艾索倫電力 (EXC) 2005 Q1 法說會逐字稿

Good day. All sites are now online in a listen only mode. At this time I would like to turn the call over to the Chairman, President and CEO of Constellation Energy, Mr. Mayo Shattuck. Go ahead, please.

Thank you, and good morning. And welcome to our earnings call. Before we begin our presentation, let me remind that you our comments today will include forward-looking statements which are subject to certain risks and uncertainties. For a complete discussion of these risks we encourage to you read our documents on file with the SEC. Our presentation today is being webcast and slides are available on our website which you can access at constellation.com under Investor Relations. We will use non-GAAP financial measures in this presentation to help you understand our operating performance. We have attached an appendix to the charts on the website reconciling non-GAAP measures to GAAP measures.

So starting off on page four, we are pleased to once again report an outstanding quarter. Earnings excluding special items for the first quarter were $0.67 cents per share, $0.05 cents above the high-end of our guidance range and $0.02 cents higher than the first quarter of last year. The merchant segment performed very well delivering a 23% increase over a strong first quarter of 2004. BGE had a solid quarter and continues to be a stable contributor of earnings and cash flow.

Turning to page five; one of the growing success stories at Constellation is our developing prominence as a leading nuclear operator. We recently completed two refueling outages in record times. The outages at Calvert Cliffs and Ginna attained site best outage times. For Calvert Cliffs, which is already a top decile cost performer, the outage time improved by more than eight days and was one of the shortest outages ever achieved for a combustion engineering designed nuclear reactor. Ginna's outage time was shortened by more than nine days and included significant preparation work for the 2006 up rate which will increase plant capacity and drive productivity in 2007.

Nine Mile Point unit one outage is proceeding well , and we fully expect the unit best record there. We are achieving these results through a coordinated program. First, hiring proven industry leaders to focus our efforts; second, implementing an accountability model that establishes full work force engagement and ownership at the grassroots level and, finally, enhancing our performance monitoring processes by challenging each step of the outage plan and establishing daily outage cost reporting to drive execution. With the success of these outages our confidence in our ability to achieve our significant 2005 productivity commitment is growing. More broadly, our Generation fleet business model is taking root. Our Wagner coal facility recently broke a nine year old continuous won record by 16 days. Moreover our new High Desert gas plants ran at 99% reliability, well ahead comparable plans. I want to recognize both the outstanding leadership and focused execution of the entire Generation team.

Page six. Both our wholesale and retail businesses are proceeding at a brisk pace. Total competitive supply megawatts served increased from 31,425 megawatts to 33,833 megawatts, up 8% since last quarter. Wholesale competitive supply performed well in the first quarter auctions which has the coincident benefit of more highly hedging our fleet in 2006 and 2007; locking in the prices on this output further increases our confidence in the $4.75 to $5.00 per share 2007 outlook that we shared with you in January. New energy turned in a strong performance with market share up two percentage points to 23% of the switched market in the first quarter. New energy can now boast 68 of the Fortune 100 as its customers. Total Megawatts served jumped from 12,325 megawatts to 14,200 megawatts, up 15% since last quarter. The retention rate was very strong with 86% of all customers with expiring contracts opting to renew with new energy.

Page seven. We continue to see positive developments on many fronts in the policy arena. Several states are advancing their interest in adopting competitive procurement load options; as the regulatory transition process matures in states like Illinois and Pennsylvania, policy makers are actively considering how to replicate the successes of New Jersey, Maryland and New England models. Meanwhile we are also seeking interest and action in states that may seem new to competition such as Arkansas and Louisiana. Our commodities group recently won power supply contracts to serve two municipalities in Arkansas and new energy is finding budding interest in Louisiana for competitive supply to C&I customers. Meanwhile developments such as the opening of the midwest ISO for full commercial operation and continued expansion of PJM, the continued success of competitive retail markets such as Massachusetts, New York and Texas, all signal that restructuring is continuing to advance and even pick up steam.

We are encouraged to see that FIRK remains interested in how to best improve competitive markets. Federal energy legislation is again on the front burner and the House has made significant improvements to the legislation over the version that nearly achieved success last year. Finally as we expected, the EPA issued the Clean Air Interstate Rule and the Clean Air Mercury Rule which will limit emissions of SO2, NOx, and Mercury. We support this national approach to policy-making and believe this is the right thing to do. The new regulations are in line with the assumptions underlying the cost estimates included in the business plan we laid out for you in January.

On page eight- - as you saw in a recent press release we announced an agreement to sell our Oleander facility which we expect to close in the late second or early third quarter. Constellation developed this plant in the mid-90's based on expectations of Florida competitive market development that has not occurred. This was a well run profitable plant for us but not strategic. As with the Puna geothermal plant, which we sold last year, and in keeping with our discipline to focus our capital and management talent on strategically relevant markets we are sell Oleander to Southern Company who sees greater value for the plant in their portfolio than we saw in ours.

On slide nine- -in sum, we continue to be pleased with our performance and are confident in our current guidance range of 335 to 360 per share for 2005; both the wholesale and retail competitive supply businesses are proceeding at a brisk pace. With two outages complete, the Nine Mile Point outage progressing well and the Nine Mile Point and Calvert Cliffs working force right-sizing concluded more than half of our 2005 productivity goal has been realized with only one-third of the year behind us. BGE is on track with expectations. You will soon see BGE file a gas distribution rate case. While this business is the smaller part of BGE, this case is notable as it is the first rate case we filed in nearly six years. While we obviously can't share any details ahead of the filing, we think a rate increase is warranted and included this in the three-year plan outlook we shared with you in January.

With that I would like to turn the call over to Follin to cover the financials.

Thanks, Mayo. Good morning everyone and thanks for joining us today.

Starting with slide 11-- - earnings excluding special items for the quarter were $0. 67 cents per share, compared to our $0.47 cent to $0.62 cents per share guidance range. GAAP earnings for the quarter were $0.68 cents per share, which include Oleander earnings that must be treated as a discontinued operation now that we are selling the plant. You will also note that as required by GAAP, we've reclassified first quarter 2004 results to reflect Oleander earnings as discontinued operation. For your use in adjusting your model, 2004 earnings excluding special items will be adjusted to [inaudible] previously reported to 317 per share to reclassify Oleander to discontinued operations.

On slide twelve- -[inaudible] consistent with the $0.36 cent to $0.41cent guidance range we presented in January. Compared to results of $0.43 cents in last year's first quarter EPS was down $0.03 cents. At the net income level earnings were about in line with last year's as benefits from customer growth and gas and electric distribution were essentially offset by higher operating costs and spending to enhance reliability. EPS was down primarily due to the effects of dilution associated with incremental shares outstanding.

Moving to slide 13. The merchant segment earned $0.27 cents per share, excluding special items, compared to guidance of 10 to $0.25 cents per share. As you'll recall in the guidance we provided to you for the first quarter, we expected results to be flat to [inaudible] compared to the first quarter of 2004 due to lower scheduled first quarter wholesale backlog realization and the fact that we scheduled more nuclear outage days in the first quarter of 2005 than in 2004. We exceeded guidance primarily due to a wholesale competitive supply transaction which we envisioned for later this year; excluding that will results were in line with guidance.

Comparing first quarter 2005 to first quarter 2004, EPS was up $0.05 cents. The improvement was driven by $0.17 cents of higher wholesale competitive supply new business and $0.07 cents of improved Generation performance, primarily at Nine Mile Point. These favorable items were partially offset by, first, $0.12 cents of lower scheduled first quarter wholesale backlog realization, second, the $0.08 cent unfavorable effect of more refueling outage days scheduled in the first quarter of 2005 compared to 2004; and, third, by $0.03 cents of non-qualifying hedge recognition mismatches.

Moving to slide 14. The merchant segment realized 497 million of gross margin in the first quarter of 2005, up 86 million from the same period last year. Gross margin for our Mid-Atlantic fleet declined 4 million, driven primarily by the timing of the Calvert Cliffs outage. As I just mentioned Calvert's refueling outage occurred in the second quarter last year so will you see a favorable year over year comparison in the second quarter. Plants and PPA's added 62 million of gross margin. Ginna added about 47 million of the gross margin level and is flat at the EPS level after netting out below-gross-margin costs and dilution associated with equity used to finance the acquisition. Nine Mile Point benefited 11 million from fewer outage days in the first quarter of 2005 versus the same period of 2004. On the next several slides I'll focus on wholesale competitive supply and new energy.

Turning to slide 15. Wholesale competitive supply gross margin of 68 million - - wholesale competitive supply gross margin of 68 million was up 24 million in the first quarter of 2005 compared to the first quarter of 2004. Realization of the backlog of transactions originated in prior period was 34 million lower in the first quarter of 2005. As you'll recall the backlog scheduled to be realized in all of 2005 is up but was lower in the first quarter. This was more than offset by the pace of new business, up 68 million from the first quarter of 2004, including 42 million of higher new origination realized in the quarter and 26 million of portfolio management improvement. You'll notice strong 43 million for new business both originated and realized in the quarter.

We executed a transaction to balance our power supply portfolio by selling an in-the-money short dated power purchase contract. We realized income today which reduced the future year's backlog and significantly reduced future period risk. This is a normal part of our business. From time to time we monetize positions to manage risk. Already originated business and total new business realized were partially offset by $10 million year over year variance in non-qualifying hedge recognition mismatches.

On slide 16, the total picture of wholesale competitive supply is always important to understand in a business where a fundamental part of portfolio management is to create future earnings stream and to occasionally monetize them to manage risk. As you can see here, wholesale competitive supply generated 64 million of gross margin to be realized this year and 18 million to be realized in future years. The monetization of the in-the-money contract that I mentioned earlier increased current year realization and reduced the backlog. Through other business transactions this quarter we not only replenished that impact to future year's backlog but added to the backlog. Based on business closed in the first quarter and prospects in the works we believe wholesale competitive supplies is on track to deliver its business plan in 2005.

Chart 17 provides an update of the gross margin backlog for our wholesale competitive supply portfolio. The backlog will be reflected in future earnings as power is delivered to customers and repaid. These margins are highly hedged, and the quantity and pattern of realization is visible. In total pre-existing contracts will add 151 million to 2006 and 140 million in 2007. We expect this pattern of creating gross margin to continue, thereby building our backlog of future earnings.

Turning to new energy, on slide 18 - - new energies business continues to grow and is on track to deliver promised results. We plan to deliver 63 million Megawatt hours in 2005. As of the ends of the first quarter total megawatt hours delivered or contracted was 50 million, or nearly 80% of our full year target, about in line with the pace at the end of the first quarter last year. We were also successful in adding to our 2006 and 2007 backlog of gross margin to be realized. We continue to expect new business margins consistent with our $3.00 per megawatt hour acquisition forecast and we expect our net realized gross margin, including business contracted prior to 2005, to be in line with our previous forecast of $3.35 per Megawatt hour in 2005.

Moving to slide 19 - - first quarter cash flow for debt reduction was 316 million. As we discussed in January, we received 157 million of cash from contracts restructured for customers. In essence customers paid us cash in exchange for our accepting future obligations on their behalf. These were commercially attractive transactions that had the added benefit of providing cash at essentially no cost. Excluding the customer restructuring, we generated 133 million of free cash flow compared to 109 million in the same period last year.

Moving to slide 20 - - net debt to total capital at the quarter end was 43.2%, a 330 basis points improvement from year end 2004's 46.5%. We project net debt to capital to end the year at around 41%, a bit better than the 42% we shared with you in January reflecting the proceeds from the anticipated Oleander sale and moving closer to the 40% target expected in 2006.

Moving to slide 21 and our guidance for the second quarter - - we expect second quarter 2005 earnings to be $0.47 cents to $0.62 cents per share compared to $0.53 cents per share excluding special items in the second quarter of 2004. BGE should be flat to slightly down compared to last year's second quarter which was warmer than normal. The merchant segment is expected to earn $0.38 cents to $0.53 cents per share compared to $0.41 cents per share in the same period last year. In spite of the comparison to a very strong wholesale origination period in last year's second quarter, the absence of a Calvert Cliff's outage in the second quarter should drive a strong merchant performance comparison.

That concludes our prepared remarks. We will turn the call over to the operator now for questions.

[Operator Instructions]. We will take our first quarter from Steve Fleishman. Go ahead, sir.

Thank you. Hi, guys.

Good morning.

The extent of this one transaction that you highlighted in the wholesale competitive supply, does that represent a majority of this $43 million of margin originated and realized in the quarter? Could you just quantify that?

Steve, this is Tom. It's a significant component of the margin. As with past transactions, this transaction involved more than one, more than one party on the other side and we are bound by confidentiality agreement not to disclose the price. So we can't unfortunately provide you more guidance in terms of the specifics.

Okay. Could you just, though, Tom or Follin, re-explain the, I think you said that by doing this transaction it reduced your open position or risk? Could you just explain that a little better?

Sure, Steve. As you know, we manage a significant portfolio of both long-term sales distribution utilities, our own power plants and power purchases from various merchant generators or third party generators. As prices move around, as obviously they have quite a bit in the last few months, often it is advantageous to rebalance the portfolio. I mean, we dynamically rebalance the portfolio on a daily basis.

And from time to time, and as Follin indicated, this certainly has been a normal part of our business over the last few years - - from time to time it's actually advantageous to sell certain positions, realize cash and enter into new ones to rebalance the portfolio. In so doing we obviously eliminate any imbedded risk in any of the positions we might sell and monetize them in cash. So effectively, effectively what we did here is to sell a short dated power purchase agreement - -agreement through which we were buying power from a generator whose value had gone up and which was in the money.

Is that, just to clarify, though, is that a position that was hedged on the other side and that's when you rebought it or was it essentially kind of a proprietary position?

No, it's very much part of the portfolio. So our overall objective of managing a balanced portfolio is certainly is always, has always been in place and is in play now. That's, we intend to manage a balanced portfolio. But as prices move, one needs to rebalance the portfolio or it effectively comes out of balance. So in this instance we sold the power purchase agreement and entered into hedges which overall kept the portfolio relatively neutral.

Think about it this way, Steve. Power prices move up, so some of your positions will be significantly in the money, which can leave you with exposure, for example, to counter party performance risk. So sometimes it makes sense to monetize that in-the-money position and then if it were a hedge, re-establish the hedge at current market prices.

Gotcha. One other general question on the, some of the market share data and retention rates at both, particularly at retail but also market share wholesale, could you just remind how those compare to what you had in your business plan, you know, the 23% at new energy in the quarter and then the 86% retention rate?

Steve, we will let Tom Brady answer the retail question.

Good morning, Steve. From the new energy perspective the market share rate at 23% back at the beginning of the year, we indicated that our plan called for us moving the market shares to 25 to 30% over the next couple of years and what we've been able to do in the first quarter moves us well along our way to this year's plan, we were calling for a 40% increase in sales. Retention rates were very strong in the first quarter. We generally expect retention rates to be in the 80% range, sometimes dropping below that, sometimes above, but the 86 was very strong and in line with what we've been looking at for this year.

And then just a wholesale market share.

Sure, on the wholesale side, Steve, for utility load procurement in the first quarter, we won about 30% by our estimate of volumes procured by utilities, and that's pretty much right in line with our plan and actually right in line with our performance in Q1 of last year. So the wholesale load business is performing well and performing in line with our expectations.

Thank you. We will now take our next question from Dan Eggers with CSFB. Go ahead, sir.

Good morning. First question for you, with the spring auctions complete; if you could give us an update of how much of your '07 is now hedged? I think in January you guys talked about 78% on power and 64% on fuel.

Sure, Dan. Through our activities in the first quarter as Mayo alluded to, we did sell some long dated power. We did increase our hedge ratios in '07. So we, I think what we indicated to you in January was that at the time we were between 75 and 80% hedged for expected '07 power volumes. We are now a bit over 90% hedged for expected '07 power volumes. And those sales that we made during the quarter we actually made at prices almost exactly equivalent to the assumptions that the plan was built on that we showed you in January. So no major change in outlook due to the hedges other than of course a good bit more certainty in terms of the '07 outlook.

Finally in terms of the unsold roughly 10% in '07 of our volume, the value of that, the forward value of that did go up a bit during the quarter. That is, we've got a relatively balanced portfolio of slightly long power and short a little bit of coal in '07. And as prices move power went up by more than coal. So it was a small amount of added value on that unsold 10% portion. But in aggregate our '07 outlook really hasn't changed all that much due to power and fuel prices other than the fact that it now looks more certain given that we've hedged more.

I guess, Tom and Tom, while I have you guys, can you give us any color on length of contracts being signed and customer willingness to put some length on deals or commodities prices, or just still too scary?

What we have right now, this is Tom Brady, Dan, we have 18-month term contracts. At this point that's probably up a little bit from where we were in the fourth quarter of 2004. So we might have moved up from 15 to 18 months. We see that as a good sign.

On the wholesale side, Dan, probably not much change from last year in the northeast. The utilities tends to procure one to three-year terms in a fairly - -fairly standardized basis mandated by their regulatory authorities. And the mix in Q1 was about - - about similar on tenor of the mixes pretty similar to last year. And we have, we do do longer dated deals from time to time which sometimes have a longer term to them. But I would say in general not much change in terms what have we saw from last year.

i guess one more, mayo, with the sale of oleander, obviously the market didn't go where the original plan was, but as you guys think about going forward does the capital that you bring in from this, does that - -do you earmark that to go back into Generation assets to try and build out that position or how do you think about the reallocation of that capital?

Well, not specifically but I would say that we continue to be very interested in the acquisition of Generation assets. We looked actively at those that are on the market in our competitive markets, and I think that we have attempted to narrow our search in that respect to both the competitive markets and those areas where we have a specific expertise such as in the nuclear realm. And we certainly showed our hand on that with Nine Mile and Ginna, but I think that one of the most gratifying aspects of the quarter actually is beginning to see the real advantages of fleet management in the nuclear realm. And I couldn't be more pleased by the progress that's made there, given that three years ago we were a single site operator, now we have three sites, five units.

So I think that we continue to think in that direction as a part of our overall portfolio management and as I've said before I think that given the competitive load that we have our degrees of freedom in thinking about Generation asset acquisitions are getting higher and higher, given that we have multiple ways to sort of hedge our competitive supply obligations.

Great. Thank you, guys.

Thank you. We will take our next question from Ashar Chan. Please go ahead, sir.

Good morning. Follin, could you describe how much of the productivity savings, I think you mentioned a target of 80 million for '05, how much were realized in the first quarter?

Well, what we said in the presentation, Ashar, was that with a third of the year behind us more than half of our productivity has been accomplished. And the way we looked at it is we looked at the target of 79 million. And we looked through April, and particularly at Nine Mile Point, where a lot of the savings were scheduled to happen and yet they happened heavily in April. So through the end of April we estimate we are over halfway there. And, of course, we've already executed a lot of the actions which we needed execute to make productivity play out through the rest of the year, like having a completed work force, right sizings, those sorts of things, and those productivity savings will be realized as we march through the year.

Could I just ask you, what is your hedging strategy beyond '07? Can we assume that you are hedging '08 and you have gotten enough of '08 hedged as you stand right now?

Of course, we haven't disclosed anything yet about our '08 position. So I guess what I would say is it's fair to assume that the pattern that you've seen out of us over the last two or three years is a pattern that we'd seek to continue to follow. That is - - forward hedging at attractive prices to the greatest extent that we can. I'd note that it's not easy to sell '08 power today and really sort of a key aspect of our business model that combines wholesale and retail sales arms with a Generation fleet is that our selling efforts enables long-term hedging. So we'll certainly continue to follow that game plan, but to this point we are probably not ready to give specific guidance in terms of what the '08 portfolio make up is.

And can I just also ask, regarding this auction by Allegheny which might happen, could you just address that; will you be a part of that? Do you think it's going to be a - - I mean it's for later years down but wanted to get your view on this auction for Allegheny's power supply that might happen later in the year.

I think at this point it's probably a bit early for to us make any comment on that one.

Okay. Thank you very much.

Thank You. We will take our next question from Greg Gordon with Smith Barney. Go ahead, please.

Thanks. Looking at the retail business - - looking at slide 18, you've indicated that the tenor of your contract portfolio is about 18 months and we see that here in terms of the steep backwardation of the backlog. Could you give us some reason why we shouldn't be concerned about a significant decline in retention rates with wholesale prices now significantly above retail prices in most of the jurisdictions where you have competition?

Okay. This is Tom Brady. I will agree with you. We are seeing in certain areas wholesale pricing above retail. And that has been the reasons where in fact we have seen some lower retention race and we experienced some of that in the first quarter of this year while still maintaining an incredibly high retention rate.

We seldom, if ever, see that occur in more than one area and this is where we have the scale of this business doing a lot of things for Constellation. We work and we have seven regions, over 1,000 megawatts, the pricing and the regulatory regimes in all of them are different. It gives you a very diverse customer base with regard to the industries they're in or the size of the customer, so if we see one area start to have a little bit of wind go out of its sails it frequently gets wind in other areas. So, in, what I would say, not the recently high wholesale price environment in the first quarter, we grew total load 15% in that ninety-day period with very high retention rates.

I think simply the scale of the business giving benefit to us and I would add the scale also gives us significant leverage on our cost. So in essence if margins do have to narrow a little bit, we are able to still get a really good net margin from that business. So I believe it's simply a scale in this business that you see in no other company in this space right now.

Is there any one particular state where there is still a regime where the customer has basically a put option to the retail price and can just switch back to a lower price or are most of the states in which you operate customers going back at some proxy to the market?

I would say most of it is on a proxy to the market approach. And we find that customers very frequently, we are able to work out something with them to basically position them to stay with us and when the pricing breaks out we're able to work a longer transaction with them. Yes, when we do lose customers it's generally back to the utility rather than competitors. But over all, we've been able to work around this, Greg.

You said that you have seven regions where you've broken the 1,000 megawatt market. At the January presentation you only had six. Which is the seventh? You had Texas, Illinois, New York, California, New England and the Mid-Atlantic in the January presentation. And you were over 500 in Michigan.

We have - - when you take our Michigan, Ohio Ecar region, that is now the seventh one over 1,000. And we have quite a few over 2000 now and in fact one region over 3000.

One question on the wholesale front, just to back up to one of the first questions, when we are looking at the stack of gross margin backlog on page 17 for wholesale you indicated, Follin, that really what that is a net new number because there was a modernization that lowered the future backlogs of that new business which sort of filled it back in.

That's exactly the way to look at it, Greg. So net/net we added 82 million to the value of contracts over the course of the quarter even though, as you say, there was a reduction in future years offset by more transactions originated in the quarter.

And to Steve's point some percentage of that 43 million, was that associated with that - - that - -

Exactly. It was.

Thank you.

Thank you. We will take our next question from Paul Patterson with Glenrock Associates.

Good morning, guys.

Good morning.

Just to get some further clarification, of the $43 million, how much of that is associated with that contract that was monetized?

Paul - -Paul, here's the issue. There were two parties beyond ourselves involved in that transaction. And if we told you exactly how much gross margin was in that transaction, the parties would be able to engineer our profit and we are bound by a confidentiality agreement not to disclose that. What we've said is, you know, it was meaningful portion of the 43 million but we can't say how much.

You can't say anything more than that.

Right.

Okay. And over what period of time was the contract? In other words if you hadn't sold it when would it have been realized?

It's - -it's relatively short dated, balance of '05 and '06.

Balance of '05 and '06? Okay. And then the cash - - I guess you can't - - okay , let me go on to something else. Just the tax rate, I noticed it was a little bit lower. Are we still on board for $0.27 cents per share from Synfuel, is that pretty much still what we are looking at?

Yes; no, it's up to $0.29 cents, Paul, good question. And, yes, the reduction year over year on the tax rate was primarily driven by higher Synfuel production.

Finally, we've seen obviously some improvement in the balance sheet and what have you, I wanted to touch base on just the NCELA ratios at S&P and just any discussions with the rating agencies and any outlook there that you guys might see in terms of a change one way or the other. Have you heard anything there? Is there anything going on with the rating agencies that either might increase, decrease or just in general if you could comment on how things are going with the rating agencies.

We maintain close contact with the rating agencies and there's really no new news there; we manage our business to keep a strong credit profile and a strong liquidity profile which is what you get at when you asked about NCELA. John Collins spends a lot of his time stressing our portfolio to look at bad things, to look at bad possible liquidity events and ensure that we have adequate liquidity to more than cover any likely scenario. And what you will see is that with 2.8 billion in bank facilities and - - that are over 90% of which have are multi-year bank facilities and maintaining pretty high levels of cash we've got, we believe, one of the strongest liquidity profiles in the industry.

But you don't see any change in the ratings, increase or anything right now? Pretty much you think things are stable?

I think we are in a stable environment right now.

Okay, great. Thanks a lot.

We will take our next question from Ali Agha with Wells Fargo. Go ahead, please.

Good morning. Follin, I wanted to touch upon a couple of other items for the earnings to get more clarification. One being the swing in the portfolio management margin, that $26 million swing. Could you elaborate a little more on what was driving that?

I guess I would just say - - this is Tom, Ali - - I would say in general good performance across the whole portfolio and - - and we haven't - - we haven't generally broken out sub-segments of the portfolio for the simple reason across - - across, we're more focused on managing the value across the whole portfolio. And just somewhat better result Q1 of '05 than in Q1 of '04.

And to elaborate on that, Tom, was it one or two transactions in there as well as similar to the previous line item that caused that swing or was it CDs or different transactions?

No, there was no one thing that was dominant. There was, like any portfolio you tend to be a balanced mix of positions, and some thing performed better than others but there was no single dominant theme.

Looking forward, Tom, back to you again, we obviously know the Allegheny auction that's coming up. Are there other similar RFPs in the near term that we should be focused on or in aggregate? What kind of megawatts are out there up for grabs, that you can, sort of, give us some aggregate picture?

Sure. I guess to give us a sense of it, Ali, in the first quarter utilities in PJM, New York, New England, particularly PJM New England procured a bit of over 14,000 megawatts of peak load. And in our - - in our estimate that's about a third of what utilities will procure over the full year. So there's a good bit more yet to come this year.

I see. And my final question, Mayo, as you look at the rest of your generating portfolio and you've gotten other projects with projects, gas-fired capacity, some geo-thermal still in there, other renewals, should we assume that all of that capacity could be potentially sold at the right price or are any of those considered core assets?

I would say that the vast majority are core assets. I would say that we consistently evaluate our portfolio with respect to whether our perception of value is different than the perception of value by somebody else and hence the Oleander. sale, but we are not on any mission to divest assets; it's just that we've had a couple good opportunities I think to make the portfolio match better against our longer term strategic interests.

So obviously we have a few assets in the midwest that are under-performers. If someone came up with an extraordinary offer for those you probably would find me jumping on an airplane. But it's of no particular mission. I would say our activity is more on the acquisition front there.

I see. Thank you.

Thank you. We'll take our next question from Scott Soller with Morgan Stanley. Go ahead, please.

Good morning. Had a few questions. Back to page 13 - - on those transactions, could you, I guess one thing I'm still trying to understand is on that particular transaction you all haven't changed your guidance for the next couple of years. Does it not take away a little bit from '06 earnings, Tom, when you entered into that transaction?

And I guess the second part of that is are there other such transactions? Power prices have firmed up in several regions over the last several weeks. Are there other transactions like that that could be affected over the next couple of quarters that we should be looking for?

Why don't we tackle it in two parts, Scott.

I really think the charts you need to look at are is chart 15. We've got this big portfolio of transactions and we have a scheduled, you see what our scheduled realization pattern is and the backlog that we share with you every period.

Now sometimes when those transactions are - - actually I'm looking at page 16, sometimes when those transactions are in-the-money and we think we need to manage counter-party risk we will decide to essentially monetize the in-the-money [notes] and re-establish the position at the market such that we are still hedged but we've taken the in-the-money portion into income. The important - - and the important thing to keep in mind, to help you understand, are we adding value to the business overall, is the picture you see on page 16.

So your question was, did it take something from 2006 versus what would have happened had you not done that transaction and the answer is yes. On the other hand what you see is the transactions that were originated to be realized in future years more than offset that effect. And that's why you see a positive 18 in that column under future years. So business we originated in this period net/net added 18 million to the backlog.

Okay. And so following - - to the second part of my question to power prices having somewhat firmed up in certain regions are there other such transactions that you all may enter into that we should be looking at over the next several quarters? And sort of how to think about modeling that and building it into NDL's - - into compare NDL's guidance that you all put out in January?

I think the way - - the way to think about it is it's a normal part of our risk management activity. So from time to time as happened in the past - - from time to time might happen in the future if we see attractive opportunities to improve the risk characteristics of the portfolio in this way. But again, back to Follin's point, the over arching imperative here is to create long-term value by entering into new customer business and by managing the risk in that new customer business. That's the real metric we are managing to.

And Tom I guess the second question is unrelated but over the last 90 days can you talk a little bit about progress in building out your coal and gas logistics businesses.

Sure, Scott. I would say in general that as a general statement that progress has actually been quite good on both fronts. In the coal area our sales volumes were strong. We originated about 40% of the volumes that we expected as part of our '05 target during the quarter. And we built the future year backlog quite well as well. So on the volume side things are performing quite well in our coal business. As the unit margins realized physical unit margins were about in line with expectations that our plan was built on.

So in terms of the coal business on both volume side and margin side things are looking good and that business is developing well. Similar story on the gas business which is progressing well. Downstream origination, as the downstream origination we originated about a third of our full year goal in the first quarter. Most of that is mid market sales activity. But we continue to see a strong pipeline of opportunities on the downstream side in this volatile price environment.

And then as to the, our efforts in working with upstream customers, our existing projects performed consistent with our plan so that is to say that we are pleased with how things went with our existing projects. We haven't yet made any material new investments. As we told you in January we expected to do during the year but we think the pipeline is very strong and we are excited about the outlook and feeling confident about the outlook for the whole year in our gas business.

Lastly I notice your [elsibar] for the quarter is 2.6 million on the book - - with the gas market as high as prices are and as reasonably good as the [contango] is in the next eight or nine months are there any types of transactions that you all can enter into to take advantage of that or you do not necessarily want to because you might have to increase your bar risk or can you maybe discuss that just very generally?

I guess I would have a hard time giving any specific thoughts on strategies we might follow. Obviously it's a competitive environment, but I would say that we don't anticipate any significant shifts in the, sort of the risk make up of the business at this point.

Thanks.

Thank You. We'lll take our next question from Steve Fleishman with Merrill Lynch. Go ahead, sir.

It's been answered. Thank you.

We will take our next question from Greg Gordon with Smith Barney.

Thanks. A follow-up question on retail. You indicated in your answer to my prior question that you saw an average retention rate of 86% but that within your portfolio of retail state businesses some of them were signif - - were better than that and some of them were worse. Can you give us sort of a list of - - in order of which states you are seeing the worse retention rates and which states you are seeing the best retention rates?

Sure, Greg, let me throw a little more light on that. I will start off with the good side. Are strong retention rate in the Metro, which is New York region, Illinois, California, Texas, where we saw a little bit of a head wind in kind of New England and the Mid-Atlantic area where we saw some of the head room disappear to the high - - due to the high wholesale prices. And I say that at the same time I point that out with New England on retention rates, that market size did increase up there. And in fact that was probably one of our largest growth markets in the quarter contributing to the 15% increase in total load served.

It's interesting that you say that Illinois was a market where you saw good retention because we are hearing from the incumbent utilities there that they are actually seeing large customers flow back to them.

They might be - - there is more than one company serving customers in that area. Our market share is large but it's not that large so it just could be other suppliers that have not been able to figure out a way to get supply and get a net margin out of the customers there.

Thank you.

I guess we have time for one more question.

Alright. We'll take our next question from Thomas Hamlin with Wachovia Securities.

Good morning. I have a question on your second quarter guidance. Given that we're a third of the way into the second quarter and a lot of your supply margin is already locked in, I'm looking at the wide variation in expected merchant contribution and just wonder what factors are going to take us to either end of that? I'm assuming that for BGE it's largely weather. Are there some things in particular that we should look for in the merchant markets that would help guide us, let's say, within that range?

We - - the outage, Nine Mile Point outage needs to get completed. And right now the outage is progressing very well. We need to wrap that up. We need for wholesale origination to be strong. It was a very strong period last year in the second quarter. We need for it to be strong again and we need for New Energy to continue to deliver.

I guess nothing specific out there other than to say pricing or variability?

No.

All right. Well, thank you.

I think wrapping this conversation up the things that I would like to point out is that we are really pleased by the Generation groups' performance with the outages. They are knocking the ball out of the park and well on their way towards their productivity improvements. On the wholesale competitive supply side they're adding value to the portfolio and have done a substantial job at increasing our certainty in 2007.

Our retail competitive supply, which I was pleased to hear all the questions about that, incidentally, because I think that this is, has become a real commercial business with substantial scale , where our relative market share now is very, very strong. And I think we are feeling substantially more comfortable about the defensibility of that issue as it gets bigger and as we are able to manage more elements of that business and have balance state by state as Tom mentioned. And lastly BGE is on track. So we're very pleased by the outcomes in the first quarter, and granted it's one quarter out of four but so far so good so I thank you for what I think were very good questions today, and we will see you in another quarter. Thank you very much.

Thanks a lot.

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