艾索倫電力 (EXC) 2002 Q1 法說會逐字稿

Good morning and welcome to the Constellation Energy Group 1st quarter conference call. I would like to introduce Mr. Shattuck.

Good morning, everyone and thanks for joining us to review our results for the first quarter of 2002. I'm Mayo Shattuck. Before we begin, let me remind you that all of our comments today will include forward-looking statements. For a police complete discussion we encourage you to ready our documents on file with the SEC. We have Follin Smith, Thomas Brooks, Mike Wallace, and Frank Hines. After I provided an overview, Follin will take you through the specifics and the outlook for the rest of the year. Our General Counsel has elected to take early retirement after more than 25 years of service to the company. Dave has been a very able resource to us, and we wish him well. George [Staigous] will assume the role. He has related numerous public companies and serving as Special Counsel for the [SEC]. He will help lead the search for a permanent General Counsel. When we released our 4th quarter earnings in New York, we provided 1st quarter earnings guidance of 43 cents to 48 cents per share. We've delivered on that. We were able to offset negative 7 cent impact of Central Maryland weather were strong results. We promised that we would focus on cost reductions, and we made excellent progress in the 1st quarter. We had better than projected participation in our voluntary retirement program. We [said] we would focus on improving our balance sheet, and we've made excellent progress on that front. Not only have we realized roughly 75% of our 2002 target of $750 million in after tax cash proceeds from the sale of non core assets, we also issued $1.8 billion in long-term debt as very attractive spreads. Demand for the bids was so strong that we up-sized the deal from 1.$5 billion, and that's to a smart and timely treasury hedge we were able to lower our borrowing cost by 45 basis points. We have been able to avoid the short-term performance decline. In fact, plant performance is improving and electricity production is ahead of plan. We completed the refueling outage at unit two at nine mile point in 32 days which compares to the station's previous record of 36 days. Given the performance, we continue to be confident that we can meet our target. We are now well beyond the halfway point in our outage on unit one and view the remaining work with confidence. This is a very complex outage, including not only the replacement of the steam generators, but also four other major products-projects. Drive up by the steam generate or work, the overall outage should be completed in 110 days. It's live -- driven by the extensive welding. We suffered from contractor planning issues and an industry-wide shortage of welding skills. We simply have to grind through the commencement of the steam generator replacement. It is expected to be less than 3 cents per share. We expect to offset this impact with improvements in other areas and are still comfortable with our 2002 guidance of 2.6 $5 per share. We reported earlier this week that we have reached a new agreement with the California Department of Water Resources. The State of California is an important customer. We reached a win-win solution which very [much] added value to California while preserving our over all economics. We provided details on the terms of this agreement in a press release earlier this week. The results of our new agreement are consistent with the earnings guidance we gave you on January 30th. It was a high priority for us to deliver our 1st quarter guidance. Its continues to be a high priority to execute the 2002 plan. We're also focused on making our business as transparent annual as possible. We hope you found our 10-K helpful. Now let me turn the call over to our Chief Financial Officer, Follin Smith, who will update you on the outlook for the rest of the year.

Good morning. 1st quarter earnings were $80 million. Including special items of 91 cents per share net income was $228.6 million or $1.40 per share. Special items included the sale of our [Orian] stock. And an after tax cost of $15.6 million or 9 cents per share. As you'll recall, as part of our first phase workforce reduction, we initiated a voluntary separation plan. All costs relating to the voluntary plan could not be recognized until the employees made their retirement elections in the 1st quarter. More employees elected the plan than we initially provided for. And as a result, the incremental cost will be $28 million pretax versus $7 million indicated at the January meeting. As a reminder, we still expect to incur a pension settlement cost when benefit payments for early retirees exceed our annual pension servicemen plans cost. We estimate this cost at $20 million pretax. The prior year comparisons, our 1st quarter 2001 earnings were 62 cents a share. And also excludes a positive 6 cent impact of the change in accounting principle. The merchant business posted earnings per share of 18 cents before special items. Our January guidance was 11-14 cents per share. Mild weather resulted in the several less power by the merchant, which hurt the results versus guidance. More than offsetting this, both CPS and 9 Mile Points had a better than expected quarter. Compared to the 1st quarter of last year, merchant earnings were 10 cents lower. The addition of 9 Mile Points reduced earnings by 5 cents per share compared to the 1st quarter of 2001. The impact of lower California prices reduced earnings by 4 cents per share. We did reverse last year's reserves due to the fact that SCE paid in full on the first quarter, and PGE started making payments. The planned outage and the last six weeks affected earnings by 4 cents per share. The company's new peeking assets, which have little revenue in the 1st quarter reduced earnings by 4 cents. The impact of higher purchase coal cost reduced earnings by 3 cents per share. Due to mild weather, the merchant business sold less power reducing earnings by 2 cents per share. The dissolution of the stock in the 1st quarter reduced earnings by 2 cents per share. Strong growth from CPS add 13 cents per share. Now let me review the key metrics from CPS's market-to-market earnings. In the 1st quarter of 2002, gross margin was $52 million compared to $8 million. Net income was $17 million compared with a loss of $2 million in the prior year. Our average value at risk -- was $19 million for the first quarter of 2002 compared to 23dz million last year. Let me remind you that we calculate our -- statistic using four standard deviation in order to capture a more significant range of possibilities. If we use two, the comparable numbers are $7.8 million for the first quarter of 2002 and $9.5 million for the first quarter of 2001. At the end of the 1st quarter, the value of our portfolio of net assets was $365 million compared to $418 million at the end of 2001. [The] decrease is mainly due to a recharacterization of our Texas load serving business to non-trading under the financial accounting standard boards. The 9810 looks at many factors. If an activity is trading, contracts must be market-to- market. We've done a lot of work on this topic, and like many of you, we prefer to use [INAUDIBLE] rather than market-to-market accounting when it's justifiable. It provides greater visibility into the relationship between our earnings cash flows, and in our opinion improves the quality of our earnings. We believe the long dated nature of our load serving business has more accrue ralph that market-to-market characteristics. We tend to hold them rather than to trade them. We tend to use physically settling sources to serve our load, and in Texas, we have an 800 megawatt combined cycle plant coming on-line in mid-2002. The balance of all of these factors has made us comfortable with recharacterizing our Texas business as non-trading. We've recharacterized $78 million of assets and $15 million of liabilities. An important outcome of this recharacterization is that future Texas load serving transactions will no longer be marked market-to-market. All else being equal this change will spread out earnings over multiple years because earnings will be realized when power is delivered rather than up front when we enter into the customer relationship. However, because overall business this year has been and continues to be healthy, we believe we can make this change and still maintain our guidance for 2002 of $2.65 to $2.75 per shares. Our earnings should of a higher quality and should be less volunteer at this time. We hope you'll agree that this move is yet another step toward [colorful] financial reporting for our investors. Now let me give you some more detail. We expect to realize roughly 8% in cash from these contracts and the balance of 2002. 12% in 2003 and 24% in 2004. By 2006, we expect to realize 60% of the cash associated with these contracts. You'll note that the pattern is slower than what we review with you in January. Because we realized 2 $1 million of cash flow in the 1st quarter, and because the Texans reclassified to non-trading were shorter dated. Finally, let me update you on the amount of our output. When we last met in January, we said about 85% our output was sold forward for 2002 and about 75% for 2003. For competitive reasons we're not going to update you on the 2002 number as we move through the year, but of course the outlook for the rest of the year is substantially hedged. As of the end of the 1st quarter more than 85% our 2003 output and fuel purchases have been forward hedged. Now turning to the other business segments. BGE urged 45 cents per share. We were hurt by mild weather which was more than offset by an improvement in operating expenses. Similarly, compared the last year's 1st quarter, earnings were down 2 cents as the impact of warmer weather was partially offset by cost improvements. The other non-regulated business had a loss of 4 cents per share. Our guidance was a loss of 2-3 cents per share. The earnings were lower than forecasted due to the first week lower stock market. Versus last year, the other non regulars were flat when the 6 cents per share first quarter gained on sale. Now I would like to turn to the balance sheet. We made significant improvements in our balance sheet. As you know we sold our Orian stock for after tax proceeds of $361 million. We also liquidated our stake. We made substantial progress in liquidating portions of our financial investments, realizing after tax proceeds of $29 million in the 1st quarter and another $86 million in April. In total, we've monetized $575 million in non-core assets year-to-date, or 75% of our target for all of 2002. We used the proceeds to pay down definitely as we indicated in January, we completed our rating process and undertook a long-term debt issuance to extend the tenure of our debt. The bond were competitively priced. Happily we locked in the treasury component within two days of the four-year low seen in late November 2001. In all, we achieved an attractively priced layer of long-term capital for the company. With these transactions, we substantially improved the balance shee. Short-term debt has declined from $2.4 billion at year-end to $900 million as of March 31st. We have a cash position of $1 [billion], so debt net of cash is down almost $[INAUDIBLE] million from $5 billion at year end. Finally, our net debt to total capital ratio improves from 55% at year-end to 51% at the end of the 1st quarter. As we've said we continue to believe our 2002 earnings guidance for the control daughter year is appropriate. For the second quarter we're providing guidance of 50 to 55 cents per share. Excluding a 6 cent per share gain on the sale of non-core security. The merchant will earn between 39 and 42 cents per share. This compares to prior year earnings. 32 cents a share. This will include the influence of the new sharp dated sale of power to the CDWR. In addition, the merchant will begin to see benefits from productivity in the second quarter. Partially offsetting these positives will be the impact of higher coal prices, the continued unfavorable year over year California price comparison. The addiction of new generating assets which are not expected to yield enough margin to offset. Other non-regulated businesses are projected to earn 1 to 2 cents per share. This compares to a loss of 5 cents last year excluding, a 6 cent per share gain on the sale of non-core securities. The improvement relates to lower interest expense for the moon situation of assets from that portfolio.

Thanks. That concludes our prepared remarks, and now we will be happy to take your questions.

Thank you. To ask a question, please press star one. You'll be announced prior to asking your questions. To withdraw, please press star two.

Our first question comes from Blaine Martyr.

Two quick ones. Follin, are you planning to deploy the $2 billion in cash?

Yes. You heard me also say that still had a significant amount of short-term debt that primarily is debt that will be maturing over the course of the year as well as commercial paper that will be maturing and be paying down. So the end of the year we have expect to be flat.

And thanks for the disclosure. The mark-to-market is coming in stronger, I think, than you had talked about in January. You got 10 cents in earnings in this quarter. Are you still expecting 163 of gross margin? Or do you expect that to be higher now?

The recharacterization of the Texas business, of course, would naturally reduce the mark-to-market earnings. And with respect to the CDWR deal, we did indeed expect that deal turn out about like it did in our January guidance, so all put together, we still think we're about at the 163 gross margin level.

Okay. And that leads me that's a good segue, and that's really almost every quarter that you've been here that asset has declined. It gets one to thinking, are you trying to get away all together out of the mark-to- market, or are you considering even if it doesn't mean making your 10% earn its -- is that something that you would consider?

The objective has been to improve the quality of earnings soft consistent with what accounting practices will allow us to do. Obviously, the recharacterization in Texas is one aspect of that. I think we'll continue to look at opportunities to improve the reported quality of earnings and the match between profit and cash flow. You know, how far can that go. I don't know. But I think you should probably perceive it as a consistent objective of ours to move in that direction.

And then in the 10-K, [your outlook], being a complete or partial separation of the transmission function -- is that kind of a boilerplate, or can you give us a sense of your thinking of timing of maybe changing the company. Have you gotten a low-hanging fruit? Is it] a time to consider other strategies? What is your thinking behind that?

I think I'll say that there is a bit of boilerplate in this. I think everyone appreciates the transmission assets for every utility. To some degree in play based on what FERC does. So everyone has to be prepared to deal with the transmission issue, and perhaps Frank could comment on the way in which we look at that.

I think Mayo has correctly summarized the situation; that this is a statement of possibility for every utility to be looking at. With the proceedings going on before the FERC that define RTO's, incentive plans for transmission companies, for the market design, all of us are looking to find out what kind of incentives will exist for shareholder value for the use of transmission as -- assets, and that will help all of us to determine whether these assets remain best in line with the distribution company, or whether some other treatment seems warranted.

Thanks a lot.

Thanks.

Our next question.

Mayo, it's Steve Fleschman.

The Texas reclassification, wouldn't that have had an earnings impact in the quarter as you're reversing mark-to- market or not?

Here is the way to think about it, Steve. We essentially just moved the value that was on the books as of February 15th over to a non mark-to-market category, and then how that plays out over time is as those assets are realized as the power is delivered, we will at the date that it's delivered, if there has been any change in value between when it was shifted over to non trading, on the date that it's realized, that's when we realize that different.

So you didn't have to realize it now?

Okay. And I guess my second question is on the Calvert Cliff outage. I assume 110 days means end of May now, or early June?

Steve, this is Mike Wallace speaking. That is correct. Well complete the outage by June 5th.

And Mike, if you could comment on the amount of potential swing in that schedule that's left. I know you're a lot of way done. Is this getting set in stone or is there some sort of critical item or milestone issues we should be watching?

Let me summarize where we are and why that gives us confidence, as we look forward, with the work left to be done. We are in day 70 of the outage, right now, and all of the major work, with the exception of the steam generator project, work and normal refueling activity has been completed. As Mayo indicated, much of it ahead of schedule. With the steam generator project, the two new generators are in place, and all of the piping has been welded up to the generators. The domes or the upper section has been set on the generators, and we're in the process of welding the dome to the lower section. So, the only work that remains to be completed is the welding of the two halves, some minor welding on the inside and then the removal of all of the temporary construction equipment that was brought in to facilitate the work. There has been no surprises. The delays are clearly dove due to the critical shortage of craft labor. And the very confined spaces complicating the work more than was initially contemplated, and we're in the final stages, and as we look today work that remains, we have factored in the productivity that we have actually experienced in a accomplishing the welding work. We're also pleased that the quality of that work has been very good. And so we are quite confident that well finish the steam generator-related work by May 14th. We then transition into refusing the reactor and completing normal end of outage activities, like we do in any refueling all to have us on-line then by June 5th.

Okay.

Let me Steve, this is Follin, provide you with sensitivity, as well. Even as a downside of this outage what were to be extended another five days to 115, the EPS impact of that would be 1 cent, and also you should know that we are [half-way] through into the second half of June, so we're not exposed to any risk of price spikes on purchased power the meet your customer obligations.

Okay. One last question with respect to to the 9-mile point, I guess, at seller's financing. Now that you've got all of this other financing completed, are you looking at picking that out?

Indeed, we have called up financing. We have taken it out. That is one favorable aspect versus the guidance we shared with you back in January. But a number of puts and takes, and we still think it's appropriate to hold our guidance but yes, we have called that note.

Great. Thank you very much.

Thanks, Steve.

Our next question comes from Greg Gordon.

Thanks. I've got two questions. The first one is in the 49 cents, you did indicate this there was 6 cent associated with sales of securities at the other businesses. Can you give us more detail on what securities those were?

There was 6 cents of gains on security sales last year. That we excluded for comparison purposes.

And the second question was can you give us any indication of what the size was of the reserve was.

It was $9 million. 3 cents per share.

And then finally, just a higher-level question for both you and Mayo. When we look at the 10% earnings per share growth goals for the company, and we take into account the fact that coal prices are declining, you've signed a revised contract voluntarily separation plan is coming in better than expected, reserves will continue to reverse, because the credit quality of California looks like it's better than reserve for 9 Mile Point is being refinanced, etc. At what point are you going to come out and either affirm or revise your, sort of, 2003 earn IPGS growth targets given that it seems like at this point a lot of puts and takes but more puts than takes.

Yeah. Greg, we believe that looking at all of the puts and takes, we still believe that 10% per year growth off of a base of our guidance of $2.65 to $2.75 for this year is the right way to be thinking for 2003.

Okay. Thanks.

Thanks, Greg.

Our next question comes from Kim Sidel.

Good morning. Greg just asked one of my questions. So you had 3 cents for the California reserves. I didn't see any trading volumes. Traded marketed volumes. Can you give you any indication whether those were up or down?

Kim, this is Tom Brooks. Frankly, we're not particularly managing the business with much of an eye to traded volumes. We're -- so frankly, I can't even give an indication of of how our trade volumes have moved.

Let me ask it another way. I guess I was looking for some evidence of how you may have benefited from the Enron demise. And I was trying to think about your 18 cents relative to your 11-14 cents guidance for this quarter. If you take out the 2 cents for weather, it was a strong quarter. 3 cents of that's associated with the State of California. But given the lumpy nature as you describe it, this is a 1/4 event or did you get tracks from Enron?

We had a strong quarter. Clearly, I wouldn't necessarily [subscribe] that to Enron or any single affect. If you look at our the performance of our whole mark- to-market business, new original nation volumes were slightly lower than expect takings. But I think the level of activity was strong, and I think we're very comfortable particularly with our load serving business with the level of activity we're seeing there. In the risk management and trading arena, we had done meaningful gains and gains that were more substantial than expected. Those gains were substantially due to our being very well positioned for the significant market price increase that's happened in the second half of the quarter. I should note, however, as Follin pointed out, that the level of risk can that we were taking measured by the statistics was in line with recent this history, and in fact lower than the comparable quarter last year, so we were well positioned and had good performance, but not on the basis of taking more risk or more risk than we had done historically.

Let me add a clarification. The california deal will be booked in the 2nd quarter. And is reflected in the 2nd quarter guidance.

A question then about the regulated utilities. Weather obviously had affected you and relative to your guidance I think you said it was 7 cents. Still the earnings power of this company is stronger than we might have thought. Can you comment on the pace of the cost saving programs where you are in terms of the of your absolute target and how that is coming to be realized.

Let me break the answer into two parts. We said that Central Maryland weather affected us by 7 cents. Some of that was in the utility. Some of that was in the merchant who sells power to BGE. And some of that was in our non-regulated gas business, which was also affected by the central Maryland weather. And I'll let Frank jump in on the AOE [project].

The AOE project achieving operational excellence continues to be on-line with the achieving the savings that we projected into our guidance. We have some 200 initiatives designed to reduce costs and to improve service that are being implemented this quarter and throughout the balance of 2002. We're on track to achieve those $25 million in savings that were built into the findings that we shared with you on January 30th.

Okay. So it's performing as expected.

Yes.

All right. Thank you.

Thanks, Kim.

Our next question comes from Paul Risden.

Good morning. I had a few questions. The first was what was the benefit of terminating the Goldman Sachs relationship in the 1st quarter?

Since we were break even slight loss last year in the 1st quarter in mark-to-market, there was no benefit in the 1st quarter. But there will be benefits for the remainder of the year from the absence of that margin sharing obligation.

We gave guidance for the merchant over all. We did not break out our guidance for the 2nd quarter at CPS and this merchant -- we gave guidance for the merchant at 39 to 42 cents.

And when you monetized corporate office, was there any gain associated with that?

It was less than a cent.

And you've indicated that some of the extension at Calvert Cliffs is related to contractor planning. Do you have any recourse through any sort of liquidation, or are you and [absorbing] the cost yourself?

Our focus was work with the contractor to successfully complete the outage, and that has our and their full attention, and we will address whatever issues may be associated with how the work is ultimately completed and the outage completed. [I'd] rather not address that at this time.

I understand. Thank you.

Our next question comes from Jeff [Golderspace].

Good morning. I just wanted to touch on the coal issue. I believe back in the Winter, you laid out quite a bit of detail for us. And a lot of coal needs were fixed price. Is that -- can you address that? Is that an issue that will continue to weigh on earnings throughout the year, or will that roll off?

We gave guidance back in January 30th that coal would impact us by about 22 cents per share for the year. Tom has been working on that. I'll let him give you an update.

As to the outlook for our coal costs, pretty consistent with the guidance that we gave you at the start of the year. And in terms of our overall hedging picture, we're fully hedged for the [better part] '02, very substantially hedged for '03 as well. I should note that a significant proportion of the coal volumes that we purchased, we have purchased through an arrangement which allows us to either burn the coal or not, dependent on the market price of power. We do have some valuable flexibility structured into our coal contract, which may imply some upside depending on the outcome of power market prices, because in January, it looked like for 2002, there is a pretty high price assumed for the price of coal above where the market is now.

Just wondering when you can kind of renegotiate that contract or get out of it or whatever? -- is that an opposite this year or is it a two year contract?

Our coal cost through the balance of '02 are relatively fixed and fully-hedged. For '03, we are very substantially hedged in excess of 85%. So that's kind of the outlook.

Okay. Thanks.

Our next question comes from George Rubis.

My questions have been answered. Thank you.

Our next question comes from Jim Ferguson.

Good morning. Trying to get a feel for the cash flow from operations and where the cash was used. You outlined asset sales in the first quarter of $491 million and debt issue of 1.8. Which was about $2.3 [million] cash. The change in cash wasn't an increase of 970, which would leave and $1.3 billion for use somewhere and see the total debt increase by $200 million. Was the use of cash in building up working capital in the trading business, or just, if you could outline -- we don't have a source in uses statement at this point.

I think the way to get at that bottom line cash flow is the to look at the change in debt net of cash. That kind of washes everything out, and that was over $700 million. Now, we told you that we monetized assets up $560 million. There is also some timing. When I quote the proceeds, I'm quoting after tax proceeds. They are timing issues as to when we pay the taxes, but there was a bigger favorable than 560 for asset [INAUDIBLE] situation. And indeed, we had well over $700 million in gross assets pro codes, and taxes haven't been fully paid, so that is what is influencing the picture.

You commented in answer to somebody else's question; what is the cash going to be used for? You said that you would be flat by year-end, and I'm not sure what that means.

It means we'll have a zero cash balance.

The cash will be paying down short-term debt.

You have $759 million -- I'm sorry $900 million plus -- will that all be?

A large portion of that will be paid down, and that's just a matter of timing. We did the bond recently.

The 56.9% is total debt to capital as of the quarter which is up marginally up 1%. Is that going to be down to the 55 range at year-end?

If you calculate it using debt net of cash to get the balance sheet picture putting that cash to work against the debt, the comparison you'll see is 55% at year-end compared to 51% at the end of March. So a substantial improvement.

Okay. Yeah. Assuming that all of the cash goes to repay debt.

Exactly.

All right. Thank you.

Our next question comes from Janet Nevon.

The only question I have remaining is the purchase of the retail assets from Enron. And just, what will the impact of that be and then is that an opportunist thing or a strategic direction, in terms of acquiring retail contracts that you're interested assuming?

The deal, or potential deal, involves our acquisition from Enron Energy Services of a portfolio contracts were customers located in the states of Texas, Massachusetts and Maine. As you may be aware, we and Enron entered into an agreement and filed a motion to the bankruptcy court for approval about a month ago. The bankruptcy court approved the transaction yesterday. There are still a significant number of conditions precedent to the actual completion of the transaction, so it's far from clear whether the deal will close, and if so, in what quantity. So, we can't comment at this point as to how it will impact our earnings. I think our current outlook is that it's likely to add in the neighborhood of 350 megawatts of new load, but that's far from certain at this point. On the second question, as to strategic direction, I should note that we've viewed this portfolio of contracts very much as given that it's ago grated retail contracts we view this is a wholesale white portfolio. A portfolio which we could tuck in nicely in our businesses in the Northeast and in Texas. So, I should say this doesn't -- you should not ready this as a signal that we are entering into a plan of broadly and generally pursuing the retail side of the business outside of BGE service territory. It does represent a very good fit with our existing wholesale business and given that these are -- this is an aggregated port retail contracts with relative large scale customers this related a wholesale opportunity in our field.

Our next question comes from Greg Gordon.

Just a follow-up question. Which comes as a result to some of your previous questions. If we were hypothetically in a situation where the accrue ralph side of the business was coming in better than your 10% plan, should we presume given the view of your strategy that you would use it as an opportunity to move more aggressively away from the non-cashflow of the business in order to meet investors' expectation, but at the same time, more aggressively improve the quality of the earnings of the business is a whole?

Yeah. I think from the messages that you've heard today, that you're reading the direction of this group correctly, and that we want to improve the quality of our earnings. We believe there are going to be a number of opportunities to do so on the accrual side, and when opportunities arise, certainly we'll be pushing for accrual interpretation.

There is a balance being taken here that you don't want to sacrifice the near-term earnings goal to do that. Is that a fair assessment.

From what we see right now, we don't have to given what has transpired. I'll also point out that we'll be not be out of the mark to market business. And keeping in mind that active trading around our asset base is a key component of our overall strategy. So, we're by no means implying that someday you'll see Constellation as an accrual portfolio, but we want to give you the correct impression of where we want to go from the standpoint of earnings quality, and that is what this discussion and direction is all about.

Thank you.

Our next question comes from Martiz.

Good morning. I'm wondering, can you update us in terms of the remaining development program? I think you had about 2900 megawatts, and where those projects stand? And secondly, kind of a follow-up to this accrual versus market-to- market discussion given the changes in the asset market, are you looking at all at possibly acquiring any distressed assets, and if you might be, can you census to reasonable naturally or kind of what strategic focus might be involved?

This is Mike Wallace. Let me address those two questions. To the first question, we have presently in our new build program four plant that are in construction and will be coming on-line over the next 15 months actually. We have know GAL as coming on line this summer. We have Holland in Illinois coming on-line the summer, and we have Oleander peeking facility in Florida coming on-line in summer. The fourth project is our High Desert project coming on in the Summer of '03. Those collectively are 2900 megawatts. To the second question, we have been and already continue to be actively looking in the marketplace and engaged in deal discussions with folks who may have assets that are of interest to us. Whether those are running assets or distressed assets or even assets that may be tied up in stalled construction programs. Our focus is in the principle areas where we make a market presently or seek to make a market, the Northeast, Texas and the Midwest, and even beyond that, we will look broadly for those specific opportunities that fit with with our intention of truly having physical assets and physical load serving business, So we're intending to be opportunistic, and yet quite disciplined in how we look at what the market may afford us an opportunity do.

Maybe to follow up on say between now and the end of 2003 as an example, when you take a look at your capital program, have you got a place certificate of a range of potential capital that could be allocated to such kind of acquisitions to be beyond the completion of the existing construction program?

We have a balance sheet now that is more flexible certainly than it was at the end of the year. We don't have any definitive plans. We have the capacity the make asset acquisition's, and we do have a program in a group that looks at assets that would be purchased only under the premise that it's going to add to shareholder value. We have time for one more question, I believe.

Our next question comes from Paul Risen.

Kind of the same theme of changing your book to more accrual. Is that a change in your thinking on your dividend policy?

No. I don't think it influences the our view on dividend policy, obviously, we will review policy as or the board will review policy as time passes here, but we have no current intention to make any other comments about policy in that regard.

Just circling back to Calvert Cliffs, are you absorbing the labor costs?

What we're doing, as I indicated earlier, is focusing directly with our contractor on the completion of the work and the completion of the outage. And cost that maybe associated with the delays that we're experiencing will be a topic for discussion only once we get all of the work complete.

Thank you.

That concludes our discussion this morning. I want to thank you everyone for participating, and have a nice day day.

Thank you for attending today's conference call. This call has concluded.