第一能源 (FE) 2004 Q4 法說會逐字稿

Good afternoon and welcome to the FirstEnergy Corp. fourth quarter earnings conference call and webcast. At this time, all participants are in a listen-only mode and the call will be open for your questions following the presentation. It is now my pleasure to introduce you to your host, Mr. Kurt Turosky, Director of Investor Relations. Sir, the floor is yours.

Thank you. During this conference we will make various forward-looking statements within the meaning of the Safe Harbor provision 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 aspects of the business of FirstEnergy Corp. are based on current expectations that are subject to risks and uncertainties. A number of factors can 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 to the financial community which was released earlier today and which is available on our Website 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, Chief Financial Officer, Gary Leidich, President of FENOC, Harvey Wagner, VP and Comptroller, Tom Navin, Treasurer; and Terry Howson, VP, Investor Relations. I will now turn the call over to Tony Alexander.

Thanks, Kurt, and good afternoon, everyone. I would like to summarize the progress FirstEnergy made during 2004. We laid out a number of challenging objectives for the organization in 2004. These included returning Davis-Besse to safer, reliable service, implementing a higher rate stabilization plan, improving reliability and quality of service to our customers. Increasing the efficiency of our generation fleet, paying down an additional $1 billion in debt, and achieving investment grade credit metrics, and producing consistent financial results that meet or exceed the expectation of investors. With the effort of everyone at FirstEnergy, we were able to achieve each of these goals. In a minute, Rich is going to talk about our financial results in more detail, and Gary Leidich will give an update on our nuclear operations.

Before they do that , let me touch on a few of our accomplishments during the year. Even though Davis-Besse was out of service for the first three months of the year, our nuclear fleet , nevertheless, achieved a record output of almost 30 million Megawatt hours and maintained a capacity factor of about 91%. The fossil fleet posted their third best performance ever with an output of 45 million Megawatt hours, and our base load units achieved a capacity factor of 85%. These performances contributed to a record generation output for FirstEnergy in 2004 of 76 million Megawatt hours, and in 2005 we expect to improve on that record. We've also made significant investments in 2004 to enhance the reliability of our TND system as well as our customer service. We completed the accelerated reliability projects in New Jersey and further improved the condition and performance of our transmission system. We also implemented a sophisticated proprietary system that allows us to track reliability and identify service problems on a customer by customer basis. By achieving debt pay down of $1 billion during the year, we were able to achieve year -end debt to total capital ratios as measured by the rating agencies of 57% versus 59% a year earlier. Over the past two years, we've paid down almost $3 billion of debt. We have the financial flexibility and free cash to allow to us make a $500 million contribution to our pension plan, thereby enhancing its funding security.

Our Board of Directors also declared a 10% increase in our common stock dividend to an indicated annual level of $1.65 cents per share and adopted a policy targeting sustainable and annual dividend increases in the future subject subject to regular board review and discretion. Topping off a very successful year we were able to exceed the top end of our earnings guidance range and outperform our cash flow targets. In 2005, we are going to continue the momentum we built in 2004. As I mentioned, we have aggressive plans to further maximize the contribution from our generation business. We will continue to make investments across our business to improve our service infrastructure and reach higher levels of reliability for our 4 million customers. As we outlined at our analyst meeting in December, total capital spending in 2005 is projected to be about $1 billion with over 600 million of that earmarked for our energy delivery business. We will also continue to pursue timely and full regulatory recovery of our costs, and I have already started that process as Rich will describe.

I'm proud of what we achieved in 2004 and look forward to building on that record this year. I appreciate the support and confidence we have received from the investment community, and our management team will continue to work hard every day to exceed your expectations. Now I will turn the meeting over to Rich for a discussion of our financial results.

Thank you, Tony. Good afternoon, everyone. We released our consolidated reports to the financial community earlier today and that might be helpful to refer to that as we discuss results. During the call today, I'll refer to results on a nonGAAP basis. A reconciliation to results on a GAAP basis is available in the consolidated report. Also the investor information page of our Web site contains nonGAAP to GAAP reconciliations for both earnings and free cash flow measures. Earnings on a GAAP basis in the fourth quarter of 2004 were 61 cents per share, compared to 33 cents per share during the same quarter last year. For the year, GAAP earnings were $2.68 per share. Our normalized nonGAAP earnings for the year were $2.91 cents per share which excludes unusual charges of 23 cents per share. These results exceeded the top ends of our earnings guidance range of $2.70 to $2.85 per share. In the fourth quarter normalized nonGAAP earnings, excluding unusual charges of 11 cents per share, were 72 cents per share. This compares to nonGAAP earnings of 42 cents per share in the fourth quarter of last year.

Consistent with our ongoing efforts to divest non-core assets, we are marking certain of our facilities group assets and in conjunction with this, we recognized unusual charges of 11 cents per share primarily for asset and goodwill impairments. We also expect to complete the sale of our retail and natural gas business this year. And so its financial results are not included in discontinued operations. Factors that drove our performance during the quarter including a 12 cents per share increase in electric gross margin resulting from a 12% increase in generation output along with higher contributions from increased wholesale sales and distribution deliveries. A six cents per share reduction in energy delivery expense, a five cents per share reduction in fossil operating expenses as a result of fewer outages this year compared to the same period last year. The six cents per share benefit from decreased financing cost due to our continued reduction and refinancing activities and an eight cents per share in a reduction in pension and other employee benefit costs. Offsetting these factor inside part were ten cents per share increase in incentive compensation expense. We didn't pay short term incentive compensation to our employees for 2003 due to our performance but we will do that for 2004. And also there was a five cents per share increase in nuclear operating expenses related to the refueling outage at the River Valley unit number one. Additional information on these and other variances provided in our report to the financial community.

As I mentioned, our continued aggressive debt reduction and refinancing activities again produced a positive result this year, in this quarter was $35 million decrease in interest charges versus the same period last year. During 2004, total debt decreased by $1 billion which brought our ending adjusted debt to total cap ratio to 57% from 59% at the end of the prior year, and as Tony mentioned, we've paid down almost $3 billion worth of debt over that time frame. All in all, 2004 was a very successful year from a financial perspective. Before I turn the call over to Gary, let me quickly provide a few other updates. In November, our Ohio transmission affiliate, American Transmission Systems, or ATSI, filed a request with FERC to defer about $54 million of vegetation management costs over the 2004 through 2007 period. In December, ATSI also filed a rate case with FERC to increase network service transmission rates for users of the transmission system. On January 28, FERC accepted our proposed tariff revisions for filing and made them effective February 2005 subject to refund. FERC will be holding a hearing regarding tariff revisions.

In late December, our three Ohio operating companies filed transmission rate cases with the Public Utilities Commission of Ohio seeking to defer and recover costs associated with day one and day two operation and also increase network service transmission rates. The filings request regulatory deferral treatment for about 25 to $35 million through the end of 2005 with cost recovery to begin in 2006. Last month Metropolitan Edison and Pennsylvania Electric filed a petition with the Pennsylvania Public Utility Commission seeking to defer and then subsequently recover increased PJN related expenses being incurred for ancillary services and transmission congestion. These filings request a deferral of about 80 to $100 million in 2005 with, again, cost recovery to begin in 2006. Except for the deferral of ATSI's vegetation management cost, the outcome of these cases was not included in our earnings guidance for 2004. I will now turn the call over to Gary for an update on our nuclear state performance.

Thanks, Rich, and good afternoon. I will cover FENOC's 2004 performance, touch on the recent Davis-Besse steam generator inspection outage and the issues that at our Perry facility. Davis-Besse is back at 100% power after the steam generator inspection outage. We were very pleased with the execution of this outage which was completed in 23 days. The primary purpose of the outage was to conduct a detailed inspection of the steam generators. In fact, this was the most comprehensive inspection in the plants history for these steam generators. They are in excellent condition with only 3% and 1% of the tubes plugged respectively, and for those of you who follow the industry, you know that's a very good number, good condition for the steam generators. We also completed an inspection of the reactor coolant pumps, the reactor vessel, both the vessel head and underneath the vessel, with no indication of any corrosion or leakage. And during the outage, we had several NRC inspections that occurred and the feedback from the NRC during the outage was very favorable with no issues noted.

Turning to our Perry facility, the plant is back on line after restarting on January 31. The Perry shut down on January 6 was when we had two recirc pumps -- reactor recirculation pumps that switched from high to low speed and one pump that subsequently tripped. We also experienced a motor feed pump breaker problem. After a thorough root cause investigation, the circuits were upgraded to address the recirc pump issue, and we resolved the breaker issue as well. In response to the outage, the NRC sent a special inspection team in to assess the situation and to monitor our response to it. Also during that period, the NRC had been at Perry and had the first phase of the 95003 inspection going on at the same time. That inspection covered several processes at Perry including corrective action program, plant design, human performance, configuration and control, and the use of operating experience. The preliminary exit meeting for both these inspections is this Friday with the NRC. We expect a few minor violations but none of safety significance. Phase II of the 95003 inspection is slated again this month during the Perry refuel outage, where they will cover work control, maintenance and radiation protection. The third and final phase will take place in April, where the NRC will look at emergency preparedness, equipment reliability, configuration management, and our progress on the Perry performance improvement initiatives. Perry will begin its tenth refueling outage later this month and the outage is expected to last about a month. We also recently recruited a new site Vice President for Perry, Rich Anderson, who joined us in November of 2004. He comes to us from Pennsylvania Power and Light where he was Vice President of operations of a top performing Susquehanna plant which is a two unit willing water reactor.

Switching to Beaver Valley, Beaver Valley Unit Two is expected to beginning its refueling in early April. Beaver Valley Unit One, as you may recall, demonstrated very strong performance with a 28 day refuel outage last Fall. You may recall that the industry average last Fall for all the outages was about 46 days. So we demonstrated good outage execution of Beaver Valley. We expect similar performance in April for Unit Two. I would also add that we announced just yesterday the license renewal for both units of Beaver Valley.

We viewed 2004 really as a breakthrough year for the FirstEnergy nuclear operating company. A combination of focused hard work by our employees and execution of a well thought out business plan made this possible. We set a number of records in 2004 just to cover a couple, first of all, in the industrial safety front we had the lowest ever number of OSHA recordables at nine, which is in the best quartile of the industry. We've also extended monitoring our safety culture to all three of our facilities. We have a healthy safety culture where employees fleet -wide continue to aggressively identify and report safety and quality concerns. As Tony mentioned, the FENOC fleet had an all time generation record of 29.9 million Megawatt hours last year after with Davis-Besse out of service during the first quarter. Both Perry and Beaver Valley Two set output records during the year and Beaver Valley set a number of other records as well. Overall our capacity factor was about 91% and since the Davis-Besse restart over 95%. We've demonstrated our capabilities to perform and our goal is to continue this kind of improvement and move FENOC again to a top industry position in all aspects of our operation. We've got a good plan in place and we are executing the plan, and we expect that it will allow to us achieve that goal. Thanks and I will turn the program back over to Rich.

Thank you, Gary. Our earnings guidance for 2005 remains at $2.70 to $2.85, excluding unusual items. We continue to project that we will generate free cash after capital expenditures in the common dividend of at least $560 million. As we mentioned we planned to reduce debt by about $700 million in 2005 which would bring our year ending debt to total cap ratio to about 54%. All of us at FirstEnergy are very pleased that we were able to deliver a solid performance in 2004, both operationally and financially. I'm very confident that we have the right team and the right plans in place to extend that performance in 2005 and beyond. So I very much appreciate your time and your being able to join us this afternoon, and I'd like to ask the operator to open the call to questions from analysts, please.

Thank you. The floor is now open for questions. If you have a question please press star one on your touch-tone telephone. If, at any point, your question has been answered you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order they are received. Go ask that while you portfolios your question that you pick up your handset to ensure the proper sound quality. Our first is coming from Kit Konolige from Morgan Stanley.

Good morning -- afternoon, I think it's the first time I ever got the first question, so.

How are you, Kit?

Good, how are you guys? Kind of a broad-based question, I guess this would be focused on Rich, but could you give us some sense of the pluses and minuses from '04 into '05 EPS is in the same range had you projected you are at the top end of the range here. One, would that significant that you are starting off at all other things being equal during the top ends of the range for '05. Two, given that you mentioned you expect to improve on, your generation output in '05 -- where are the negatives to that? So walk us through that.

Sure, sure. Some of the big drivers, '05 over '04, Kit. As you know amortizations, transition costs, amortization increased in '05 versus '04, that's an impact of about 16 cents. We talked about that at the December analyst meeting. We also have three nuclear refuelings in '05 versus '04 and that has a total impact O and M, replacement power and so forth of about 20 cents per share. So we have about 36 cents head wind from those two items. Now we're offsetting that is obviously as we had Davis-Besse in the first quarter of '04, and that's not going to be there in '05 so that is a positive impact of around 12 cents per share. So overall about a 24-cent per share speed bump that we have to overcome just to get back to our performance of '04. So that's a big head wind. Tony mentioned increasing generation output and improving generation margin. That's going to be one of the major elements of helping us to overcome some of these built in obstacles, if you will, in terms of offsetting that 36 cents expense in '05 that we didn't have in '04.

Go ahead.

I'm sorry? Does that help.

Yes. Can I follow up a little bit?

You may.

Two separate areas. One, are you seeing as many other companies are, but you are maybe more of a mix, are you seeing higher coal costs, and do you expect to pay more for emissions allowances in '05 versus '04?

I mean certainly coal costs and emission costs have been going up. I think we've got probably one of the more effective hedging programs in place that help us minimize those increases so there is some additional cost flowing through in '05 that's reflected in our guidance. But my belief, my thinking is that that's probably somewhat less than for many of our peers.

Very good. Thank you.

Thank you.

Thank you. Our next question is coming from Dan Eggers of Credit Suisse First Boston.

Good afternoon.

Hey, Dan.

Question number one: just because it just hit, there is talk of a second SEC subpoena. Is there anything we need to know about that?

There's really no news there, Dan. That was received on December 30, and we had disclosed several times, many times prior to that obviously, the SECs division of enforcement, their investigation; really relating to three items, the August '03 restatements, disclosures regarding Davis-Besse, the PUCA 35 act issue. And the additional subpoena on December 30 really just was more of the same regarding the 35 act. -- did not really contain any new news.

And the way the SEC works is that they just quit investigating? There is not going to be a formal announcement when they are done. Is that correct?

My understanding is that's typically the case, it typically does not formally get closed.

Okay, good. Just wanted to resolve that.

I appreciate that, that's good.

Question number two, the sale you guys had with PEPCO ended at the end of the year. Is there any color you guys can give on what you've done with that asset as far as contracting goes, and it was a pretty good contract before, is there going to be any drop off or anything we need to do worry about right now.

Actually, that ends at the ends of this year, Dan, end of 2005.

Okay. And you will look to re-contract that normal auction process this year, is that fair?

We'll look to deploy that generation somewhere else but not necessarily in an auction environment. Obviously the current level of market prices is attractive and will help minimize any carry from that transaction going away.

Got it. Thank you. One more I guess while I have you here, what were the forced outage rates for full year '04 relative to your original expectations and the utilization rates you guys talked about in December, anything change in your mind on that right now?

During '04 is what have we really have to implement our mission driven generation strategy which was to really run the base load units as base load flat out all the time, and that was what really led to that 85% capacity factor for our large base load plan. Our load following plants, some of our smaller order plants were running at about a 51% capacity factor while nuclear was over 90, I think it was 91% capacity factor.

95 plus Davis-Besse. Our forced outage rate was under 3% for nuclear for the year.

So I think you are really seeing the fruits of this new strategy as far as how we run the total generation fleet starting to pay dividends in '04 and you will see that in '05 as well when, as Tony mentioned, we are targeting a generation output increase in '05 even though '04 was a record year for us.

Thank you. Our next question is coming from Paul Rizdon of Key McDonald.

A couple of questions about what's in guidance and what is not. Is the drag from facility services excluded from guidance, and then if you just repeat was said about the two deferral requests you have in New Jersey and Ohio?

Facility services is included in guidance. For the most part other than a small portion of one rate filing which was really the deferral of the vegetation management costs, any outcome from those rate cases is not included in our guidance for '05.

That was 25 million in Ohio and 90 million in New Jersey?

Yes, that's about right, Paul -- Pennsylvania.

And when do you expect resolution of those issues?

Well, later this year. We don't no exactly how long some of these cases are going to take. Obviously, we are hoping they will be handled expeditiously, but it will take time for them to percolate through.

With the year coming in the quarter particularly above expectations and giving where your guidance was above expectations, where was the unexpected strength?

When you look at the big drivers that resulted in the fourth quarter earnings, there was a 12% increase in generation output which really helped us increase wholesale sales 29% so that was certainly a factor. Distribution deliveries were up about 3% which was a positive. And then expenses were down in energy delivery and fossil and also legal expenses as a result of settling the shareholder litigation. Those were big drivers that led us to that over the top end kind of result in the quarter.

Thank you very much.

Thank you.

Our next question is coming from Paul Patterson of Glenrock Associates.

Good afternoon, guys.

Hi, Paul.

Just a follow up there with Paul Ridzon's question, so we are talking if everything goes your way, somewhere maybe in the neighborhood of over $100 million pretax that non-cash benefit on an annualized basis that could show up if you could get the right treatment, regulatorily speaking?

I think that sounds about right, if we were to get everything we filed for.

And then the second question I have is that if we look at Perry and Davis-Besse for the first quarter of '05, could you quantify what the financial impact of that was and can we assume that that won't be there in 2006?

Well, let me answer part of that and I will turn it back over to Rich on the Perry costs. But the Davis-Besse outage for '05 was planned so that's burned in the numbers. And we actually came in slightly under budget for that outage. And then in terms of Perry there's both replacement about the and lost opportunities --

Perry was on for 26 days and a good rule of thumb is about for a planned Perry size under those conditions of roughly $1 million a day impact on generation margin.

$1 million a day. And then the same thing would be pretty true with us, Davis-Besse as well even thought you already had it in your numbers.

Davis-Besse was certainly in the budget, in the guidance. That was a well executed outage for us.

But that won't show up in 2006, right?

Right.

Okay.

That outage won't show up but there will be another one.

There are always going to be nuclear outages, Paul.

Okay.

No matter when they are, which ones they are.

Okay, the other thing I want to touch base with you on is just Paul Ridzon also touched on is facilities services. It looks like you guys lost $10 million before the goodwill impairment in the third quarter of 2004. And I know you guys are planning in divesting and what have you, can you give us a little bit of an update, when that might happen, what your expectation is there and just what the results for facilities services was if you could just remind us for the full year of '04?

Sure. In terms of the divestiture activity, Paul, those are being marketed now. We would hope to have a transaction relatively soon, possibly in the first quarter this year. So obviously that's dependent on market conditions and how the sale process goes, but we are trying to speed that process along. Harvey, do you have the numbers on--

Their results in 2004 were marginal; about 1.5 million positive.

So it's -- okay, so the full year, so why was the fourth quarter so bad?

There was some inventory and other adjustments at some of the subsidiary companies that were falling through in the fourth quarter.

Okay. Fine. Finally on page ten, on your cash flow reconciliation, could you just remind us what the $295 million of miscellaneous relates to under other items? It's the last item under other items before free cash and nonGAAP.

Sure, Kurt, do you want to do that? Hang on one second here, Paul. We are reading.

If you want you can get back to me on that I don't want to hold up the call.

How about we have Kurt give you a buzz, Paul?

Typically that includes investment drawdowns, payments on long-term receivables, those kinds of things. We will come back to you with some detail.

Okay.

Thank you. Our next question is coming from Margaret Jones of AMB Amro.

Hello. I had two questions. The first is, Gary, could you rundown when you will get public feedback from the NRC about things at Perry particularly, but also whatever remains to come from Besse?

Right now the NRC has not scheduled any public meetings for Perry. They could have done so after the special inspection or even after phase I of the 95003 process. That's kind of up to them in terms of when they want to send messages to the public, if you will. We would expect following the completion of the third phase to have some sort of a public meeting, and in our discussions with them, we've said that that's certainly fine with us to kind of put a ribbon on it if you will or kind of wrap up the whole inspection process from 95003. My guess that would be a late April timeframe, and they would probably schedule that again about a month and a half ahead of time. In terms of Davis-Besse, the next scheduled meeting is scheduled for, I believe, it's next Tuesday in the afternoon and again that will be a continuation of the 0350 process for Davis-Besse which will include their observation from our performance during the outage and again that was all pretty positive, so we should be winding up out of that process soon, we hope.

I thought there was some report planned for the first phase as a Perry inspection process around late March? And I may have been mistaken.

There has been a lot of discussion about different reports at different times. And I think right now it's all going to get rolled into one at the end of the process. We do have exit meetings with them, private exit meetings and those are even generally preliminary along the way. As I indicated earlier, we will have one of those this Friday, so we will certainly get a sense of the issues and, again, we haven't seen anything extremely coming out of this. We have more to do with Perry, but we have our arms around it.

We would fine out more about that exit meeting by checking with Kurt and Terry?

Absolutely.

Okay. And then quickly the other area I want to ask a question again is customer choice. Where it looks as if industrial customer choice in Ohio is, has actually been going down recently, and in Pennsylvania it's gone down significantly. Is there anything that we should be aware of about customer choice trends while particularly in Ohio.

You said customer choice, Peggy, you are talking shopping level?

Yes, I was looking at page nine of your summary.

As you said in Pennsylvania I think for all of the companies in Pennsylvania there is just no shopping to speak of whatsoever. If you --

If you look at those percentages Peggy they are a bit misleading because the numbers are so small change looks like a huge percent because there's little shopping going on.

In Ohio it continues being driven by the governmental aggregation programs primarily and F ES. recapture of some of those customers. We are not really expecting any major changes in that going forward.

Thank you.

Thank you.

Thank you. Our next question is coming from Terron Miller of UBS.

Good afternoon. Two sets of questions. On page eight of the press release, fourth quarter condensed statement of close cash flows, you have a pretty significant swing in deferred income tax and deferred tax credits as well as significant swings in changes of working capital. I was wondering if you could give us some help what happened there. And also in your free cash flow for the year versus what you gave in December, it looks like you are about $200 million short and we don't see anything about Great Lake, so we wonder if that was deferred in terms of timing.

Terron, this is Harvey Wagner. I will answer your first part of your question first. There really was an offset between the deferred income taxes and the accrued taxes on the balance sheet as tax payments were made and as deductions were taken and taxes were normalized. So they pretty much wash on there. That's just the way they are displayed.

What was the second part of your question, Terron, please?

In your free cash flow you look like you are about $200 million short versus what you gave in December. And we haven't heard anything about Great Lakes Energy Partners closing, and we are trying to figure out if that was the swing factor.

No, we weren't sure. We exceeded our guidance on the cash side, met or exceeded it, Terron.

Okay.

In terms of Great Lakes, that asset was disposed of in the summer. [INDISCERNIBLE]

Okay. Thank you.

Thank you. Our next question is coming from Jeff Kovoley of McKenzie Capital.

Hi, how are you guys? I just had one more follow up on the transmission deferral. Are those costs currently being expensed, or are they still being capitalized in the '05 guidance?

They are actually being expensed but the lion's share of the MISO charges are going to begin whenever they begin day two operation later this spring.

But it's primarily being expensed?

Yes, that's correct.

And they ever, just I know I'm beating a dead horse, but they are included as a negative in the '05 guidance that you gave out?

That's correct.

Okay. And on the, on the sort of the grand jury investigation related to the Davis-Besse issue; it sounds like that is a case against FENOC, is that a civil case or criminal investigation?

That is against FENOC, and it's a criminal proceeding. Again, where we are in the process is that we, FENOC, received a target letter and discussions are continuing. There's no indictment at this point. We will have to see how that plays out.

Great. Thank you very much.

Thanks, Jeff. Why don't we take two more questions and then we will let everybody get back to work.

Thank you. Our next question is coming from Paul Fremont of Jefferies and Company.

Hey, Paul.

Thanks, congratulations on a good quarter.

Thanks, Paul.

Can you provide us with some update on the hedging for power purchases in Pennsylvania, and can you discuss at all how changes that are being proposed in PJM might affect the cost of power in Pennsylvania?

Big questions there. Your first one, you know, really relates, I think you are relating to the period 2005 now to 2008 which is when the provider of west Ohio and our generation is freed up and we have the continued polar exposure in Pennsylvania to 2010. So it's really the '05 to '08 period I think you are referencing, Paul, and over that period of time, we largely have supplies in place to cover that, not totally but largely and we continue to add that to that position opportunistically when prices are favorable for us. So we are comfortable with covering that position through 2008. After that point in time when our generation of Ohio is presumably freed up, that obviously becomes a different calculus at that point. Your second point about PJM, obviously that is imposing, imposing extra costs on us that we are seeking to recover through some of these transmission cases. Were there any areas specifically that you were interested in?

Just generally speaking.

I would say that's the biggest immediate impact.

One other quick question. Back in your, at your analyst meeting when you talked about benefits, general taxes, and non-core business expenses going up 10 cents I know that you would had included in that some of the incentive comp, but if the incentive comp really hit in '04, what would be the biggest component of that 10-cent changes that you guys outlined back in the, at your analyst meeting?

Are you talking about on an earnings or cash statement?

Earnings, I think.

Yeah, I think that was a -- on the earnings that was an '03 to '04 driver, not an '04 to '05. There was a cash impact in '05 compared to '04. I think that's where we were highlighting in our analyst meeting is one of the cash drivers of '05 versus '04. Because the payment for the incentive comp earned in 2004 is paid in 2005.

Correct.

Right. But I mean I'm looking just at slide 12 which is the EPS guidance. So that -- and there's --

Incentive comp was not a component of that.

I think, Paul, what you might be thinking of are the payroll taxes associated with the payment of these incentive compensation.

So maybe asking the question differently: what's the biggest piece of that 10-cent change? You've got either benefits, general taxes, and then it says non-core businesses.

Non-core businesses is a meaningful portion of that 10 cent total and that's obviously foregone earnings from assets what we divested including Great Lakes, facility service companies that can be divested in the future, and so forth. The three items are relatively evenly split but that's probably the largest of the three I would say. Okay. One more question?

We do. Our final question is coming from Steve Wang of Smith Barney.

Good afternoon, gentlemen. A quick question here. First of all on the securitization at JCP&L; is there any progress on that?

Not right now at this point. That application is still out there but no progress to report.

Still 275 around?

Yes.

What is the collection period on the deferred costs for the MISA costs and all other costs along those lines? Is that a five-year collection period or --

It really hasn't been determined.

Okay.

What we've asked for is the, is permission to defer the costs and then they will become part of a future case.

So it won't be immediately collected in '06, then.

That's correct.

Okay, then. Just the last question here, looking at your cash generated from operations, in the analyst presentation you had about $2 billion with increased earnings above guidance, your cash flow from ops on page ten, it looks like about $150 million light. Was it just mosting a working cap issue or --

The answer would be yes to that.

Okay. So most of that working cap would then, might shift over to '06 pick up?

Yeah. There was also obviously the voluntary pension contribution that we made back in the third quarter, that reduced that.

Okay. And that wasn't reflected in the analyst presentation back then?

It was in the analyst presentation, yes.

It was? Great. Okay. Thank you very much.

Thank you, Stephen. We appreciate everybody's time today. If you have any further follow-up question please feel free to give Kurt Turosky a call. We appreciate your attention and thanks for being with us. Have a good day.

Thank you. This does conclude this afternoon's teleconference. You may disconnect your lines and enjoy your day.