艾索倫電力 (EXC) 2002 Q2 法說會逐字稿

Good morning and welcome to the Exelon Corporation second-quarter earnings release. At this time, all participants have been placed on listen-only mode and the floor will be open for question-and-answer session following the presentation. I would like to hand the floor over to the host, Mrs. Linda Byus, vice president of investor relations.

Thank you. Good morning and welcome to Exelon second-quarter earnings review and conference call. Thank you for joining us this morning. We know you have listened to a number of calls over the last two weeks and have been working hard to understand what is going on in the industry. We will do our best to help you understand what is going on at Exelon. We have been told there is a noise problem. We apologize if you have a problem with the sound. We will do our best to work through that. We understand there is a problem. Thanks. You should have received a copy of the earnings release this morning. If you haven't received it, it is available at www.Exeloncorp.com. Or call (Alicia Greenley), at (inaudible). She will fax or e-mail the release to you. This call is being recorded and will be available after 2 p.m. today, through August 15th by dialing 519-4471. The international call in number is 973-341-3080. The confirmation code is 391011. In addition, the call will be archived on the Exelon website. Before we begin today's discussion, let me remind you that the earnings release and other matters we may discuss in today's call may contain forward-looking statements and estimates subject to various risks and uncertainties. Please refer to SEC filings for what may cause results to differ from forecasts and expectations. With me today are John Rowe, chairman and CEO, and Ruth Ann Gillis, senior vice president and chief financial officer. We have Pamela Strobel, CEO of Exelon Delivery, (inaudible) and George Gilmore, president of Enterprise, along with the senior management team available for questions. We have scheduled an hour for this call. Ruth Ann will begin with a discussion of first quarter results. John Rowe will discuss his outlook for the rest of the year. Ruth Ann will provide an update on earnings guidance for 2002. We will then open for questions. Now, Ruth Ann will start with overview of our results.

Thank you and good morning. Before I discuss our results, I want to make sure that I make a comment regarding the CEO and CFO certification. I want to assure you that our certification review process is nearly complete and we have not anticipate any issues arising from our review. We expect to file our CEO and CFO certification on file our second quarter q. A note on the review process. I have worked with general counsel and our controller to design a review process of coverage statements, as well as current 10-Q in which each business unit had and their CFO or finance lead, certified the results and statements to John Rowe and to me. Both our internal audit team and our external auditors have participated in this process. John Rowe and I both take our responsibility very seriously. This process is an additional step to reassure our investors. Now, regarding our results. Exelon's second quarter earnings from operations were $369 million or $1.14 per share. Consolidated earnings as reported were $485 million, or $1.50 per diluted share for the quarter. That includes a $116 million tax gain or 36 cents per share on the sale of our interest from the AT Wireless joint venture, which will close on April 1. Earnings from operations of $1.14 came in well above our original second quarter guidance range of none to 97 cents per share. As you know, our earnings guidance is based on the assumptions of normal weather and we do not have normal weather in the second quarter. In fact, in service territory, we had extreme heat for a few days in April, followed by cold May, with a hot and dry weather at the end of June. As a result, cooling degree days for the quarter were 29% above last year and 33% better than normal. Surprisingly, days were 28% above last year and 10% above normal in the same period. (inaudible) retail kilowatt-hour delivery were up 2.2%, relative to last year. PECO did not have the same weather extremes, so the net weather effect overall at delivery was not muted. For PECO, cooling degree days were only about 1% higher than in the second quarter of last year. But, 36% above normal. For Exelon Corporation, we estimate that unusual weather provided about 9 cents per share in earnings better than normal. Also, 9 cents per share better than second quarter 2001. Wholesale market prices were down from a year ago. Second quarter 2002 average full-sale market price realized by the power team was $31 per megawatt hour, excluding the training book, compared with $38 per megawatt hour average wholesale market price realized in 2001. Our realized revenue in the latest quarter was well above the average observed around the clock spot price of $25 per megawatt hour. Our cost management initiative contributed to a strong results from the second quarter. In April, we announced our goal was to take out at least $200 million of cost relative to our origin budget. We are well on the way to achieving that goal. During the second quarter, the cost management initiative captured $93 million on sustainable, pre-tax savings. Year-to-date the total pre-tax savings was $104 million, about half of our goal for the year. The cost management initiative is not heavily weighted to the second half of the year. But, we are optimistic the savings will continue to build, as we are on track to exceed our $200 million goal. When you look at our income statement, you will see that operating and maintenance expense was down about 64 million for the second quarter, relative to last year and down $55 million for the first half of the year. There are two factors you need to remember. First, not all of the savings will come through the operating and maintenance expense line. We told you that about two-thirds would be OEM, with a balance coming from fuel, interest, taxes and other items. Secondly, keep in mind, that the savings were relative to our original budget and not in the prior year. Let me talk for a moment about enterprise's results. Enterprise's net income of $83 million, which does include the $116 million after-tax gain on the sale of the investment in AT and T wireless. Enterprise reported loss of $33 million, compared to loss of $5 million in the second quarter of 2001. In the second quarter of 2002, enterprise wrote down a number of investments totaling $40 million. This is separate and apart from goodwill impairment for the first quarter. In second quarter of last year, results included $18 million of gains on investments. Excluding the gains and loss on investments, Enterprise second quarter earnings from operations were positive $7 million, compared with operating loss of $23 million in the second quarter of 2001. The losses in the most recent quarter were primarily intervention capital company Exelon Capital Partners. We made a commitment to you to make Enterprise a profitable entity and part of the process is to clean up some of the investments that are not profitable. We have not excluded these write-downs from operating income or from earnings guidance for 2002. In our earnings release, we provided a summary income statement for three business units: delivery, (inaudible) and enterprise. We provided a table comparing second quarter 2002 results to second quarter 2001. This quarter we have added a consolidated balance sheet and income statement. Rather than go over the release in detail, we will let you review the information and respond to your questions. I will provide an update of our earnings guidance later in this call, but now John will talk about how we view the quarter and the balance of the year. John.

Good morning. Obviously we are very pleased to have good news on the second quarter. A portion of our good news portion of our better-than-expected earnings resulted from having favorable weather. But, the first half of the year the weather was still on the whole, slightly detrimental compared to normal. Even without the good weather in the second quarter, we would have done much better than last year. Given what is going on in wholesale power markets, we did very well indeed. Over the last month, a number of companies have lowered their earnings outlook because of unexpected power market and economic weakness. Exelon had a good second quarter primarily because back in late 2001, we saw these problems on the horizon and took action with our cost management initiative. Each of our business units has recognized the challenges in their businesses and each has responded. We believe that facing the challenges earlier have allowed us to adapt better than most. We will continue to face the wholesale market price challenge for the balance of the year. Like everyone else, we are seeing very low wholesale power prices through the second half. We are optimistic our cost management initiative will continue to exceed plan and mitigate the impact of power prices on our revenue and earnings. I would also say that this is an example of the strength we have in our integrated distribution, generation and marketing business. After we met with many of you on June 20, some were disappointed that we did not come out with a more exciting story or telegraph more clearly our anticipated actions on the Edison mission energy option. We did not do that because we were still in the process of negotiation. After some 18 years as utility CEO, I have seen so many promises broken and so many stars fall that I believe the best thing we can do is to continue to give you straight fastballs to remain focused on the basics every quarter and to try to tell you exactly where we are when it is real. Since June 20, we have made progress on several fronts. On June 27th, we announced Exelon Generation reached an agreement to purchase Sithe New England holdings. As we told you on June 20, we assumed the other owners of Sithe will put the additional 50.1% of the company to us as soon as they can, end of December with the transaction closing by mid-2003. We also told you that we are making an effort to restructure our acquisition of the second half of Sithe. The transaction we announced on June 27th, is part of the restructuring. We believe the announced transaction, along with other contemplated transactions, would create more value for Exelon than simply accepting the put. The announced transaction would enable Exelon to acquire only the Sithe assets that fit our long-term strategy. Would accelerate the realizization of synergy and reduce the amount of debt required to finance the transaction. We have the flexibility to terminate these Sithe transactions if regulatory or other deal issues cannot be resolved. Another issue we talked about was the contract with EME or Midwest Generation. On July 1, we exercised certain of our options under that contract. We notified Midwest Generation that in 2003, we would take only 1265 megawatts of the 3949 megawatts of capacity under option. In the financial outlook we gave on June 20, we included the assumption that we would take about half of the option capacity with an associated savings of $120 million, compared to taking all of the option capacity. We ended up taking about 30% of the option capacity and you can assume the potential savings are greater than $120 million. As you also may remember, we have additional option choices on some of the peaking capacity late in the fall. We have also made progress on the regulatory front. On July 19th, energy deliveries Illinois operating company, ComEd filed with the commerce commission to revise the provider of last resort obligation in Illinois. ComEd is seeking permission from the ICC to limit the availability by June, 2006, of its bundled regulated rate 6-l for largest energy customers. Those with demands of at least 3 megawatts, which typically include heavy industrial plants, large office buildings, government buildings and such. Rate 6-l is offered to about 370 customers representing 2500 megawatts of load. These customers can shop and they do shop. This filing is important for two reasons. First, we believe this change in the polar obligation would enhance the competitive electricity market in Illinois. Second, it will allow Exelon to better balance its supply and demand portfolio. A decision on the filing is expected before the end of this year. Two weeks ago, FERC announced it would approve (inaudible) join the interconnection LLC or BJM RTO. FERC is scheduled to issue an order today and provide more definitive guidelines for establishing a transmission structure in this country. If approved as expected, our goal is to accomplish integration into PJM from a transmission perspective before the end of this year. Exelon is committed to establishing a functioning regional transmission organization and transmission system to support a competitive wholesale electric market. We wholeheartedly endorse what FERC is doing and we are committed to help achieving it. We believe that being part of PJM has advantages both from having our PECO transmission and our ComEd transmission in the same organization. But, also because AEP would be joining and that is the largest bridge between our eastern and western operations. We believe that a working RTO is necessary to sustain our market pricing authority and also expedient to create additional income producing opportunities. In other words, we are very proud of what Betsy (Moler) and her team have accomplished in this regard. Our outlook for the balance of 2002 is still positive in spite of the gloom and doom surrounding the industry. Like all of you, we have a new appreciation for the volatility in the wholesale power market and uncertainty in the securities market. We cannot guarantee an earnings 11 for you and frankly cannot even tighten our range of 455 to 485 per share as many of you desire. There are uncertainties both on the upside and the down side. However, we believe we are positioned to meet or exceed the $4.65 per share consensus earnings estimate for 2002, which looks like you have established. With our good second quarter, we are on track to meet your expectations for this year and we are very pleased about it. Now, Ruth Ann will wrap up our prepared remarks with detail about financial outlook for the rest of the year. Before she does, let me make just a couple of comments about people. We are where we are today because of a lot of people. I mentioned Oliver Kingsley and his cost on the cost management initiative in the press release. Pamela Strobel and Ken Lawrence and Frank Clark, lead our retail operations. You can see from the attachment to the press release our dilute regroup is providing the bulk of our net income this year. Ian McClain and Mike Mesner and their colleagues in the power team have resoluted avoided the wicked temptations that have brought many colleagues into problems. Ruth Ann and Linda have been vociferous in insisting we tell you the news when we have the news. We try to be a low-surprise company. We try to be a no-surprise company. But, when we have to tell you, we tell you. And, I should mention Jack Skolds in our nuclear group, which continues to perform above budget expectations. We have got a lot of real things going right here and it is because of the character of the people who work with me. With that, I will turn it over to Ruth Ann.

Thank you very much. We have updated 2002 earnings outlook to recognize year-to-date events including second quarter results. While in the second quarter the impact of weather was positive, through the first half of the year, weather has been below normal with negative EPS impact of 9 cents per share. There has been variable weather in July, which we have incorporated into our full-year earnings outlook. We assume no weather for the last 5 months of the year. In April, 2002, guidance, we lowered our around the clock price assumptions from the balance of the year. Implied and revised price assumptions for July through December average around the clock prices of $31 per megawatt hour in PGM and $25 per megawatt hour in Maine. We have lowered our price outlook for July through December. Those new numbers are $28 per megawatt hour in PJM. $28 per hour in megawatt hour in PJM. And (inaudible) in Maine. Reduction of about $3 from prior guidance. The average prices did not tell the whole story. Typically in the high demand summer months wholesale power prices move up in response to higher demand. This summer, even after sustained periods of hot weather and high demand, we have not seen wholesale prices move up. In our financial plan for this year, we assumed July's prices would average cost to 50 dollars per megawatt hour on peak in Maine and $60 per megawatt hour in PJM. This is in line with both 2001 summer prices and forward prices from summer 2002, as of last fall. And well below average historical summer prices. However, the average on-peak spot at forward prices, we are seeing now for the summer, are about $15 per megawatt hour lower than what was assumed in our plan. As a result, while the average around the clock pricing for the balance of the year are only about $3 per megawatt hour lower than we expected last April, the decrease is much greater in the months of July and August. The other two factors affecting us is the shape of our loan in Maine. That is in the common territory. On average, our supply portfolio is 80% hedged. But, because of our of last resort obligation in Illinois, our midwest portfolio is mishedged in the summer, specifically July and August. Debt means that in the third quarter, we are more impacted by changes in wholesale power prices. With the very hot summer weather this year, we have needed 23, plus megawatt of capacity to meet our peak loan. In the off-peak and on-peak shoulder hours, we are selling at very low market prices. We are working hard to fix this problem longer term. That adds importance to regulatory initiatives to John just spoke to. In June, we told you $1 per megawatt hour change in the average around the clock prices for the balance of the year would result in a 3 cent per share change in earnings. That metric holds true if price changes occur evenly across all months and hours and there are no deviations from projected loan and supply. It does not work if large price varies occur during July and August. That is where we have the least flexibility in hedging our portfolio length. Our most subject to volatile swings in retail load. In calculating the 3 cent per $1 per megawatt sensitivity, most of the earnings risk was in summer and forward around the clock prices are currently averaging about 7 and $11 below hand in PJM and ComEd respectively. The good news is we are prepared to meet this challenge. We had a very good second quarter. The third quarter is off to a good start. We are working hard to offset the earnings pressure driven by lower power prices. As both John and I discussed earlier in the call, our cost management initiative is working well and bringing results. For the first half of the year, we captured a $100 million of sustainable savings. We told you our goal is at least $200 million of sustainable savings and believe we will exceed that goal. Our guidance for earnings from operations remains at fairly wide range of $4.55 to $4.85 per share. Two of our major earnings variables are (inaudible) significant in the third quarter, weather and wholesale market prices. Weather is working in our favor. Wholesale power prices are not. The third variable are cost management initiative is in our control and producing positive results. Given all these considerations, we are on track to meet or exceed the current consensus earnings estimate of $4.65 per share. The operating earnings outlook excludes the first quarter of goodwill impairment of 71 cents per share and the charge of 4 cents per charge taken in the first quarter. Our value excludes the 36 cent per share gain on the AT and T Wireless transaction. Third quarter earnings are expected to be 30% of total 2002 earnings. In the third quarter of last year, we had restated earnings of $1.16 per share or $1.32 cents per share when you exclude several unusual charges, including severance. We expect our cost management initiative and warm July weather to result in increased year-over-year earnings, even with lower wholesale power prices we are seeing in July and August. We will now open the call for questions. Thank you. 00:44:31

Thank you. The floor is now open for questions. If you do have a question or comment, you may press the numbers 1, followed by 4, on your touchtone phone at this time. If at any point your question is answered, you may remove yourself from the queue by pressing the pound key. We do ask while you pose your question that you pick up your handset to provide optimum sound quality. Hold while we poll for questions. The first question is coming from Steve Fleshman with Merrill Lynch.

Hi, John, how are you? Couple of questions. First, John, I am wondering if you have any thoughts regarding this Night Corp disclosure that came up in Illinois. It is obviously a different business than you are in, but if you are concerned of impact on how regulators may review your company?

Well, I have no information on the Night Corp situation that has not been in the press. I am sure this will be viewed as one of many reminders in the overall regulatory environment that regulators still have a job to do and they have to do the job with diligence. In that sense, it will cause them to keep looking, but frankly, regulators have been running ComEd with great care for a long time. We have a relatively simple structure, so, I don't see it having any negative effect on us, other than just adding to this continued skepticism of the whole industry that annoys us all.

Okay. Secondly, is there any update you can provide us on your analysis of this FAS 143 implementation for next year? Anything on that topic?

I think Ruth Ann believes she can say no more eloquantly than I can. Ruth Ann.

Hi, Steve, how are you? We are still in the process of modeling the impact of 143. When we have completed that review and assessment, we will provide it to you in our 2003 earnings guidance. At this point, we are going through the process.

Okay.

If I could add to that, one thing. You know, as we have seen and throughout the industry, earnings expectations are the product of a number of variables and probably a larger number of variables than we all used to think we had to look at. In our cases, you have large good news items, which include the continued cost management initiative which will be even more effective next year. And, the reductions in the prices ComEd will be paying for power. We have some bad news items which may include continued low wholesale prices affecting some of our investments and may possibly include the results of the FASB analysis. We don't know how that will turn out at the moment. That is the first thing I have to get approval for. But, the point I am trying to make is we are going to be trying very hard to put all these pieces together into the best updated guidance that we can for next year. In your position or that of your colleagues, with respect to any company right now, it is very hard to take any one of these factors and extrapolate from it.

Okay. One last question. It is related to the summer conditions you have seen at ComEd so far. It seems like it has been quite hot. At the same time, prices have been relatively low. I believe your service has worked out well. What - I assume this is a good signal for kind of dealing with having to buy more power off the market? You know with the option changes and then potentially reviewing the option changes next year, as well?

Of course. Let me try - you put about three pieces into that question. First, our distribution system has handled the July heat quite well. We have had some scattered small problems, which continue to teach us maintenance lessons, but we have been getting what we pay for in terms of capital and we have had no crisis that is causing us big trouble like we had years back. Second, we have had absolutely no problem finding enough power. There is a lot of power in Illinois and wholesale prices remain low, which is, as you know for us, good news for ComEd purchases and bad news for power teams planning in other respects. Third, ComEd is an isolated entity. PECO are doing very well in this weather.

Okay. Just wanted to just also comment to thank you very much to Linda. The disclosures have greatly improved and helpful. Thank you.

We appreciate the observation.

Thank you. The next question is coming from Scott Pearl from Credit Suisse First Boston.

Good afternoon. I guess also would like to echo Steve's comment on disclosure. Could you use each quarter to get better and better. On - could you give us an update Ruth Ann on enterprise and where you are in relative to the business in the first two quarters toward meeting guidance on an operating standpoint for the year?

Scott, I am having a hard time hearing you. I need to ask you to repeat your question. I apologize.

Yeah. Just wanted update as to Enterprise's, where you are in the process of getting that to break even over the next couple of quarters given what you have seen in the first two quarters relative to regional guidance that you talked about back in the string?

I think the original guidance still holds. It might be helpful if I ask George Gilmore to talk a little bit about the progress he has seen being made. From our perspective, in senior management, there is very tangible progress and a process, if you will, also being followed in order to bring Enterprise around to profitability. George, do you want to comment?

I think I will make a couple of comments. One, we have taken the cost of management initiative and tried to be aggressive. You have seen that in the first half of severances exiting the businesses that are not profitable. As we said at the analyst meeting, we designated each part of the business where they fit into the portfolio, whether we will be selling them or keep them. We are working on that diligently and progressing and see ourselves moving into profitability in the second half of the year.

Okay. secondly, -

This is John. Let me add to what George said. He has done the classifications of things we hope to sell relatively soon and things that we need to do more work on before we make a final keep or sell decision. But, we are very actively investigating ways to shrink this portfolio.

I guess you took a couple of write-offs of investment balances? Is that relative to the review program that has been going on? Do you expect anything else on that front out of Enterprise throughout the rest of the year?

We will continue to look at the portfolio very aggressively. This is Ruth Ann again. We will continue to try to identify those businesses that either are not performing or not - if you will, fitting into the overall portfolio. Go ahead.

George, if you need to shape this better, do so. But, I believe that we will at sometime in the second half, find a way to sell a couple of more things. We have several things we think are worth more than they are on the books for and several things worth less. I hope we have some decisive action that produce cash that are better than the book. We can't know until we do it. In addition, one of the things George did in this quarter was within our little venture capital group, Capital Partners, take a hard-nosed attitude toward a couple of entities that were asking for new cash that had promised us a year or more ago they were not going to need new cash. In this case, George said no. So, I would particularly urge you to keep your eye on the capital partners portfolio. We will try to take decisive action and hope for good news, rather than bad news when you see it.

We have retained a couple of investment bankers to help us in certain areas. In the end, our objective is to get the best value for Exelon so that, as I said in the analyst meeting, we are not looking for fire sales to balance things if we could. But, we are not trying to sell just for selling sake.

Okay. Relative to the proposal made to the ICC in contrasting the letter that was sent -- I guess last year, you are talking about 2500 megawatts of load. I guess is there - maybe this is a Pam question. Can you give us more of a feel so we can analyze the impact for I guess on your disclosure of load and sales? How should we think about breaking out that particular segment? Is it delineated or is there a refer to break-out required?

Let me try to answer. With me also is Arline (inaudible); who is responsible for filings. What we have done in making filing this month is segregate out 6-l customers. The 6 megawatt and above customers and seek to have that customer grouping declared competitive under the Illinois statute. There is then a three-year timeframe in which those customers can remain on a bundled rate and have the options they have currently. At the end of the three-year timeframe, if we are successful, that class would be declared competitive and fully out in the open market. It is really a coincidence that currently that customer class takes 2500 megawatts of load and that is the amount of the load release pursuant to our options with the AME contract. We would expect most of the customers are taking advantage of alternative suppliers. That is why we elected to start with 3 megawatts and above. We think that is the group of customers that has the most sophistication. They are shopping. 70% of customers are already shopping. We think the case is strong for the Illinois commerce commission to feel comfortable there is a market place already developed in Illinois for those customers. So, we are going to move ahead of the statute contemplated and have customers be declared competitive and having them shopping more aggressively in the real market and optimally that will give MidWest Gen and other participants with selling power, more buyers. Arline would like to add something.

If I could help, of the 2500 megawatts in this group of 3 megawatt or greater customers, 1600 megawatts are already off of the bundled rate. There is really only 900 megawatts that we are currently serving in this particular group. If we are successful, beginning in June of 2003, there will be a three-year grant and hopefully a three-year phase out of the 900 megawatts. It is really the 900 megawatt bundled obligation we are putting into play at this point in time. The other 1600 have already left. Obviously, as the evidence presents itself, we will examine looking at going below the 3-megawatt level. No decision has been made there. We need to see how the 3 megawatt filing plays out as practical matter in the market place.

Okay. Fair enough. One last quick question. If you could give more color on where you actually saw the cost savings in the second quarter so we could know where to look going forward the rest of the year?

Scott, saw them coming out in basic operating and maintenance costs. I would say that we are working hard on our supply chain costs. We are again trying to leverage the strength of the size company we are. We also saw improvements on fuel side and on interest costs that are accruing to us. As I mentioned earlier in my conversations, you won't see them necessarily on year-over- year basis come off the OEM line. We are seeing them come out of other lines. I was saying the other areas are fuel and also in interest expense. supply chain is very large for us.

Thank you.

Thank you. Our next question is coming from Kit Conledge from Morgan Stanley. Please pose your question.

Good morning. How are you? Uh, just two unrelated areas of questions. First of all, can you discuss it all - this may be for Ruth Ann, I guess, what you are seeing for '03 wholesale prices? If those are in - you know coming down, as well, along the lines of what you described in for '02?

Ian or Michael.

Hi, this is Michael Mesner with the power team. We are seeing full prices fall off in '03, just like we have seen in '02. At this point, though, we haven't fully baked and rolled out these plans yet to see what the whole picture looks like. Certainly the lower prices will have an impact. We need to look at that in the context of the entire plan.

Can I ask, do you note that these lower prices are falling? Is this a gas price related decline or is the capacity component seeing pressure?

More the latter.

Uh-huh.

I think we would agree with Michael on that.

Right. One of the possibilities that we hear some companies, stronger companies like yourself talk about now is with those pressures in the wholesale market and pressures on some companies balance sheets and so on, that some day there may be assets for sale. Obviously you have talked about that possibility over time. Do you have any feeling that that day is getting nearer when there might be some significant transactions?

In chaos there is a wealth of opportunity and also a wealth of risk. We are not blind to what is happening to the price of some companies that might be interesting to us. Frankly, some generating assets that might be interesting to us. I continue to think that the price of generation properties hasn't dropped as much as some of these more trading-related drops. So, we don't have some imminent big news to announce. If we did, I would have to probably refuse to answer your question until we announced it. But, you know, with all of this teaches us is continue to look for acquisitions that are timely and opportune and rewarding, but do even more homework before you jump. I mean, we gave you a lot of speeches in June about discipline and just because it seems exciting now would be no excuse to abandon that discipline.

Personally, I am in favor of less excitement for a while.

We are with you there.

One final area unrelated. Can you give us a view of your pension issues maybe any earnings related impact '03 versus '02, for example?

The big man to answer that question so we have Barry here. Right in the annual review process. At this time of the year, the actuarial comes in and provides us with verification for 2002 actuals. We given our preliminary analysis of forward- looking numbers. We are in the process just at this moment of evaluating many different scenarios and different assumptions. The big driver is obviously going to be the performance of the market for the balance of the year. To the extent - just that fact. The other measures that flow significantly from the fair market value of the assets are going to drive all of those kinds of measures. I can tell you to help bound it from what we know at this point, that the actuary has confirmed for 2002 we are not required to make any contribution with respect to our funding requirement and that our 2002 actual came in line very closely, slightly under, with respect to what we had been estimating. It is really just a tad premature to talk about the forecast going forward.

Okay. Thank you.

Thank you. The next question is coming from Paul Fremont with Jeffries. Please pose your question.

Thank you very much. Congratulations on a very good quarter. First question is sort of housekeeping. The unusual item necessary '01, can you tell us which of the business units those apply to?

On the prepayment, I believe that was a in the PECO territory. And I didn't hear your second quarter. I am sorry.

The other adjustment was whale sale rate settlement. Is that applicable to generation numbers?

No, ComEd.

Delivery?

Yes. Delivery. The first PECO, the second in ComEd.

Second question, with respect to the option reprice that is coming up on the peaking units, I guess in advance, you were sort of able to identify hoped for savings based on sort of scenario of turning back half the capacity on the base load. Are you able at this point in time to identify any type of a base line number that you think we should be thinking about with respect to possible savings from the exercise of that option?

Paul, at this point, it is early for us to be able to do that. I am not able to give you any better insight at this point in time. As you know, the exercise of options is due in October. It is for peakers and I believe, if I have my numbers correct, there is 900 - 994 megawatts of peakers and columns, as well. We have time between now and October to work that through.

The last question is if I just take the assumed savings you are coming up with on the base load generation next year, that would by itself, without the increase John talked about, based on the fact that was a number calculated on assumption of taking half the capacity. That would by itself, pretty much get you to 5% earnings growth. So, when you guys were in New York and talked about sort of 5% as long-term growth rate with the possibility of doing better in some years and worse in others, should we assume that next year you will be well positioned to do better than that 5%?

This is John. This is why I made my little preamble a while back. You can assume that this is a good news item that gives us growth potential. You can also assume there are going to be couple of unhappier items particularly with the discussion we had about what wholesale power prices may be next year. We still have the FAS B 143 question to answer. Barry did not give you a definitive answer on 2003 pension expenses because there are a group of factors going in different directions. We cannot give you better guidance than the 5% at this time, but we certainly would not suggest that you use 5% on the floor and add single factors.

None of my colleagues passed out.

Thank you. Our final question is coming from Peggy Jones with ABM Amro.

Could you talk more about the impact of the restructuring of the size transaction. I am sorry that I am not aware of how that really changes things?

This is John. I will do my best and ask Ian to chip in. The people we have here, he is the other most knowledgeable person. In essence, Sithe is a collection of asset of largely and assets principally small qualifying facilities under Perpa in which we have a moderate, long-term interest. We would like for various reasons, including operational synergy, and including recent federal legislation on tax incentives and simply how to structure it better, to be able to do portions of this as an asset purchase. It is not easy to accomplish, but we think there is significant value up side in it and I can't say more than that, but, if Ian or Barry or Ruth Ann think you have something to add, feel free.

No, John, you covered the items on Sithe. That was our last question. Peggy thank you very much for your question. We will thank everyone both on the line and around the table here who joined us. We appreciate your good comments about the quarter and about our level of disclosure and we are hear and continuing to do that. Thank you very much.

If you have follow-up calls give me a call, Linda Byus at 392-(inaudible). We will try to answer your questions. Thank you.

Thank you. This does conclude today's teleconference. Please disconnect your line and have a wonderful day.