安特吉 (ETR) 2002 Q2 法說會逐字稿

Good day, everyone. Welcome to the Entergy corporation second quarter 2002 earnings conference call. Today's call is being recorded. At this time, for opening comments I would like to turn the call over to the vice president of investor relations, Ms. Nancy (Marovich).

Good morning, everyone. We appreciate you joining us this morning. Each of you should have received our earnings release by now. If you have not, call Maurine at 504-576-4846 and she will fax or e-mail it to you. We will begin with a caution statement. The following constitutes a Safe Harbor statement under the private Private Securities Litigation Reform Act of 1995. Investors are cautioned forward-looking statements made during this teleconference with respect to the revenues, earnings, strategy, prospects or other aspects of the business of Entergy may involve risks and uncertainties. A number of factors could cause outcomes to differ materially from those indicated by such forward-looking statements. Investors are referred to the full text of our earnings release, our 10-K and 10-Q filings for additional information. In a moment, I will turn the call over to Wayne Leonard, Entergy chief executive officer. Following his remarks, John Wilder, chief financial officer, will review financial results for the quarter. Of course, at the end of the call, we will take questions. Wayne.

Thanks. We saw many of recently at the investor conference, so I will keep my comments brief. For anyone who did not attend last month, or listen to the webcast, you can view the slide and listen to any or all presentations on the website at Entergy.com. We are pleased to report second quarter operating of $1.73 per share. Quarter record for us, that is good news when no news seems to be the best news the industry has to offer. John Wilder will review the second quarter results in a few moments. (inaudible) with a presentation that can be viewed simultaneously on the website. We are adding this presentation to quarterly earnings call after feedback that our calls were runs thousands of words too long and reminder picture is often worth a thousand words. We appreciate your comments on how helpful it is and will do ourselves to make it better in the future. Let me cover three key areas. Success in closing on acquisition of (inaudible) on accessible terms, despite deal killer at 11th hour. Explanation of the remaining charge we reported this quarter to reflect our decision to end New Greenfield Power development, given recent events and turmoil in the market. With respect to Vermont Yankee. We will close tomorrow, actually shortly passed midnight tonight on purchase of Vermont Yankee after reaching an agreement with the owners to restore the substance of the original agreement following order by state regulators earlier this month. Following that order, on July 18th, we made it clear that the decommissioned provisions negotiated were material part of the commercial arrangement and that we would not close under the terms of the previous order on June 13th, but that we were willing to try to work things out with the owners if it could be done by July 22nd, the date we were required to give seven working day notice of our intent to close transactions if we were to meet the termination date. We had two or three days to get this done. To their great credit, the Vermont Yankee owners (inaudible) decisiveness and creativity to preserve the transaction negotiated in good faith and in the interest of all parties. The new agreement provides the non-Vermont members representing 45% ownership of the plant will sign 100% of their shares of excess decommission funds to Entergy. We are pleased to add Vermont Yankee to our nuclear fleet. What this episode demonstrates, we are willing to walk away from the deal when long-term risk reward profile doesn't meet criteria. But are willing to work (inaudible) mutual benefit and the benefit of in spite of unforeseen or unexpected obstacles, even at the last minute. Next, let me review remaining charge we took as result of our decision to end New Greenfield development. At the time we announced the decision (inaudible) per share. As you know, under general accepted accounting principles we booked the amount on $1.15 in the first quarter, when we reported impairment of wholesale generation assets, costs associated with cancellation of turbine commitments and write-off of other development costs previously capitalized at wholesale operations. We said at that time, that additional special charge would be reported in second quarter in connection with the severance policy. We estimated cost to be in the range of 10 to 20 cents per share. As you will note in the second quarter numbers, the actual amount turned out to be 11 cents per share, including restructuring cost of 17 cents per share and impairment charge adjustment of 4 cents per share and partially offsetting gain of 10 cents per share, primarily driven by sale of turbines written off by a quarter. As a result, total charge came in $1.26, 9 cents better than the upper end of the range provided. We came out better in part because we did what we said we would do, continue to work hard to mitigate the negative impact as we had before we took the charge. You probably remember me saying last quarter when we took the charge, I was extremely disappointed in the result. We had several deals in the works that didn't follow through and others that we were close on, but they were not progressing fast enough, given the deadlines. We had four turbines who cancellations fees would jump on May 2. We notified GE, we were canceling those turbines and intended to cancel the rest of the turbines. We took the charge (inaudible) to mitigate the damage. The good news is the charge forced the decision from parties we had been negotiating with for months, but wouldn't make a commitment. By delaying the commitment, they were in effect using the Entergy balance sheet and our contract with GE to create a free-call option for them. With our announcement to cancel the turbine the value was rapidly going to zero and forced decisions from the parties to exercise that call now. At the same time, GE was helpful in lining up delivery date to meet our customers' needs. I want to emphasize, we didn't take the charge to make it easy for ourselves to sit back and put it behind us and relax. We took the charge because in our view, we had economic impairment. The amount and the time of the charge were confirmed by our auditors, Deloitte and Touche. The timing was clear given the decision to end Greenfield development and notify GE of the intent to cancel. No additional charges are expected. We are committed to aggressively continue mitigation efforts and any related gains from successes will be reported as special item just as we did this quarter. Now, let me address our trading business. With all the problems that have been energy trading business, the exit of competitors and announcement of poor results, I am sure many of you are wondering what does this mean for Entergy co-trading? Let me affirm what CEO Kyle Vance said at the analyst meeting. This is a good business for us. We view it as compliment to overall strategy. The companies and customer necessary our industry will have to manage energy commodity prices. We believe given the volatility in the business, it will remain a profitable business for those following a sound business model and have the necessary skills and discipline. With that said, we have seen dislocations in the market over the last few months, with the exit or down sizing of many players. Lower liquidity in certain areas, we had to rethink to make sure we are entering the market where we are confident we will have the ability to get out in the timeframe anticipated in risk measures. We have also seen areas where liquidity is good, but cautious about trading with counter parties present. In both situations, we had to adjust trading activity. The point is we only trade based upon analytically point of view. In some cases, where the opportunity is most clear, even the lack of liquidity or counter part risk has precluded executing on that point of view. You can be right, but if you can't get out or can't get paid, it doesn't matter. We believe these effects are temporary, rather than systemic. This is a logical and expected part of the business cycle, particularly given the uncertainty as to whether the parties have been playing by the same set of rules and lack of clarity on what the rules are. In the near term, we expect markets to remain choppy for a couple of reasons. With the exit of many players, the almost forced liquidation of their books have skewed market prices, while injecting risk into the market. We are seeing significant uncertainty associated with the transition of reporting gas demand and storage statistics from the aga to energy information administration. We believe the fundamentals will prevail in the end and markets will return to normal state. As far as the quarter, our results at Entergy weren't as impressive as previous quarters. Meaning they made money overall, just not as consistently day in and day out as we are used to. That had more to do with the case fundamental point of view clouded by the uncertainty in the market and choppiness. In short, in our mind, this quarter doesn't raise question on Entergy's performance potential or Entergy's ability or desire to stay in the business. It is quite the opposite. All of this accelerates inevitable irrationalize of the market and opens deeper space for EK and enhances long-term prospects. One last point, I want to emphasize Ek (inaudible) credit rating, but get an A in conduct. Ek has not had to restate revenue earnings and have not been engaged (inaudible) target of SEC investigation or anything that went on in California. With the halfway point of 2002, let me conclude by saying our agenda is set for the year. To continue what we have been doing to deliver results on daily basis. That means financial results for investors and continuous improvement in safety, reliability and customer service, while we pursue the goals we outlined in our analyst meeting, including utilities finalizing resource plan with regulators and pursuing initiatives for additional regulatory plans in line with opportunities and risks. In the nuclear business, achieving business improvements at northeast plants and pursuing deals such as leases and operating contracts to continue growth. Our wholesale business, continuing to drive trading results with discipline, solid analytics and development of new products, harvesting wholesale in Europe, executing work-out plans for generation assets in the U.S. and acquiring attractive assets consistent our strategy. With that, let me turn to John weapon wilder.

Thank you, Wayne. Good morning. The areas I will cover include an overview of second quarter results. Second, a break down of the important drivers in each business. Third, a review of key financial metrics, which reflect continued execution of the balance, fundamentally sound business strategy. Fourth, a quick summary of how we limited exposure to price risks. And lastly, review of earnings guidance to reflect competence in meeting future earnings targets. Move to first slide, slide three, which shows second quarter earnings added to excellent track record. For the quarter, Entergy reported earnings were $1.06, equivalent to last year's results. In terms of operational results, earnings improved to $1.17 per share, a new record for the quarter, with no help from the weather. Next, in looking at components of special items shown on slide four, you will note as reported earnings were affected by special items of 11 cents and Entergy wholesale operations, 11 cents this quarter combined with $1.15 from last quarter represent the impact of restructuring process in our power development business. Wayne discussed restructuring at ewo in detail. I will move to review operational earnings. Operational earnings by business as reflected on slide 5, show solid improvement led by utility and nuclear results with key factors driving results in each business. I will review the operational earnings of each business in more detail in the slide that is follow. Utility turned in strong 15% increase in operational earnings. Detailed on slide six, due primary to improved conditions following six consecutive quarters of economic slow down across the service territory. Retail sales for the quarter reflected modest increase. However, after removing the impact of industrial customers from the retail category to wholesale, due to modification in contracts, overall retail sales showed robust 3.6% increase. Our o and m increase offset the increase. This OEM reflected impact of accounting for the ice storm settlement in Arkansas. Without the settlement OEM increased slightly. The ice storm settlement, impact reported in second quarter, allowed us to expense previously deferred costs and report offsets revenues to reflect recovery of those costs. The impact to the bottom line was essentially zero. Next, on slide seven, 60% increase in earnings from non- utility nuclear business. Finally, on slide eight, energy commodity services made a modest contribution this quarter, due primarily to lower trading earnings from lower market volatility. Lower profitability on gas trading and impact of eliminating market to market gains on assets. Solid pipeline contribution resulting from increased activity, offset a portion of the down turn in trading. Our trading business is executing on fundamentally strong model as depicted on slide nine. Our (inaudible) was modest. Most of the portfolio is based on market votes. Our book duration remains short. We have diversified earnings mix. Market to market earnings made up 3% of the total consolidated earnings. Finally, we continue to be diligent with respect to managing counter party risk with 90% of the training book tied to counter parties with investment gradings and no more than 5% of ek book is represented by single counter part. The charts on the next two slides give context for second quarter performance, reflecting improvement in Entergy financial metrics over the past four years. Look at key financial measures reveal returns to margin remain solid. ROE, net margin and operating cash flow have improved significantly. You will note on slide 11, we continue to have significant financial flexibility, reflecting the very stable, well rounded financial position we have worked to achieve for our company. On particular area I want to highlight is limited exposure to wholesale market and supported by charts on slide 12. As all of you know, very well, market risk as negatively impacted many companies in our sector. We believe our exposure is manageable. You will see approximately 96% of earnings per 2002 and 90% for 2003 is supported by the process directly in utility jurisdiction or other regulated or semi-regulated entities. With respect to price risk, our exposure to ford price movement is limited due to forward selling strategy. Specifically, Entergy nuclear generation output is one hundred% contracted in 02 and 99% in 03. For energy (inaudible) generated at what is essentially semi-regulated business at 46% of the projected output from the wholesale generation portfolio, contracted in 02 and 20% in 03. These percentages reflect removal of Head Creek, consistent with Entergy decision to restructure power development business. With respect to 02 earnings guidance, we are on track with first six months to achieve targeted level of earnings for the full year. As shown on slide 13, over the past several years we realized average of 48% of our full-year's earnings through the first six months of operations. Given that, through second quarter of this year, we are well over halfway to mid-point of 02's full-year guidance of $3.forty to $3.60. We are confident in our ability to achieve earnings in the current guidance range. We will be carefully assessing 2002 earnings guidance at the end of the third quarter and favorable weather and continuation of disproportion at sharing could result in increase in guidance numbers for the year. I want to emphasize rather than talk about what we can do, we can point to basic metrics to show we delivered good return and financial stability. Our track record for achieving earnings growth is well established. Through the first half of the year, we made excellent achievement toward reaching full year's guidance. Our financial plan is solid. We have good visibility of 2003 earnings. Finally, we cannot discuss any specifics with you today, we do see growth opportunities shaping up very well to support our efforts to achieve our earnings aspirations for 2004 and 2005. Now, our senior team will answer your questions. 00:19:50

Thank you. The question-and-answer session will be conducted electronically today. If you would like to ask a question press the * followed by 1 on your touchtone telephone. We will take the questions in the order you signal us. Press * 1 to ask a question. We will pause for a moment. First question from Paul Rifkin with McDonald Investments.

Wayne, you talked about relative waiting with regard to how you view asset acquisitions versus stock buyback. Can you update us on your latest thinking?

I am not sure it changed a lot. I will review that. The stock buyback, I think for 500 million, added 8 cents. The mood issue at this point in time. Even with falling prices, probably have improved those statistics. Credit quality at this point is everything. I don't think the rating agencies are particularly interested in discussing buyback programs while they are dealing with the other issues other companies have. We are not going to do anything that would impair our credit rating. That would cause the credit agency to act without taking a thoughtful look at the impact. We have the credit (inaudible) and the cash to do it, but that is not our top priority for practical reasons. It would be agencies, but for commercial reasons. As John said, we believe there are some of the opportunities that we talked about are starting to shape up in the market place. More and more assets are coming on the market. At our analyst meeting I think John showed a number like 30 to 50 billion of sales. That number may be twice that when it is all said and done. The best - as we said here today, the better transactions in the market place are pipe and storage. For a couple of reasons. One is they are probably the most liquid. Not really impaired. They can bring better prices. The pipeline companies have probably (inaudible) calls it 12-step program. The pipelines are closer to have taken the 12-step program to realize the problems they have. I think those assets are likely to be offered in the market place at fair prices because they are marketable and the companies understand the situation they are in. Power Financial Power Assets, most people are hoping that spark spreads squeeze and it will bail them out somehow. We don't believe that. We think prices still need to be get down in the area of 150 dollars for kw to make sense. We don't see those assets being offered up today in that regard. Companies either have a different point of view or they are not interested in taking a loss at this point in time and admitting they made a bad decision. As we look at the opportunities for the top of the list is probably gas assets. There is a lot we could do there. Move through. Power assets and nuclear assets come on the market and combine cycle unit. People are almost out of money in the market today. The stock buyback is on the back burner at the moment, as we work through the other issues. They are more attractive in stock buybacks if the market gets to where we think it will go.

As time rolls on and maybe the power supply end balance becomes more balanced, will you revisit the 150 threshold? Justin Leonard

Yeah, we will. You know, as we sit here today, we are still 5 years away. You all hear a lot of good news (inaudible) that we have more cancellations or delays than plants being built. The problem is we originally started out with somewhere around 400 announced new megawatts of capacity. The fact we have announcements and delays and cancellations doesn't solve this problem. You are looking at 15% excess of 15% reserves and virtually every reliability region in the country over the next five years. In some cases, it is over 30. You have notable points, it dips down below 10. We will revisit it. It is going to be very, very specific relative to the mode and what the transmission pricing rules turn out to be.

Okay. Thank you.

We will take our next question from Andy Levy with Bear Wagoner.

Hi, guys. Just looking at your release on page seven, there is an area on liquidity. Could you possibly go more into that? I guess comments about debt coming due next year and just to get more details on what you mean there? Also, whether what is written there has anything to do with your decision on the stock buyback, as well?

And ay, there is John Wilder. We have 750 million in cash. We have $750 million capacity on our current revolver. We have about $1.5 billion of very current, very accessible liquidity. We do have maturities that will unfold over the next year or two, as we put our debt strategy together. Several years ago we thought the domestic utilities would move to competition and didn't want breakage fees, to the extent we needed to buy back those bonds. We see no reason at all that any of our domestic utilities are going to be unable to roll forward these to repay these bonds and to issue new bonds. That didn't have any decision on our stock buyback. Our stock buyback - we really haven't - we always view it as alternative investment. As we are examining the asset investment opportunities in the market today, we just think they are substantial and some of these assets could end up being sold at prices that are somewhat unprecedented in our industry. We want to keep all the financial flexibility we can to be able to capitalize on the situation.

So, basically you put this disclosure in the release just to make people aware there is debt that is due next year? You don't anticipate problems refinancing the debt, but wanted to make people away?

Exactly right.

Thank you.

We will take our next question from (inaudible) Murphy with sap capital.

Good morning. My questions were answered.

Now, our next question from (inaudible) with Salomon Smith Barney.

Hello. Just was doing - do you anticipate more (inaudible) and is that the reason why your estimates are conservative or more OEM in general areas?

Daniel, would you mind repeating the question?

You were saying you are usually earnings are presented 48%. That is what I was going.

I have it exactly. I apologize you for asking you to repeat it. I think it is conservative. In today's environment, we want to make sure we get our third quarter behind us. It has always been our key season in domestic utilities to swing our numbers around 10 cents or so. We don't include weather in ford guidance, but have taken a position if we have bad weather, we want to make it up. We like to get through the third quarter before we really stick our neck out on revising our '02 numbers. As we look forward today, it looks promising that that number will be revised.

Uh-huh. Also, given the status of the trading and the wholesale business at this point, do you anticipate - I mean, in order for you to - what would be your long-term goal if there was excluding any type of acquisitions? Would you assess that (inaudible) maybe more or less robust than you were thinking before?

We believe our long-term growth rate is 8 to 10%. That is made up of 4% growth and inherent in our business. A couple of percent of productivity growth. The balance is reinvesting growth capital. If you think of the structural growth of business, it is probably 6% and another 2 to 4% on the basis of acquisition or investment opportunities, that might not always be mna. It might be uprates and different investments like that inherent in our nuclear business.

Okay.

Thank you. We will take our next question from Jessica Rutledge with (inaudible).

Just a couple of quick questions. What was the fraction of ek sharing this quarter?

Significantly all of the earnings.

Okay. There appears to be a change in the cash realization versus a year ago. Does that represent change in strategy for Entergy Koch?

Kyle, could you respond to that?

you have 31% coming due in this year. First of all, the term of the book has not changed. What we have seen with the market structure and the way our positions have moved from the prompt period to the out periods, what we have seen is our percent of market to market turning to cash is lower than it was last year. The overall strategy haven't changed that much. It is where the positions have been put on change. Certainly, we have seen change in the last few months that have changed relative waiting of where the money turns to cash as far as this year versus next year and '04. Really, no significant change in strategy.

Thanks.

Our next question from Winfred can have (inaudible) with National Bank Financial.

Couple of questions. Regarding this 150 dollars per kilowatt that was mentioned today and at the analyst conference, it implies at least in my mind - correct me if I am wrong. Correspondingly low spark spreads by comparison with history low spark, would that be correct?

I think you have to - this is one of the problems we have seen in the market place between the fundamental and technical analyst. History in the market place is almost irrelevant. From the standpoint, we are adding 100,000 megawatts to the market place. It uses a lot of gas and uses electricity. That is one reason that we believe we will be successful. We - fundamental analysis looking forward, versus looking back. That analysis, relative to our own point of view, supply and demand on gas and electricity indicates the spark spreads you are seeing today, which obviously are fraction of what has historically been the case, are going to be without getting into Kyle's business, more reflective of what you are see for a period of time, than big numbers beyond one, two, three, four years ago when you had the capacity.

Okay. Suppose you were successful and could get capacity at 150 dollars per kilowatt and assuming you were to finance that 50-50 with debt and equity and wanted to earn the sustainable basis, 15% after-tax rate of return on common equity portion, what sort of spark spread would you require?

Well, we thought you were going some place else to ask about the return. You were on the return numbers. I think John is telling me he thinks still in the single-digit range within that period.

Okay. And currently sort of in your area, not talking about the company specifically, would we be in the high single digit or just crossed in lower double-digit area with spark spread some 00:34:57

In the Entergy area, the area we serve, where we have a number of plants and a number of places are located, we are below - we are the low single digits. We could stay there for a while. Outside of our territory, there are places that are obviously above or right at double digits and could rise from there (inaudible) pricing. But, in our territory, it is going to be a long time.

The other question I have relating to the analyst conference. I was intrigued with the work your accountant is doing on the freedom reactor. The question I have is are the expenses expenditures you indicated to the Freedom reactor, are they being expensed or capitalized?

Expensed. The dollars that are being spent on that are very minimal. I mean, we are looking at all the new technology and just trying to stay abreast of it, but not making major investments.

With respect to business development costs related to generation other than nuclear, what is your policy between capitalizing and expensing business development expenses?

Our policy is to extend business development activities until we have more likely than not certainty the project will go through.

Okay. That's all I have. Thanks.

As a quick reminder, if you have a question, press * 1. We will hear from Jonathon Arnold with Merrill Lynch.

Two questions. The first was for the go forward percentage of Entergy commodity services, if you adjust for the stripping out of Head Creek, has the actual underlying position changed? (inaudible). Is there follow-up to exposure? What further exposure on do you have to weakness in the U.K. market?

We don't have exposure into the U.K. market, as long as we can restructure our Head Creek investment over 12 to 18 months.

You feel good about doing that?

We do.

From Kerry Stevens with Morgan Stanley.

Good morning. A few questions, kind of following up. Is there any update to your efforts to kind of further sell out the nuclear production into '04 and '05 time frame?

We have made good progress in the marketing in the northeast. We don't have anything to show for it yet. We feel pretty confident that we are going to be able to secure some good PPAs at pricing, not materially differently than today or will be able to hedge that exposure through the gas markets between now and the roll-off period in '05.

Okay. Secondly, you keep talking about the upside for this year. I know obviously you are waiting for the third quarter, but could you bracket the upside? Are we talking - looks like 5 to 10 cents, is that reasonable from your expectation?

I think that is reasonable.

Okay. Then, just looking at nuclear year to date, close to 99% versus an assumption lower. Is there concern that maybe kind of this year versus next year, aside from Vermont Yankee and I think one last feeling is that - not concern, but expectation maybe now for flat more flattish aside from the Vermont Yankee and one last outage kind of flattish gross because of the factor expense is strong? I guess, aside from OEM savings?

On capacity factor, you are right, these units are not going to operate at much higher capacity factors than they have operated this year. We will continue to work on outages. These are extremely high capacity factors. On the other hand, we have a lot of upside associated with these units in the northeast on additional capacity through the upgrades. As you know, the cost structure of those unit system extremely high. So, there probably isn't that much upside from the year 2002 on capacity factor, but the other two factors, you know, are positive.

Okay. Great. thanks.

We will take a follow-up question from (inaudible) hardy with sap capital.

Couple of things. One, in terms of the 20% hedged for the commodity services generation, do you have sensitivity as to what it will take to make an effect on earnings at this point?

In '02, no meaningful sensitivity. In 03, if there were to be $5 spread increase for the base load or $25 spark spread increase for peakers, we would get 6-10ths of upside. If you had corresponding $5 decrease or $25 decrease in peakers, we would get one send cent of downside. We are asymmetric. We are sensitivity on upside to take off. We have the down side very well protected.

How much base load and how much capacity is currently left to move forward?

I don't have that off the top of my head. I can follow-up with that.

Other question is I think there was talk at the conference about a lot of the merchant plants wanting to tie into your transmission line and the issue was who is going to pay for that and talking about efforts to given that your native load takes up a lot of transmission capability. Can you discuss where those kind of things stand given what Ferk is doing now and any activities there?

Let's let Kirk respond to that. When you ask about transmission capability, tell me specifically what you are trying to find.

I recall there is a lot of new merchant generators who want to try to get on to transmission grades. It is a matter of who is going to pay for the upgrades and whether in fact, they are given (inaudible) actual capability for them to actually be (inaudible)?

Our situation, which has been the situation that is consistently held by not only our regulators here in the so forth east, but regulators throughout America and resolution passed which has moved forward into legislation is that such opportunities should be participantly funded. In other words, should be incrementally priced as opposed to being rolled in. With our situation here in the Entergy service area, it would require substantial amount of money to meet all the inter connections and upgrades necessary with everything that was scheduled to hook up. Now, I know you are aware of the fact quite frankly, a good many of these are not going to hook up. We are looking to that potentially in legislation that comes out in the energy field later this year. Seems to be at least 50-50 shot by most, that it will come out. That is a position that is consistently hailed by local regulators in the service area and regulators in America. They are in a meeting right now in Portland.

I wonder on this issue is outstanding does this cause any kind of time lag or delay for the various merchant developers there in terms of getting their facilities up and operating?

No, actually not. We are working with anyone ready to hook up. We are in negotiations to set the opportunities up and move forward. No problems there.

Part of the issue is on the upgrades, they pay the money to interconnect to the system. The issue is moving the tower out of the system or to a different node. Who pays for that? They have to put the money upfront anyway. The question is will they get it back sometime in the future? It is rolled into rates until we get money from customers and roll back through credits or not. It should not, unless there is a major change in the rules, there should not be an issue of having to go out and get money while we decide who will pay for it. As Kirk mentioned, one of the events coming up in late August, the southern governor's conference is here in New Orleans. There is 20 governors that will be there. They will be considering resolution, also on this funding issue. We expect that to come out the same way that the all the commissioners across the country came out in support of it. The bottom line being in our jurisdiction, without funding no rto.

They will rejoin us when we get participant funding.

Thank you very much.

Press * 1 to signal a question. To Robert Mulland with Full Cal.

Thank you. Pretty descriptive in where you see value in the market (inaudible). Do you have similar matrixes or evaluation or parameters where you see value in the other asset classes you are looking at? Maybe comment on the pipeline acquisitions taking place recently and if these are in line with what you see as a fair price for these assets or are you seeing pricing compelling?

Rob, this is john. I will comment on the mid-American acquisition. That is about where we would see the (inaudible) for assets for contracted well in the market that can't be interrupted by competitive threat. I think EBITDA multiple where we see the prices clearing at, anywhere from maybe 6 and a half to 8. That is off the highs, in particular the most recent multiples of 9 to 11. Nuclear acquisitions, we would believe that the pricing would come off of the most recent transaction, Debrook(phonetic). Gas storage, we have been surprised at auctions taking place at how prices have cleared. We think they may come down, as well.

Thank you. John, in terms of - you saw we were looking at multiples in Americas around low 7 times. That is how you saw that transaction?

Right.

Thank you.

(inaudible) with ABN.

Just a follow-up. You saw multiple of 7 times is that EBITDA?

EBITDA. Yes.

Thank you. I have a follow-up question. I think you wanted to look into the possibility of managing other companies nuclear plants, how is that going?

The status hasn't changed. We still have discussions going on with a number of companies, but nothing has changed.

You don't really see any deals on the horizon?

I think there is a good possibility that you will see somebody entering into a deal. We heard yesterday there may be another nuclear plant that may come on the auction next spring, which we weren't counting on.

Which one is that?

I don't think I am at liberty to say.

No problem.

You are relentless.

Congratulations on the quarter.

We will attack our next question from Paul Ritman with (inaudible).

Update on the political rhetoric surrounding IP 2. In reference to the last question, give us the region this potential planned auction could occur in?

We will have Kirk talk about the IP2 rhetoric, as you described it.

This is Kirk (Abear). Let me run down the situation. If you are looking at New York, you have to look at elections. The main reason this continued to be a hot subject is because you do have gubernatorial elections coming up. (inaudible) continued to be out speaking about the issues. We don't feel like he is a real threat politically. We feel like Governor (Potaki) will hold his numbers. We think this is foremost the only way to get any advantage. It is actually caused him to slip, based on the numbers we are seeing. We have people understanding that quite frankly they cannot afford to take anything off the grid at this point, with their situation with demand. They are in New York. So, we think we are in good shape. We think it is exactly that. It is rhetoric. There has been a lot of conversation about the evacuation plan, even into legislation and amendments offered this past week. Going forward, the legislation doesn't have any language in it that would change anything dealing with the evacuation zone or the evacuation area, which is very positive for the industry. The 10-mile area is sufficient. As you know, on a going forward basis, what they will be doing is working through the defense agencies and intelligence agency, but primarily within RC's leader should be in trying to decide what and if changes should take place. The best news for the industry, when they do a survey, if there are changes that take place, those changes pursuant to that study will be implemented through regulation of nrc, which addresses cost.

As far as

As far as your second question, I will let Don add on that.

I have nothing to add.

Thank you.

We will hear from Carla (inaudible) with JK Utility Advisory.

Follow-up on the pipeline acquisitions and the level. With the below 7 times EBITDA multiple, what is your view on in terms of the debt that has to be assumed as part of a number of these acquisitions and how does that impact how you view the ultimate purchase price?

Well, we roll the debt in for a lot of the way. Most of the pipeline don't - aren't too overextended on debt position, but on anywhere from 40% debt to 60% debt. We think structurally, we could keep 50 to 55% debt to total capital on pipeline and still achieve an a-minus credit rating and maybe a b-plus. Look at S and P tables, almost all the pipelines, with the exception of disadvantaged areas, have position of three or better. They are real steady, well contracted. Most of them have very good counter parties with strong LCDs. The various investment alternatives we have looked at in this area, we think we could likely assume the debt and maybe even put a little bit more debt on it and continue with these levels to have mid-teens return.

Thank you.

With no further questions this concludes the question-and-answer session. I will turn over to Nancy for closing remarks.

Thank you, everyone. And thanks to everyone for participating this morning. The conference call was taped and can be accessed for 7 days by dialing 719-457-0820. Confirmation number is 532-311. The conference call is also available on our website. Thanks and this concludes our call.

That does conclude the teleconference today. Thank you for your participation. Have a great 00:53:47 day.