from the corporate revolver at Edison Mission Energy, which was done to support general liquidity and the 2004 hedging program.

At Midwest Gen, where we -- where the cash trap is in place, the cash balance at the end of June was $283 million. In terms of our forecast for the full year 2003, Edison Mission Energy is now forecasting that year-end balance to be $205 million, this compares with the $166 million forecast that was given last quarter.

And really, most of that difference comes from the recently announced sale of Gordonsville asset, which virtually explains all of that difference. In terms of the cash flow from operating activities, the forecast is virtually unchanged from the one we provided last quarter, which would be around $97 million.

The interest coverage ratios at Edison Mission Energy, first the one at Edison Mission Energy corporate, last quarter we mentioned that that interest coverage ratio was 2.32, that has dropped a bit to 2.13 as of the end of June. And although we're not making any dividends or distributions up to Mission Energy Holding Company, the threshold for making those distributions is 2.2.

On some of the key projects, again as I mentioned, at the Midwest Gen level we have the cash trap in place. But just to give you the numbers, the covenant calls for maintaining at least 1.5 debt service coverage ratio, the actual number is 3.46. But again, we're not making distributions from Midwest Gen to Edison Mission Energy.

At the Homer City, the senior rent coverage ratio, the covenant is 1.7, and at the end of June that number was 4.32, so, quite in excess of the covenant.

At First Hydro the covenant is 1.05, and the numbers are still being completed, but it looks like we'll be roughly at 1.50. So, again, good clearance over the covenant.

And at Edison Mission Energy Funding, or as we refer to it, the big four plants, the covenant is 1.25 and the actual for the end of June is 2.37.

Now, the final set of numbers on Edison Mission Energy relate to the leverage ratio. The financial covenants in the Edison Mission Energy corporate revolver and in the coal and CAPEX lines at the EME level require us to maintain a 67.5% recourse debt to recourse capital ratio, at the end of June that number was 66.3. So, we're within the financial covenant.

That number is actually popped up a bit from where it was at the end of year at 62, again due to the draw of the $275 million corporate revolver and the effect of the impairment charge at the peakers.

Cash and liquidity at Edison Capital, the cash balance at the end of June was 376 versus the $421 million that was reported at the end of the first quarter. Most of these are just timing differences. The year-end 2003 cash balance is still forecast to be at $528 million, which is essentially unchanged from the number we gave last quarter.

At Mission Energy Holding Company virtually no change in the forecast for year-end projected cash balance, around $149 million.

And finally, at Edison International again very little change from the previous forecast we gave. We now expect year-end cash balance to be at $121 million, up from the $100 million we gave last quarter. And with that, John, I think we're probably ready to take questions.

All right. May we have your questions please? In addition to Ted and myself, others here who we may draw on to get into details you'd like to have.

Excuse me, ladies and gentlemen, this is your conference coordinator. At this time we will be taking your questions. If you would like to ask a question, touch star followed by 1 on your phone. If you'd like remove that question, touch star followed by 2 and at this time, we do have a question from Shello Khan from Foresight Investments. Go ahead, Mr. Khan.

Good morning. How are you doing?

Good morning.

I just wanted to check where you stand in terms of negotiation with the banks regarding Mission, if you can update us as to what the time frame of that might be or what might be certain dates in terms of some debts coming on due where we should see some kind of announcement or what time frame can we see in announcement as we look forward, you know, for the rest of the year?

I'll take that one. I think, as you can understand, we're going to be fairly careful about what we say at this point regarding any of the discussions surrounding the Edison Mission Energy debt restructuring. The issue on time frame I think would largely be driven by the maturities. And we have a corporate revolver, $275 million corporate revolver that matures in the middle of September.

And perhaps even more importantly, there's $911 million that comes due in December at Edison Mission Midwest Holdings, or the parent for our Midwest Gen racial activities. Those maturities I think will largely be the drivers for the timing. I think the only other thing I can really comment on at this point is that we have been in regular contact with the creditors at Midwest Gen, at Edison Mission Energy and at Mission Energy Holding Company and continue to have those various discussions to see if there's something that we can work through on the Edison Mission Energy debt restructuring.

If I can just follow up just on the TURN issue, assuming, as we are all hopeful, that you get a positive decision, and of course it would be still appealed or whatever the function would be, can we assume that if it is a positive decision that the dividend then will be -- you would go ahead with the dividend irrespective of waiting for an appeal and the whole legal process coming to an end?

You can absolutely assume that we're focused on paying the dividend. That's been a principal goal for us. And I'm going to ask Steve Pickett, the General Counsel at Southern California Edison to describe the process. But in short, with an affirmative decision we will have taken a very positive step forward. And we don't see a lot of legal process likely beyond that point.

Thank you, John. The legal process, if the California Supreme Court gives us an affirmative decision on all three questions, is that the matter returns to the Ninth Circuit, which would then enter judgment in our favor.

Upon that event, which is essentially ministerial, TURN could go on to request that the U.S. Supreme Court hear the federal issues involved. That act is discretionary, the Supreme Court is not required to take that case. And we think that given the federal issues that TURN has raised, it's unlikely that the U.S. Supreme Court would take that case. And if they did not, the matter would be concluded.

Okay. And if I can just end up with you mentioned that for the rest half of the year, the hedged amount at Midwest Generation is about 50% if I heard it right, and at Homer City about 25%. Can we assume that the prices at which these hedges are, are pretty equivalent to the prices you mentioned that you experienced as part of the first half of the year?

First I think you want to just take those numbers as generally, roughly a half and roughly a quarter as being hedged. We're not specific, you know, as exact percentages. But I think for probably within a dollar per megawatt the numbers that I gave regarding the average hedge price that we've experienced is pretty close.

Thank you very much.

At this time we have a question from Paul B. Fremont from Jeffries. Thank you. Go ahead, Mr. Fremont.

Thank you. What I was hoping is we could go back to the segment guidance earlier or after the first quarter conference call. Would the EME segment guidance of negative 10 to positive 10 be inclusive of that 46 cent charge, or would that guidance change based on your current thinking?

It wrote be inclusive. We actually have specifically not in this call tried to provide updates on the segments in the guidance. We probably will end up being a lot more specific on these things after we get through the summer.

That's why in my remarks, Paul, I mentioned some of those various items that are taking place here in the third quarter that we have our eye on. But although there's various puts and takes, I think we feel, as we stated, comfortable with the $1.40, $1.60 in fact being towards the high end of that range for the company overall. But at this point we're really not in a position to be more specific on the individual segments.

And as a second question, given comments that were made back in the December New York meeting at the Waldorf on the willingness of the company to infuse or inject some new capital into Edison Mission, should we assume that the company's reaction today is the same as it was back then, or has that changed at all?

Paul, our position is unchanged as stated there and repeatedly since. And that is that Edison International does not feel an obligation to infuse additional money into the Edison Mission Energy MEH structure and would do so only if we see circumstances in which it is unquestionably in our mind in the interest of the Edison International common stock shareholder to do that.

So, a working presumption for now is that the Edison Mission Energy, Mission Energy Holding Company structure must see its way forth on its own as a stand-alone entity. And that presumption will hold in the principle we set out in New York continues to hold.

Thank you very much.

At this time we have a question from David Frank from Zimmer Lucas Partners. Go ahead, Mr. Frank.

Good morning. Ted, I had a question for you regarding the writedowns that you took at the Midwest subsidiary. I wanted to know will that in any way affect the booking of the ongoing expenses associated with the peakers or the Collins plant? Is there a decline in expense as a result of these writedowns?

Let me have Mark Clarke, our Controller for Edison Mission Energy, respond on that.

Yeah, the impairment of the small peakers will reduce the depreciation expense going forward. The situation with respect to Collins will not affect EME's earnings going forward as that impairment is not reflected in the EME results. So, the lease expense that we record will continue as it has in the past.

And even if you bring that asset back on the balance sheet it wouldn't affect it?

If the restructuring took place and it came back on balance sheet, then we would have to assess what the impact would be at that time. As long as it continues to be an operating lease, it wouldn't affect the earnings as it has in the past.

Okay. And my last question is regarding cash. If SCE ultimately does dividend money from the utility to EIX parent, you've talked about paying off some of the arrears on the preferreds and reinitiating a common dividend. Assuming there's a substantial amount of cash left over and there's no maturities at the parent until approximately a year from now, what else would the company consider doing with the cash?

I think the principal use of the cash other than clearing the quips deferral and reinstating the common stock dividend would really be for addressing the debt at the holding company and paying down that debt. We have $750 million in five-year notes that come due in 2004, that clearly needs to be paid off. We've stated a few times in the past that we're really looking to deliver particularly at the holding company levels. So, that would really be the principal use for the cash, is being able to meet that maturity without having to refinance.

Okay. Well, thanks a lot.

You're welcome.

At this time we have a question from Vladimir Yousofchek [INAUDIBLE] from Long Acre Management. Go ahead, please.

Good morning, John and Ted. I just have a couple questions that relate to liquidity and debt on the Mission side. You mentioned that the Midwest Gen, you know, liquidity was 283. I'm assuming that includes the debt service reserve. I believe, if my notes are correct, that's down somewhat from March. I just wanted to see if you can explain the components of that reduction. And also, you know, given your guidance for the end of the year liquidity EME, which I believe includes the drawdown from the EME revolver, could you just give us an idea of how much of that drawdown went to supporting, you know, trading collateral and how much went for other purposes?

Let me take the second part first, if you don't mind, and then we'll provide some more on the Midwest Gen cash balance. The principal used for the 275 drawndown was in fact to support our 2004 hedge program. As you might expect, given the pending debt maturities at Edison Mission Energy, there's a -- our counterparties are holding us to kind of a higher standard on the requirement for credit support to enter into hedges. So, it was really that reason primarily that had us draw down the 275, also, for general liquidity purposes at Edison Mission Energy.

In terms of the cash balance, the number I gave you was for June 30th. You should remember these numbers are going to move around a little bit, you know, month by month depending on what the requirements for cash are and so on. But of that $283 million at the end of June, $78 million of that was in the cash flow recapture fund.

Right.

Let me ask Kevin Smith, our Chief Financial Officer for Edison Mission Energy, to provide some more recent numbers than the June 30 number.

Thanks, Ted. It moves up dramatically during the summer when the contracts, you know, really shift a lot of the capacity payments, June, July, August, September months, and then we have a little bit of lag when we get paid. The 283 number June 30 at July 28th was already up to $349 million. So, it moved up about almost $70 million.

It was 349 as of what date?

July 28th. That includes the $78 million in the cash flow recapture.

Right. And I don't believe I heard you mention your guidance for year-end cash balance at Midwest Gen.

We haven't provided any guidance on that.

Okay.

Does that take care of it, Vladimir Yousofchek?

Yes. And just a couple of follow-on questions. You know, how much debt is currently, you know, associated with Homer City? I was just going through that this morning and got a little bit confused between the notes that you issued and some of the lease debts. Could you just give us a summary of the Homer City related debt, please?

Vladimir Yousofchek, if you don't mind, let's make this the last question, and then we want to open it up to some additional questions from others.

Very well.

Vladimir Yousofchek, it's a sale lease back, so it's 100% financed at this point. The existing $800 million of debt, or the original $800 million of debt stayed in place, and then there was an additional investment on the part of the lessor of $800 million, so, approximately $1.6 billion.

That's the total debt currently outstanding associated with Homer City?

Yes, of lease financing, yes.

Thank you very much.

At this time we have a question from Michael Goldenberg from Luminous.

Guys, good morning.

Good morning.

Just had a couple of questions. One, on the Supreme Court TURN decision, does it absolutely have to be rendered by 8/27? Can you just confirm if that's the case?

If I recall correctly, the date's 8/25, isn't that right? It's 90 days following May 27th.

Yes, that's correct. It needs to be rendered 90 days after the matter is submitted, which occurred, the oral argument, on May 27th. There is a remote chance that the court could call for further briefing on some question and have the case resubmitted. That very rarely occurs. It's an extraordinary event. And we have no indication at all that that's likely to happen. Our view is that the court is likely to issue the decision before the August 25th date.

Mm-hmm. And I remember in the earlier questions you were talking about if you win on all three questions, then you can proceed very quickly. What if it's a split decision in terms of, say, you win questions one, two and then lose three or something like that? Would you still be able to send the money out just as easily?

Well, let me answer on the legal question and turn it back to John and Ted on the dividend question. I don't want to speculate on what we might do if it is a split decision, obviously that depends on what the court decides. Two of the questions posed to the Supreme Court are essentially procedural in nature. One is substantive. That is, if the court goes against us on that one, it would be declaring that the amounts collected in prior -- or debt incurred in prior periods could not be carried forward for later collection, which would be a potentially troubling impact not just for us but for the solutions being proposed for PG&E, as well. But we really can't speculate on what we -- or the outcomes there given the many combinations of what the court might decide.

This is John Bryson. I don't have anything to add to that.

That's fair enough.

The Supreme Court decision could come down, I suppose, in a number of ways, and we'll, of course, review it carefully at the time in light of the overall objective here to pay the dividend.

And just two quick questions on the other side of the structure, the unregulated portion. Can you talk about capacity factors this quarter at Midwest Gen and Homer City ? Because I remember in Q1 Midwest Gen was maybe in the 50s and Homer City was probably close to a hundred. I'm just wondering how that stacks up.

I tell you what. Maybe the best thing to do, it's going to take us a little while to dig the number out. If we could skip on to your next question?

Okay. That's understandable. I wanted to follow up on Vladimir Yousofchek -- actually, my question is you talked about hedges. Are those done at Midwest Gen or EME? Because it seems you're taking money at EME to finance the hedges.

Hedges are undertaken at Edison Mission marketing and trading, which is a sub of EME and is supported by Edison Mission Energy. For both Homer City and Midwest Gen.

So, does the Midwest Gen structure get the hedge prices or the actual prices?

Midwest Gen gets the hedge prices.

They get the hedge so, it's a flow-through?

Right.

And in the case of any sort of bankruptcy or anything like that, the hedge prices would still belong to Midwest Gen and Homer City?

I think rather than get to elaborate here on legal interpretations, we probably ought to pass on that at this point.

Okay. And I'd appreciate it if you can just get back to me on the previous question. I would really appreciate it.

Okay. Actually, I think we may have found it by now.

Yes. For Homer City the capacity factor through June 30th was 81.2%, and for the Illinois coal fleet overall it was nearly 53%, for the merchant portfolio it was just about 54%.

So, merchant and contract is more or less the same?

Roughly, right.

This is just coal or this is coal peakers at Collins?

That was just coal.

Collins and the peakers are very low.

Oh, I absolutely agree. I just thought that if 53 includes them, then coal must have been running much higher.

Okay. Appreciate your questions. We probably ought to give someone else a chance, too.

Absolutely. Congratulations.

At this time we have a question from Craig Gilbert from Banc of America Securities. Go ahead, please.

Yes, good morning. On a previous call you mentioned that you expected to build $100 million of cash at Edison Mission Midwest. Is that still the expectation?

That number isn't familiar to me. You said Midwest Gen?

Yes, Midwest Gen.

I think we gave those numbers as of the end of June and close to the end of July. We haven't really provided a forecast for cash balances at Midwest Gen at this point.

Okay. I'd also -- I'd spoken to someone in Investor Relations that had indicated you expected to let the $275 million revolver expire undrawn. It doesn't seem like that's gonna be the case right now, or would you expect to shift the draws on that revolver to the September -- the revolver that matures in September of '04?

Well, clearly we have drawn it, as I mentioned earlier. So, we've taken the full draw on the 275. In terms of where we might end up with this at the end of the year and so on, I think you can assume part of the discussions that are going on with the banks at this point.

Okay. And I was just looking -- I notice the distribution for Homer City is expected to be $153 million. What can I assume for a run rate for that in, you know, years beyond 2003?

We haven't provided any guidance on years beyond 2003. At this point I think that's where we'd have to stay. It's likely that as we get towards the end of this year and look out to 2004 when we provide guidance for 2004 we'd be able to provide some guidance on those types of numbers, as well. But at this point we're just providing guidance on cash numbers out through the end of 2003.

Okay. Thanks a lot.

You're welcome.

At this time we have a question from Jason Coe from Sandell Asset Management. Go ahead, please.

Hi. Thank you. Number one, I wanted to know if you had the numbers for First Hydro, what the EBITDA number was for the second quarter? And secondly, in the 10-Q of Midwest Gen you talked about the cash residing at EMMH to be $338 million, including the $78 million in debt service reserve account. What's that amount? Is that the amount that came down to 275, or 278, rather?

On the first question, no, we don't have any EBITDA numbers on the First Hydro. In terms of the second question on Midwest Gen, I'm not sure I got exactly the question you were looking for there.

The question there is in the 10-Q you disclosed that Edison Mission Midwest Holdings had cash of $338 million at 3/31/03. And I'm wondering if that amount -- you know, which was a little bit different than Midwest Gen's cash amount at 3/31/03. And I was wondering if you could give us the cash amount at Edison Mission Midwest Holdings.

These are the numbers I'm giving you. This 283 at June 30 would relate to that number that you just mentioned. So, it's on the same basis.

Gotcha. So, the cash that you gave us --.

$78 million of that being in the cash flow recapture fund.

Right. And what was the component of the cash burn in the quarter?

About $60 million.

Yeah, I can do the math, but in terms of what happened.

That's just following the normal course. As Kevin mentioned earlier, we are now about to hit our heavy season for cash as the higher capacity payments kick in.

Gotcha. So, there was a building up of the working capital?

Yes, for purchasing fuel in advance of the summer months we run down a little bit on cash. But now it will replenish itself.

Gotcha. Thanks a lot.

Maybe one more question, please.

At this time we have a question from Michael Lucas from Appaloosa Management. Go ahead, please.

Yes, how are you doing?

Hi, Mike.

You discussed the Collins lease. I want to understand what would happen if you rejected that lease.

When you say "reject the lease," I assume you're asking us to speculate on bankruptcy proceedings and those types of things?

Yeah, under a debt restructuring like you guys have said on the call.

Mike, I think it's really not appropriate for us to try to speculate all the way down the line on those kinds of things, but you know, in any bankruptcy filing, should something like that be done, the company clearly would do everything that is necessary to try to maximize the value of the enterprise within that bankruptcy protection, including looking at things like accepting or rejecting leases. But that's as far as we can really go there.

What do you think you'll save in terms of cash by shutting down the peakers and the Collins facilities in terms of, you know, you get a blended O&M per megawatt or what are those specific---.

I'm having trouble hearing you, Mike.

I'm sorry. What do you think you can save for the Collins and the peaker plants by shutting them down in terms of the fixed O&M on those?

I think at this juncture, Mike, it would be a little hard to go through all of that. I'd like to actually hold off from going through all of those kinds of details. Some of this will be provided in our Q, but at this point, in terms of going through all the specific costs of the individual peakers and Collins, I'd really prefer not to do that. Sure.

Just the last one. In the revolver, is this revolver a drawndown? What are you assuming in your cash projections at the end of the year? So you're assuming at EME you had the $205 million number. Is that with the drawdown, or what happens to that bank piece?

No, if you look in the cash flow from financial activities, you can see dashes there. So, no, it's not.

I'm sorry. It's not what?

The 275 is not in there.

So, it's assuming that you do pay this thing off?

Yes.

Okay. Thank you.

All right. We thank all of you for your interest. If there are additional questions, please call our Investor Relations department. We'll do our best to respond. Okay. Thank you all.