Energy Transfer LP (ET) 2006 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the first quarter 2006 Southern Union Company earnings conference call. I will be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to Mr. Jack Walsh, Director of Investor Relations. Please proceed, sir.

Thank you. And welcome to Southern Union's first quarter 2006 earnings call and Webcast. Presenting on today's call, will be George Lindemann, Chairman, President and CEO, Julie Edwards, Senior Vice President and CFO, Rob Bond, Senior Vice President of our Pipeline Operations and Craig Strehl, the Senior Vice President of Gas Services, which is our newly acquired Sid Richardson business.

A replay of this call will be available for one week by dialing 888-286-8010 and entering pass code 12548378. A replay of the Webcast will be accessible through our Website at www.sug.com. If you have not yet received a copy of the earnings release issued today, you may request a copy by calling 1-800-321-7423, or you may obtain it through our Website. Today, we will be discussing results for the first quarter 2006, significant events and outlook. Following our presentation we will be happy to address your questions. If you have any further questions at the end of the call, please contact me directly at 1-800-321-7423.

Before beginning, I would like to caution you that many of the statements contained in our call may be based on management's current expectations, estimates and projections about the industry in which the Company operates. These statements are not guarantees of future performance and involve risks.

The Company undertakes no obligation to update publicly any forward-looking statements as result of new information, future future events or otherwise. Such statements are intended to be covered by the Safe Harbors provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. I would also refer you to the cautionary statement regarding forward-looking information in our earnings release. I would now like to turn the call over to Mr. George Lindemann. Mr. Lindemann?

Thank you and good afternoon. The first quarter of 2006 was an active one for Southern Union. In January and February, we announced the sale of our Pennsylvania and Rhode Island distribution assets. On March 1, we closed on the acquisition of Sid Richardson Energy Services, now called Southern Union Gas Services.

This series of transactions is part of our continuing transformation from a low growth utility to a higher growth, higher returning natural gas in the structure Company. The strong free cash flow we now have will prove to be a great benefit to the Company, as we move forward with several organic growth opportunities within our existing asset base.

Next, I would like to give a brief overview of the quarter. We are pleased with the overall results posted by the transportation and midstream segment of our business. We are clearly disappointed with the results of the remaining distribution business. This was primarily due to weather during first quarter, which was 14% warmer than the prior year. We have moved aggressively to address this issue by filing a $41.7 million rate case increase that proposes to mitigate weather impact on earnings.

In spite of a $5 million impact on our distribution EBITDA, we were still able to increase overall EBIT by 10 million on a continuing strength of Panhandle and one month of Gas Services contribution. Julie Edwards, our CFO, will give you specific details as to our financial results and earnings guidance in a minute. Following Julie, Rob Bond will give an overview of the pipeline business and then Craig Strehl will give an overview of our midstream business. Following that, we will be happy to answer any questions you might have. Now, I would like to hand the call over to Julie. Julie Edwards.

Thank you, George, and good afternoon. From its continuing operations, the Company earned $73.4 million or $0.60 per diluted share. And net earnings before interest and taxes, or EBIT, of 123.9 million for the quarter. This compares favorably to earnings from continuing operations of 56.4 million or $0.48 per diluted share on EBIT of 113.4 million in the same quarter of 2005. Our operating revenues for the quarter were 547.2 million, an increase of 96.1 million, compared to 452.1 million in the prior year.

Including our discontinued operations, the Company earned 93.6 million or $0.82 per diluted share. Discontinued operations, which include our Pennsylvania and Rhode Island distribution assets, accounted for net earnings of 24.5 million, or $0.22 per diluted share. In terms of a breakdown of these results, our transportation and storage segment, including our investment in CCEH; had EBIT of 86.8 million, up 8.6 million from the prior year.

On an individual basis, Panhandle Energy, which includes Panhandle Eastern, Trunkline, Trunkline LNG and Sea Robin, was up 12.4 million on an EBIT basis. This increase came from both the revenue and cost sides of the P&L, with increased operating revenues of 9.2 million, and decreased operating expenses of about 3.8 million. On the revenue side, 6.3 million of the increase was primarily a result of the expanded vaporization capacity associated with the phase one expansion of our LNG terminal, which went into service in September 2005.

Higher average reservation rates on Panhandle Eastern Pipeline accounted for an additional 4.1 million. Though they were partially offset by a decrease of 1.4 million on Sea Robin and 1.2 million of lower parking revenues. Results from our share of CrossCountry Energy were down 3.8 million year-over-year. Our newly acquired gathering and processing segment generated 7.1 million EBIT for the month of March.

As you recall, the Sid Richardson acquisition closed on March 1 of this year. An important thing to keep in mind when reviewing the performance of this segment, is how we account for the put options we purchased last year, to hedge our cash flow sensitivity to commodity prices. Prior to closing the acquisition, we were required to use mark-to-market accounting to value the options based on current market prices. Due to the strike prices of the put options, $11 for 2006 and $10 for 2007, and the subsequent decline in market prices; the puts increased in value by 37 million in January and February of 2006. At March 1, their fair value was $88 million.

Beginning with the March 1 closing, we began to account for the hedges in accordance with FASB Statement 133, Hedge Accounting. For the most part, going forward, changes in value will run through the balance sheet in accumulated other comprehensive income. The $37 million gain we recognized as income in the first quarter can really be thought about as a receivable. And will be reduced each month as we settle the options for cash, if they continue to be in the money. An important thing to remember is that we received 6.6 million in cash through the settlement of the March options that is not included in the segment EBIT. That cash value is essentially included in the mark-to-market gains that we reported in other income.

In summary, the true operating cash flow of the segment is their reported EBIT, plus depreciation, plus the cash settlement of the put options, less any non-cash income booked to adjust the time value portion of the hedge. For March, this amount totaled $18.1 million. This is a critical piece of cash flow that you need to be aware of when you are evaluating the results of this business. Our ongoing distribution businesses generated EBIT of $30 million for the quarter, as compared to EBIT of 35.3 million one year ago. The primary driver of performance for the distribution segment in the first quarter was weather.

Consumption was down 13%, in direct correlation to a 14% decrease in degree days. Offsetting the net revenue decrease was a reduction in operating costs of 2.4 million. Interest expense in the quarter was up 8.6 million, compared the prior year. And is primarily due to 7.2 million of bridge loan interest and 1.3 million of associated debt issuance cost amortization from the Sid Richardson financing. As we have said in the past, we expect to repay the bridge loan with the net proceeds from the sales of our LDC assets, as well as some combination of debt and equity or securities that will receive equity credit by the end of the year.

Excluding the $1.6 billion bridge loan, our current debt-to-capitalization based on our calculation, which gives equity credit to our preferred stock and mandatory converts, is strong at 50%. As you'll recall, in January, we moved our corporate headquarters to Houston. As a result, we have recorded an impairment of $6.5 million related to the carrying value of our corporate facility in Pennsylvania. The charge was non-cash and is recorded in operating expenses.

Our weighted average basic share count has increased to 111.7 million shares with diluted shares increasing to 114.7. This increase over 2005 stems primarily from the equity we placed in February in 2005 for our investment in CrossCountry. In terms of capital investment in the first quarter, we have invested $56 million in our operations. Of this, 340 million was spent at Panhandle Energy and approximately 23 million has been invested in our distribution business, including discontinueds. We have re-invested approximately 2 million in our midstream business.

Our capital budget for 2006 includes sustaining or base capital of approximately 160 million. Of this, Panhandle represents approximately 85 million, distribution represents approximately 60 million, corporate and other is approximately 15 million. That includes Southern Union Gas Services. Gross capital for projects under development is not included in the above figures.

For 2006, we still expect total GAAP earnings to be in the range of $1.70 to $1.90 per share, excluding any charges related to the tax impact of the LDC sales. This outlook assumes ten months of earnings contribution from the Sid Richardson and the closing of the LDC sales prior to the end of the third quarter. On annual go forward basis, we also affirmed the range of $1.70 to $1.90 for 2006.

In an effort to provide you greater clarity around our guidance, we thought we would give you EBITDA ranges by segment for 2006. For the retained LDC, we expect EBITDA in the range of 70 to 80 million. For our transportation segment, specifically Panhandle Energy, we expect EBITDA in the range of 300 to 320 million. For the newly acquired Southern Union Gas Services business, on an annualized basis, we expect EBITDA in the range of 200 to 220 million, including the cash value of the put options. We expect pre-tax earnings from CCE to be in the range of 60 to 70 million.

We also expect our interest expense, without the bridge, to be in the range of 140 to 150 million and depreciation expense to be in the range of 160 to 180 million. We continue to expect our average booked tax rate for the year to be approximately 35%. This information will guide you to our earnings range of $1.70 to $1.90 to per share. At this point, I will turn the call over to Rob Bond, Senior Vice President of our Integrated Pipeline Operations.

Thank you, Julie. Good afternoon, everyone. The pipeline business segment started the year off with a good first quarter. As Julie mentioned, we reported a $12.4 million increase in EBIT at Panhandle.

This was primarily driven by 6.3 million in additional revenue from LNG terminal services, as a result of the expanded vaporization capacity that we put in place last September. The increase in EBIT includes hurricane impacts of approximately $1.4, that are a result of a decrease in transportation on the Sea Robin offshore pipeline system. Hurricane Rita also caused a delay on the completion of the first phase of our Trunkline LNG expansion. However, the storage capacity associated with phase one of the expansion was completed and put into service April 5. We now have 1.2 Bcf per day of sustained send-out capacity. 1.5 Bcf of peak day send-out capacity and 9 Bcf of storage capacity available to our customer, BG L&G services.

We expect a completion of the additional storage capacity to add incremental EBIT of approximately $4 million per quarter. We are nearing completion of our phase two expansion at Trunkline LNG and expect it will be in service in mid-year. When phase two is in service, send-out capacity will be 1.8 Bcf per day, with peak capacity at 2.1 Bcf per day. We expect phase two to contribute incremental EBIT of $1 million a quarter once it's online. In aggregate, phases one and two, when complete, will have added $11 million per quarter of EBIT as compared to early 2005.

Since our last call, we have also announced a new project at Trunkline LNG, the infrastructure enhancement project, which adds ambient air vaporization and NGL extraction capabilities to the terminal. This project is designed to increase fuel efficiency, by using warm Gulf air to regasify the LNG. We plan to build a natural gas liquids extraction plant at the terminal. The NGL extraction will give BG the option to extract ethane and other heavier hydrocarbons from the LNG string before the gas is sent into the pipeline.

This will allow BG to import supply from more diverse locations around the globe. The infrastructure enhancement project, is expected to cost approximately 250 million and it is fully contracted to BG under long-term agreements. We expect this project to contribute $35 to $40 million of annual EBIT once it is completed in mid-2008. Trunkline LNG and BG have also agreed to extend the existing terminals and pipeline services agreements through 2028. This represents a five year extension of those contracts.

We have other expansion projects either planned or underway for our pipelines. Florida Gas filed with FERC for phase seven expansion in October of last year. FERC has issued its final environmental impact statement at the beginning of April. So that project is moving along well through the FERC process. This project will add up to 160 million a day of additional capacity.

We plan to build approximately 33 miles of pipeline, looping in several segments, and install additional compression. We expect this project to be in service in mid-2007. We are moving forward with our plans to build a new pipeline into the Phoenix market. The proposed pipeline will connect Transwestern's mainline and allow gas from the San Juan Basin to reach the underserved Phoenix market.

Phoenix is one of the fastest growing areas in the country and this would add another 500 million a day of capacity into that market. The project would include building approximately 260 miles of pipeline. We have completed the FERC scoping meetings and plan to submit the FERC certificate filing in July of this year. This project is expected to be in service in mid-2008.

Finally, we are also continuing to develop several other projects. On Trunkline Gas, we are continuing to work with our customers to negotiate firm commitments for our north Texas expansion project, which would expand our system from east Texas into Louisiana. While Panhandle Eastern Pipeline, we are working with potential shippers that would make an additional 750 million cubic feet a day of additional capacity available from the Midcontinent into the upper Midwest. We will continue to update you as further information develops. While Southern Union's pipeline business segment is always looking for growth opportunities, we realize that keeping our customers satisfied is our number one priority.

On that note, Transwestern has signed a new five year contract with Southwest Gas, serving all segments, that will increase our volumes from 14 million a day to 160 million a day beginning this September. Now, I would like to turn the call over to Craig Strehl.

Thank you, Rob. Good afternoon, everyone. As Julie tried to explain, Southern Union Gas Services produced an affected EBITDA 18.1 in March 2006, with the affect of the edge included. And while the accounting treatment for the hedge is confusing, the practical effect is that we are selling our gas volumes at $11 per Mcf in 2006. I would like to run through some of the operational data for March of 2006 relative to the same month a year ago.

This way you can get a feel for the strong growth opportunities that exist within Southern Union Gas Services' business. Our total well head volume was 544,000 MMBtu per day in 2006, compared to 5,006 MMBtu per day in 2005, representing a 7.5% increase year-over-year. This growth is largely attributable to numerous new well connections throughout our system over the last year and other organic growth projects. In fact, March 2006 volumes would have been even higher, except that approximately 15,000 MMBtu per day was curtailed due to plant maintenance at the Company's Grey Ranch processing plant.

Due to strong processing economics, we have been in full processing mode and have produced 437,00 MMBtu per day, this March, as compared to 350,000 MMBtu per day in 2005. This represents a 25% increase in processed volumes at a time of very attractive processing economics. This has also resulted in total product gallons produced of 1.4 million gallons per day in 2006, relative to 1.2 million gallons produced in 2005. As it relates to pricing for the month of March, we were able to realize on an MMBtu basis, $5.85 at the Waha pricing point and $5.76 at the Permian pricing point. This compares to last year's numbers of $6.35 at Waha and $6.27 at Permian for 2005. As many of you may recall, the flexibility provided by our system and our contract structures allows us to arbitrage the basis differential between Waha and Permian and largely capture the incremental for the Company when pricing between those points is different.

As Julie discussed, we are also realizing the incremental difference between the current market price of gas and our put option price of $11.

We printed out the 10-K, already right?

From a natural gas liquid standpoint, we were able to realize $0.84 per gallon in 2006, compared to $0.82 per gallon last year. Strong processing economics and the efficiency and flexibility of our system have allowed us to translate that into a processing spread of $0.32 per gallon in 2006, up from $0.24 a gallon in 2005.

Operational results were also positively impacted from year ago levels due to two projects completed in 2005. First was the completion of the 24-inch pipeline expansion from the Company's Keystone plant to our Waha sales complex. The second was the completion of our connection to the Kinder Morgan owned Rancho pipeline and the consequential reactivation of the Company's Tippett processing plant. The resulting increase in operational flexibility allowed us to utilize additional processing capacity and maximize value throughout the system while processing margins are now at historically high levels, currently around $0.46 a gallon.

In this extremely favorable processing environment, the Company is having its cake and eating it too. As a result of the effective hedging strategy employed by the Company, we are effectively selling our gas at $11 per MMBtu in a $5.85 per MMBtu market. With processing margins in the mid $0.40 range, more than twice the 2005 average. We are effectively benefiting from high commodity prices at $11 from the hedge and very high processing spreads. The Company continues to see active drilling throughout its pipeline system and expects total wellhead throughput and process volumes to continue to increase. This, in turn, should continue to increase shareholder value. I would now like to turn the call back over to George Lindemann.

Thank you, Rob. We are now going to open this to questions. So if anyone has any questions could you please ring in now?

Yes, sir. [OPERATOR INSTRUCTIONS] Your first question comes from the line of Craig Shere of Calyon Securities. Please proceed.

Hi. Congratulations on your first quarter of reporting with the new midstream unit. The guidance that you all are giving, this excludes Pennsylvania and Rhode Island for LDC properties for the entire year?

Yes. The second piece of the guidance, where I broke it apart by segment --

Right.

Did exclude those. I'm trying to give a view of how the Company will look at year end and then back cast.

Okay. Well, is it just the EBITDA numbers that you gave or the EPS estimates also exclude that for the year?

Both. The EPS range of $1.70 to $1.90 is actually the same in either case. It's what we expect to actually generate this year including all the ins and outs of the transactions. And it's also what we expect the earnings would be in effect if all the transactions had happened at 1/1/06.

I'm sorry, if all the transactions happened 1/1/06. And what was the first thing you said.

It's actually the number that we expect to actually report for '06, including the part-year impacts of the different businesses, with the exception of any tax impact that we'll have to reflect on our books when we ultimately consummate the LDC sales.

And with the Missouri rate filing, what is the timing for when we'll -- when you all expect to get feedback on that and have it go into effect?

We don't expect to see the impact of that until -- at the earliest January of '07. The process takes a little bit of time.

Okay. And so I can better understand Sid Rich, can you -- I'm sorry, I call it your mystery business. Can you you all comment on depreciation for that unit specifically, and any expected seasonality in earnings going forward?

The depreciation is essentially 5.6 million per month. And what we have done there is, taken the book value, which is effectively the purchase price and used a 25 year amortization period. So, that is what I will call the base depreciation. In terms of the seasonality, we really don't expect to see -- other than the normal seasonality that natural gas pricing tends to have with weather trends, we don't expect this business to show the same kind of strong seasonality that say the LDC's do.

Well, and Julie, also with respect to the hedging, it takes all the seasonality out of the pricing, unless you have a seasonal event like a hurricane and the prices fly up well above the put, then you are in better shape.

Sure. That makes sense. And remind me, the cash earnings in the first quarter from the hedges were?

Really, it's March. And the cash impact in March was 6.6 million. Unfortunately, hedge accounting rules are very prescribed and until the closing date, we couldn't designate the puts as hedges. So, we had to show the gain from mark-to-market. And then monthly, if you think about collecting us a receivable. The monthly value of that pricing gets recognized into the operations.

Okay. Thank you.

You're welcome.

Your next question comes from the line of Sam Brothwell of Wachovia Securities. Please proceed.

Hi, good afternoon. Can you hear me?

Yes.

Hi, Julie, thinking about the guidance with respect to the gain that you booked in the first two months of the year, is that gain on those hedges in the guidance? How does that unwind? Can you give us a little more clarity on that?

Certainly, in the guidance where we talked about the segment EBITDA, the 37 really is not part of that. Instead the impact of the puts is in the guidance that we gave for the SUGS or the Southern Union Gas Services business.

So accounting for it on the basis that you are now, since you closed Sid Richardson?

That's correct. So the 200 to 220 million of EBITDA that I spoke to, which would be an annualized basis includes, in effect, that $11 gas price.

Okay. But it does not include that amount that you booked in the first quarter as a mark-to-market gain?

No, sir.

And if may ask just one more question. You alluded to the very favorable market conditions you have in midstream business right now. And obviously, we understand the impact of the puts that you purchased, but how do we think about -- or what is the impact of changes in the liquid spread this year and going forward? Because you kind of alluded to having the best of all possible worlds right now.

Craig, why don't you handle that?

Yes, we are seeing excellent processing spreads and just on a note of guidance, we're not cooking those numbers into the guidance, expecting the processing spread to stay at these extremely high levels. So, we are much more conservative on our processing margins going forward.

We used the terminology.

And I don't recall the -- if you could elaborate on your question, I will answer in on the answer. But the seasonality of processing spreads is obviously related to the absolute price of natural gas. So if natural gas prices rise up a little bit and processing of crude oil says at its current level, these processing spreads would go down. On our operating level, our revenue would go up because we are more positively sensitized to gas prices than processing spreads. And with $11, we have an absolute value of $11 on a combined basis between the margin on -- the profit margin on those hedges and the absolute operating results of our Company.

Okay. Maybe asking it another way, with the purchase of the hedges, you are 85% hedged for this year, and do you then have any real sensitivity to changes in processing margins?

Yes. As processing margins are positive, we are adding revenue. We are basically a gas Company. That's why we hedged the business on the gas side. But as processing margins remain positive, and positive can be $0.20, we will contribute additional income than we would if processing margins were zero and even if processing margins went negative, we would still be very comfortable with the earnings guidance.

Understood. Thank you very much.

Your next question comes from the line of Rick Gross of Lehman Brothers. Please proceed.

Yes, I want to ask a few more --, clarification around the put in the guidance. When we talked before, I was under the impression that guidance was basically predicated on processing being a non-contributor. That basically it was off the sale of gas. And anything that you would make is additive to guidance.

Yes.

The other was, that I'm still a little bit unclear to the accounting of the cash piece that you realized if the put is in the money. Are we booking that in income? You mentioned the cash piece, $6.6 million, and it sounded like that didn't run through the income statement. And so what I'm trying to figure out is if, in fact, we are making money on the put for the rest of year, is that going through the income statement or is that going through OCI?

OCI.

Okay. I thought that's right. So that when you talk about -- so that means when you talk about guidance of the 200 to 220, that is both income statement and OCI?

Yes, because for that number, effectively the 37 million that was the mark-to-market gain in the first two months --

Right.

Is layered into that.

Okay. Well that's fine. I just wanted to make sure I understood that. Now, the other thing is that you are amortizing put. How much was that for the month? And what line item does that run through? Will that run through Southern Union Gas Services or is that running through a corporate?

It runs through Southern Union Gas Services. And the amount of that on a monthly basis is roughly 6.6 to 6.7 million. It's kind of -- Rick, the way that number is generated is the 88 million, which is essentially the fair market value --

Right, divided by 22 months?

But it's a weighted average because if you recall the volumes actually ratchet down in '07 but effectively that's right.

Rick, this is Craig. I think you realize that because the Southern Union Company had to put the hedges on prior to closing on us, they couldn't put them at our level. And so they exist in a different entity but for the guidance purposes, be clear, that we're looking at it on an operational basis. Just like we're reporting the 18.1 of EBITDA is effectively what we produce after it's run through the corporate accounting machine.

Okay. And then the last question that I will circle all the way back is that given the strength of processing, there was a little bit of -- not so much concern, but there was a little bit of question that I took in this morning. And I just wondered -- I will throw it out is that why guidance remained where it was, given that the backdrop of processing is very strong and continuing through this quarter you alluded to the very, very strong margin? Is there just a touch of conservatism in the guidance or is there, confirming what could be worse fears, some offsets that you have seen in the other businesses to keep you in the same spot?

Well, Rick, is Lehman going to buy my liquids for $0.46 for the rest of the year?

Forward curve, might.

Forward curve is a little bit less than that. It really shrinks up in liquidity. I think it is just wise to cross that bridge when you have a little more water under it.

That's fins. So the answer is, A conservatism.

Yes. I'd agree with that. And the other thing to note is the weather continues to be important, particularly on the LDC business.

Okay.

And as we saw in the first quarter, quarter-to-quarter our LDC business was down across the board. And since there's some room there, I think we're being conservative and we hope we are wrong and that we can do better.

Okay.

I think you would be happy if we are over but you'd be unhappy if we were under.

Thank you.

Thank you, Rick.

Your next question comes from the line of Jeremy Susman of Natexis Bleichroeder.

Hi, guys. I just got a quick question for you. Where do you stand on your hedging for 2006 and 2007 for your gas services? And has anything really changes on this front? And can you just talk maybe a little bit about how you do your hedging strategy in a favorable, versus unfavorable environment? Thanks.

Julie?

Okay, where we stand on the hedging currently is we have 85% of our volume -- well, we have -- we purchased puts at $11 for 2006 on 45 million cubic feet a day, which is about 85% of the volumes we expect to process. For 2007, we have $10 puts on 25 million cubic feet a day, which is about 50% of the volume. In terms of strategy, we certainly do intend to continue to take prudent steps to mitigate price risks to our shareholders. And we are continuing monitoring the opportunities to take advantage of them.

And just another note, one of the beauties of Gas Services business model is that it is very hedgable and that we can take commodity risk out if we see a good opportunity to lock in gas prices. We watch the screen for opportunities. We don't trade on it. But we watch it every day to -- so that we can look forward in '07 and '08 for opportunities to lock in and remove volatility.

Great. Thanks, guys.

Your next question comes from the line of Mike Heim of AG Edwards.

Hi. I haven't heard you talk about a Panhandle expansion before. Did you say it's a 750 MMcf a day expansion?

Yes, we had an open season late last year and we are very pleased with the responses. We're currently are out negotiating with the customers in trying to finalize the scope of that project.

And can you give me an idea of what we are talking? Are we adding compression here? Are we doing looping? What points are being expanded?

Well, it ultimately depends on what the actual delivery points turn out to be. But it would include both looping and additional compression.

Okay. And is it too early to be talking about costs and stuff like that?

I think so. It's -- we are still trying to define the absolute scope of the project.

Okay.

So, obviously, that will drive the final cost estimate.

And on the Missouri rate case, you indicated 41.7 million to mitigate the effect of weather. Is there an indication that it's more than a dollar base amount rate case that there are some other weather moving of stuff around to affect the weather, to offset weather?

Yes, Mike, this is Julie. The $41 million number was really the total amount filed for. And there are different components including requesting weather normalization. Missouri is a jurisdiction that does not yet have that in its rate case. So, that's really one piece of it.

Okay. So you would be filing for weather normalized rates?

We already did file, I believe, yes.

And are you able to give more details on the case, such as what the ROE you are seeking and the rate base and those types of stuff?

I'm afraid I'm not in a position to do that. We can have Jack get back with you subsequent to this call.

Fair enough. That's all my questions.

Your next question comes from the line of Craig Shere of Calyon Securities. Please proceed.

Hi, just a point of clarification on a couple of Rick's questions. So the mark-to-market gains in the first couple months are not flowing to the income statement but other comprehensive income?

Well, the $37 million mark-to-market gain is on the income statement in actuality. What does not flow to the income statement is what I will call the monthly cash collections. And as we sell gas pursuant to hedge accounting and basically unwind or sell the put options, that cash amount does not go through the income statement.

Okay. I got you.

Okay. Well, it's a complicated area, and believe you me, I know it's hitting you cold and we spent a lot of time here. This is a very esoteric area of accounting. And one thought we had interally was if people are interested, Jack can set up a separate call, where we can actually go through the real nuts and bolts of this accounting because it is a complex area.

Sure that may not be a bad idea.

Okay.

Your next question comes from the line of Sam Brothwell of Wachovia Securities. Please proceed.

Hi, just a follow-up. Two questions on the pipeline side. You mentioned that you got some increased volumes to Southwest Gas does that help mop up some of the capacity that was turned back last year on TW?

Yes it does.

Okay. And second question, you talked about Sun Devil lateral and the FERC process. Where do you stand in terms of getting commitments to that capacity from the utilities down in the Phoenix area?

Well, I think we had mentioned previously that we have three major anchor shippers, Southwest Gas, Arizona Public Service and Salt River Project and all three have been very supportive of the project.

But have you signed a contract yet? Do you have a firm commitment.

Yes, these projects require precedent agreements.

Right.

And so that's where we are in this process.

Okay. Thanks.

Your next question comes from the line of Casey Alexander of Gilford Securities. Please proceed.

Hi. Can you kind of review for us what is the schedule of the completion of the various expansion projects at the LNG facility? I see that we have seen some revenues come online this quarter from the vaporization. But can you kind of walk us through the various expansion projects that you have and when you expect them to be completed and revenues to start to flow from those?

Yes, let me go back through that for you. Phase one was kind of divided into two pieces. The first of which was the vaporization. That actually came online last September. And I think on a quarterly basis, contributes about $3 million of EBIT per quarter. The second half of phase two, which was the part -- I'm sorry, phase one, which was the part that was delayed by the hurricane, was the storage.

Right.

That came on April 5. Quarter-over-quarter that will be $4 million of incremental EBIT. And then lastly, phase two, which comes on sometime this summer will add another $4 million of incremental EBIT. So the sum total of all of it is about $11 million of incremental EBIT, if you go all the way back to the period prior to the -- to last September.

But now there was another capital project that was recently announced related to the LNG facility, wasn't there?

There is. That's what we call the infrastructure enhancement project, which was announced here a couple of months ago. And that's a roughly $250 million capital project that once completed in mid-2008 will add between $35 and $40 million of incremental EBIT.

And that's '08?

Yes, sir, mid '08.

Okay. Thank you.

You're most welcome.

Your next question comes from the line of Rick Gross of Lehman Brothers.

I was just going to ask on hedging. We've got obviously, some differentials between winter and summer. But in the winter months for the next two winters at least the forward curve is, 11 and change and the basis is for -- for those periods is maybe $1.50. The net of which is pretty much in line with where you hedged '07. I don't know whether it's too thin to get basis hedges off that far. But is there any contribution where net to you at north of $9 is attractive or not? And is it -- because the market has been there for awhile and I would have thought if 9 or so was attractive, that you would have made some marginal commitments in the area. Can you give me a little bit of feel about what you are thinking?

Yes, the first part to your comment about the thinness of the basis market, you are right. That market is not thin like it was back in December when we first put the batch of puts on that we currently have. And the second point is exactly right. We have been watching that market as well and we are having active discussions about it. We haven't pulled the trigger at this point. But we clearly have our eye on that and are evaluating different strategies around it.

Okay. So I can't put words in your mouth.

You can try but someone will shoot me. Okay.

There are no more questions at this time.

Well, if there are no more questions, I would like to thank you all for attending. And we hope next quarter will be even better than this one. So thanks again, and we'll hear from you all in about three months. Bye.

This concludes today's presentation. You may now disconnect.