康涅狄格電力 (ES) 2002 Q2 法說會逐字稿

Good afternoon ladies and gentleman and welcome to the Northeast Utilities Q2 earnings conference call. At this time, all participants are in a listen only mode. Later we will conduct a question and answer session. I would now like to turn the call over the Mr. Jeffrey Kotkin.

Thank you.

Mr. Kotkin you may begin.

Thank you.

You're welcome.

Thank you. Good afternoon and thank you for joining us today. My name is Jeff Kotkin and I am Northeast Vice President for Investor Relations. Speaking to you this morning or this afternoon will be Mike Morris NU's Chairman, President, and Chief Executive Officer; and John Forsgren NU's Vice Chairman and Chief Financial Officer. Mike and John will provide an overview of the first half of the year and comment on some of our growth initiatives. Then, we will turn the call back to the conference operator for questions and answers. Also joining us for the call are Dave McHale our Vice President and Treasurer, and John Stack our Vice President and Controller. Before turning the call over to Mike, allow me to read a short statement. Comments made during this investor call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are statements of future expectations and not facts. Actual results or developments might differ materially from those included in the forward-looking statements because of factors such as competition and industry restructuring, changes in economic conditions, changes in historical weather patterns, changes in laws, regulations or regulatory policies, development in legal or public policy doctrines, technological developments and other presently unknown or unforeseen factors. Other risk factors are detailed from time-to-time in NU's reports to the Securities and Exchange Commission. Thank you very much for joining us, and let me turn the call over to Mike Morris.

Good afternoon folks. I know that today isn't most encouraging day for any of us in this space. Index is down to 197, which doesn't do any of you or any of us or any of our shareholders any good. But nonetheless, let us take you through where we are at Northeast Utilities for this quarter and of course the first half of the year and try to answer whatever questions you might have after John and I give a brief presentation as we see the facts and hopefully at the end of the session you will walk away at least more convinced of where we stand and what the outlook looks like for the rest of '02. To begin with for the quarter itself, of course, we're a bit disappointed in that we lost $9 million in our competitive business which leaves us with a $30 million loss in that segment of our business for the first half of the year and some of that, of course, is driven by the trading activities, which are negative $13 million. Much of that was due to positions we took toward the end of first quarter some of which spilled into the second quarter.

: On the fundamentals and Natural Gas which said that prices should be going down with the storage complex filled to this -- to the level that it was and the energy demand because power demand was off in the first quarter. It should have also left us with a pretty full gas system, which should have driven prices down, which of course it didn't do. We have had some other systematic driven kinds of losses in the trading area, something on the order of a million or $2 million and I think we've addressed those issues going forward with some changes that we made in the personnel in our trading shop. Of course the big loss leader for Select Energy, unfortunately continues to be The Connecticut Light and Power standard offer contract. I hope that all of you are fully familiar with the contract. We have tried to take each and every one of you through it. An excruciating pain for us and you, I'm sure. The first half of the year loss for that contract was on the order of $19 million, which is in keeping with the $40 million number that we've talked about before for the entirety of year '02. Not withstanding those events going on in Select, I am pleased to tell you that in both May and June we have turned around in the competitive business and begin to see small profits coming in particularly in the trading area and we're quite encouraged by the second quarter as a number of substantial contracts become active.

The most important of which is the large chunk of the basic generation service bidding process in the Jersey Power market that we were successful with, and we've talked to you a bit about -- I think you know from data that both Jeff and I have shared with you that that's a $500 million revenue contract beginning on the 1st of August running for 12 months and of course we have for the first time been successful at winning some of the energy supply contracts with our Western Mass electric subsidiary which goes to a Massachusetts DTE bidding process. So we are looking for some up tick in activities in the last half of the year in our unregulated business, and there are a couple of other issues there that I'll touch on in a moment. On a regulated side we continue to see some progress although we have been affected by weather like most other utilities, particularly in the first quarter. The weather has begun to turn around. The cost control in those areas have been substantial, and we hope that they will continue to be that way for the remainder of the year. At Connecticut Light and Power over the first six months, we have earned around $30 million. At PSNH and North Atlantic Energy Company, we have earned also about $30 million for the first six months of the year. At WMECO (Western Mass Electric) we've also had a good first half of the year with earnings on the order of $22 million and some of that, of course, having to do with changes [run a] year-over-year comparison with the impact that Millstone Station had on WMECO last year.

Even Yankee Energy which, of course, is most affected by the warm weather from the first quarter, as you know, from gas utilities throughout the space, we have been able through -- O&M control and overall energy delivery volumes we've been able to earn $12 million for the first half of the year. And as to the rate proceedings, I think you're familiar that at Yankee and at CLMP we do have over earning sharing mechanisms in place. At PSNH and WMECO we're in rate freeze period, so the earnings upside that we might get out of continued cost control and additional sales volume increases, of course, will come to the benefit of the shareholders. I think, you also are well aware of the plans that we have discussed on many a times that we've had a chance to be together on what we consider to be a reasonably aggressive capital build out program for our regulated companies. We continue to stay on that track. As you heard me say many times before, I'm a firm believer that regulated rates have returned -- our decent rates have return and rates have returned that have more stability associated with them and something that we will continue to pursue. We are having, as I think again most of you are aware, the more typical problem particularly on the transmission side -- electric transmission side that is in the permitting process, and I expect that the actual capital deployments on that side of our business will be stretched out on a more delayed time line although, we still believe that we'll be able to get approvals for a number of those activities yet later this year. But that does have the impact in '03, '04 and '05 and stretching out some of the actual building into earnings and into rates those capital additions. We continue to believe that $600 million, $700 million will be spent on electric transmission. We continue to work on expansions at Yankee energy with the L&G facility that we've talked about before. We continue to work on the replacement cable with the Long Island Power Authority, although, we have delayed that project some -- simply because we thought it was a better timing for LIPA and for Northeast Utilities. We do believe that we'll get a -- an approval out of Connecticut citing counsel before the end of this year, which will allow us to bring that project online in '03. As to the more [autorium] that you've probably read a great deal about in Connecticut for overhead transmission systems, most importantly the 345 build out that we -- I hope the DPUC -- I'm sure the ISO New England, I hope the citing counsel clearly the FERC and DOE all believe are essential.

We will continue to move forward on those projects, although, as I said a bit time delayed. We believe that the hearings or meetings that are going on now under the auspices of the Connecticut House and Senate Energy committee really being run through Eastern Connecticut State University will lead to the conclusion that we do need to do additional conservation. We do need to investigate on a wider basis the value and the applicability of distributed generation in many other ways as we go forward. But most importantly, we need to build out a backbone system of energy delivery throughout southwestern Connecticut so that all of New England can get the advantage of a New England-wide 345 transmission grid which will allow for power to flow from Maine to New York City or to Southwestern Connecticut or more importantly power from New York City and to our energy needs as well as we go forward. As I mentioned before, we continue to look at the build out with Yankee, we have slowed some of that capital application down simply because the market response although strong aren't quite as aggressive as we had hoped that they would in some regards, and we do need to go through the first filing of the earnings mechanism that was instituted in the most recent Yankee rate case to ensure and satisfy ourselves that we're doing things and keeping with the commission's guidance, and that they continue to be supportive of those capital investments as we go. We are spending more capital on the energy distribution side of the house. We believe that that's essential in all of the operating companies and most importantly here in Connecticut so that we can continue to keep the lights on. But I don't how many of you can here the lightening in the background. I hope we keep the lights on for the rest of this session. Quite honestly, we're happy with the regulated business. We're pleased with the way that the reliability improvements have added to customer minutes of interruption. We're very pleased with the way that our customers see us, as good and dependable suppliers of energy as we go, and I'm very convinced that in the long run capital invested in the regulated businesses, either regulated by the states wherein we do business or by the federal government, will continue to add to our earnings potential going forward.

We are concerned a bit about the downturn in industrial sales throughout New England, off course, being affected on our system most importantly in New Hampshire. We have had a paper facility in the bankruptcy proceeding, although that facility is coming back online and of course, we continue to see some large volume industrial customers go to self-generation. If there is any silver lining in that cloud, it's that our overall volume of large volume industrial sales are small compared to many other national utilities, but I do believe again that we're seeing adequate results. And our regulated business doesn't feel very good about that. On the unregulated side, a couple of other things that I do want to touch on. One, Chuck Shivery has been added to the team and you and I have not had an opportunity to talk about that since Chuck joined us now some four or five or six weeks ago. Both John and I were convinced that we needed to have additional executive talent at that level, and most importantly, I think we needed to take John out of the dual role of being Chief Financial Officer as well as, in essence, the Chief Executive managing the unregulated businesses. And we were pleased to have someone with Chuck's background and familiarity with that side of our world available and willing to come join our team. I think many of you know Chuck from his days at Baltimore Gas and Electric as their Chief Financial Officer as well as his very hands-on activity with the constellation partnership with Goldman, as he and constellation went through some pretty substantial investments and growth activities on the unregulated side.

We were, as I think all of you know, quite disappointed in the order by the DPUC not allowing for an increase in the standard offer service of the 1 cent filing that we had made toward the tail end of '01. The DPUC; however, obviously with lots of thought and lots of evaluation came to the conclusion that we had not demonstrated adequate concern over the energy supply situation that they needed to make what they felt was a very significant change in the way that restructuring had been set here in Connecticut and how the cap on energy prices going forwarded had been determined by the State House and Senate group and the energy committee and the state legislature. Never wanting to give up on the opportunity to get those prices adjusted to what I believe are more reflective of the activity in the marketplace and more significantly to ensure that we can flow additional capital through to NRG and Select so that we can continue to have the power facilities in Southwest Connecticut available for our customers on an ongoing basis through the rest of '02 and into '03. We felt it was important to make a filing that asked for some accounting authority for us to go forward and flow additional funds through to NRG and to Select both of whom have committed to undertaking constructive activities to ensure that there's additional power available to us in that section of the state. We think that that's a very important issue. We hope that the DPUC sees it that way. What we've been able to do is rather than move the entire rate up by 4 cent, and we've been able to identify seven mills inside of the currently collected funds from our customers, and we would reallocate those funds from the stranded cost recovery pot and the systems benefit charge pot over to the actual power supplier so that again they can have more financial stability. I will tell you that during the first and second quarter of this year, we have had a number of outages at the very critical stations in that Southwest Connecticut area, and it's my firm conviction that those outages have everything to do with NRG, being unable, and I understand that to spend adequate capital to maintain those facilities as we go forward. And I think this, if nothing else will give them the opportunity to do that and off course that is a part of their contract amendment commitment that they have made, and we hope that the DPUC will see the logic behind what it is that we intend to do.

As you know, we continue to look at ways to augment that business. We'll continue to bid into the power supply opportunities here throughout New England, and although, we're seeing the same kind of margin pressure that is being seen by wholesale supplier throughout the country, we continue to find adequate spreads between the power purchase and or production prices that we are seeing and the market prices that are being accepted in the open bids as we go forward. So all in all, I can tell you that we are a bit disappointed in the ongoing struggles of the unregulated side. I'm sure I sound much like a broken record from the many calls you've heard over the last few days, pleased with the activities on the regulated side, disappointed a bit in the orders issued by the DPUC as it pertained to the Connecticut Light & Power Standard offer contract, but satisfied that the opportunity that we've now placed in the front of them is a more constructive way that has no negative impact on the customers but for a reduction in the time line of recovering or I should say an extension in the time line of recovering all of the stranded cost. However, when we put together restructuring in Connecticut, I think, it's important that we all focus that we thought we would recover stranded cost sometime in the 2020s. The way that we're moving today, we'll recover sometime in the '05, '06, '07 timeline.

So, we are really way, way, way ahead of what we all thought would be problematic as we restructured, and off course, that had everything to do with the dollar volumes received for the asset sales both fossil hydro as well as nuclear in Connecticut. Let me at least, tell you this much about the Con Ed lawsuit. We continue to feel very positive about our position. I surely understand that Con Ed feels the same way. Obviously, one of this is wrong and I believe it to be them. As a factual matter, we've filed motions in front of the judge for summary judgment, as have they. We've both responded to the motions that were filed by the other party and all of those matters are now fully briefed and in front of the judge. As to those kinds of summary judgment decision, there is no timeline. Those issues could be resolved tomorrow. They could be resolved next month, next quarter or sometime early next year. All of that off course means that we don't believe that there will be an active trial going forward this year where earlier on we thought that there would be, but we continue to feel very comfortable with our position as it pertains that lawsuit, and we'll continue to pursue it. Let me turn the meeting over to John so that he can give you a few more details on the financial aspects that I have tried to touch lately on and then we look forward to your questions and answers. John.

Thank you Mike. I'll basically just make a few comments on liquidity and capital to review where we are in terms of our balance sheet at this moment. First of all, as you know, we've managed the company very much for liquidity over the last couple of years and that is -- has paid off. We're currently sitting with about $100 million of available cash at the parent level, and we expect about 300 million more coming in later this year and that is after-tax through the sale of the Seabrook Nuclear Station and that appears to be on track for closing before yearend. In addition to that cash, we have availability on our credit lines about as follows: we have about 250 million on the regulated revolving credit line unutilized, a 100 million on our CL&P receivables line, and other 100 million on our parent credit line for total of about 450. We have been very active with the rating agencies over the past six months, and our ratings are fresh. And in general, they are stable or positive through -- from all the agencies. So we are pleased with the status of our credit position and our relationship with the credit agencies. We are currently funding all of our needs through depreciation, amortization, and earnings and that will carry us through this year. Incidentally, capital spending for the year is projected now at about 500 million versus the 600 that was in the 10-K earlier this year and that really is a reduction in unregulated capital commitments that we had.

We had anticipated really more as a placeholder at that time. We had no specific plans nor do we now. I'd like to mention that we've reviewed all of our trading activities over the last few months in light of what's been going on in this industry, and I can report to you that we've found no trading that was executed simply to pump up volume. We've simultaneously though taken a more conservative approach with trading, reducing our wire limits across the board, and we are quite confident that we are operating the company in a conservative manner as we generally do. We do expect significantly better performance out of Select in the second half and that's driven really more by marketing than trading. As Mike mentioned, there are a number of large transactions that begin to produce revenue and margin in the second half, and so we expect significantly better performance out of Select despite the continuing drag of the CL&P contract in the second half. We still are not of course happy with the returns. Even if you adjust for the CL&P contract, we would like Select to be doing better and that will be Chuck Shivery's challenge now that he is joined us, and we are very pleased with that. As I mentioned, we have not made any commitments for further investments in the unregulated world, at least in the generation side of it. We look around as everyone else does, and we still see significant overcapacity throughout the market that we address and do not see any generation investment coming on that we think is appropriately priced given the supply demand equation that's out there. We are totally focused, I must say, on the shareholder returns at this point and with what's going on in the stock market in last couple of weeks. We look forward to resuming our share repurchase program, which has been held off for the last couple of months. We did talk about earnings guidance earlier and as you know we are -- with a couple of logical alternatives coming through in the second half, we expect to be able to achieve the lower end of our range. We have previously ruled out the upper end. But overall, with some -- I would say, average or slightly better than average, we likely should be coming in somewhere around the bottom end of that range. That is all I had at this moment. And I think, Jeff, we are ready for the questions.

We can turn it back to the conference operator for questions.

Thank you sir. We will now begin the question and the answer session. If you have a question, you'll need to push the "1" on your touchtone phone. You will hear an acknowledgement that you have been placed in queue. If your question has been answered and you wish to be removed from the queue, please press the "#" sign. The questions will be queued in the order that they are received. If you are using a speakerphone, please pick up your handset before pressing the numbers. Once again, if there are any questions, please press the "1" on your touchtone phone. We have a question from Jeff Gildersleeve from Argus Research. Please state your question.

Yes, thank you. How are you doing?

Yes, Jeff, how are you?

All right. Just wanted to -- on the [CONT] and the standard offers you -- the new filing, is there any expectation of when, you know, we'll hear back from the DPUC?

Well we asked for, in the filing, Jeff, was that they give us some indication particularly on the accounting issue which is really all we have asked them for; since it isn't a rate increase, it isn't the same kind of a filing we had made before. And we've asked them to give us that indication towards the first part of next week, because it's our intention to begin implementing that shift of dollars on the 1st of August. So that again our suppliers will begin to see some monies come their way, so they can keep the plans up and running as we go through the rest of '02. And I think, although I didn't mention specifically, we intend to then enter into a bidding process for the '03 supply. And the contemplation behind that is to test the market to ensure that the seven-mill shift is supportable by market prices. Should people bid above that? Of course, we'll keep the current suppliers with a seven-mill adder. Should they bid something between the current price and the seven mills? We'll also keep the current suppliers bid to adjust the seven mills down to whatever those bids would be. And should someone bid below the current price that the suppliers are receiving minus the seven mills or to say the current price prior to 8/1/02 then we'll sign those folks up as the suppliers going forward. So we think it's a very fair and hopefully balanced way to approach what is clearly a very critical issue and a very important issue both for NRG and Select of course going forward.

Okay, great. And quickly the dividend targets -- 10 percent going forward annually and the target payout of 50 percent; is that still intact?

Absolutely.

Great, thank you.

We have a question from Jay Dobson from Deutsche Bank. Please state your question.

Mike, how are you?

I am fine Jay. How are you?

Very well, thanks. Two questions if I can. First on the share repurchase, I know, John indicated, you all have been blacked out; but if you just can review sort of where we are in that program in, you know, desire, speed, etc., which with you might pursue the same?

Okay. I'll ask John to step in.

Yes, we have authority from the board to repurchase another 10 million shares. We have not been purchasing in the last couple of weeks because of the impending earnings announcement and advise of the council not to purchase. But we, as you could tell from the liquidity picture and pricing in the markets today, we would be anxious to get back in the market.

Got you. And that blackout period would, you know, only extend a few days?

Yes.

Yes.

Okay, perfect. And on Select, I guess, actually all of sort of '03 -- if you could sort of comment on earnings there -- but maybe, if you could specifically as well on Select and maybe for a moment, although none of us would like to do this, sort of assume the seven mill issue is not approved, sort of such that what prospects can we expect out of Select in '03?

I think, Jay, we feel comfortable that Select will continue to be a growing part of our earnings picture going forward. I think in fairness to Chuck, I want to let him go through the activities. We -- a number of the contracts that are coming into play in the second half of '02 roll into '03. I really -- and I don't blame you for not building the seven mills in. Obviously, we've all told you more than enough times that we thought we would get some kind of relief and we might and we surely might not, but we think Select will come back to a positive earnings structure in '03. I think it's really premature to give you a number. We're in the process of building the '03 budget and the '03 expectations even as we speak. But we do feel comfortable about the business. As I've told all of you before Jay, and you and I have talked about this specifically, the basic generation services -- our best chance going forward with the contract that we think has decent margins in it and something that should finally demonstrate to us and our satisfaction that there is a way that we continue to pursue the requirements contract issue with an appropriate assignment of risk to the various players in those contracts. We feel very comfortable about our opportunities throughout New England to continue to be a requirements contract server. And one of the other issues, and I don't think many of us have focused a great deal on this; but, even as there is margin squeeze in the overall wholesale marketplace and there clearly is -- we all see spark spreads doing what they are doing -- the fact of the matter is for us, particularly with Northfield, it's really the volatility between off and on peak prices. And even though the numbers are lower for the total kilowatt-hour price delivered, we're still seeing some pretty good swings between day-night pricing, between seasonal off and on peak pricing.

We're still pretty comfortable with that assets so there's nothing I would rather do than show you the performance of Select energy without the baggage of that standard offer contract and I guess, if I have to wait till '04 to do that, that may be what we need to do; but we still feel comfortable about the business. We feel very comfortable about -- really, I think a more rational trading approach for us, not that we had gone [wire-light] on it. The fundamentals in [gas] screamed for the position that we and many others took in the first quarter; and the fundamentals just simply didn't deliver, I think, that was almost like we're seeing on this street of late. There was some kind of an emotional charge for the well ahead price to go up, and it did.

Maybe then on a consolidated basis, is there any sort of guidance you can offer John [indiscernible], on '03?

Jay, we'll be doing that in the early fall as we have in the past. We are in the process now. We're going through -- we've just completed our strategic cycle, and we're entering into our budget cycle, which is a real serious look at '03. We are looking for some improvement, and we'll be providing specific guidance sometime surely after Labor Day.

Okay, thank you.

Thanks Jay.

We have a question from Greg [Berg] from Salomon Greensberg. Please state your question.

Hello Greg.

Sir, if you're on a speakerphone, please pick up your handset before pressing the numbers. Our next question is from Jim Von Riesemann from JP Morgan. Please state your question.

Hi everyone, can you hear me?

Sure Jim.

All right. Can you just talk a little bit about the Chuck's role -- going forward? You know, you have had such problems here historically for the timeframe that you have given to really turn things around here. I know that's kind of putting him under the ground [indiscernible].

Yes. And let me make sure that we get this -- the phraseology. We're doing the same thing here, and we're going through a bit of a learning process, Jim. Chuck has come in as the President of Northeast Utilities unregulated companies -- we call it Northeast Enterprises or [NUE] as an acronym. Bill Schivley remains the President of Select and will continue to have the day-to-day responsibility there. The NGS subsidiary, the NGC subsidiaries as well as the Select Energy Service subsidiaries -- all of those will report up to and through Chuck as an individual responsible for those activities. I -- we have no current desire to exit the unregulated business. Again, as we continue to look at it, we have had, as we have shared with every one of you in the most straightforward manner that we possibly can ongoing disappointments that I will -- I assure you that each and every wholesale requirements contract get better. We were quite concerned about the spreads between off and on peak; but even with the overall reduction in price because of the over bills throughout our principal service areas, we continue to be satisfied with that and we continue to be successful in the requirements contracting business as we go. As you know, NGS is a small player but a growing player. We hope to announce in the not too distant future, an addition to the [bullish] electric contracting area, where we've been extremely successful. And our Select Energy Services continues to win contracts on conservation and better utilization.

Many of them with the Federal government who continues to aggressively spend on those kinds of projects. So we still feel pretty good about where we are. And I think it would be a disservice to Chuck to say, "We're happy to have you here; and if 18 months from now, there isn't a turnaround, we won't have you here." That just isn't fair. So we really don't have a timeline. As you know, we will get through '03 one way or another on the standard offer contract. And then -- we think '04 looks like a pretty bright time, even if we get no relief under the standard offer contract. So there is no preconceived timeline.

Okay. Fair enough. And then just a second question. Your pension is in an over-funded status right now. Can you just make some comments on the pension you see for this year and then maybe going into next year [indiscernible]?

Yes, couple of things that we'd like to go through; and then I'll ask John to go ahead.

Yes, the pension credit peak last year Jim is down substantially this year and will be down substantially again next year. We are budgeting that -- we're budgeting and planning with that in mind. And you know, as the utilities go back into [rate] cases to the extent that they're not getting those credits in the pension line, though they will be getting offsets elsewhere in there. In another words, the credit is currently utilized against other expenses; and as that goes away, we'll begin to recover those expenses directly. So it is not a -- an overall threat to the company's earnings, once the utilities begin to adjust their rate structure to accommodate at the lower level of credit.

That makes us a bit different in that regards than many other industries; because John is right in pointing out that as we go through those rate proceedings, if adjustments need to be made, they're made in that regard.

And did each of the regulatory bodies dictate the elaborate term for each of the operating companies on the pensions or is that done through outside concerns?

No. There is a -- as usual, a healthy debate between ourselves and the commissions on what's the appropriate level of credit; and we go through the mechanics of how the credit is derived and what rates of return can be expected on the pension portfolio in each case.

Okay, thank you.

Bye Jim, thanks.

Our next question from -- comes from Zack Schreiber from Silcap. Please state your question.

Hi guys, it's Zack Schreiber from Silcap. Can you here me?

We sure can Zack.

Hi guys. I just want to follow up on Jim's question on pension. I can understand that, I guess, a couple of years out in the future or next year, you get -- things will get some regulatory relief if you need it, but just from an actual perspective, what has to happen for the pension credits to, you know, shrink from you know, $70 million or $100 million net to zero and what has to happen from an actual perspective to cause into [footnote] to become actual expenses instead of income? I mean if we look at your pension footnote, in the last couple of years, you've had about $200 million of a expected return on [planned] assets, which seems to be the key to this pension benefit. I mean, how long can that [indiscernible] will offer what has to happen from a discount major and investment rates for that to be jeopardized?

Okay we have -- just to review the numbers, in '01 we had about $100 million credit; '02, we're budgeting about 70 million of credit; in '03, we're expecting about 60, that's all promised on the rates of return in the portfolio that we have been using which was 9.5 last year and 9.25. We reduced it to 9.25 this year. We have done the test actually to calculate what it would take in the equity market for us to flip to an expense and it's substantially below even where we are today in the equity market.

How much low is it?

I don't recall the exact number, but it was a somewhere near of five or six thousand in the [dough], I recall. We can go through this in more detail Zack separately if you want to get into the mechanics, but it is substantially below even where we are today.

Okay. Great and we just wanted if you could update us on Seabrook?

Yes, the Seabrook proceeding is moving along quite swiftly. We've actually already closed the [record] in the Hampshire and we'll be filing papers. Seabrook had a very successful refilling outage. I think the folks at FP&L are coming more and more to the plan. I think everyone's getting very comfortable with the process going forward. We don't believe there will be any bumps in the highway, as you know we're hoping to close that transaction before the end of the year and I feel very comfortable that that will happen. I think FPL may be talking in terms of Thanksgiving, and there is no reason to believe that that isn't a good date.

Great. Thank you so much guys.

You bet. Zack, how is that married life?

Extremely great. Mike thanks for that beautiful gift.

You're welcome.

We have a question from Rick [Shelton] from [Zimmer Lucas]. Please state your question.

Hi, guys, how are you doing?

Hello Rick. How are you?

Good. My question is short regarding Select. I was wondering if you can give us some idea disregarding the CL&P contract? What kind of profit margins or have you been realizing on the other contracts that have been signed up, or if you can give me profit margins then some sort of sense of the profitability of this contract?

Yes, I mean, clearly because I don't want my competitors to get all the data's. The profit margins are down some from what we had experienced over the last couple of years and that's to be expected.

I mean, can you give me a sense of [way] in the high single digits or is that a good ballpark for them?

It's still in that range. Some of them less than that and some of them more than that. We continue to find the bilateral contracts to have margins that are little higher than the overall wholesale requirements contracts, but high-single digits, mid-single digits -- they kind of fluctuate around in that ballpark.

And generally when you win one of those standard offer contracts or sign up a default service contract, do you go out and contract for a like amount of power?

We [indiscernible].

We very much like to do that particularly for the [owned] peak piece and we will let some of the off peak flow because we're really seeing some very very handsome off peak prices. But we do try to do as much of that back-to-back within the risk policy limit that we have had since the day we began doing those kinds of contracts.

So it's typically, what percentage would you say would be under -- covered under the contract?

Well -- let me tell you again there is no absolute rule on the off peak stuff. I just don't know have half of it or more floating on peak we'd rather have two-thirds, three quarters of it covered up.

Okay. Thank you very much.

You bet.

Once again, if there are any questions, please press the "1" on your touchtone phone. And we will follow up questions from Greg [Berg]. Please state your question.

We never did get Greg's first question. I don't believe.

Mr. Berg. Sir, if you are on your speakerphone, please pick up your handset.

Greg, if you are having some kind of a communication issue, why don't you call Jeff directly with your question after we're done. Jeff's on 860-665...

5154.

...5154.

Thank you. Once again if there are any questions, please press the "1" on your touchtone phone. We have a question from Paul [Cole] from [Calling] Capital. Please state your question.

Actually Mike and John it's Peter [Hark] at [Talent]. How are you?

Okay Peter. Fine thanks. How do you come in when the Paul [indiscernible].

Yes, I'm here John.

Okay good enough.

Yes, just some follow up question. John, you mentioned the sale of Seabrook would bring in 300 million. What is the debt associated with that, and how much cash would you have after that sale?

That is net of repayment of debt associated with the sales, associated with the offset, as well as attainment of capital gain taxes on that. So the net proceeds to the company comes in at 300.

Okay, and then what about the status of the Vermont Yankee sale?

Actually, we're, I don't know I'm sure you caught up with us this morning we were quite pleased and our team was very proactive in creating this resolution. The crux of the matter from the energy point, was that they had made a deal to share whatever excess decommissioning cost there were; you pick a date 20-50, 20-60, 20-30 and they would share them 50-50. In other words keep half give half back to the customers. The commission decided that as for the Vermont players that wasn't fair, all of us are in the process of -- have already been in the process of dealing with our commissions on how to treat that and what we've been able to come up with. There's an arrangement whereby the non Vermont customers will give if there is access decommissioning, we will let the -- will let enter [indiscernible] those dollars, the Vermont customers will get there half back. I think that comes very very close to 50-50 when you look at the aggregate ownership and the way decommissioning funds would go and I think Jerry [Howardson] and the [Enter G] team were very pleased with that and said based on that they intend to go forward. So we believe the [DY] process will close on 31 June.

Anything goes through as revised, how much do you stand to make on that sale?

A very -- it's a very small amount. I think it's not even factoring into planning, it's in the [noise].

Okay and then...

We may have spoken, it's 31 July.

31 July. What's the cash position of the company at June 30th?

About a 100 million overall.

Okay. A follow upon the seven mill proposal, is that part of getting to the $1.40 this year, if you are going to make the lower end of the guidance?

Yes, it would be a great help, but if the number of other issues come our way and the sales continue to go more towards what we had budgeted, we don't really need that it would be most helpful, if we got it off course.

Okay. And then lastly, couple of further regulatory questions. I know there is a, I guess the use of proceeds proceeding at the Connecticut commission was supposed to rule on. I was wondering, where that stood, and then there is a fuel recovery case I believe outstanding in New Hampshire; so just want to know where those two cases stood?

Sure, both of them are right for a decision. I would argue that we may see in New Hampshire case first -- the Connecticut commission is still deeply involved with the many aspects of the transmission projects where they need to send staff and others to all of the sessions that they are taking a bit more time on the proceeds case and I thought that they would. As far as, we understand again the record is closed, and we're simply waiting for an order. We feel comfortable about both of them but as you know in the regulatory world until you read the order you are never certain exactly what might happen.

Just a reminder again with the issue, I guess, is to be able to stream cash back up to the parent or to re-invest your capital back into your utility business here in Connecticut. I was hoping you could kind of delineate what the ramifications of either -- you know, if it goes either way what that might be?

Oh yes, we feel comfortable about the orders. In a cash sense and in an earnings sense they will have no negative impact. They can only have positive impact.

Okay, fair enough Mike, thanks.

You bet.

Once if there are any questions, please press the "1" on your touchtone phone. If you are on a speakerphone, please pick up your handset before pressing the number. We have Greg [Berg] online, please state your question.

Greg. I'm sorry operator for some reason either our phone system, your phone system or his phone system won't allow Greg to ask his question.

Okay. One moment sir. I'm going to go ahead and place him back into the main conference.

I apologize, sir, we're not able to fix the problem.

Okay. Again Greg, please feel free to call, Jeff -- I'll -- we'll be with him if it's a question you want to have us answer as well.

If you have a question, please press the "1" on your touchtone phone.

I show no further questions at this time.

We would like to simply close by saying thank you very much for being here at a late hour, of a very tough day and a very tough month and what is still the best industry I know of here in the country. Things will get better sooner of later and the stocks will rebound. We feel very comfortable about where we are and we hope you do as well. Thanks for your time. Bye.

Thank you ladies and gentlemen, that concludes today's teleconference. You may all disconnect at this time.