愛迪生國際 (EIX) 2006 Q1 法說會逐字稿

Welcome to Edison International's conference call. For your information, this call is being recorded and will be available for replay at the following numbers, 877-693-4277. And for our international participants, 402-220-0042. You will need to use the pin code 10701 to access the conference call. Also, we want 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. (OPERATOR INSTRUCTIONS).

At this time, I would like to introduce your host, Mr. John Bryson, Chairman and CEO of Edison International.

Good morning, thanks to all of you for joining us today. We will open as usual with the forward-looking statement advisory.

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 may be available on our website at www.edisoninvestor.com. We believe these statements and this information to be reasonable and well founded; however, actual results could differ materially from current expectations. We have set forth important factors that could cause different results in Edison International's 2005 Form 10-K and in its first quarter 2006 Form 10-Q filed today. We encourage you to read those reports carefully.

First, the quarterly financial results. Some of you have seen them already. Edison International's earnings for the first quarter of 2006 were $0.78 per share. That compares with $0.61 per share for the same period last year. A key thing for you to understand in that comparison, however, is that driving the increase was an earnings benefit of $0.22 a share from distributions. The distributions were received through the Edison Mission Group Lakeland Power Project in the United Kingdom. That power project brought these distributions as a consequence of seeking claims in administration in the United Kingdom. The background is that the Lakeland project had contracted an offtake of the power. That was an affiliate of TXU Europe, and the TXU Europe subsidiary failed in 2002, putting the project into receivership. So this earnings benefit is a consequence of recovery of claims in that administration process and is reported in our discontinued operations.

If we then switch to core earnings, and as you know our core earnings exclude discontinued operations and other non-recurring items, results were $0.56 per share. That is down from $0.64 per share recorded last year. And that -- those elements of being down on a core earnings basis were principally as a consequence of an extended outage at our Homer City Generation Station and a delay in receiving a decision for Southern California Edison in our pending general rate case.

The Homer City unit, the extended outage was due to a failure of the main transformer in that unit. It returned to service last Friday. The major repair is complete. By coincidence, this morning there was a tube leak, and the unit is briefly down. We expect the unit to be back on service on Friday of this week. So that is Homer City. With regard to the Public Utilities Commission rate case decision, that is a key item for Southern California Edison and we expect the decision very soon.

All right. We're going to go into greater detail in the earnings performance in the quarter, and Tom McDaniel will cover that. What I want to do is comment briefly on progress against the Company's strategic plan. And those of you who have followed us know that we set out in October 2004 a strategic plan, a five-year plan, against which we have been performing. And many ask how we're performing relative to that plan. I'm going to cover three aspects of that in very brief comments now.

The first quarter was significant in progress and benchmarks as we move forward. First with respect to investment in Power Generation, and we do -- at both Southern California Edison and at the Edison Mission Group -- in the first quarter, two generating facilities, new facilities, were up and operating, and contributing positively to our earnings in this quarter. One of the two is the Southern California Edison 1,000 megawatt natural gas-fired Power Generation facility, which was the first major Power Generation project built in the Los Angeles basin in the last 30 years, particularly a significant project. The second was the EMG 121 megawatt San Juan Mesa wind power unit in New Mexico, which we acquired last year.

With respect to Generation, in this first quarter at EMG, we also purchased development rights for another large wind project, a 161 megawatt Wildorado facility, that will be EMG's largest wind project. And construction on that project began late April. It should be in service in early 2007.

Then with respect further to new initiatives in the Power Generation area, EMG is in the process now of obtaining permits for two sites in Southern California for peeker plants, and during the quarter, it formed a partnership with British Petroleum to explore design and construction of a notable first of its kind power plant that would be fueled by hydrogen extracted from petroleum coke. The petroleum coke is a refining by-product of little value. If the project is successful, it would gasify the petroleum coke, remove pollutants, extract carbon dioxide, produce the hydrogen and generate 500 megawatts, so a very substantial project, again in the Los Angeles basin, 500 megawatts of clean electricity with minimal carbon dioxide emissions.

The strategic plan has other components, just to talk about two developments. One is in the plan and we emphasize the focus on building both financial health and flexibility and improving liquidity at the EMG group. And last Friday, EMG launched a significant initiative to address future debt maturities and expand liquidity. And Tom McDaniel will talk a little more about that in his remarks.

And then finally for our Utility business, the largest single area of investment in the plan is strengthening and modernizing the power grid for Southern California Edison, and building new transmission projects. That, as most of you know, I think, is very significant for us. It would, when complete, substantially double over the five-year period following the announcement of the plan the rate of expenditures in distribution and transmission that Southern California Edison had made in the five-year period preceding the plant.

One thing to note as I close these remarks is the general rate case. The scope and nature of Southern California Edison's business investment, including the investment in the distribution side of the plan will of course depend on the outcome of this decision. The decision is comprehensively important for Southern California Edison. And because of its significance, we will not issue, and we have said this before, we will not issue 2006 earnings guidance until that decision is reached by the California Public Utilities Commission. Again, as I said, we expect that quite soon.

With those overview remarks, let me turn this over to Tom McDaniel to discuss the financial results in great detail.

Today, my remarks will cover our 2006 first quarter earnings performance compared to the first quarter of last year, as well as an update on operations and hedging programs at our Midwest Generation and Homer City plants.

Let me start with a few housekeeping items. First, there are two supplemental charts attached to our press release that I will be referring to throughout my comments. Chart one reconciles our core earnings, which exclude discontinued operations and other noncore items, to GAAP for the first quarter of 2006 compared to the same period last year. Chart 2 includes key operating and hedge information on our merchant fleet.

Second, beginning this quarter, the results of the Edison Mission Group, which is the combination of MEHC and Edison Capital, are presented on a consolidated basis to reflect the integrated management of these companies. And finally, we filed our 10-Qs this morning, which will provide you additional detailed information on the Company.

Referring to chart one, we have reported consolidated earnings, EIX earnings, of $258 million or $0.78 per share in the first quarter of 2006, compared to $201 million or $0.61 per share during the same period last year.

First, I will cover core earnings. Core earnings were $108 million or $0.56 per share for the first quarter of 2006, compared to $209 million or $0.64 per share for the same quarter last year. SCE was down $0.03 per share. The Mission Group was down $0.06 per share, and the holding company was up $0.01 a share.

Now I will cover the details of each Company. Southern California Edison's core earnings for the first quarter of 2006 were $121 million or $0.37 per share, $0.03 lower than the same period in 2005, primarily from the impact of higher operating costs associated with customer and system growth. That was a total drag of about $0.05 per share resulting from the delay in receiving the 2006 general rate case decision. When the rate case decision is received, SCE will be allowed to recover its revenue requirement, effective back to early January. This catch-up adjustment would be recorded in the period of the general rate case decision is received, which we expect in the second quarter. Partially offsetting this decrease was a $0.03 benefit contributed from the newly constructed Mountainview power plant which was placed into service at the end of last year.

I will now cover the Mission Group, and I will first focus on MEHC. MEHC's core earnings were up $16 million or $0.05 per share on a quarter over quarter basis, primarily due to the following factors. First, higher wholesale energy prices and margins at Midwest Generation. That was $0.07. Higher interest and other income contributing $0.04, and $0.02 from a combination of EMMT and wind projects.

This increase was partially offset by lower wholesale energy margins and higher maintenance costs at Homer City, due primarily to the Unit 3 transform outage, and that was a negative $0.08. As John mentioned, that unit was placed back in service last Friday, but it is temporarily out with some repairs work under way.

Also, as part of the Mission Group, Edison Capital's core earnings were down $34 million or $0.11 per share for the first quarter of 2006 compared to the same period last year. This is primarily due to the $0.12 mark-to-market gain which Edison Capital recorded during the first quarter of 2005 associated with the Emerging Europe Infrastructure Fund.

Expenses incurred at the EIX parent company were $0.01 lower in the first quarter of 2006 compared to the same period last year, primarily due to lower tax expense.

Turning to noncore items. MEHC had noncore earnings of $73 million or $0.22 per share in the first quarter, related to the distributions from the Lakeland project in the UK that John covered. During the first quarter of 2006, we received $106 million in distributions in the Lakeland project, which is in addition to the $24 million we received last year. We've also received an additional $16 million in April, which we reported as income in our second quarter. Total distributions from the project have been $146 million, which on an after-tax basis is equal to about $100 million. This represents substantially all the distributions we will receive from the Lakeland claim.

Noncore items in the first quarter of 2005 reflected a net loss of $8 million or $0.03 per share from the early extinguishment of debt. It was a negative $0.05, partially offset by gains on the sale of the CBK project in the Philippines and the Tri-Energy project in Thailand -- a total of $0.02.

And lastly, as required by accounting rules, Edison International implemented the new accounting standard requiring the expensing of stock options in the first quarter of 2006. The implementation of this standard resulted in recording additional expense related to the Edison International stock option program of a $0.01 a share. The cumulative effect of adopting this new accounting standard was approximately 1 million, which is recorded as a noncore item, and is a change in the accounting principle.

Referring to chart 2, I will add some supplemental comments about the performance of Midwest Generation and Homer City. As we have indicated in our past conference calls, the Illinois plants are generally classified as mid merit units, which means that the amount of generation varies based on market demand, or load, weather, market prices. And market price is determined on a competitive basis with other electricity suppliers.

Although generation in the first quarter of 2006 was lower than the first quarter of 2005, gross margin increased 12%, based primarily due to a 20% increase in the average energy prices received by the projects.

Turning to Homer City, we previously reported that Unit 3 main transformer failed on January 29. We have adjusted our outage plans during the next year and are managing our fuel and emissions positions to mitigate the impact of the outage over time. Excluding the Unit 3 outage, the operating performance of the Homer City Units 1 and 2 for the quarter was quite good, with availability greater than 90%.

With respect to our hedge program for Midwest Generation and Homer City, we entered into additional generation hedges during the first quarter, mainly for 2007. The volumes and prices are set forth at the bottom of chart 2. In summary, our hedge plan is almost fully executed for the balance of 2006 and 2007. At the Midwest Generation and Homer City, we have hedged approximately 60% of expected generation in 2006, and a little more than half of the expected generation in 2007. With regard to coal supply, we have contracted for almost all of our requirements through 2007.

Now let me talk about the refinancing plans that are currently underway at EME. As further disclosed in the first quarter 10-Q, EME has initiated the refinancing of a portion of its debt. The refinancing is intended to improve EME's liquidity, extend maturity dates, reduce interest costs, and improve operating flexibility. The refinancing is expected to include up to 1 billion of new senior notes, the proceeds of which would be used to purchase the outstanding 400 million 10% senior notes due in 2008, and the 600 million 9.875% senior notes due in 2011. EME expects to pay a premium to purchase the outstanding senior notes, which will result in a charge against income associated with the early retirement of this debt.

In addition, EME would replace its existing $98 million secured credit facility with a new credit facility providing for 500 million in revolving loan and letter of credit facilities that would be used to provide liquidity and credit support for hedging and trading activities. Together with the existing line of credit at Midwest Gen, EMG would have $1 billion in credit lines to support, again, our hedging and other business activities.

Lastly, consolidated cash and short-term investments at EMG was just under $1.9 billion at March 31. That is comprised of about $1.460 billion at MEHC and $437 million at Edison Capital. In addition, EMG has $589 million of margin and collateral deposits with counterparties at present.

In closing, we will not be providing 2006 earnings guidance until we receive SEC's general rate case decision, as John mentioned. We would hope to have that decision in the second quarter. And that concludes my comments. And we're ready to take questions.

(OPERATOR INSTRUCTIONS). Michael Goldenberg with Luminous Management.

I had a couple of questions. As I'm looking at Mission Energy performance, it seems that the availability was up and the forced outage rate was considerably down, which I guess leads me to believe that the plants were ready to operate and maybe put out fewer megawatt hours because of poor weather. As we all know, weather was generally warmer than what we are used to in Q1.

It is fashionable for regulator utilities to provide weather adjusted numbers for different operations. I know it may not be as easy for unregulated, but would it be possible to try to give us an earnings number for Mission Energy if weather would have been normal, or any sort of guidance as to what Q1 earnings would have been if weather could have been as expected?

Weather is one factor that can impact generation, but there are so many different factors that come into play. Other plants that are online or off for maintenance in the system, economic growth -- a variety of different factors. We really manage our units to optimize margin. And we would seek to generate during the periods of time when prices are highest, and look to capture those margins. It is very difficult to identify a single contributing factor and translate that into a specific impact.

Would it be fair to say that Mission Energy -- your plants were ready to operate and generally outputted less than in previous Q1s, primarily because of weather, and had weather been normal, they would have outputted more?

I think that is a reasonable statement. The important thing for us is that we did have very good availability. And our forced outage rates were down.

If we added the weather back into Mission, and Homer City did not experience that forced outage, any idea how much higher earnings would have been? I know Homer is at least $0.06, and Mission would have probably been, I don't know, maybe $0.10 or something? Is that a fair statement?

When we identified how much Homer City impacted earnings, we said $0.08. As we provide our guidance, we're going to take all of the factors into consideration, including the fact that we've moved outage schedules around to be able to come up with what our expected outlook is for the year.

[Brian Padado] with the Bank of New York.

I just had a couple of quick things on the refinancings. First, can you give us an idea of the timing of you coming to market with the new notes? And secondly a question, if you are actually just replacing the notes, I was wondering how you're getting around the secured clause. I think the same security clause holds in the 773 notes, so '09 with regard to increasing secured debt. I was wondering how you would go from 100 to 500 million, or how you're getting around that clause?

Let me have Jim Scilacci, the Chief Financial Officer of EME, answer that question. He is leading that transaction.

Good morning. The two issues that we're specifically initiating a tender for have the secured indebtedness limitation that prevents us from doing some of the things we would like to do as far as increasing the size of the revolver at EME. There's not the same limitation -- there is a limitation, but it is much higher in one other bond issue at EME. That is why we're addressing the tender for those two issues, and there are exit consents and what not that will allow us to take care of that issue.

What is the limit now on the 773?

It is 10% of the consolidated net tangible assets.

And then the timing?

The timing. Thank you. The new issues we would expect to be in the marketplace sometime in mid-May.

Keith Bachman with [Douit Asset Management].

My question is also related to the recap of EME. Why wouldn't you take this one step further, a tender for the 13.5 at MEHC and collapse that whole [pill] altogether?

This is Jim Scilacci again. Clearly it is one of the issues. We look at 13.5s as not part of our permanent capitalization going forward. The plans are to pay that off at maturity in the mid part of 2008.

Have you looked at the NPV of refinancing those notes? Given the 13.5 coupon, I've got to think that is an NPV positive transaction.

That is one of the issues. Another consideration for us has just been the sheer liquidity requirement for taking out the 13.5s. And if you take it to the make whole calls, that is a substantial amount of cash. And from a liquidity perspective, I think we find some comfort in having additional liquidity, because it allows us more flexibility for our hedging program, and some of the other things we're doing at EME.

I'm thinking even on the basis of a straight refinancing, I've got to think that pro forma for any new debt that you layer in, the interest, the annual interest savings has to be compelling.

We hear you. We're limited -- we're going to limit the program to the 10% and 9.78. That program addresses and gives us flexibility for the upsize in revolver we want to do.

Terry Shu with JP Morgan.

John, if you can address the rate case issue, why has there seemingly been a delay? I gather it is just that they haven't gotten around to it, and there are really now controversial issues, because so far all the news flow has been positive with the -- I guess there was an alternate decision, right, that was more favorable. Why are there these delays, and when should we expect it to come out?

Those are good questions. First to note is that the Commission put in place early in the year a second order that provided that the effects of the decision could be retroactive to -- I think the date is January 12. Am I right?

Yes.

In terms of effects on Southern California Edison, the delay effect will be very, very short, January 1 to January 12. Second, I think the Commission has been working hard on this. That is, they haven't kind of just neglected it. It is a very big order covering the full range of our operations. There was a proposed decision. There was about four weeks ago -- it is very rough -- an oral argument from each of the parties directly to the Commissioners themselves. Our sense is the decision -- and they haven't formally announced this -- will be reached soon. But it is on the agenda for the next Commission conference, which, who can help me with a date?

Thursday.

Thursday of this week. Now it has been on the agenda before, but it may very well take place -- the decision would be reached on Thursday of this week. If it isn't reached then, our sense is they are actually quite intense about getting the decision reached.

Tom O'Neill with The Citadel Group.

Just a question on EMG, maybe for Jim. I was just wondering if you could take us out a couple of years and just what the plan is for the $2.5 billion of cash that is there, since it looks like you're heading towards refinancing some of the debt thus far? And then secondarily, whether there are any hedges that have been layered into 2008 at Homer City or Midwest Gen?

On the cash, Tom gave the numbers during his speech, so you can see there is a considerable amount. And we are holding cash. It is providing liquidity for our hedging activities at Midwest Gen and Homer City. And then as we roll forward, we have been doing some investments. If you go to the disclosures, I think we do a good job talking about some of the new things that we've done in the previous quarter -- the San Juan Mesa project. We will be spending some of our cash on the construction of the Wildorado project. It is a large wind project, 161 megawatts, through the balance of this year and into the early part of 2007.

We have a substantial wind investment plan beyond the projects we have talked about. We will announce those as we move forward with those. We have been committing some dollars, as the disclosures explain, for securing turbines to meet some of the projects we've got in the development pipeline. Rolling forward into 2008, one of the important things is the maturity of the MEHC financing. We will pay that off. Our intent is to pay that off and collapse down MEHC, and eliminate it as an entity and simplify our overall organizational structure.

As we get a little further out, we have got some projects in the pipeline on the thermal side with the two peaking projects here in Southern California that we're going through the permitting process. And of course, John already mentioned the BP project that is a little further out. That is more the 2011 timeframe in terms of completing construction, if we go ahead with that. But we will start moving down the path and committing some dollars as we get further out here, if we're going to stay on that schedule. Does that answer your question?

David Grumhaus with Copia Capital.

In the quarter, your fuel costs at both Midwest Gen and Homer City were up quite a bit. Is this a good indication of where it will be the rest of the year? Can you give us any guidance about how that might trend?

We're not going to give you any guidance for the balance of the year. But I think if you just take a look at the absolute numbers, you can see that they are pretty attractive relative to what current spot prices might be. That is a reflection of the fact that we have done contracting. And prices are up. The cost is up at Homer City, largely because of the contracting we did last year in a higher price environment. But if you take a look at the fact that we've covered our requirements for this year and next year, that ought to tell you something.

On Homer City, you had talked on the fourth quarter call and also a little bit today about shifting maintenance schedules to maybe lessen the impact of the outage. Can you talk a little bit about what you have done there, and whether that $0.08 impact will -- some of it will get made up? And I assume that $0.08 is for the first quarter and does not include the outage in April?

Yes, it is the first quarter. Jim has been living that project for the past couple of weeks.

I think the Homer City guys are living it even more. What happened there -- what we were able to do -- we had a planned outage in 2007 for Homer City Unit 3. And so what we were able to do is shift that outage forward and move things around with the other units too. So approximately the net impact, you can do the calculation on the days, it went out on January 29. It came back May 5. We shifted 44 days forward from 2007. So approximately the net impact is about a month and a half, about 44 days in total. And we will pick up the implications of that in terms of the financial consequence as we do our guidance later.

That will get picked up then in '07 it sounds like.

We should also mention that there is business interruption insurance that we will be pursuing, and we don't have that quantified yet. And we will be folding that in as we provide our guidance.

Paul Fremont with Jefferies & Co.

Just for a point of clarification, the intent is to do the tender with the cash that is on hand. Can you give us a sense of what you're currently earning on that cash, what type of a percent return?

It is Jim. Just to clarify, the new issue will cover the principal amount of the notes we take out. The cash will be used to pay the premiums. And so it is earning just short-term rates of return, so whatever commercial paper or LIBOR-based investments would be.

If I look at Edison Capital, it looks -- if I take the Europe infrastructure gain out from the first quarter of last year, it looks like Edison Capital is up considerably from what it had been earning last year. Would that primarily be due to the wind investments, or is there something else that is changing Edison.

Edison Capital will only be up $0.01 when you back out the infrastructure gain booked in the first quarter of 2005. And the wind, we have really transferred all of the wind into EME. So going forward, Edison Capital will really be looking to just manage its existing portfolio of assets.

Michael Goldenberg with Luminous Management.

I wanted to talk to you about just hedging going into '07. Correct me if I'm wrong, but it seems that Mission and Homer City are more hedged for '07 than they were at this time of year for '06. Is that a fair statement?

Yes.

Does that mean we should expect in general more hedging going into '07, or are you just doing it earlier and you still plan to enter '07 with two-thirds max?

As we mentioned, we have really pretty well completed our hedging program for '06 and '07. We will continue to gauge the market as we move through the year in terms of extending our hedging program any further.

We should expect similar numbers circa December '06?

Well, we're not going to see '07 change that much. The question is when would we begin to move into '08? And we have -- again, we take a look at where we see prices and what our liquidity capacity is. We will make those decisions on an economic basis.

Understood. In terms of overall conceptually the reason you are deciding to not hedge anymore. Is it just a strategic direction, or does it have to do more with cost of hedging, and if your credit rating were to improve, you would hedge more?

Really there are a whole host of factors. One of the things that we've always had in our mind was to making sure we had an eye towards 2008, where we had substantial maturities. And one of the reasons that we are undertaking the refinancing activity right now is to move those maturity dates out, so that we have better insights into the amount of liquidity we do have to be able to extend our hedging program further.

So we're kind of taking this one step at a time. And this refinancing is an important step for us. And also to expand the liquidity facilities that we have that can backstop. As I said earlier, last year, we moved Midwest Gen up to $500 million. This would take EME, which is currently at $100 million, up to $500 million to backstop Homer City and EMMT. So $1 billion, plus the refinancing, the extended maturity dates is an important next step for us.

[Jeff Cavallo] with Duquesne Capital.

I just want to see if there is any way you could quantify what impact not having the rate case in place had on the quarter? You said that the Utility was weaker by about $0.03. But if you were to put in what the ALJ recommended on the rate case, is there any way to roughly give us an estimate of what impact that would have had?

No, the case is still in process. What we did say was that the Utility was down $0.05 quarter over quarter because of higher operating expense and system growth, offset by $0.03 because of Mountainview. As we get the decision and are able to then quantify, we will be able to record the benefit dating back to January 12 in our second quarter results.

Got it. But I guess to be clear, there is the O&M aspect to it. There's also -- there was rate-based growth that took place between the last rate case and this rate case. So other than covering increased O&M, you would expect there to be some increased return on your assets. Is that correct?

That's correct.

[Neil Choi with Bookwright Capital].

I noticed that there was a widening of the basis differential at Homer City during the first quarter. I know when you guys talked about that last year you pointed to the extremely hot weather during Q3 as driving some of that yearly increase. I'm wondering, given the mild weather in Q1, what caused the basis differential to widen a little bit relative to last year?

We're talking quarter over quarter. If you do the calculations, it was a little bit over 6% in the first quarter of 2005, a little bit over 10% in the first quarter of 2006. There are a whole host of factors that go into determining what that basis is going to be. Weather is one of them. Transmission outages and congestion is another. We can't point to a single factor quarter over quarter, but we do indicate that there was a widening in the average basis period to period.

Just going back to Jeff's question on the GRC, I thought that there was some kind of tracking account that was set up for maybe at least regulatory purposes back to January 11 to track what the revenues would have been if you got a GRC order. Is there any way you can disclose what is currently in that tracking account?

There's nothing right now until the decision.

You can't -- since we don't know what the decision will be, there is no way to track back on a daily basis to what the decision would have produced daily. There really isn't a tracking account, it is simply the opportunity to have the decision reach back and be applied when it is reached with the revenue that is authorized to the earlier period.

Leslie Rich with Colombia Management.

I wondered if you could go through your expected volume of generation. As I look back at the last slide presentation I have, which is from mid March, you had expected in '06 and '07 30 terawatt hours out of Midwest Gen each year, and about 13.5 out of Homer City. Based on what you expect -- what you produced in the first quarter and what you expect for the remainder of '06, it looks like Homer City volumes are down understandably. But what I'm not clear on is why the expected output of Midwest Gen is down so much. It looks like you're expecting about 20.5 terawatt hours as opposed to the 30 that you had previously projected.

It may be just focusing on the percentage we have hedged. When you add -- we're just under 29 terawatt hours for this year for Midwest Gen. And that is off -- we were off 1.2 terawatt hours quarter over quarter. And so our new outlook really reflects that first quarter being lower. And for Homer City, we're just slightly over 13 terawatt hours for this year, again, down because of the outage.

I'm reading that incorrectly then. When you say 13.2 terawatt hours, that is the 61%. That is not the total.

That is what the remainder is.

Yes, of the remainder.

You need to add that to what we generated in the first quarter.

Terry Shu with JP Morgan.

Another clarification on the outage and shifting that around. I think, Jim, you were talking about 44 days in total. Is that the total drag that you cannot make up, and you'll recapture some of it in what you have lost in '07? And then there is some insurance that you could get back. Did I get that right more or less?

That is exactly the case. There is some business interruption. There is a deductible number of days associated with it before it kicks in. Then TI kicks in for a portion of it.

In the end, the financial drag is probably relatively minor. It wouldn't be the $0.08 -- I don't know what it is -- $0.04 or whatever. But it would be meaningfully less, right?

It would be less.

The other point on the refinancing, you said that the premium paid will be coming out of cash on hand. Did you give a number? How much is the premium that you need to pay? And just looking at the old interest rate, which is very high versus whatever new interest rate you'll get in the current environment will be meaningfully lower. Can you quantify potential savings? I have some more questions, if you could answer these first.

All right. Don't disconnect her, operator. I've been told there was a very annoying thing we were doing before, and we have stopped that process. We will take questions.

What, I'm not supposed to ask more than one? I'm sorry.

Apparently last time, we said we would limit it to one question and it was cutting people off until they --. So --.

Oh really. Yes, I was cut off.

We thought we were doing a great job of answering questions, but maybe not.

I don't want you to get mad at me for not answering your questions too.

No, no, no. I didn't remember that rule. God, no wonder I was cut off earlier.

Just generally on this, we're going to update our guidance later, and we will incorporate all these numbers. We haven't put information in the public domain in terms of what the changes are going to be. Clearly, we haven't done the financing yet. And once we have the new rates for the $1 billion issue, we will be able to make a quick calculation. But, at this time, we will just update everything once we have (multiple speakers).

There has to be savings. It seems like rates will be meaningfully lower. So just eyeballing it, there will be savings, right?

There will. We will have year over year savings on interest costs, but we will have to absorb the premium. We won't know what that is until the tender is complete.

That is sort of a write-off. Okay.

Paul Fremont with Jefferies & Co.

Can you provide us with a brief update on the FTR auctions, and how the FTR auction prices this year are comparing to where they were last year? And also any position that you might have purchased for the year?

I think Jim and I will ham and egg on this. I think the most notable thing that we did in the first quarter with regard to Homer City was we really contracted for about 8.4 terawatts of transmission to hedge against the basis risk associated with the output of Homer City. With regard to the auctions, let me have Jim talk about that. But I think we're still in the -- we're in the process right now, so it is a little bit early for us to comment on that.

But that 8.4 compares to what last year?

We don't have the number here. It is a significant increase over the levels of hedging that we did for the basis relative to 2005.

When we saw that basis get up at some points in time last year to 20%, we felt it was important to step in and mitigate a good portion of that volatility.

But just generally speaking, we should walk away with the impression that you are significantly more hedged against the basis differential, based on where you are now versus where you were last year at the same time?

Yes. And the period for the hedge, it is in the disclosures. When you see it, it is April 1, 2006 through May 31, 2007. That is the period that we have hedged ourselves.

Vic Khaitan with Deutsche Asset Management.

Just a question about the Illinois auction process. What your views are, and are you going to participate in that, or are you going to continue with bilateral or contracting basis?

Let me just address it. We think the auction process is going to go forward. And we will evaluate our level of participation as we draw closer to it. We have the flexibility to contract bilaterally into the market or through a process. And we are pleased to have that kind of flexibility. We will see how that evolves as we go forward.

But given that you have already hedged almost 50% for next year, you don't have that much left to participate in that contract, right?

I think as it would relate to 2007, that is accurate.

Also, one question for John. This is a bigger industrywide question about how you see the situation of industry consolidation. Whether you have any appetite to go outside California or do you prefer to stay where you are?

We continue to focus on how we best serve our shareholders. I think that is the key thing. We don't have strong dispositions about, what shall I say, that there is an automatic direction we need to move in. So we try to be alert to what we with our skills and our position can do best. And that is set out in our strategic plan. We don't have anything new to say about that at all today.

Jeff Cavallo with Duquesne Capital.

I just wanted to see if there is any way you could discuss a little more fully -- I think it came up earlier in the call -- what the cash balances were at EME and MEHC? And also going forward, what's the planned use of that cash was? I know you guys have refinanced these notes, but it still seems like there is quite a bit of cash there that could be used for different investing activities, and I was wondering what your thoughts were.

Let me just reiterate, the cash at -- just trying to get to my notes. The cash at MEHC was just under $1.5 billion, and at Edison Capital about $437 million. I think Jim really identified it or outlined it pretty clearly. We said from the beginning that we had two uses of our cash. One, to reduce debt and to be mindful of our upcoming maturities. Number two, to backstop our hedging program. And we saw last year how collateral requirements can increase quite significantly the longer we hedge, and with where prices go.

The third would be on new investment. And last year, we demonstrated why it was good for us to have the kind of cash on hand that we did. We have more clarity around the growth side on investment in new generation facilities in both wind and thermal. And we continue to look at our hedging program and the benefits of extending further than we are now. We know that is going to take liquidity to be able to backstop that.

The good news for us is that we sit here this year with roughly the same amount of cash that we had starting 2005. We think that is a very strong position for us to be in.

I guess one thought I had was that some other participants in the power markets have been able to structure their collateral more efficiently in terms of second lien structures, letters of credit. I know that there is some covenants in the existing debt at MEHC and EME that might do that. But is there a way to -- is it possible to sort of optimize both the capital structure at EME and MEHC and work out a way to more efficiently supply collateral to your counterparties?

This is Jim Scilacci. We have evaluated some of those proposals over the last year. There is a couple of choices you need to make there in terms of, yes, it is attractive from a collateral management perspective, but also you have to look at what the price is in the transaction in which you're actually selling your power.

For these substantial transactions, you have to evaluate where that is relative to where the market is. And there's always a trade-off in terms of what you think you can sell the power for versus what is embodied in these transactions. From a summary perspective, you may be able to manage collateral, but you may be giving up some of the upside, or depending upon just the absolute price and what you sell the power for. Since we have had the cash at EME, we think -- we have a thought that those transactions have not been in total attractive. But it is an option for the future, especially when you start taking the cash balances down as you pay off EME's refinancing in 2008.

We will take one more question.

Terry Shu with JP Morgan.

In terms of the wind projects that are coming on, the one that you mentioned, John, the 161 megawatts, was that previously discussed, the one that is coming on in early '07? And for most of these wind projects, are they -- do you get a contract with a price, fixed-price?

With respect to all of the wind projects, we contract them, but I am going to have Jim discuss the degree to which we presented that previously.

It was in the 10-K. We did say it is -- the Wildorado project in Texas. The offtaker of that is XL or Southwestern Public Service. And that is about the extent we have said about the project. It is $270 million in total capital requirements to build the project. And there is a twenty-year PPA involved.

That will be our largest project that we will have undertaken to date.

The BP, though, the 500 megawatt, you didn't give a timeframe as to, if successful, when that might be. (inaudible).

I think we have said if we -- to move it along, it needs an approximately 2011 timeframe.

That really concludes our call. We thank you all for participating. And if you have any further questions, you can contact our Investor Relations team.