康涅狄格電力 (ES) 2003 Q4 法說會逐字稿

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 Chuck Shivery, NU's Interim President, John Forsgren, NU's Vice Chairman and CFO, Cheryl Grise, President of NU's Utility Group, and Bill Schivley, Interim President of NU Enterprises, which houses our competitive energy subsidiaries.

Chuck, John, Cheryl, and Bill will provide an overview of the fourth quarter of 2003 and comment on what we see ahead of us for 2004.

Also joining us for the call are John Staff, our VP and Controller, and John Roman, Controller of NU Enterprises.

Before turning the call over to Chuck, 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, developments in legal or public policy doctrines, technological developments, volatility in electric and natural gas commodity markets, 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.

Now let me turn over the call to Chuck.

Thank you, Jeff.

Good morning, everyone.

I'm pleased to be speaking with you today as interim president of NU.

As you know, Mike Morris left NU at the end of 2003 after nearly six and a half years as Chairman, President, and CEO.

Today we are profitable, more financially stable than at almost any time in our near 40-year history, and are embarking on the most significant upgrade of our T&D system in the history of this company.

We owe Mike our thanks and we wish him well at AEP.

You may recall that in December, the board appointed our lead trustee, Elizabeth Kennan to serve as Interim Chairman of the Board and for me to serve as Interim President.

Our trustees have engaged an executive search firm and hope to name a new CEO before our May 11th annual meeting.

We'd like to start this call by discussing our earnings for 2003.

On a GAAP reported basis, we lost $8.9m, or seven cents a share in the fourth quarter.

For the year, we earned $117.4m, or 92 cents a share.

Fourth quarter results were negatively affected by a reserve to cover our expected settlement of issues related to last year's dispute over how the introduction of standard market design in New England affected the contracts between Connecticut Light & Power and its suppliers.

This past Thursday, we notified investors that we would take a reserve of $35.9m, or 28 cents a share.

Due to a confidentiality agreement, I cannot share with you how that $35.9m will be shared between Select Energy and CL&P until an agreement is filed, but let me make a few comments.

This was a very difficult step for us to take, since management has believed that Select and the other suppliers have a sound case to pass on all of the costs to CL&P.

We hope to file the settlement soon and see it approved by the FERC later this year, but we believe it was appropriate to reflect a best estimate of the cost, resolving this issue in 2003 results, since the L&P-related costs were incurred in 2003.

As you may know, CL&P was fully collecting L&P costs from customers from May through December, 2003, but not forwarding any of those collections to the suppliers.

Most of that money is now in escrow.

We will share more information on this issue after a definitive agreement is filed.

From a shareholder perspective, this charge is painful, but a settlement will eliminate the risk of additional write-offs and a fully litigated case, and therefore we support it.

Perhaps more importantly, a settlement will place the issue behind us.

The new, competitively bid contract for 2004 supply between Select Energy and CL&P clearly spells out who is responsible for L&P costs, and these costs were factored into Select's successful bid for 37.5% of CL&P's standard offer load for 2004.

We expect Select Energy to earn a reasonable margin on the $500m of energy sales it makes to CL&P in 2004, as opposed to the losses it has incurred on its contract with CL&P over the past few years.

The other item I want to note in the fourth quarter results is the impact of the CL&P rate case.

These results include an after-tax write-off of about four cents per share as a result of the final decision.

You may be aware that the DPUC has agree to reconsider certain discrete aspects of the decision, the largest of which is the disallowance of a pension asset.

We are hopeful we will see some positive changes down the road.

So after all this, what did we earn in the fourth quarter?

If you remove the 28 cents a share charge, we earned 21 cents a share.

For the year, if you exclude the L&P charge and the third quarter $4.7m change in accounting for our preferred interest in Orange Services, we earned $158m or $1.24 per share.

That number is consistent with the guidance of $1.20 to $1.30 per share that we project in October, at the EEI Finance Committee meeting.

For 2004, we remain comfortable with the earnings range of $1.20 to $1.40 a share we announced in October.

We did not adjust this range as a result of the CL&P rate case.

Key variables remain the outcomes of the current PS&H rate case, which Cheryl will describe in some detail, the outcome of the existing transmission rate case, and the performance of the competitive businesses.

Our range for this year includes earnings of between $1.08 and $1.20 per share in the regulated businesses, between 22 and 30 cents a share at our competitive businesses, and an assumption of 10 cents a share of interest and other expenses at the parent company.

Obviously we're only a few weeks into this year, and the bitterly cold weather has caused some extreme conditions in the Northeast energy markets.

Our experience so far this year has not caused us to question the $1.00 to $1.40 range for 2004.

In a departure from earlier conference calls, I'm going to leave the specifics about our competitive business performance to Bill Schivley, President of Select Energy and Interim President of Northeast Utilities Enterprises.

However, I will provide a brief overview.

At competitive businesses, excluding the reserve for the CL&P contract, performed very well in the quarter, earning more than $8m.

This concluded a year of consistently good performance.

We earned $5m in the first quarter, $12m in the second quarter, and $7m in the third quarter.

Bill will describe some of the contracts that we have signed to date and some of the information on our sales backlog, but based on where we are today, we remain comfortable with a range of 22 to 30 cents a share.

There's little new to report on our transmission businesses, but there are a couple of items worth noting.

The FERC approved the transmission rate case application but set certain discrete issues for hearing or settlement.

A $23m increase went into effect around the end of October, subject to refund.

We had been trying to reach a settlement with interveners, but last week, a FERC settlement judge concluded it was unlikely that a settlement could be reached and recommended that we move to hearings.

We would expect hearings in late summer and a decision in about one year.

We continue to work towards beginning construction on our plan 20-mile [inaudible] to Norwalk, Connecticut, 345 kv line.

State regulators approved the project in September and the City of Norwalk appealed.

The court hearing on our motion to dismiss that appeal is scheduled for February 9th.

In addition, the Connecticut Siting Council is currently conducting hearings on Phase II, which is the 69-mile, 345 kv line between Middletown and Norwalk.

Before passing over the call to John, let me report on the Con Ed litigation.

In December, the court allowed an individual who claims to have owned NU's shares on March 5th, 2001 - that was the date on which Con Ed repudiated our merger agreement - to intervene in the case.

This person is asking to represent a class of all persons who held NU's shares on March 5th, 2001, and asserts that it is those persons, not NU's current shareholders, who have a claim for damages against Con Ed for its breach of our merger agreement.

We disagree.

The court has indicated that it will decide the issue of which group of NU shareholders - those who held shares on March 5th, 2001, or NU's current shareholders, own the claim, after first deciding whether a class of March 5th, 2001, shareholders should be certified.

We intend to continue to vigorously press our claim on behalf of our current shareholders.

Apart from this issue, there are a number of other pre-trial motions pending before the court.

I cannot predict how long it will take the court to resolve all these issues or whether we will have a trial before the end of the year.

Now, let me turn the call over to John Forsgren, our Vice Chairman and CFO.

Thank you, Chuck, and good morning to all of you on the call.

Let me go through a couple of the financial highlights of the quarter and of course the full year.

First of all, I think it's very important to note that 2003 marked the beginning of the restoration of the growth of NU's asset and rate base.

We are launching a program now for a significant uptick in investment in our T&D system.

We will continue to invest heavily in 2004, and the higher level of investment is necessary to improve the reliability and capacity of the energy delivery system, as the Connecticut Commission recognized in our recent CL&P rate case.

Total capital expenditures for the year 2003 totaled $550m, versus a budget of 640 initially for the year.

But that's substantial increase, up from the $492m in 2002.

Transmission capital expenditures rose to approximately $100m in 2003, up from $55m in 2002.

In 2004, our program continues, and we expect cash capital spending to total approximately $730m.

Those of you who follow us recall this is part of a $3b-plus program of investment, all in the regulated companies, designed to upgrade transmission and distribution across our New England territory.

None of this capital program is earmarked at this time for the unregulated businesses.

Obviously, that program will entail raising a lot of additional capital.

We expect to finance the construction program, which is primarily at CL&P, PS&H, and Yankee Gas, with equity infusions from NU and with new debt issues.

The NU parent company currently has almost $200m in cash that is either invested in money market accounts or let to subsidiaries through the NU money pool.

Later this week, Yankee Gas will close on a $75m private placement, ten-year bond, carrying a very attractive interest rate of 4.8%.

Around mid-year, we expect CL&P to sell up to $250m of first mortgage bonds, and some time later this year, we expect PS&H to sell its first new debt issue since it exited the bankruptcy process in 1991.

We are very mindful of our capital structure, and as you know, our target continues to be a 45% equity layer throughout the system, and that implies 55% debt, excluding rate reduction bonds, which are not calculated for this purpose.

As of December 31, 2003, our capital structure was just at the 45% common equity level, with an additional 2.3% of preferred equity, and then 52.7% of debt.

You all may have noticed that last year, Standard & Poor's lowered the outlook for our Northeast Generation Company, which is a subsidiary that holds most of our competitive generation.

They lowered the outlook to negative, and in doing so, S&P took what we consider to be a very conservative view of what NGC would collect if its contract with Select Energy ended, and NGC operated on a pure merchant basis.

Let me assure you that Select Energy is-- needs the NGC generation to serve its full requirements load, and in December Select Energy, in fact, extended its contract with NGC through the end of 2006, and Select's performance remains guaranteed by NU.

In November, we renewed for one year our two credit lines.

One is a $350m line for the parent, and the competitive subsidiaries, and $300m for our regulated companies.

As of the beginning of this week, we had $100m of borrowings, accessed over those lines, plus another $116m in letters of credit.

And now let me update you on our pension costs.

This is obviously a very significant impact on the quarter and on the year and will continue to be, as we go forward.

At EEI in October, I told you that we were looking for a $32m pension credit in 2003, to turn into $14m expense in 2004, continuing the trend in this direction.

Because of better performance in the markets and because of where our benchmark discount rate ended the year 2003, we now believe that that expense will be closer to $3m in 2004 -- that is down from the 14.

Please remember that a portion of all of those costs are capitalized, but nevertheless, the $11m reduction in costs for the entire system will add about $3m to our earnings for the year 2004.

Finally, let me discuss a couple of items on the financial statements that we released today.

The reserve Chuck discussed earlier related to SMD is reflected on our income statement as a reduction to fourth quarter revenues of nearly $60m, and that, of course, drops to the bottom line, to the number that you were-- that was disclosed earlier.

That was partially offset by lower income tax expense associated with it.

Also you may have noticed that fourth quarter non-fuel operation costs rose about $84m in '03, compared with '02.

There were a number of key drivers that caused this affect.

First and foremost was the growth of our business.

We were incurring significantly higher O&M costs, transmission, and in our Select Energy Services business, reflecting the development and growth of those businesses.

We also had higher storm costs this year.

Last year, we had actually more severe storms, but because they met certain thresholds, they were capitalized, whereas this year they're expensed.

This year we had, as I said, several small storms, all of which were expensed.

The other topics, or the other items, relate to pension expense and the Connecticut rate case, which affected pension expense in the fourth quarter in a significant way.

Let me now turn the call over to Cheryl Grise, President of our Utility Group, at this time.

Thank you, John, and good morning to all of you.

Let me go through a quick review of our regulated businesses.

First, I will discuss financial performance.

Although earnings in each operating company declined in 2003, we were generally pleased with their performance.

The decline in earnings was due primarily to one-time events that occurred in 2002, particularly in New Hampshire and Massachusetts, which gave us gains we knew were not going to be repeated in 2003.

Let's focus on Connecticut first.

CL&P earned $64.5m in 2003 before a small S&D reserve was taken, compared with $80.1m in 2002.

This includes net after-tax charges of about $5m related to the rate case outcome.

Earlier this month, the DPUC agreed to reconsider limited aspects of that final rate decision, and we are hopeful that eventually, we will be able to reverse some or all of that charge in 2004.

Overall, we had a mixed reaction to the DPUC rate decision.

The allowed return on equity of 9.85% was one of the lowest we've seen in the country.

We were also disappointed with some of the expense and rate-based disallowances, such as DPUC's refusal to allow recovery of a previously deferred pension asset.

However, we were gratified that the DPUC gave us the go-ahead for a $900m distribution capital investment program that will allow us to significantly upgrade an aging and in some places, soon to be overloaded distribution system in Connecticut.

We also appreciate the endorsement of the hiring of dozens of additional craft workers to succeed those long-time line workers, electricians, splicers, and other skilled employees who are eligible to retire over the next four years.

We are still finalizing our budget for 2004, but we believe we will be able to earn the authorized return on our distribution business.

And I should add that the $11m to $12m we expect to receive as a procurement fee for CL&P's standard offer customers is additional to what we will earn on CL&P's $700m of distribution and transmission equity.

Moving to New Hampshire, PS&H earned $11.1m in the fourth quarter and $45.6m in 2003, compared with earnings of $16.5m in the fourth quarter of 2002 and $62.9m over the entire year of 2002.

Also, I should note that North Atlantic Energy Corporation, which is no longer an active company, essentially broke even in 2003, compared with earnings of $5.6m in the fourth quarter of 2002 and $26.3m for the entire year.

Lower PS&H results reflect a lower level of regulatory assets on which PS&H can earn following the Seabrook sale.

It also reflects gains in approximately $5m in 2002 as a result of reversing certain regulatory reserves.

The reversal of those reserves occurred primarily in fourth quarter of 2002, when we received a positive decision in a fuel and purchased power recovery docket.

Lower North Atlantic Energy Corporation results, of course, reflect the sale of Seabrook in November, 2002.

There are four other items at PS&H that I want to briefly mention.

First, on January 1st, 2004, we completed the acquisition of Connecticut Valley Electric Company, or CVEC, as we call it, for about $9m, adding about 11,000 customers and about half a million dollars a year in earnings.

As part of the transaction, we paid $21m to buy out a purchased power contract with CVEC's parent company, Central Vermont Public Service.

We will recover that $21m over the next three to four years as a stranded cost.

Second, we are awaiting approval from the New Hampshire PUC for the conversion of a 50 megawatt oil and coal-burning unit at [Shilling Station] to burn wood chips.

We believe the conversion will reduce air emissions significantly in New Hampshire, and have no impact on PS&H retail rates.

Both Connecticut and Massachusetts have approved the unit as qualifying for renewable energy certificates, which suppliers in those states will need.

The project will cost about $70m and we hope it will be complete by the end of 2005.

Third, on February 1st, the transition charge at PS&H will rise from about 4.6 cents per kilowatt hour to 5.36 cents a kilowatt hour, and remain there for up to 12 months.

That rate can be adjusted in August, 2004, if necessary.

This increase is needed to cover higher fuel and purchased power costs.

As in Connecticut and Massachusetts, New Hampshire regulators have been very careful to allow their distribution companies to fully recover energy costs.

And finally, as many of you know, PS&H filed a retail rate case on December 31st.

We are seeking a $21m a year increase, or about 2.6%.

New rates will not be implemented until a decision this fall, but they will be retroactive to February 1st.

Moving on to Massachusetts, at our WMECO subsidiary, earnings totaled $2.4m in the fourth quarter of 2003 and $16.2m for the full year.

This was down sharply from 2003, when we earned $10.7m in the fourth quarter and $37.7m for the year.

The decline primarily reflects the absences of positive regulatory decisions in 2003.

Also in 2002, a second quarter decision on deferred taxes had added $13m in WMECO's earnings.

And finally, to our gas company.

Yankee Gas had a difficult year in 2003.

Yankee earned $3.9m in the fourth quarter and $7.3m for the entire year.

In 2002, in contrast, Yankee earned $11.4m in the fourth quarter and $17.6m for the year.

As we noted in October, an adjustment to unbilled revenues cost Yankee Gas about $7m in 2003; $5m of that was taken in the third quarter.

Yankee also continues to struggle with pension income that has turned into a pension expense.

We continue to look at filing a rate case at Yankee before the end of this year.

Also at Yankee, I should note that in November, the DPC approved construction of a 1.2 billion cubic foot liquefied natural gas storage facility in Waterbury, Connecticut.

We hope to begin the three-year construction process this summer.

Lastly, I should comment on regulated retail sales.

Regulated electric sales were down about 4/10 of 1% in the quarter, but for the year, they are up 3.6%.

Residential sales were up 6.5%, commercial sales were up 2.6%, and industrial sales were down 7/10 of 1%.

Even on a weather-adjusted basis, sales were up 3.2%.

About 1.5% of that increase, however, was due to a positive third quarter adjustment that we made to unbilled revenues.

Natural gas sales were another story -- for the year, firm sales were off 4/10 of 1%, primarily because of the unbilled revenue adjustments I discussed earlier.

Excluding those adjustments, Yankee Gas's sales were up about 6%, primarily due to a colder first quarter.

Our January performance this year so far has obviously started quite well.

Three of our top five all-time send out days have occurred in the second and third weeks of this month of this year.

With that, let me turn the call over to Bill Schivley, President of Select Energy and Interim President of Northeast Utilities Enterprises, Inc.

Bill?

Thank you, Cheryl.

This morning, I want to review with you the 2003 results of the competitive businesses and give you an update on the sales book for 2004.

As you probably know, the largest business line with NUEI, the competitive businesses, is Select Energy's Wholesale Marketing Group.

Including the results of our approximately 1,440 megawatts of generation, that group earned about $32m in 2003.

Excluding its share of the SMD reserve, compared with essentially break-even results in 2002.

Over the last three months of 2003, we announced a number of contracts with New England distribution companies to supply standard offers and default service.

Almost all of it will be realized in 2004.

They add up in total to about $900m in revenue.

These contracts are in addition to other contracts we had previously announced earlier in the year, primarily those in New Jersey.

At this time, we have secured more than 80% of the gross margin we need to meet our wholesale targets for the year.

That assumes that we are able to manage each contract so that we extract the margin we forecast when we did those contracts.

Over the next month, we will bid additionally on 2004 and 2005 load in Maine, New Jersey, Maryland, and elsewhere in New England.

The retail electricity and natural gas business lost $1.8m in 2003, compared with a significant loss of $28m in 2002.

Several factors contributed to this improvement, including the expiration of a number of what we called, or referred to in the past, as legacy deals -- money-losing contracts.

Signing new contracts with better margins and improved management of the book also improved the results significantly.

We expect a modest profit in this business in 2004, and currently our total of customers served borders around 17,500 on the electric side and 8,300 natural gas customers, and this is throughout our 11-state Northeast market.

To date we have secured about 60% of the gross margin we feel is necessary to reach our earnings targets in 2004.

We also essentially eliminated more than $20m in natural gas trading losses we experienced in 2002.

We have mixed results, however, to report for our services business.

Select Energy Services, our design, build, and performance contracting entity, earned more than $4m in 2003, compared with $3m of earnings in 2002 and about $2.5m in 2001.

We expect earnings to continue to rise in 2004, and last week, we announced this -- hopefully many of you saw -- that we were one of five energy management companies to be designated as a preferred, area-wide provider for about $300m of U.S. government facilities over the next five years.

We don't know yet how big a slice of that pie we'll receive, but we're very optimistic.

On the flip side, Northeast Generation Services, our plant maintenance and operating electrical contracting group, continued to struggle, losing nearly $2m in 2003, compared with a loss of $3m in 2002, and a profit of about $4.5m in 2001.

We expect this business to become profitable again, but the market for generating plant services is still weak here in New England, and electric contracting remains a very cyclical business.

Overall we continue to estimate that together, our services business will, however, earn between $4m and $7m a year.

At this point in time, I'd like to thank you for your time and I'll turn the call back to Jeff Kotkin.

And I'm going to turn the call back to Marcella and she will provide instructions on the Q&A.

[Operator Instructions] Our first question--

All right, I think our first question here is from [Ashar Kahn] Ashar?

--missed it, the numbers correctly, on Connecticut Light & Power, you're indicating that the equity rate base is now around $700m, and you expect to earn the full return, which would be nearly about $69m in earnings, plus about $10m to $12m from the procurement side.

So earnings should be higher in 2004 versus 2003, if I heard correctly, is my first question, and I have a follow up.

Your numbers- you're just about right on.

Yes, we do anticipate earnings around the return, and there will be, in addition to that, the procurement fees, so there will be an uptick in CL&P earnings '03 to '04, yes.

OK, I appreciate it.

And then if I can go to the wholesale side, can you just share with what the margins you are expecting, versus-- are margins expected to be higher in '04 versus '03 on the wholesale side of the business?

Should we be expecting an earnings pick-up on that side, versus what you have contracted for as you look at the 80% number?

I would say that what we anticipate in '04 would be similar margins to what we saw in '03 and I believe alluded to earlier, in some of the previous calls.

In terms of an earnings pick-up, we're optimistic that we'll do a little better than we did in '03 on the wholesale side.

I'm must add, also, that we had a very, very good year in '03, far better than what our budgeted numbers were.

OK, so if I-- the trends then a little bit better on the wholesale side, and then you expect to be profitable on the retail side, am I right?

Yes, we do.

And then a pick-up on the generation and services side as well?

Yep, that's correct.

OK, I appreciate it.

This is John Forsgren again.

Let clarify something in the math you were walking through on CL&P -- bear in mind that the procurement fee is a pre-tax number, and the return on equity, of course, is an after-tax number.

Yes, thank you.

OK.

Our next call is from Paul Fremont.

--I guess you have-- I think on over-- probably there's a parent corporate expense that is broken out.

Is it possible to provide the dollar parent numbers and also is there a $5m charge at CL&P in the fourth quarter, is there an expectation that that will be a drag, going into next year as well, or would you look at as a non-recurring expense?

Paul, I think you were on mute for part of your question.

Can I ask you to go back and rephrase the question?

Well, if I add up all the segments, it looks like it gets to a higher number.

Is the difference here in corporate expenses?

Yes.

Yes.

And do you have a dollar number for parent corporate--

You're saying associated with the 10 cents a share for next year or--

Well, I'm talking about the fourth quarter.

Well, one element is the SMD settlement, which is at the-- in the consolidated numbers, but not in any of the individual company numbers.

But if I-- I think the numbers are stripped out of the competitive segment, $8.2m contribution, so I think if you just add up all the segments, you end up with a higher number than-- you end up with 24 cents, rather than the 21 cents that you're guiding to on an operating basis.

Yeah, Paul, I think most of that would be interest expense at the parent company, and the Yankee and PS&H related acquisition debt.

OK.

Paul, this is Cheryl.

As to your question on the $5m for CL&P, we would not expect that to be a recurring issue for us in '04.

That's an issue that is being reconsidered by the DPUC and hopefully we'll have a decision on that relatively soon.

But if it was still one-time in nature--

Yeah, one-time in nature.

Thank you.

All right, I think the next question is from [Michael Goldenberg] from [Luminis].

Michael?

Hey, good morning, guys.

Good morning.

Good morning.

Just had a couple of questions.

You had talked about PS&H.

What is the timing of the rate case right now, and has the staff come out with a recommendation?

The staff has not come out for a recommendation and the timing now is for hearings to commence in August.

We hope that there will be opportunities to potentially discuss settlement before that time, but hearings are formally scheduled in August and we would expect, then, that that would probably lead to a decision around October, if the case goes to its full conclusion.

As far as the SMD settlement, do you have a time when that might be filed?

Mike, this is Chuck.

The request that we made of the court was to extend the deadline for filing until February the 4th.

It was January 22nd and we're certainly hopeful that we'll be able to file a definitive agreement within that timeframe.

OK, and just one final question -- you might have answered this, but couldn't hear the phone call all too well.

Have you broken out 2004 guidance by utilities -- merchant, and [core]?

Yes, we did.

Yes, we have.

The breakdown is, where the range is $1.20 to $1.40, and within that it's $1.08 to $1.20 for regulated, 22 to 30 for unregulated, and then a minus 10 for corporate expense.

OK, so it's the same as it pretty much was before?

Yes, yes, we're not changing it.

OK, well, thanks a lot.

Good luck.

Thank you.

Thank you.

At this time, I don't see any other questions.

Shall I turn it back-- I will turn it back to Marcela at this point.

Thank you, sir. [Operator Instructions]

Hello?

Yep.

Hi, this is [inaudible] with [Peering Capital].

Hi, Kyle how are you?

I'm doing well, thank you.

You mentioned that you were at roughly 60% of the gross margin needed to meet earlier guidance for these enterprises.

Are there any contributions for the year -- is that the number I heard?

No, we book it out-- 80% on the wholesale side, and it's around 60% on the retail side.

OK.

OK, very good.

And I think at EI, you also mentioned that you're obviously on the order of 25 to 30% win rate, of the contracts that are available to you at that time, to [inaudible] enterprises.

It seems to me you're a little bit ahead of that.

Is that correct?

I would say we did very well on those and we're right in that range.

OK.

Very well, then, thank you very much.

You're welcome.

Thanks, Kyle.

Next call is from Philson Yim from Morgan Stanley.

Philson?

Hello?

Yes, Philson.

Hi.

Wonder if you guys could break out the 34 cents of lower regulated results, quarter over quarter, between what was weather, what was the regulatory settlements.

Sure, this is Cheryl.

I can do that.

At CL&P, the lower results, Q4 '03 to '02 primarily driven by the rate case writeoff that we took, higher storm costs, and higher transmission costs and somewhat higher pension costs.

At PS&H, again, we had the North Atlantic Energy earnings in the fourth quarter of '02 that were not there in the fourth quarter of '03.

At Yankee, due to the warmer weather, we had lower revenues and some higher earn-in expense, primarily associated with pensions.

And at Western Massachusetts, in the fourth quarter of '02, we've had a favorable regulatory decision related to our transition charge, which had helped, and then offsetting that this year, we had higher O&M expense, again, including pension charges.

OK.

Were there any quantifications around that?

Sure, I can give you some quantifications.

At CL&P, as I said earlier, the rate case was about $5m, storm-related costs, around $5m, transmission, around $3m, and the increased pension cost, around $3m.

In New Hampshire, at North Atlantic, it was a little over $5m that we had in '02 that we did not have in '03, fourth quarter.

Yankee, lower revenues were worth about $2m, our higher O&M expense was-- cost us about $3m this year.

In Western Massachusetts, that favorable regulatory decision that I mentioned added about $6m in '02 that we didn't repeat in '03, and the higher O&M costs were worth about $2m in '03.

OK.

Great.

Thanks a lot.

And the--

Could we get Philson back in?

No.

OK?

Philson, we're going to skip to another question and then if you want, you can punch back in that follow up.

[David Grumphouse] from [Copia Capital]?

Good morning.

Can you talk a little bit about the competitive environment and what you're seeing out there?

Obviously, you seem to think your margins are going to stay the same, but are you seeing more competitors out there, and is pricing getting tougher?

This is Bill Schivley.

Yeah, a couple of thoughts on that.

First of all, it is a competitive environment, and we are seeing, in some cases, more competitors.

In other cases, we're seeing less.

There's probably a little bit of a liquidity issue, in that a lot of people with credit difficulties are finding it tough to play in this market.

We are optimistic that we can maintain our margins that we've received.

We believe those are fair and by our expect win ratios, which we've managed to hit, I would say that that's meeting that test.

As far as the businesses, if I break them apart just slightly, I would think on the wholesale side, we'll probably seeing a few less overall than maybe we had in the earlier years.

On the retail side, we're starting to see more people coming back into that market, and I suspect that may have something to do with the marketplace sending a signal, now that we're trying to open some of these markets up, especially in this 11-state area where we concentrate our efforts.

OK, that's helpful.

One other question -- for the services, I assume you're talking about the Northeast generation and the other service business, and you're projecting $4m to $7m in earnings for this year?

Yes, that's correct.

And where will that pick up?

Does it pick up mainly coming from the Northeast gen business?

It's probably more on the design build side, which is the-- more of the actual services of business and probably our electrical contracting business.

Our O&M business is rather stable.

They support all of-- AGS supports all of our generations we have here, plus some outside generation as well.

And we would also expect the economy probably to pick-- an overall economy, to try to make up some of that difference.

So we see a much better environment to work in, let's put it that way.

Great.

That's helpful.

Thank you.

You're welcome.

Thank you, David.

Marcela, do we have any more calls in queue?

No more calls, sir.

All right.

Well, we want to thank you very much for joining us today.

If you have any further questions or any details that you want to pick up, feel free to call us this afternoon.

But thank you for joining us and have a Happy New Year.

Thank you.

Ladies and gentlemen, this concludes today's conference.

You may all disconnect at this time.

Thank you for participating.