康涅狄格電力 (ES) 2003 Q2 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Northeast Utilities Q2 financial results conference call.

At this time all participants are in a listen-only mode.

Later we will conduct the question-and-answer session.

I will now turn the call over to Mr. Jeffrey Kotkin.

Mr. Kotkin, you may begin, sir.

Thank you, Monica.

Good morning, and thank you for joining us today.

My name is Jeff Kotkin and I am NU's vice president of investor relations.

Speaking to you this morning will be Mike Morris, NU's Chairman, President and Chief Executive Officer.

John Forsgren, our Executive Vice President and CFO, and Chuck W. Shivery, president of NU Enterprises, our competitive energy subsidiary.

Mike, John, and Chuck will provide an overview of the second quarter of 2003, and comment on what we see ahead of us for the balance of this year.

Also joining us are Dave McHale, our vice president and treasurer, John Stack, our vice president and controller, and John Roman, controller of NU enterprises.

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, and changes in historical weather patterns.

Changes in laws, regulations, or regulatory policies, developments in legal or public policy doctrines, technological developments, volatility in natural gas commodity markets, and other presently unknown or unforeseen factors.

Other factors are detailed in the reports to the Securities & Exchange Commission.

Now let me turn the call over to Mike.

Thank you, Jeff.

I guess with that reading you just read, we're free from making error on statements going forward.

I hope.

I appreciate you making time to be with us and I'm sure you realize that Cheryl Grise, the president of our utility group, is not with us.

She would normally be with us but Cheryl is a board member at Dana Corporation and she's learning a great deal about hostile takeovers right now.

For the quarter from what you've seen in the press release, you can see that we've earned 26.9 million or 21 cents a share.

That is 2 million below the 28.9 million or 22 cents a share we earned in the second quarter of '02.

As I say, you've probably read in the news release, the '02 second quarter earnings you might remember benefited from 13 million of investment tax credits of [inaudible] that were recognized as a result of a regulatory decision.

Absent that gain, earnings last year were 12 cents a share in the second quarter, there were no special items in the second quarter of 2003.

Obviously, we are quite pleased with the second quarter results on a competitive side where we have seen a 46.8 million dollar turnaround from a minus 29.7 in '02 to a positive 17.1 through the first half of the year.

Chuck will describe all those events for you in more detail and give you again more information on that significant improvement.

On the regulated side, earnings are off as expected, I already mentioned that [inaudible] tax credit issue.

Lower pension credits are costing us 5 million of net income per quarter and along with the sale of Seabrook along with lower pension credits also contributed to 4 million drop for them in earnings for the second quarter of '0 3 versus '0 2.

The pension credits in our earnings sharing mechanisms were two factors that caused CL&P earnings to be cut more 50% in '0 3 versus the same period in '02, 4. 7 million compared to 10 million in '02.

However, I should note that CL&P's year to date earnings are about the same as in ’02, with both approximately 30 million dollars.

We continue to forecast earnings at between the dollar 10 and dollar 30 per share for this year, assuming that Select Energy does not absorb any of the location marginal pricing costs associated with supply contract with CL&P.

That contract is currently under review at the Federal Energy Regulatory Commission, final briefs are due to the administrative law judge handling that case on the 14th of November.

We do not expect to receive the commission's decision until perhaps early next year.

CL&P's locational marginal pricing cost averaged 15 and a half million dollars a month in March through may, and were 14.7 million in June.

Net replacement power costs for the 19 days in June when NRG did not live up to CL&P contract obligations were another 7.9 million.

CL&P has been recovering additional marginal pricing costs from customers, subject to refund and expects to recover the June replacement power cost in the August customer bills.

Depending on how the LMP issue is decided CL&P, will pay the cash it is collecting and escrowing to the suppliers or refunded it to customers.

I should remind you that LMP is a significant earnings issue, but just for 2003.

The current dispute reflects the fact that when CL&P signed the four-year contracts with Select NRG and Duke in 1999, it was unclear how high they would deal with congestion management and locational marginal pricing in its current form when those things were being discussed.

When CL&P seeks its supply bids for the 2004 and beyond time line, it will be clear as to who is responsible for those costs and in fact the revised re restructuring legislation signed last month by governor Roland and allows CL&P to recover such federally mandated costs from the customers outside of base rates .

While I am on the topic of legislation, please let me describe to you the statute that passed overwhelmingly during the most recent session of the Connecticut legislature.

That legislation allows base rates to return to the 1996 levels, an increase of approximately 11.1% from today's base rate levels.

That increase does not include the federally mandated cost I had mentioned earlier.

On the 1st of July we filed to implement that plan under what is called the transition standard offer service filing or TSO filing.

The legislation also required us to file a four- year distribution rate plan at Connecticut light and power.

We notified the DPUC on July 1 that we expected to file such a plan on or around August the 1st.

The plan calls for distribution increases on the order of 6% in 2004 and 1% annually thereafter and of course all of that is within the 11.1% rate increase contemplated by the TSO filing.

We expect to receive a decision on the rate case no later than mid-December.

The legislation also allows us to earn a procurement fee of between one half mill and three quarters of a mill from 2004 through 2006, for buying power for the CL&P customers that choose to remain on that standard offer.

Revenue from that fee would not be considered in calculating CL&P's allowed rate of return.

Connecticut was not the only New England state where utility regulated legislation passed this year.

New Hampshire Governor Benson signed a bill this spring that required PSNH to keep more than 1,100 megawatts of generating power at least until may of 2006.

We supported that bill because we believe that PSNH is relatively low cost generation will help stabilize customers' rates in the state of New Hampshire.

Also worth noting in that state is that in May, the New Hampshire PUC, approved PS&H's acquisition of the assets of Connecticut valley electric company from central Vermont power at book value.

We expect to receive FERC approval of that sale later this year and to close the transaction effective on 1/1/04.

The book value is now about 9 million dollars.

We also will pay 21 million to buy out a high-priced wholesale contract with central Vermont and will recover that 21 million with a return over the next several years.

Connecticut valley, serves about 10,000 retail customers in.

Acquiring contract valley's assets is one of the ways we're trying to grow our regulated businesses.

In Connecticut we have proposed, as I know many of you know, some very significant projects to improve the energy infra structuring in this stat.

Let me give you a bit of an update on the progress on some of those projects.

Last week, the Connecticut citing council approved the 345,000 volt linee between [inaudible] and Norwalk.

That's the project that we have spoke of before as the Phase I project.

We expect that that project will be built partially under underground and partially overhead and to be completed in the year 2005 at a cost of approximately 200 million dollars.

We are concerned and we'll watch for potential appeal action on that project which of course may have an impact on the schedule.

Also, within weeks we expect to jointly propose with the United Illuminating company, a 5,345,000 volt line between Middletown and Norwalk, the project we've been referring to as the Phase II build out of the 345 system in New England.

Within a couple of weeks we also expect to file a transmission rate case with the Federal Energy Regulatory Commission that will propose a formula to allow to us recover those higher transmission investments more prompt promptly.

Also, we hope that before the summer is out, the Connecticut DPUC will vote on a proposal by our Yankee Gas subsidiary to build a 60 million dollar L NG facility in water bury Connecticut a facility that we think is in keeping with the comments of the federal reserve chairman last week before the senate energy panel.

Before I turn this call over to John, let me discuss some of the very high profile litigation that has been taking place over the last two months between the state of Connecticut and Connecticut light and power on one side, and NRG energy on the other.

NRG continues to try to use the bankruptcy process to terminate a relatively low cost supply contract between NRG power marketing and CL&P that is due to continue through the end of this year.

As many of you know, NRG has provided power under that contract for all about but about three weeks during its current bankruptcy filing.

That fact has probably saved Connecticut consumers tens of millions of dollars, and we will continue to pursue with all vigor NRG staying in that contract obligation through the end of the year.

FERC was ordered to perform under the contract until it has an opportunity to complete its review of the situation, most likely by September.

And as part of that review, the FERC is concerned about the Mobile sierra doctrine which we believe will cause NRG to continue to perform under that contract.

The D.C. circuit court last week rejected a request by NRG to stay that FERC order and NRG is now approaching the circuit court, this times the second circuit in New York, seeking again a relief that would stay their performance under the contract.

Last month you may remember that a district court in New York lifted its own stay that had allowed NRG to suspend deliveries and caused CL&P to go into the market for about three weeks to purchase power by way of replacement.

As I had mentioned earlier over that period of time, CL&P paid other suppliers approximately 8 million dollars more than it would have had to pay NRG had they performed under their legal obligation in that supply contract, and we have every reason to believe that the DUPC will allow CL&P to pass those costs through to the CL&P customers.

As to the ConEd litigation, we continue to look at the last activity of the judge prior to the judge trimming down the debate of what issues will be discussed and as we've spoken to you before , that really is waiting for the reaction to the motions in limine.

Those have in fact been filed and fully briefed and all we can do today is wait to see what those kinds of results might yield to us.

I know that many of you are aware that Con Ed also has been sued in the state courts of New York by a shareholder of NU and is trying to offer that that might be a viable reason to remove one of the two lawsuits for fear of double recovery.

We have made filings in that particular case, as well as the federal case, in the last couple of weeks, pointing out that under the restatement of contracts Con Ed will not be required to pay twice and they’re filing to remove that case is misdirected and surely we believe the court will reject it and we'll continue to pursue the federal case with as much dispatch as we can.

As to federal energy legislation, moving forward, I think you all are aware of what Senator Frist has told the members of the senate energy panel and the full senate, that there will be no August recess without an energy bill being done, so that it can at least go to conference when they come back.

We continue to feel very comfortable that in fact some action will happen, both in the senate and when we get to conference, I think that representative Billy Towson, will take a strong lead role and help us get some energy legislation through the Congress in 2003 legislation, that we're convinced if appropriately done, the President will sign into law.

With that, let me turn the call over to John and we look forward to your questions when John and Chuck are done.

Thank you.

Thank you, Mike, very much.

Before I add some detail about second quarter results, let me pick up on what Mike said about LMP costs, locational marginal price cost here in New England.

Through June Select Energy has booked a receivable of CL&P for the nearly 35 million dollars of LMP costs it has borne by serving half of the CL&P load.

We expect that number to grow by year end to between 85 million and 90 million dollars.

We believe strongly that CL&P and its customers are contractually responsible for those costs, but we also understand that the FERC probably will not weigh in on this issue until early 2004.

As a result, when we close the books on 2003, we will need to make some assumptions on whether or not select will be able to collect on that receivable.

In making that assumption, we will need to examine whether the administrative law judge and/or the FERC have ruled on the issue.

If CL&P absorbed the cost and passed them on to customers there would be no impact.

If select were to absorb half of the cost that could cost us as much as 35 cents per share, based on the year to date costs and the on going assumptions I mentioned earlier earlier.

Now let me add some detail to second quarter results.

Thus far this year we've been somewhat ahead of budgeted earnings.

Through June retail electric sales for all three electric utilities remained 4.9% ahead of last year, and 1.7% ahead of budget.

Here's a more detailed sales breakdown.

Largely due to favorable weather comparisons, regulated residential electric sales are up 10.2% year to date, compared with last year and were up 4.1% in the second quarter. 2003 regulated commercial electric sales are up 2.6% year to date but were down 1.2% in the second quarter due to light air conditioning requirements.

Due to the economy, industrial electric sales are down 1.5% year to date and 2.4% for the quarter.

Turning to the gas side, our Yankee gas subsidiary had firm sales up 4.1% for the quarter and up 13.6% year to date.

Weaker results at Yankee energy in the second quarter, 3.0 million dollars loss in ‘03 versus a $0.5 million in '02 were to due to losses at one of the competitive business that is came to us with Yankee as a result of the murmur and somewhat higher O&M during the quarter.

Overall, operation and maintenance costs, though, are below budget year to date by about 12 million dollars at the utility group in total.

Let me turn now and talk about financing activities and balance sheet issues for a moment.

On the financing side, public service in New Hampshire accessed the short-term -- access short-term debt to buy out high cost rate orders of 14 small hydroelectric plants in New Hampshire for $20 million.

We will also recover that payment over the next several years with a return as well as some 20% of the $5 million of estimated savings that will be kept by shareholders.

I should reminds that you PSNH is also scheduled to file a rate case around the end of this year and those rates should be effective in February of '04.

Let me review some other financial development from the quarter.

At our annual meeting on May 13th, NU's board raised the dividend by an annual rate of 5 cents a share to 60 cents per share and that was consistent with last year's dividend increase and consistent with our planned raising of the dividend at one of the industry 's fastest rates going forward.

Also, the annual meeting, our board of trustees approved repurchase of up to 10 million additional shares by June of '05, as you read in the news release we did not re-repurchase any shares in the second quarter, largely due to the fact we tend to be very price sensitive when it comes to repurchasing but also due to the current un uncertainty over the assignment of 2003 LMP costs.

Since 2001, we have repurchased nearly 20 million shares.

Also in the second quarter, we issued 150 million dollars of five -year senior notes with the parent company to fund working capital needs at Select Energy.

Those notes carry an attractive coupon of 3.3%.

In June, Massachusetts regulators approved the issuance of 50 million dollars of senior notes at WMECO to pay down short-term debt and we hope to issue those late summer or early fall.

July 1st, Standard & Poor's initiated ratings for first time on Yankee Gas at triple B+ and Yankee had requested ratings for two reasons.

First, they need ratings to go assure parents of creditworthiness in gas dealings and secondly we believe Yankee will need additional debt within the next year or so to help fund distribution plant build out and the construction of the LNG facility that Mike mentioned.

While we're on the subject of ratings agencies, S&P, Moody's and Fitch performed detailed reviews of NU prior to the issuance of 150 million dollar notes in June.

S&P held ratings of the entire system stable but Moody's and Fitch both lowered their outlooks on NU to negative from stable.

Moody's also lowered its rating on CL&P to negative from stable.

Moody's action was taken as a result of the rising capital expenditures planned at CL&P and the challenge of covering those expenditures through operating cash flow.

We remain confident that the planned capital program while very extensive, can be financed within the current ratings guidelines for CL&P's current ratings.

Fitch's action was much more short-term in nature.

It was connected to the possible consequences of NRG successfully terminating its standard offer contract and the consequences of that action.

As we move close to the end the summer and the end of the year, that concern should abate.

Let me turn the call over now to Chuck.

Thank you, John.

As previously noted, we were pleased with the second quarter results at our competitive businesses.

The primary driver behind that improvement, the wholesale sector, includes wholesale origination, portfolio management, and the operation of our own generation and that sector made 12.1 million dollars.

In the same period of 2002, that group earned 2.3 million dollars.

We continue to improve our ability to make profitable deals and to manage them so that we earn what we project.

Recently, we announced that we have signed new supply arrangements with central Maine, Bangor Hydro, Nstar, National Grid, and Unitell.

Wholesale revenues through first six months of 2003 totaled 923 million dollars.

The sector also benefited from heavier precipitation in 2003 than in 2002, with production at your Connecticut and Massachusetts conventional hydroplants up about 70,000 megawatts through June.

Overall, our improved results also reflect the absence of trading losses which were 7.5 million in the second quarter of 2002.

On the services side, we earned 1.4 million dollars in the quarter and 1.8 million for the year to date, compared with break-even results at this time last year.

Revenues for the first six months of the year totaled 129 million dollars.

On the retail side, we lost 2 million dollars in the quarter, and have lost 4 million dollars for the year to date, but that compares to a loss of 18.2 million dollars at this time last year.

Revenues for the first six months of the year total led 312 million dollars.

While the retail group is clearly below our expectations, we have started to see additional large commercial industrial customers consider fixed price supply arrangements so we anticipate that the second half of the year will produce better results.

For the remainder of the year, we continue to feel comfortable with the competitive business earnings range of 15 cents to 25 cents a share, which translates roughly into 20 million to 30 million dollars of earnings.

With 17 million of earnings already under our belt, we are hopeful that we can finish the year in the upper end of end of that range.

However, as Mike said earnings for this year are highly dependent on the ultimate determination of who is responsible for locational marginal pricing costs under the select CL&P contract.

Thank you very much.

Let me now turn the conference back to Jeff.

and let me turn the call back to Monica , our conference operator and she will give you instructions about how to ask questions.

Thank you.

We will now begin the question-and-answer session .

If you have a question, you will need to push the 1 on your Touch-Tone phone .

You will hear an acknowledgment that you have been placed in queue.

If your question has been answered and you wish to be removed, press pound sign.

If you are using speaker phone, pick up your handset before pressing numbers.

Once again, if there are any questions, press 1 on your Touch-Tone phone.

One moment, please.

I think our first call is from Jay Zeamello from UBS.

Good morning, Chuck, I think you said of the 12.1 million, 900,000 was from new contracts.

Is that mark-to-market or if not, what percentage or what dollar amount of the 12.1 was mark-to-market?

I did not, I don't think, make that comment, but I will tell that you of the dollars that we earned, we actually had a slight mark-to-market decrease.

The mark-to-market on the end of the first quarter was 46 million and about 45 million at the end of June.

That takes into consideration what we wrote off plus new mark-to-market position that is were put on in changes in value.

That number is about 700,000 dollars pretax, so about 400,000 dollars after tax, out of the 12 million dollars.

Okay.

And then what was the 900 and some odd thousand number you quoted?

That was a revenue number. 923 million, which were the wholesale revenues for the first six months of the year.

Okay , I was juggling two calls, thank you.

That's okay, Jay.

All right, next call is from Maury May from Power Insight.

Good morning, folks.

A question in the, a couple questions actually in the competitive business area.

First of all, you have some new contracts, you have a couple of contracts in May for 150 million -- 150 megawatt hours, or megawatts, and then a contract for Nstar for 400 megawatts.

And they have revenues of 30 million and 100 million respectively, can you give insight into gross margins on these contracts as well as operating margins?

We typically do not do that and we have not disclosed that up to this point, Maury, we just give revenue numbers on the new contracts.

Any margin targets, perhaps?

We have margin targets, obviously, for each of the contracts as we look at them but that's not something that we put out in public information.

Okay.

My second question has to do with the select CL&P contract contract.

But nothing to do with the LMP controversy.

What are you expect to go lose on the select contract this year?

We discussed that, I guess, at least one or two times before this, and we said break-even to very small loss, we expect on the CL&P contract.

If we look at the New England portfolio in total, one of the benefits that we've had this year versus last year is the sourcing of that portfolio that we accomplished in the latter part of last year.

Okay, great, thank you, Chuck.

All right.

Next call is from Mike Goldenberg from Luminous.

Can you hear me?

We're hearing you fine.

Congratulations on a get a quarter.

You want I want to touch up on regulated business.

There's been a positive shift.

Is most profitability coming from the new contracts you're signing or are you just doing a better job in day-to-day trading?

What kind of the biggest driver behind in.

the bulk, as he said the bulk of the change for all of the competitive businesses is within the wholesale aspect of select.

It's really driven by three things.

It's driven by new contracts, it's driven by sourcing the requirements at better prices, and to -- and managing the portfolio more effectively, and then the last very small piece of it, we picked up a couple million dollars of additional generation revenue because we got better output out of the hydroplants.

I would simply add to, that Mike, that I think Chuck and his team have done an excellent job in managing the portfolio by dividing the responsibilities within the wholesale group so that when a contract comes in the door, it's handed off to a portfolio management team, which then there full-time trying to make sure that the forecasted growth margin and net income from that contract is realized and that change has made a dramatic difference in the performance of the unregulated subsidiaries through '03 and we hope beyond.

Now, you mentioned your conventional hydro is doing considerably better.

What about your pump storage plan.

Has that benefited from high gas prices maybe low off-peak prices?

The hydros, the conventional hydros, were doing better compared to 2002.

They're actually back up about normal right now, but on a year to year comparison, as I said, they add either a few million dollars to the bottom line for us.

The pump storage unit which is Northview, it’s a 1,080 megawatt unit, we've been able to use very effectively this first six months of the year and in fact some of the changes when they introduced standard market design have allowed us to even more effectively utilize that plant.

As you know, it's about as close to a battery as you can get.

Right.

So we have the ability to be very specific around hours that we want to generate and hours that we want to pump, depending on the existing market conditions at any given day, and that flexibility has been beneficial to us in terms of the utilization of the asset in the portfolio.

And just quick questions on two major litigation s which is the LMP and Con Ed.

Would you be able to remind us just lay out the time line for us, I guess, on LMP, when we could expect that decision, and same thing for ConEd.

When the motion in limine may be over and when the trial may begin.

As to the LMP issues, Mike, we're looking at documents to be filed with the commission in a final form in November of this year.

I would not expect an AOJ decision and therefore a commission decision until sometime in early '04, although I would tell that you the administrative law judge told all parties that they may want to seek some kind of compromise when we had our scheduling meeting a week or two ago.

And we are simply wait to go see how those events might un unfold.

As to Con Ed, the motions in limine have been fully briefed as of 19 June.

The judge there simply has no time line and will continue to pursue the case with what we believe is the appropriate amount of time, energy, and effort .

We will be called in with Con Ed to make an Orrill argument on those motions at some unknown date, and if he follows the path that he did after summary judgment arguments, we can expect decision soon thereafter.

We will then go through the phase of finally teeing up the actual argument the parties would bring forward in the case and bring that case to the trial docket of the judge.

We expect that those events might well happen in '03, but I wouldn't think the trial would begin much before the fourth quarter if not early in '04.

The judge has said as to this filing made by Con Ed a week or so ago that he would expect us to brief it quickly, but you can't read into that that he intends to deal with this motion on the issue that this case should be dismissed in favor of the state court action.

We, again, feel that that is inappropriate.

We don't believe that that will happen, and we think that the judge again will be thorough and timely in the way that he deals with that.

But he surely won't deal with it in any -- with any undue speed.

on the LMP, when you talked about ALJ decision, these are for the 2003 costs?

Yes, because remember this ends at the end of 2003, because of the uniqueness of it being implemented on March the 1st of this year in contracts that were negotiated in '99 and began operating in the year 2000.

That makes sense.

Thank you very much.

You're welcome.

Your next question is from Matt Herrigan, from Jeffries and Company.

Yeah, would you guys mind breaking out the retail and hydrosegments one more time versus last quarter in '02.

You're talking about for the competitive businesses, right?

Right.

Certainly.

The retail business at a net income level for the second quarter of '03 lost 2 million dollars and for the year to date '03 lost 4 million dollars.

The corresponding numbers for 2002 were a loss of 4.3 million in the second quarter, and 18 million year to date .

The other I think you asked about the hydro and we picked up about 2 to 3 million dollars of additional revenues because of increased water flow in our conventional hydros this year compared to last year.

and I think it was Mike mentioned 16 million LNG facility you're working on.

Can you talk a little bit more about that?

You may remember that Yankee Gas has filed to build an LNG facility which is really the equivalent of pumped hydrofacility on the gas side.

It is a needle-peeker that will hold 2 billion feet of gas, brought to market on reliability issues and /or price spikes during periods of peak demand.

We have filed with the DPUC for the authority to build that and put it into Yankee Gas's base rates, and we are waiting for that decision.

We have in hand all of the department of environmental protection permits, we have in hand all of the zoning approvals from the community of Waterbury and we simply a await the go-ahead from the DPUC, which we believe will happen in the not too distant future.

The issue there is that commissioner Goldberg who had been the principal commissioner on the docket, decided to, because he is from Waterbury, decided to recuse himself late in the process, and turned that case over to commissioner Linda Kelly.

We expect that because she was on the panel and she's very familiar with the process, we expect that she will be issuing a draft order in the not too distant future and we believe from all indications that there's a lot of support from that because of the benefit that an LNG facility like that can bring to a gas distribution facility.

When did you file the DPUC from that?

We would have filed that probably in late '02.

Okay.

Okay, thank you very much, congratulations.

Thank you, Matt.

Next call is from Philson Yim from Morgan Stanley.

Hi, good morning.

Good morning, Philson.

Just give than gas price versus driven power prices higher in the region, when you go to file for recovery of a power procurement costs in the fall, how easy would it be to recover those costs if they force to you to blow through your 11% -- force you below the new rate cap?

Remember, the contracts for the fall of '03 are still under the contract terms from Duke, NRG, and Select Energy.

And there shouldn't be any blow-through of prices as we go.

And of course, the 11.1% TSO increase doesn't pertain until calendar year '04.

If your question is what do you do if prices run through the 11.1 in '04.

Right.

the answer is you would collect them on an on going basis through the energy adjustment clause of the overall rate structure at Connecticut light and power.

And we believe that Public Act 03-135 is very particular about that, and we will make that relatively clear, we hope, in a filing that will be made in a few weeks to the DPUC on the how we will go about bidding for energy supply as we go through the '04, 05 and '06 contract years at Connecticut light and power.

Great, thanks.

And wondering if, you know, if the CAPEX guidance has changed from what was provided in the 10-K, given the movement of the projects, timing of the promise.

I think you're talking in the 10- K where we had 640 million of cap ex projected for this year?

Right.

Okay.

At this moment we are running little behind

that schedule, but we're still in the area of 600 million for the year.

Okay.

All right.

And you know, going forward, now that I guess a shared purchase program was kind of halted, would you have a preference more for increasing the dividend, or going back to repurchasing shares?

Or would you not have a free cash flow to do either?

At this moment, a lot will depend on the out outcome of the upcoming rate case and the ability to spend our capital as we're planning to over the next couple of years.

If we on a -- if we were to get approvals on a rapid basis to do the transmission projects we'd like to do, and if the rate case outcome supports the very aggressive distribution capital spending on the schedule we'd like to do, then we will be using up most of our capital internally and it would not be large scale repurchases.

There's plenty of room for dividend increases going forward and we plan to continue with that.

I would say the share repurchase will be a slack variable depending on overall capital structure and base pace of capital spending.

So the dividend increase will probably continue on the pace they have been.

There wouldn't be any kind of boost from -- due to the tax cut?

We've been on a pretty rapid increase plan and we're going to stay with that on dividends.

All right, thanks very much.

Thank you, Philson.

Next call is from Derek Cribbs from Glen View Capital.

High hi, guys, my first question has to do with the unregulated business.

Is the unregulated business running ahead of plan this year?

We are doing just a little better than we anticipated in the first six months of the year.

It's not linear, I would tell you, so that you can't just take the first six months, multiply by two and get to the year.

Even though I try to get him to do that.

but we are running slightly better than we had anticipated.

and the 12 million of unregulated earnings, how much of that comes from just out right trading?

The trading is basically flat for the first six months of the year.

We basically broke even.

We've discussed with you all on at least on the last conference call, where we really restructured the way we think about trading and is an enabler to portfolio management.

Price discovery intelligence and execution around the deals we need to do in the market to manage the portfolio, either buys or sells.

We would expect it to kind of be about a break- even operation for the first six months.

That's where it was.

Okay, so there's no proprietary type trading gains included in these numbers?

We don't plan on doing a significant amount of proprietary trading.

Obviously, we are in the market in execution of deals, but also to gain market intelligence so there is a certain amount of trading but it's very small and very short duration.

and could you remind me of the timing on the rate cases?

the rate case for Connecticut light and power will be filed on or about the first of August and it needs to be decided pursuant to the restructuring legislation by 15 December of this year, for rates to be effective on 1/1/04.

The New Hampshire rate case will be filed in the not too distant future.

It needs to be implemented by February the 1st of 2004.

and then my last question has to do with LMP.

It's kind of confusing to me, but it seems that the reason the commission -- the commission obviously doesn't want to raise consumer rates this year and that's why they want the suppliers to pay for the increased charges, correct?

Easily understood and correct.

Okay.

But next year, because the contracts are going to be done again, consumers are going to pay for the increased charges next year.

Without question.

Okay.

So, no matter what, consumer rates are going up.

It's just a matter of whether they go up this year or next year?

That's right, but make sure we have our commissions right in the way you phrase that question, Derek.

You may recall we made a filing to the DPUC asking that we be allowed to pass those costs through to the customers.

They in fact have allowed that and we are recovering those costs from the customers currently, and I might simply footnote that we're getting no increased customer complaints about bill size and/or the cost of contract electricity, nor is the DPUC.

However, they chose not to decide the issue because these really are federal regulatory energy commission approved contracts and they suggested that CL&P go to a different forum for that issue and we have done that.

So how much are consumer rates going up on a yearly basis?

What percentage?

Because of LMP?

Rates have gone up about 8 % since March the 1st.

Okay.

So on a yearly basis, they're going to go up about 8%, okay, thanks, guys.

Yeah, strictly due to LMP.

Thank you very much, gentlemen.

Our next call is from Zack Schreiber from Duquesne.

Hi, Mike, John and Jeff.

Hey, Zack.

I was wondering on the regulatory front, if you guys could if give us what the ROE was for CL&P that was consistent with sort of the operational earnings you got out of the CL&P and if we could do the same thing for public service Public Service Company of New Hampshire, and where you project the ROE will be on a regulatory basis at year end when we have sort of -- I imagine the ROEs will blend down as we get the full annualization of the pension [inaudible]regulate utility but I want to see where we come out there.

Let me start with CL&P.

ROE for the 12 months ended in June, I think was your question.

Yes, sir.

-- and allowed 10.3 and we share above that.

We booked a certain amount of sharing at this point, we are looking at sharing about 3 million dollars as of the end of June.

So we're slightly above the 10.3 allowed at CL&P.

DS&H has been running substantially above that in the mid teens and I suspect they will remain there until we get through the next round on the rate case.

Western Massachusetts is running below it’s allowed ROE due to the pressures of capital and pension issues at Western Mass.

If I recall going back a couple months or so there was some possibility of being able to avoid filing of full-blown rate case in New Hampshire and being able to settle things in there, and there were the roll-offs between cost and amortization that created a fair amount of head room to offer relatively sizable cash rate reductions and still preserve on a GAAP earnings basis the earning picture.

Where the rates and is that still a possibility or are we going to be moving pursuing more of a full-blown path in New Hampshire?

I suspect we'll have to file a full rate proceedings so the other parties can see the situation on a going- forward basis, but I still believe we'll have every opportunity to enter into some kind of going-forward rate path, rate plan, resolution, that will be settled rather than litigated.

Okay.

And on the NU -- I guess, sort of just following up on whole regulated ROE question, when we look at where we expect to end up on a year end ‘03 with the pension-hurt blending down.

Where do you project you end up for year end '03, I guess the important ones being CL&P and PS&H, or should I follow up off line.

We're managing around the pension costs.

We had budgeted for a much lower pension credit this year and that's what we're experiencing.

As we are managing around that, I expect that we will come in for the year at or around our ROE in Connecticut and about the same level in New Hampshire.

So in New Hampshire still around mid teens in.

Yes.

and Mike, just again on the Con Ed/NU court case, I was wondering if you can sort of break it down for us a little bit more on these motions and briefs on motion motions in limine.

It's my understanding that seeks to narrow the scope of the issues that are going to be going to trial, number one is that right.

Number two, which issues have been excluded from the trial and which issues have been included for the trial and do we expect to that the judge is going to have to hold hearings on these motions in limine or is he going to be rule on the scope of the trial based on a testimony before him?

Well, as to your first question, you are exactly right, Zack, the motions in limine are intended to take away the Latin and it simply says to eliminate certain issues and that's exactly what's happening here.

I think, the other side of the question that you ask is what issues have already been eliminated and that was really part of the summary judgment decision where you may recall Con Ed believed that they had been defrauded and/or been the recipient of misrepresented data.

In summary judgment, both of those issues were thrown out.

They will not be able to make those arguments because in fact that didn't happen.

The motions in limine critical to them, they're trying to exclude some of the expert witness testimony that we have, and of course they're trying very hard not to look at the ultimate outcome of the contract path of the CL&P proceed proceeding because it simply didn't prove to be anywhere near as negative as they thought that it would be, and we surely never thought that it would be.

We continue to look at the issue in a very constructive way.

We believe that the judge will handle the motion in limine by having Orrill argument and soon there after if he follows the pattern that he did in summary judgment, he may issue his conclusion in that regard.

As the issue that Con Ed filed on this other state-driven court matter, you might remember that they sent a letter to the judge saying that they were fearful that this might lead to a double recovery and the judge said a letter is not a motion.

If you want to make a motion to that effect, why don't you go ahead and do that.

They, did we've answered.

The law simply is not on their side in that regard.

If the federal court were to determine that the premium lost was in fact due to the shareholders venue going forward because of the breach of contract that would only be judged once and all other shareholders would be equally treated by that event.

So I think that the federal court mope hopefully will go forward.

That's where cop he had and NU have really put most of their effort, and the judge has already addressed many of those issues in summary judgment and I don't think that he'll be inclined to dismiss this case going forward.

So we don't think the judge is going to have to have hearings on these motions; he'll only rule on?

I'm sure he'll have an Orrill argument.

He will on the motions in limine.

Yeah.

And that all leads to a trial before year end or in easterly '04?

I think that's a good forecast.

Okay.

And then could we just talk about sort of how CL&P is

going to procure power in '04 when these contracts expire?

Where is the DPUC process in kind of putting together this option?

Will it be a one- year option, a two- year option, a three three-year option?

I mean it seems like it's fast upon us and I haven't heard that much about how the structure going to be going forward.

We had our first conversations with the DPUC

and motions in limine because most of us have to go to the market before too long.

I expect what you'll see a blend of trying to fill the 36-month contract term.

What the law suggests that we do and it's something that CL&P supports is that some of the supply B. for that period, some in lesser blocks, and I expect that CL&P will keep part of that requirement open so that we can be buyers of opportunity whenever prices move in the direction that we think would be beneficial for the customers.

So we will be again making a filing with the commission within the next month or so, laying out how we propose to do that, and we really do need to get after because as you point out, time is wasting.

It's already mid July and we have to have under the law all of these contracts need to be in house, in hand and signed no later than 15 December.

Got it.

And then just the final question, final question is on 2004 earnings, some companies are getting some guidance, we saw PSE&G, other companies are waiting until the third quarter.

Should we expect we'll see some guidance from you for 2004 more in the October time frame?

I think so but because of the CL&P cig sans rate case the guidance will be relatively wide I'm sure.

Thanks so much.

Congratulations on the good quarter.

Thanks, Zack.

Next call is from Greg Orrill from Lehman Brothers.

Thanks, good morning.

Good morning, Greg.

Mike, I wanted to follow up on a comment that you had made on LMP that there's a possible compromise to be worked on, and I guess the FERC ALJ was encouraging that.

What sort of shape might a compromise out come take on LMP, and what -- and would the issue of the performance on the contract also be included in.

Greg, I would expect if there is any potential to have that kind of a discussion, it will have to wrap in the whole issue of what NRG has done or not done.

What CL&P did for the days that NRG were off line.

What rights Select Energy has under its contract terms and what rights Duke has under it’s contract terms and I think you'd have to lump all of that together.

The issue really begins to crystallize itself, we think the contract terms are relatively straightforward and in fact in fact speak in the language of title transfer at the PTF point where the supplier hands the energy to CL&P and that CL&P and its customers are required to pay any cost once title has changed hands.

I've likened it before to, you know, you buying a car from a new car dealer and he gives you the paperwork and in essence title transfers and you drive out the door and have an accident and come back and say hey, I want my money back, it just doesn't work that way.

Okay, thanks.

Once again, for any final questions or comments, press the 1 on your Touch-Tone phone.

All right, well, having no more questions, we want to thank you all for joining us this morning and if you have any more further questions, please give us a call later in the day.

Thank you very much.

Ladies and gentlemen, this does conclude your conference call.

You may all disconnect and thank you for participating.