第一能源 (FE) 2004 Q2 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the FirstEnergy second quarter earnings conference call and Web conference. At this time all participants have been placed on a listen-only mode. (Operator Instructions). It is now my pleasure to turn the floor over to Mr. Kurt Turosky, Director of Investor Relations. Sir, you may begin.

Thank you Elsa. During this conference call, we will be make various forward-looking statements within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements, with respect to revenues, earnings, performance, strategies, prospects and other aspect of the business of FirstEnergy Corp. are based on current expectations that are subject to risks and uncertainties.

A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. Please read the Safe Harbor statement contained in the consolidated reports of the financial community, which was released early today and is also available on our Web site at www.FirstEnergyCorp.com/IR, under the earnings release link.

Participating in today's call are Tony Alexander, President and Chief Executive Officer; Rich Marsh, Senior Vice President and Chief Financial Officer; Harvey Wagner, Vice President and Controller; Tom Navin, Treasurer; and Terry Howson, Vice President of Investor Relations. I will now turn the call over to Rich Marsh.

Thanks Kurt, and good afternoon everyone. I will provide an overview of second quarter results, and I will also provide an update on financial and other matters. Following that, Tony Alexander will discuss various regulatory initiatives, operational performance, and the appointment of Dick Grigg as our new Chief Operating Officer.

We released our consolidated report to the financial community today, and it would probably be helpful to refer to that as we discuss results. Please note that I will refer to earnings results on a non-GAAP basis. And the reconciliation to results on a GAAP basis is available on the consolidated report.

Additionally, the Investor Information page of our Web site contains non-GAAP to GAAP reconciliations for both earnings and free cash-flow measures. Earnings on a GAAP basis in the second quarter of 2004 were 62 cents per share, compared to a loss of 20 cents per share during the same quarter in 2003.

Excluding unusual charges of 5 cents per share, normalized non-GAAP earnings were 67 cents per share in the second quarter, which compares favorably to the normalized non-GAAP earnings of 52 cents per share in the second quarter of last year.

The non-GAAP earnings reflect the implementation of the Ohio rate stabilization plan in the second quarter. The impact of this included recognition of $14 million of carrying charges on deferred shopping incentives, retroactive to January 1st of this year, and also a $10 million reduction in transition cost amortization during the second quarter of 2004.

During the quarter, we recognized 2 unusual charges totaling 5 cents per share. The first reflected a 3 cents per share charge associated with the settlement of all pending securities and derivative lawsuits that were filed against the Company and certain officers and directors in 2003.

The lawsuits allege violations of federal security laws and related state laws in connection with the extended outage of Davis-Besse, the August 14th, 2003 regional power outage, and financial restatements related to changed accounting treatments for transition assets being recovered in Ohio.

The settlement does not constitute any admission of wrongdoing, and is subject to court approval. The total settlement amount is approximately $90 million, of which the Company's insurance carriers will pay about $72 million.

The second charge of 2 cents per share relates to the sale of our 50 percent interest in Great Lakes Energy Partners for $200 million. Great Lakes Energy Partners was established in 1999 as a 50-50 joint venture, and held oil and gas properties in the Appalachian Basin. The sale generated net after-tax cash proceeds of about $150 million, which were used to accelerate debt reduction. And the sale is a continuation of our efforts to divest non-core assets.

The primary factors that contributed to improved results in the second quarter included a 9 cents per share increase in electric gross margin, primarily resulting from a 21 percent increase in generation output, along with a greater proportion of lower-cost nuclear output in the generation mix and increased kWh deliveries; a 10 cents percent per share reduction in nuclear operating expenses, due to the absence of any refueling outages this quarter, compared to two outages and the second quarter of last year; a 6 cents per share reduction in financing costs from our continue to debt reduction and refinancing activities; a 5 cents per share decrease in depreciation and amortization expense, primarily driven by the implementation of the rate stabilization plan; and a 5 cents per share reduction in pension and other employee benefit costs.

These were partially offset by a 9 cents per share reduction in earnings as a result of last August's decision in the Jersey Central Power & Light base rate case; dilution of 7 cents per share from issuance of 32 million shares of common stock in September of 2003; and a 2 cents per share increase in fossil operating expenses, relating to maintenance outages that were originally planned to be done in the first quarter, and that were actually delayed until the second quarter. Additional information on these and other variances provided in the consolidated reports.

Our continued aggressive debt reduction and refinancing activities resulted in a decrease in interest charges of $25 million versus the same period last year. Total debt decreased by $631 million from the first quarter of 2004.

Our financing activities during the period included $16 million in mandatory long-term debt redemptions, a $257 million reduction in bank debt, and about $1 billion of refinancings and repricings. These actions will produce annualized finance savings of about $42 million.

During the quarter, we also completed the replacement of $1 billion of credit capacity. The new facility, which is a three-year holding company's senior unsecured revolving credit structure, replaced various credit facilities at both the holding company and at Ohio Edison that were scheduled to expire this fall.

The new revolver, combined with our other existing credit facilities, brings total capacity of our credit facilities up to $2.3 billion. And as of July 27th, we had about $300 million of that capacity drawn, placing our available liquidity at a very robust $2 billion.

Looking forward, we remain on track to achieve our financial guidance. Our free cash-flow projection for 2004 -- which we defined as cash from operations less capital expenditures, less the common dividend -- remains at least $825 million. We will continue to use our strong free cash-flow to strengthen the balance sheet and bolster our credit profile. But we remain on track to retire in excess of $1 billion of debt this year.

With Davis-Besse's return to service, continued debt reduction, improved operational performance, settlement of our securities-related and derivative lawsuits and implementation of the Ohio rate stabilization plan, we believe we will be a strong position to regain our investment-grade rating for unsecured holding company debt from Standard & Poor's later this year.

We're maintaining our 2004 earnings guidance of $2.70 to $2.85 cents per share, excluding unusual charges. You'll recall that our guidance previously excluded incremental costs associated with the Davis-Besse outage and any changes resulting from the implementation of the Ohio rate stabilization plan.

Going forward, our guidance will now include both of those items. On this basis, our year-to-date normalized non-GAAP earnings are $1.21 per share, which is made up of 53 cents per share in the first quarter and 67 cents per share in the second quarter. We anticipate the third and fourth quarter earnings will contribute approximately 60 percent and 40 percent, respectively, of our remaining earnings for the year.

Now I'd like to give a brief update on regulatory developments in New Jersey. With respect to the rate case decision at our Jersey Central Power & Light subsidiary last year, the New Jersey Board of Public Utilities issued its final written order on May 18th.

Following our review of that order, the Company filed a motion for reconsideration on June 1st. On July 7th, the BPU agreed to rehear certain issues, including disallowance of $153 million in deferred energy costs; the level of equity included in the capital structure; the allowed return on equity; the disallowance of costs to achieve our merger savings; and the disallowance of SACs (ph) and nuclear decommissioning expenses.

Oral arguments are scheduled for August 4th. In a related matter, the Company also submitted the phase 2 filing in this rate proceeding on July 16th. If approved, this will result in a $56 million, or 2.6 percent, base rate increase.

And that, finally, has two components. The first seeks recovery of system reliability projects and an increase of 25 basis points from the allowed return on equity. This component totals $36 million annually. The second component requests recovery of customer benefits derived from the restructuring of certain BPU-approved NUG-purchased power contracts. And that component totals $20 million annually.

I would like to thank you for your attention this afternoon. And I will now turn the call over to Tony Alexander, our CEO. Tony?

Thanks Rich, and good afternoon everyone. I will provide an update on our Ohio rate stabilization plan and a brief overview of our operations.

You'll recall that on June 9th, the Ohio Commission approved our rate plan with some modifications. While much of the plan was approved as filed, FirstEnergy filed an application for rehearing to request certain changes to the approved plan.

Key changes that the Company's seeking in our application for rehearing include the ability to recover increased costs for fuel and environmental compliance expenditures, the ability to defer costs associated with distribution reliability improvements, and the terms under which market support market support generation would be offered to third party suppliers.

On July 7th, the Ohio Commission granted our application for rehearing. Recognizing, however, that other parties to proceeding would likely be filing additional applications for rehearing before the July 9th deadline, the Commission indicated it would address all applications in one comprehensive order.

As expected, many parties did file applications for rehearing on that date. We expect the Commission to issue a ruling in the near future. The PUCO's (ph) order also requires the Company to conduct a comprehensive generation bid to compare market prices to those offered in the plan.

We expect to have the final auction rules and supplier agreements in place during October. The order requires the bids for the polar load from 2006 through 2008 to be submitted by December 1st, with the decision by the Commission on whether to accept the results by January 1st of 2005.

From a generation performance perspective, I'm pleased that with the return to service of Davis-Besse, and favorable performance from the balance of our nuclear and fossil fleet, FirstEnergy set a new second quarter generation output record this year of 18.7 million megawatt hours.

That's 21 percent -- that's a 21 percent increase in generation output, compared to the second quarter of last year, and a 7 percent increase over the prior record, which was achieved in 2002. Year-to-date, we have generated about 37 million megawatt hours, another record output. If we achieve our planned generation in the second half of the year, we will establish a new annual output record for FirstEnergy.

We also took a number of important steps during the first half of the year to further enhance our overall reliability and the reliability of our electric system. And we are well-positioned to meet customer demand this summer and in the future.

Earlier this year, NERC issued a report that identified a variety of recommendations for FirstEnergy and others, and subsequently conducted an audit of our summer preparedness. On July 14, an independent NERC verification team concurred with the Company's certification regarding the implementation of all recommended actions -- including that we had put in place, and I quote, "the policies, procedures and actions that they recommended."

We replaced and upgraded the computer systems in both our Ohio and Pennsylvania system control centers, thereby providing operators with enhanced monitoring capabilities and broader system tools -- which strengthened control room, operator training and procedures, and enhanced coordination within the region. We have also enhanced our comprehensive vegetation management program in our rights of way.

Coupled with thorough visual inspections of our transmission facilities, we're confident that our system is capable of providing the level of reliability that our customers expect.

In closing, I'm pleased with our performance in the second quarter. I hope that you are as well. Our financial results are consistent with our guidance. We continue to aggressively reduce debt. We have experienced outstanding performance from our generation fleet. And we have implemented a variety of steps to further enhance the reliability of our electric system for this summer and in the future.

These outcomes are consistent with our vision to be a top performer in all the states in which we operate. We remain focused on consistently providing results that meet or exceed the expectations of our customers and investors.

To help us achieve this objective, I'm pleased to welcome Dick Grigg as our new Chief Operating Officer. We are fortunate to have an executive of Dick's caliber to join our team. He brings a wealth of knowledge, experience and leadership that will help us achieve continued success in our core electric business, while delivering the high-quality service our customers demand.

Many of you probably know Dick from his 34 years with Wisconsin Energy Corp., where he most recently served as President and Chief Executive Officer of We Generation. Beginning in late August, Dick will assume leadership of energy delivery, fossil generation, and commodity operations.

We look forward to the opportunity of introducing Dick to our investors in the coming months. We appreciate your time and interest in FirstEnergy. And thank you for joining us this afternoon. Now I will ask the operator to open the call to questions from analysts.

(Operator Instructions). Kit Konolige, Morgan Stanley.

A question on the gross margin -- that increased, it looks like, due to higher output. I assume that's better -- more nuclear operations, more demand, I assume. Can you discuss that in a little detail? And also give us some sense of what kind of wholesale or open market pricing you're seeing out there, both in this quarter and how it looks going forward?

The adjusted electric gross margin did increase by about $50 million dollars. And that's after adjusting for changes in regulatory deferrals and JCP&L rate decision, and last year's last year's DB costs. So that is up -- a valid apple to apple comparison.

During the year we saw -- or I'm sorry, during the quarter -- we did see an increase in our deliveries. Distribution deliveries are up 4 percent. That's distribution, as opposed to generation deliveries, were up. Heating degree days were below normal in April and May. Cooling degree days were higher than the same period last year.

As I said, the increase in electric generation gross margin primarily resulted from the generation output, along with lower-cost nuclear output playing a bigger role than it did in the prior year when Davis-Besse was not in service. In terms of wholesale pricing, I don't know if -- Kurt if you have any -- (multiple speakers)?

Wholesale prices quarter-over-quarter were in the neighborhood of about a 15 percent increase compared to the second quarter of last year.

Can you give us a rough idea of what that would be in dollars?

On a dollars per megawatt hour basis? (multiple speakers)

Off the top of my head -- (multiple speakers)

I'm sure we don't -- it's probably somewhere in the upper $40 per megawatt hour, in the upper range of that (inaudible) (multiple speakers) yes, about mid-40s.

That would be in the peak strip? Or is that a round-the-clock kind of number?

That number is dealing with overall sales, overall wholesale sales in the mid-40s.

Okay.

And kind of a little bit further detail on the question on the electric gross margin -- the nuclear output was up approximately 100 percent quarter-over-quarter, second quarter '04 versus '03, because if you recall, last year in the second quarter, not only was David-Besse out, which we would've excluded, but both Perry and Beaver Valley 1 had these fueling outages. They were extended outages.

So nuclear output -- you know, obviously you've got much lower fuel costs for the nuclear output. And it was a much bigger percent of our overall generation mix in the second quarter this year, so that -- the nuclear production was probably the biggest driver of that $50 million variance. Higher distribution sales were probably about maybe $7 to $10 million of the 50. The balance was tied into the generation.

Okay thank you.

Dan Eggers, Credit Suisse First Boston Corporation.

I guess my first question -- if you look at kind of what has happened in New Jersey last year and then Ohio this year, it seems like you guys had a bit of a target on your backs from the regulators. What are your thoughts, number one, that these outcomes would not come close to expected? And two, how are you guys progressing in trying to rebuild or strengthen relationships?

I think it's been a positive year from a regulatory relations standpoint. And certainly, I think the filings in New Jersey that I mentioned in my part of the speech -- those are positives for us. I think, obviously, the dialog we've been having with the Ohio Commission regarding the rate stabilization plan has been positive.

And a big element in making the regulatory bodies happy and satisfied is delivering high-quality customer service. That is absolutely the most important thing. We've talked in the past about the incremental expenditures we've made to help improve our distribution reliability.

And we think those are paying dividends, in terms of better customer service. And obviously, that has an impact our relationships with the commissions as well. But, I would view this period as one of very positive progress for us in terms of moving those relationships forward.

How will you gauge -- or is there a way to quantify the reliability improvements over the past year? Have you guys spent a lot more money in that direction?

Certainly, there are many measures that are used to measure distribution or reliability. And certainly that's something the New Jersey Commission will be evaluating as part of this proceeding. You will probably recall, Dan, there was a 25 percent equity adder or detractor, if you will, based on a return on equity, based on their assessment of our quality of service.

So they will be looking at that. Certainly the Company keeps track of a number of statistics as well. And I think those have told a positive story, in terms of the progress we've made in New Jersey. And specifically, some of the higher visibility projects that we've done include heightening the reliability of service to the Barrier Islands, where we had that very unfortunate power outage last year, not 2004 but 2003 -- in terms of putting in double or triple redundancy of the lines going to serve that load.

We've also accelerated spending in New Jersey for reliability issues. So -- bringing forward over $30 million per year this year and last year in terms of providing more reliable service. So I think those are all positive things. There are a lot of ways to measure it. But I think that it's -- by any measure you use, I think it's been a year of significant progress.

Okay. So you guys are visibly seeing improvements in outage times or frequency of outage and those sort of numbers? That is already showing up?

Yes -- yes.

Any other question I guess for you guys is -- we're hearing talk of more and more rail-related issues as far as delivery of coal is concerned. What are you guys -- are you guys seeing those problems? And is that having any impact on where your inventories are? I know you are well hedged on coal, but from an inventory and actually having coal available perspective --?

Much of our coal is not brought in by rail, Dan. It's brought in by barge from mines, really around the Ohio River. We don't use that much PRB -- that is, coming into rail. So we've not really seen any transportation or inventory issues to this point.

Okay. Thank you.

Brian Chain, Smith Barney.

Actually it's Greg Gordon. A couple of questions. First of all, on the gross margin improvement, great job. It looks like you went from like 57 percent gross margin in the first quarter, to about 58.5 percent gross margin in the second quarter. I guess my question for you, Tony, is -- I know that you've been taking a hard look at the operating performance of the Company, and will probably be bringing your new COO into the loop on that as well. At what point are you going to sort of unveil to us what your sort of longer-term operating goals are for the Company? That's my first question.

Well Greg, we're still working on those. I think probably by the end of this year, we should have a better line of sight for where we want to head over the next several years.

Great. As I look at the numbers -- you know back in 2000, 2001, before the Davis-Besse problem, you guys were operating at a gross margin level that was more like in the low 60s. Obviously, you're going to see pressures on some things you can't control, like the think cost of fuel. But, would it be things like that that we would look to hear from you guys on, when you're ready to sort of roll out what you're goals are?

Well, that will be -- some of that information obviously will be available as we look to 2005.

Great. And then the other forward-looking question was -- one of the key things we're seeing in this quarter from companies like you that are getting to a point where they've got very healthy cash-flow profiles, relatively stable regulatory environments, good operating performance -- is them being more comfortable repositioning their dividend policies -- to give back that money to shareholders. Tony, at what point are you going to be comfortable being sort of explicit with investors on what your intentions are on that front?

Let me take a shot at that, Tony. I've noticed that over the last several days in particular, Greg, and as you know, we've talked before about -- as we approach the end of our debt reduction program, which we think will be completed by the end of next year. Obviously that gives us the capacity, we believe, to start to return some of that cash to shareholders in the form of dividends, without jeopardizing our credit goals and metrics as well.

We know we don't have to get to the end of the program in order to do that. We need to get to a point where we can start to flow some of the cash back to shareholders in a manner that is credit-friendly. I don't think we're quite there yet. But as we go through this year, we've been very successful in meeting our targets.

We'll get to that $1 billion level this year. So as we go into '05, I think we'll be positioned well to recommend to the Board that we take a serious look at starting dividend growth again. And once again, as we go through the year, we will be able to articulate or sharpen our guidance to the street on that.

So, are you telling us that you think you'll been a position to give us guidance on '05 dividend policy before the end -- sort of at the end of '04?

We don't know specifically when we'll do it. But what I am saying, Greg, is that as we approach the end of '04, we will be starting to see the end of the debt reduction program in 2005. So we will be well down that road. And somewhere along that path we will make the call -- when it is time to start flowing some of that cash back to shareholders in a manner that won't be adverse to our credit status.

Great. Enough said. Thank you. I appreciate the answers.

Paul Ridzon, KeyBanc Capital Markets/McDonald Investments.

Rich, could you just repeat what your guidance is, and what's in there and what's not in there at this point?

Our earnings guidance for 2004, Paul, is $2.70, $2.85. When we initially gave that guidance, we said that was excluding Davis-Besse. The costs of the Davis-Besse outage in the first quarter were about 12 cents per share. We have now started to recognize the benefit of the Ohio rate stabilization plan. And just coincidentally, that's about 12 cents per share as well.

So, we're including both of those items in earnings guidance at this point. It excludes any unusual amount of recurring items such as the two items I mentioned before, related to the sale of (indiscernible) and also to the litigation settlement.

What was the second quarter benefit of implementing the terms of the rate stabilization plan?

In the second quarter, it was about 4 cents per share -- about $24 million.

Thank you very much.

Steve Fleishman, Merrill Lynch.

Just to clarify that prior comment -- within this quarter, you already started booking the amortization changes and such associated with the plan?

Yes, there's two parts, Steve. That's changing the transition costs of amortization and also the carrying charges on the preferred balance, retroactive to the beginning of (multiple speakers)

Okay. So is that mainly why the T&D -- excuse me, the depreciation and amortization -- was down in the quarter?

Yes.

Okay. Secondly, on the issue of shopping, I'm just curious -- it looks like shopping megawatt hours have gone up about 20 to 25 percent this year. Is that generally in line with what you expected?

Yeah, I would say that it is, Steve, and it's generally in line with that shopping target in Ohio. What you're probably seeing there is some JCP&L impact too. Kurt, do you want to talk about that?

Yes. The biggest change you're seeing, Steve, is coming -- similar to what we mentioned on the first quarter call, coming out of the JCP&L system --

Okay (multiple speakers)

-- because of the changes in the option rules (multiple speakers) back in July or August last year. So that's where the brunt -- big piece of that shopping change is.

Okay. Is the Ohio shopping up, too? Or not really?

It's been generally consistent with that 20 percent level. It has not gone up markedly.

So it hasn't changed much?

(multiple speakers) year-over-year, right.

Even though there's higher shopping credits?

Correct.

Okay. And I guess on the New Jersey case, and the fact that the commission agreed to rehearing of the prior order -- did they kind of agree to everyone's rehearing requests? Or was there anything in the language of their rehearing agreement to listen to this that would indicate that there could be some changes to the order last year?

Kurt, you know about the others?

No. They only address -- the (indiscernible) decision to rehear was specifically directed at those 4 or 5 items that are Company-related items. The other parties will be allowed to participate in the rehearings. Basically, they said all the other elements of the rehearing requests are denied. So I believe the oral argument will focus on the items that they mentioned (multiple speakers) balance, cap structure, ROE merger savings.

And when they -- obviously when they decided to rehear that, which is kind of the basics of the rate case decision, and did they give any indication of kind of why or --?

Not from the hearing, no. That's what they had decided in an executive session.

Okay. Thank you.

Ashar Khan, SAC Capital.

Most of my questions have been answered. But just going to this change in amortization, what is the delta going to be in '05 versus '04? Is it still the same as the schedules you provided about 6, 7 months back?

You know, it's changed somewhat. We will be providing an updated schedule in the 10-Q for the second quarter, Ashar. So you will see it then. I just want to caution everyone, too, that it does not change the total amounts of the amortization over the '04 through 2010 period. It just sort of reshapes a little bit from year-to-year. But we will be publishing that in the second quarter Q.

But is it a negative or a positive? Can you directionally tell us?

It reduces expensive '04 and '05.

In '04 and '05?

Yes.

Thank you.

Paul Patterson, Glenrock Associates.

Just to sort of follow-up here on this benefit from the implementation of the transition plan, were you guys not expecting to implement it? Is that what happened? I'm just trying to figure out how this and the Davis-Besse scene sort of fits in together. I mean, as has your expectation changed in terms of the implementation of that?

No. We couldn't implement it until we had an order from the commission.

But you guys expect it in terms of your previous guidance, to effectively have it implemented pretty much when you've got it implemented, correct?

You know, we said that that was not included in our guidance for -- (multiple speakers)

I see, so they are both now included -- just to clarify that. So that's why.

Yes.

Okay that helps. Could you also give me a break down on OPEV (ph) versus pension in terms of the benefits you guys got out of there?

What portion of that -- of five-step (ph) benefit we're talking about that's from pension versus OPEV, Paul?

Yes.

I think -- Harvey, do you have that?

Yes. About a third of it is coming from the OPEV benefits redesign. We're getting about 3 cents a share from the Medicare reform itself -- from the tax-free federal subsidy, and about a penny from the reduced pension cost.

Okay. And that's pretty much what it was like last quarter as well?

(multiple speakers) Yes (multiple speakers) that's the run rate.

Okay. Thanks a lot.

Paul Fremont, Jefferies & Company.

Jefferies & Company. One other quick question on the change in the amortization. In the event that the Company finds the amended order unacceptable, should we assume, then, that you would undo the amortization benefits that you've booked?

That is a correct assumption, Paul.

And you talked a little bit about the total -- the improvement, basically, in the generation numbers. Can you give us a targeted level of generation output for 2004 in megawatt hours?

Yes, Paul this is Kurt. During the first half of the year -- the first 6 months, we produced about 37 million megawatt hours. And we believe, in the second half of the year, we will meet or beat that number -- essentially up to maybe 38, 39, 40 million megawatt hours in the second half of the year.

In the upper 70 million megawatt hours for the year.

So 37 to 40 in the second half is what you're targeting?

Yes.

Thank you.

Danielle Seitz, Maxcor Financial.

You have some sort of schedule as to the date of the decision on the New Jersey case? Also, I was wondering, is this just sort of the half merger and you will (indiscernible) for another case after that? This is just to repair the one before? Could you let me know?

Danielle, this is Terry. The Board does not have any statutory deadlines on either the rehearing -- the oral rehearing -- that they're doing on the original case, nor is there any statutory deadline on the phase 2 proceeding. Although -- I do think that the Board is interested in getting these issues behind them. But they don't -- the hearings will take place. And they're not really any under any statutory deadline.

And so there is not any (indiscernible) date after the hearings for them to make a decision?

That is correct -- they will just go through the process and issue an order when they are ready.

Also, I was wondering, did you have the refueling schedule for the second half of this year?

We have one nuclear refueling outage in the second half of this year. Danielle, I believe we that is in the October time-frame.

So, it's not like doubling up because you didn't have any in the end of spring? And it compares -- it's selectively the same as last year in the second half?

It's not doubling up. It's just a function of the refueling outages at the different types of plants that we have.

And it compares -- it's sort of roughly the same as last year?

Well, there is one refueling outage in total this year. Last year, there were two, I believe -- three -- two -- two last year.

(multiple speakers) Next month there's one.

Right.

During the second half last year?

Yes (multiple speakers) one this year.

One in the second half of last year.

One the second half this year.

Okay. Thank you.

Margaret Jones, ABN AMRO.

You may have specified a time-frame for S&P, considering upgrading your rating at the beginning of the call, and I missed it. What are you telling people about that? Or how do you feel about that?

What I feel about it, Peggy, is that by the end of this year, given the continued progress we've made, paying down debt and improving our operational performance -- we feel like by that time, by the end of this year, we should be in a good position to go back and request that they take another look at that.

Do you anticipate an outlook change before that?

I can't really speak for S&P. I think our results are producing what they asked us to produce. And we'll just have to see where we go from there.

That's great, Rich. Thank you.

Dan Jenkins, State of Wisconsin.

I have a couple of things here. First, you mention you have one refueling outage in the second half -- which plant is that?

Beaver Valley 1.

Okay. And then, kind of related to that, I was wondering -- I think as part of the restart of Davis-Besse, you were to have an inspection or something sort of process -- a mid-cycle outage? Is that right?

Yes. That would be in 2005.

Okay. So that won't be until next year.

Correct.

Okay. As far as your sales, I was wondering if you have -- could give us any sense as to, you know, you saw quite a big increase in wholesale sales. Do you expect that to continue? And then also, in addition, what you're seeing as far as the economy and your service territories, as far as maybe industrial sales and so forth --?

Let me start with that part first, Dan. The Northeast Ohio portion of our service territory, where a lot of the industrial concentration is located, is still -- has a lot of exposure to the steel and the auto businesses. So it does tend to be somewhat cyclical, based on those businesses.

Overall, I would say we have probably seen some embers of positive improvement as we go through the year. But it may be a little too soon to make a definitive judgment on that.

Overall, service territory growth continues to be highest on the eastern end of the scale, really out in the JCP&L service territory, which is more residential and commercial as opposed to industrial.

As far as the level of wholesale sales, those will bounce around from period to period, based on a number of factors. But we wouldn't expect any structural changes that would move those permanently higher or lower from the types of levels were seeing now. Thank you.

I had a question also on the non-nuclear -- I mean the non-utility operations. You had the sale of the Great Lakes. And you mentioned in that that you are continuing your efforts to divest. How much left do you have of those non-core assets that you are looking to dispose of? And how much of the non-nuclear did that Great Lakes constitute?

Well, we sold Great Lakes for $200 million. And that's our 50 percent interest in that joint venture. As far as the other non-core assets that are lost, the amount is getting smaller and smaller as we knock these transactions off.

One of the larger assets that is left at this point is called MYR, which is an infrastructure construction business, I would call it, that we acquired in our merger with GPU.

We also have several FSG, Facility Service Group, Companies left. And while we've not made any definitive decisions on those, those are probably the largest elements of our -- what I will call non-core asset base that are still remaining with us.

Okay. And the last thing I was wondering about is -- you're seeing, nationwide, kind of a lot of activity as far as maybe a little more aggressive enforcement of clean air, as far as coal plants and so forth. I was wondering what you're seeing there. And as far as -- do you expect to have to maybe accelerate any improvements at your coal plants, or anything in that nature?

Well, certainly, we've talked about how going through time with the new regulations, we will be having the environmental expenditures at some point out in the future yet to be defined, because the regulations have not really been defined. And that could also be impacted by the settlement talks that are ongoing regarding the CMS (ph) NSR, new source review. Settlement talks that are going on at this point in time have not reached any conclusions.

But if we are successful in achieving a solution there, that will obviously impact our spending going forward. But we need to see where we end up on that -- see if we can come to a successful settlement.

Okay. Thank you.

When Mike in the interest of time, why don't we take maybe one more call. And if there's any follow-up calls, certainly we will be available this afternoon to check up, if anyone wants to give us a call.

Neil Stein, John Levin & Co.

I have a few questions. First, where you stand on hedging your PGN power requirements for the next few years? Could you go through that? And maybe talk about pricing a little bit -- do the prices escalate?

Are you talking about our Pennsylvania powered load (ph)?

Yes.

I can't give you specifics on that, Neil. But we have continued to lay in purchases to cover that PA powered load, which goes through 2010 as you know. The retail price on average -- the revenue that we collect from the operating companies in Pennsylvania, the two former GPU operating companies, is about 4.6 cents -- something on that order. So we've been able to continue to go out and source contracts at rates that provide us a margin below that, obviously. So, we've not finalized the program. But we continue to make good progress there.

Could you say that the prices you are paying for power generally escalate going into next year and the next few years?

Well fortunately, we were able to put in a fair portion of the supply some time ago, before some of the more recent core cost increases have really filtered through the market. So we have some ability to speed up or slow down our purchases, based on market conditions. So we've been able, up to this point, to largely maneuver around that.

And then do you have any -- is there any impact from rising emission allowance prices?

You know, that is certainly something that everybody is seeing in the market. To some degree, we have established supplies. So I guess you would call it somewhat of a quasi-hedge to it. But we have been seeing those prices go up.

Is that an earnings impact? Will that be a driver this year?

It's good to have some impact in the second half of the year.

And last question, I haven't heard much about this and while -- the grand jury investigation on Davis-Besse. What is the status of that?

I've not heard anything about that recently either.

Okay. And there's no timetable available?

No.

Okay. Thanks very much.

Thank you Neil. I appreciate it. I appreciate everybody's time today, and continued interest in FirstEnergy. As I said, certainly, we will all the reachable by phone if anybody has any further questions. So, appreciate your time and hope everybody has a good day. Thank you very much.

Thank you, this does conclude today's teleconference. You may disconnect your lines at this time and have wonderful day.