新世紀能源 (NEE) 2008 Q1 法說會逐字稿

Good day everyone and welcome to the FPL first quarter earnings release conference call.

Today's conference is being recorded.

At this time I would like to turn the conference over to your host Mr.

Jim von Reisemann.

Thank you Darrell, good morning everyone and welcome to our first quarter 2008 earnings conference call.

This morning we will begin with opening comments by Lew Hay, FPL Group's Chairman and Chief Executive Officer.

Lew's comment will be followed by an overview of our performance for the quarter provided by Armando Pimentel, FPL Group's Chief Financial Officer Designate.

Also with us this morning are Jim Robo, President and Chief Operating Officer of FPL Group, Moray Dewhurst, FPL Group's Chief Financial Officer, Armando Olivera, President of Florida Power and Light Company, and Mitch Davidson, President of FPL Energy.

Following our prepared remarks, our senior management team will be available to take your questions.

Let me remind you that our comments today will include forward-looking statements within the meaning of the private securities litigation reform act of 1995.

Any statements made here in about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from such forward looking statements.

Discussion of factors that could cause actual results or events to vary is contained in the appendix here in and in our SEC filings.

Now, I would like to turn the call over to Lew Hay.

Thanks, Jim.

Good morning, everyone this morning we are pleased to report another quarter of strong earnings for the consolidated operations of FPL Group.

The power of having a diversified portfolio was demonstrated clearly this quarter as our financial results were driven by outstanding performance at FPL Energy, but were somewhat hindered by the economic slow down in Florida which has driven revenue growth and earnings lower at Florida Power and Light.

The first quarter story at FPL Energy is very positive.

Results were driven by new project additions including new wind and the Point Beach Nuclear Facility, improved pricing at some of our existing assets, primarily due to the rolling off of old hedges, and higher earning from our wholesale marketing and trading operations.

These were partially offset by an unplanned outage at our Seabrook plant and increased interest expense.

We had high hopes for FPL Energy's performance for the first quarter and in fact we did better than we expected.

Since last year's first quarter we've added 2,171 megawatts of new generation capacity to FPL Energy's portfolio.

Of that approximately half are new wind facilities which we developed, constructed and have now placed into service.

Virtually all of the remaining plant addition is the Point Beach Facility.

For the full year we are on pace to add 1,100 to 1,300 megawatts of new wind assets.

We are confident that 2008 will be another record adjusted earnings year for FPL Energy.

The first quarter at Florida Power & Light was weaker than expected.

While retail base rate revenue increased approximately $30 million in this year's quarter, the increase in new customers and customer usage was less than what we had expected.

As far back as our third quarter earnings call last year and as recently as our investors conference last month, we have discussed the slow down in new customers that we are seeing in FPL's service territory.

It is clear that economic conditions in Florida, especially those related to the housing market are challenging and as long as that continues it will affect our revenue and earnings growth at FPL.

There are, however, other signs that tell us that Florida economy is not all bad.

For example, personal income continues to grow, albeit it at a slower rate than in past years.

Unemployment remains low and recently there have been some modest signs of improvement in the housing market.

We expect the remainder of this year to be challenging but remain very bullish on the longer term prospects for growth in Florida.

We believe what we are seeing is unusual and cyclical in nature and that we will in time revert to a growth rate more in line with our historical balance.

In light of lower than anticipated revenue, we have taken some steps to reduce O&M and capital expenditures at FPL.

These initiatives have reduced O&M expenses relative to our origin plan, and we expect O&M to be lower than plan for the remainder of the year.

We continue to proactively look for opportunities to reduce O&M and capital expenses while still providing high quality services to our customers.

More over O&M and CapEx spending levels must be balanced with the fact that we are comfortable with the long term growth targets for this business.

Even with some temporary slowing and growth we still have significant opportunity to invest in new assets at Florida Power & Light.

We will continue to make investments which will improve our efficiency, lower our customer's fuel bills and improve our already clean environmental profile.

We believe these first quarter results are a good start to meeting our 2008 earnings target for FPL Group.

We continue to believe that given normal weather and no further material declines to the Florida economy, our previously announced adjusted earnings per share expectations for 2008 of $3.83 to $3.93 remains a reasonable estimation of our full year results.

Although it is still early in the year and much can change, it seems likely that Florida Power & Light will be challenged to meet its plan while FPL Energy is well positioned to exceed our expectations.

While we are on the topic of 2000 earnings, I would like you to keep in mind there are two items that will impact year-over-year comparisons.

Especially for the second and third quarters of 2008.

In this year's second quarter we have a refueling outage at Seabrook.

And also while the nature of our contract at Point Beach results in a disproportionate amount of its earnings following--falling in the third quarter of the year.

For 2009 we continue to see adjusted earnings per share of $4.15 to $4.35 as a reasonable range.

Now I would like to turn the call over to Armando Pimentel who will provide more details behind the first quarter results.

Thank you, Lew.

In the first quarter 2008, FPL Group's GAAP results were $249 million or $0.62 per share compared to $150 million or $0.38 per share during the 2007 first quarter.

FPL group's adjusted 2008 fist quarter net income and earnings per share were $305 million and $0.76 respectively, compared with $277 million or $0.70 per share in 2007.

The difference between the reported GAAP results and the adjusted results is a negative mark in our nonqualifying hedge category and the exclusion of other than temporary impairments or OTGI, which I will discuss in greater detail later in the call.

Both of these adjustments affect FPL Energy.

Please refer to the appendix of the presentation for a complete reconciliation of GAAP results to adjusted earnings.

FPL Group's management uses adjusted earnings internally for financial planning for analysis of performance, for reporting of results to the board of directors, and as an input in determining whether certain performance targets are met for performance based compensation under the employee incentive compensation plan.

FPL Group also uses earnings expressed in this fashion when communicating its earnings outlook to analysts and investors.

FPL Group management believes that adjusted earnings provide a more meaningful representation of FPL Group's fundamental earnings power.

For the first quarter, Florida Power & Light reported net income of $108 million compared with $126 million in last year's first quarter.

The corresponding contribution to EPS were $0.27 this year compared to $0.32 last year.

Customer growth continued, albeit at a slower pace than in recent years.

For the first quarter of 2008 the average number of customer counts increased by 40,000 or .9% since last year's first quarter.

As you know this is about half our long term average customer growth rate at near 2%.

Despite a terrible housing market, Florida's economy continues to grow, albeit it at a slower rate than recent history.

We added approximately 11,000 customers during the first quarter of this year.

Our ability to forecast future short term growth is hampered due to the economic uncertainty facing the entire U.S.

economy.

For the rest of the year, based on the data available to us, we expect new customers to grow at a relatively modest pace, consistent with actual results for the first quarter.

The year to date housing starts we are experiencing are consistent with this level of growth.

In addition the electricity usage rate per customer as compared to the first quarter of last year was down .6%.

In most quarters we are reasonably able to distinguish how much of the usage comparison is due to weather.

However for this year's first quarter in which temperatures did not depart significantly from average values for much of the time, different specifications of the relationship between weather and volume produce different results, ranging from weather having a slight positive impact on the quarter to quarter comparison, to having a slight negative impact.

Our best judgment is that the net effect of weather was a slight negative and that our underlying usage per customer was somewhere between flat and a half point or so negative.

There are a number of factors that seem to be contributing to this weakness in usage, including customer conservation measures, general economic conditions and the specific impact of the housing slow down.

It is hard to separate and quantify these effects.

Calculations suggest that the increase we have experienced in the number of customers with a very low monthly usage which generally means premises that are unoccupied could account for a drag on average usage growth of as much as 0.3%, but this is a rough estimate only.

Information from customer research using focus groups, while not statistically valid suggest that deliberate conservation measures are real, but are more related to the overall economic circumstances into long term behavioral changes.

What all this suggests to us is that we can expect continued weakness and usage growth comparisons for some quarters to come, but that what we are seeing—that we are seeing the impact of two broad effects.

The working through of the excess housing build of the past few years and a cyclical downturn in the economic situation.

We are confident that both of these will reverse in time and we continue to expect long term modest growth and average usage per customer once we are through the current cycle.

Let's turn to an earnings driver slide that we have used before with which you are probably familiar.

The effect on revenue related to new customer growth added approximately $.01 to earnings compared to the prior year.

Our first quarter 2008 earnings benefited slightly from the addition of Turkey Point Unit 5 that came into service in May 2007.

This plant came into rate base as a result of the generation base rate adjustment mechanism that is part of the 2005 rate agreement.

On an after tax basis, that base rate adjustment increased earnings by approximately $0.04 per share.

Although the net impact of Turkey Point 5 in this quarter compared to the prior year was only half a penny.

O&M increases negatively impacted earnings by approximately $.06 per share this quarter compared to the prior year.

The increase was across the board in our business units but the primary items were related to an additional nuclear O&M associated with investing to insure long term reliable operations of our units, and the timing of maintenance and overhaul activities and reliability work in distribution and power generation.

As Lew already mentioned, O&M capital for the quarter was less than planned and we expect our full year results in this area to be lower than we had previously planned.

With reduced growth we have fine tuned our spending plans for the year.

However, incremental short term O&M savings will not be enough to fully offset the revenue shortfall.

All other factors were a drag of $0.04 per share mainly related to depreciation and the loss of AFUDC as a result of the addition of Turkey Point 5.

Although FPL's earnings did not meet our initial expectations for the quarter, we were very pleased with the company's performance on a number of critically important matters.

Our construction of West County Energy Center units one and two, is on schedule and we continue to expect those units which are each approximately 1,220 megawatts of capacity to be completed in 2009 and 2010 respectively.

As you may recall the combined approved costs for these two units is approximately $1.3 billion.

Under the GBRA mechanism, a powerplant approved pursuant of Florida Power Plant Siting Act that achieves commercial operation during the term of the 2005 rate agreement, will by way of a simplified administrative procedure provide us a base rate increase when the new capacity comes into service.

Currently, we expect West County Unit 1 to meet this requirement in 2009.

Before those costs are recovered in our base rates we recover AFUDC on the construction costs.

Earlier this month, we also petitioned the Florida Public Service Commission for approval to build another combined cycle natural gas plant, West County Unit 3, at the same site where we are building Units 1 and 2.

Unit 3 will be identical to Units 1 and 2, and if approved would be operational by 2011.

All three units provide customers with net savings since their impact on base rate is more than offset by greater fuel efficiency.

We also continue to move forward with our plans to complete about 400 megawatts of nuclear [upgrades] at our St.

Lucie and Turkey Point nuclear plants.

Our approved budget for this expansion is $1.8 billion and we expect this to be completed in 2012.

And a very promising step forward for new nuclear construction in the state of Florida, in March our Florida regulators approved our need petition to build two nuclear power units at Florida Power and Light Turkey Point Generating Complex in Miami Dade County.

It is our understanding this was the first approval of a new nuclear facility by a state commission in more than 30 years.

As we have discussed with you before, FPL is pursuing the option of constructing 2 advanced designed nuclear plants at the Turkey Point site that would add between 2,200 and 3,040 megawatts.

While no final commitment has yet been made, if built the units are expected to go into service in the years 2018 and 2020 and would have a combined estimated cost of $12 to $24 billion.

FPL continues to believe if the associated risks can be adequately managed, new nuclear capacity can provide large economic and environmental benefits to our customers.

Let me remind you that under Florida's Nuclear Cost Recovery Rule, adopted by Public Service Commission in 2007, we are allowed cash recovery of all carrying costs during construction and subject to annual prudency reviews of the costs as they are incurred, a base rate increase when the new capacity comes into service by way of a simplified administrative procedure.

The same procedure applies our 400 mega watts in nuclear upgrades as I mentioned earlier.

And finally, later this morning we will be announcing additional steps to modernize our Florida Generation fleet, improve our system efficiency and further reduce air emissions.

Separately while financing terms and credit remained tight for the overall economy during the first quarter, we successfully issued $600 million of first mortgage bonds on attractive terms.

FPL's financial position and liquidity are some of the strongest in the industry as evidenced by our continued excellent credit ratings.

We feel confident that the long term prospects for FPL continue to be positive and believe that the revenue slow down we are currently experiencing will first moderate and then reverse itself as economic conditions improve.

Let me now turn to FPL Energy.

FPL Energy's 2008 first quarter reported GAAP results were $164 million or $0.41 per share compared with $45 million or $0.11 per share in prior period results.

Adjusted earnings for the first quarter of 2008 were $220 million or $0.55 per share compared to $172 million or $0.43 per share in the prior year's quarter.

The difference between GAAP earnings and adjusted earnings as related to the negative mark recorded in the quarter for nonqualifying hedges and OTTI losses.

As a reminder, the types of transactions that we classify as nonqualifying are those that must be mark to market under GAAP, but that provide an economic hedge to a position that is not mark to market thus creating an unavoidable mismatch in current period GAAP results.

We continue to believe that is more useful to think of FPL Energy results excluding the impact of the nonqualifying hedge category, whether that impact is positive or negative.

Comparisons of period to period GAAP results can be quite misleading when there is significant volatility in the nonqualifying hedge category.

During the current quarter, our GAAP results are lower than our adjusted earnings results primarily because of the fair value of nonqualifying hedges of $52 million.

This actually reflects good news for FPL Energy since value of our unhedged asset positions rose significantly with the general rise in forward power and natural gas prices.

While the loss on the hedges was offset by increases in the value of the underlying assets.

Neither of these effects is shown in the company's results.

Adjusted earnings include also include an adjustment to GAAP earnings for the effect of other than temporary impairment losses on our investments in nuclear decommissioning funds at FPL Energy.

This is a new item and I want to spend just a minute on it since the principle is important even though the amount this quarter is not material.

GAAP requires that unrealized losses associated with investments for which a reporting company does not have the ability and intent to hold the investment until unrealized loss is recovered to be recorded through its income statement.

If the reporting entity does feel comfortable that they have the ability and intent to recover the unrealized loss, then the unrealized loss is recorded in equity.

Unrealized gains, unless a company has adopted FAS159 are always recorded in equity.

The rub is, that it is very difficult to meet the ability and intent language if the investments are managed by an outside party or trustee as are ours.

As such, under the rules any unrealized loss automatically ends up in the income statement.

In the past, OTTI losses have not been very significant to us and although, we have previously been troubled by the mismatch that it creates, because of its relative size, we had not stopped to call it out separately.

As our investments in this area grow, however, it has become important for us to address the mismatch between unrealized gains and losses.

In the first quarter of this year, OTTI losses were $4 million after tax, or $.01 per earnings per share.

The amount of OTTI in last year's first quarter was approximately $1 million.

The next chart shows you the individual drivers of adjusted earnings from last year to this year.

Lew has already mentioned we have added 2,171 megawatts of new investments to our portfolio since last year's first quarter.

On an adjusted earnings basis these new investments resulted in an increase of after tax earnings of $.08 cents per share when compared to the prior year's corresponding quarter.

Our existing assets also performed well during the current quarter, contributing to a $0.03 per share improvement from the prior year's quarter.

Our existing wind assets had a good wind resource quarter compared to the same period a year ago.

In addition, in markets other than NEPOOL earnings increased as a result of favorable pricing, asset optimization and capacity markets when compared to the prior year.

And overall there was positive contribution from our contracted non-wind assets, primarily as a result of a lack of a refueling outage at Duane Arnold this quarter when compared to the prior year's corresponding quarter.

Our story in NEPOOL was a little more complex.

Although favorable pricing and generation for a number of our assets increased earnings by approximately eight cents per share after tax, the unplanned fourteen day outage of our Seabrook plant and lower asset optimization earnings at our main Fossil plant decreased earnings by approximately the same amount.

The Seabrook outage was related to a failure in the switch yard and not by the plant itself.

So, on a net basis the region's operations did not add to our earnings growth when compared to the prior year.

Our wholesale energy and marketing and trading organization had a strong quarter.

As we have indicated before we expect this part of our business to grow roughly in line with overall income for FPL Energy.

At times pricing and volatility in the market and our asset and position mix will create more opportunities for us and the first quarter was favorable on that front.

Compared to last year's first quarter, this business contributed approximately $.03 per share on an after tax basis.

The other category includes increased interest expense primarily as a result of increased debt capacity and increased G&A associated with higher costs relating to our continued investments in development and infrastructure to drive future growth at FPL Energy.

The net result was a drag of $.02 per share compared to last year's first quarter.

I want to mention a couple of additional items consistent with what we have done in the past.

We have included additional materials in the appendix, including gross margin hedging charts.

Our gross margin for 2008 is significantly hedged.

For example, the gross margin as defined of our total existing assets is approximately 95% hedged.

For 2009 our equivalent hedged gross margin exposure is approximately 88% hedged.

As you know, forward gas prices have risen significantly since last year at this time.

During the first quarter of 2008, the 10 year NYMEX forward gas strip increased 9%, and an additional 7% during the first several weeks of the second quarter of 2008.

While we are significantly hedged in 2008 and 2009, these forward price increases reflect significant long term added value in our asset base.

Going forward for the rest of 2008, we continue to build our development backlog for all of our investment opportunities, but particularly for wind and solar technology.

We are on track to add 7,000 to 9,000 megawatts of wind from 2008 to 2012, including 1,100 to 1,300, as Lew already mentioned, in 2008.

We continue to be optimistic about adding solar generation with a goal of adding 200 to 400 megawatts of solar generation by 2012.

On the solar development front, in the first quarter we filed an application for certification with the California Energy Commission to construction, own and operate a 250 megawatt solar plant in the Mojave Desert to be called the Beacon Solar Energy Project.

If we are successful in obtaining all of the required permits, we expect the plant to be operational by 2012.

We have also recently entered into an agreement to purchase 85 megawatts of operating wind plants in Canada.

We have previously indicated that we would seek attractive acquisition opportunities that meet our long term goals.

We believe this acquisition meets that criteria and also is a nice entry point into a favorable market not tied to production tax credits.

On the regulatory front, although renewable tax credits in one form or another have been discussed at the federal level, there is still no agreement on their extension beyond the end of this year.

Renewable energy continues to receive strong congressional support, so we continue to expect that the government will find a way to extend the credits for next year and beyond.

To summarize the 2008 first quarter on an adjusted basis, FPL contributed $0.27, FPL Energy contributed $0.55 and corporate and other was a negative $0.06 contribution.

That is a total $0.76 compared to $0.70 in 2007 first quarter or about 9% over year.

Okay.

Let me turn it back to Lew.

Thanks Armando.

Although there will always be execution risks in us attaining our financial performance targets, we believe we are in a good position to meet our 2008 expectations.

However, if the economy in Florida takes a significant turn for the worse with result being a further reduction in new customer additions, or usage growth rate at FPL, it will challenge our ability to meet our financial targets.

We are taking what we believe are the appropriate measures to respond to the short term weaknesses we are experiencing in Florida, while still insuring we provide excellent service to our customers.

Our actions will enable us to be well prepared for the turn around that will come in due course.

Longer term, our two primary businesses are well positioned to grow earnings.

At FPL we continue to believe that owning a premier utility with a constructive regulatory environment, and whose location is attractive to long term demographic trends is a position that most would envy.

At FPL energy, owning a diverse, clean competitive generation portfolio and having the leading renewables development team, provides us with significant attractive growth prospects going forward.

As such we feel very optimistic about our future.

Although the Florida and U.S.

economies are struggling a bit right now, we are very optimistic about our long term prospects.

And now we will be happy to answer your questions.

(OPERATOR INSTRUCTIONS).

We will take our first question with Paul Ridzon from KeyBanc.

Please go ahead.

Good morning, can you hear me?

Yes we can hear you just fine Paul.

Can you update us on segment guidance for the year?

Sounds as though pieces might be moving around a bit.

Then in the quarter what was the absolute earnings from trading activity?

And then lastly, just if you could discuss the relative economics of wind in Canada without the PTC?

All right.

There is three questions there.

One was segment guidance.

The second one was wholesale trading and marketing and the third was Canadian—our Canadian acquisition.

On your first point, we are not updating our segment guidance.

We feel comfortable with the overall range of $3.83 to $3.93 that we have given.

Our prepared remarks did indicate that our expectation is that FPL, because of customer growth and usage would struggle a bit this year, but we are very positive on our 2008 results looking forward for FPL Energy.

Your second question dealt with wholesale trading and marketing.

Paul, you might have a follow up question, but I think we indicated in our prepared remarks that that segment of the business contributed $0.03 in addition to what it contributed last year.

What did it contribute absolutely?

It was about $40 to $45 million after tax.

And your third question, I will turn over to Jim Robo on Canadian wind.

Paul, the simple answer on Canada is we feel like it is an attractive market.

It is not a tax driven market which is one of the things we find attractive about it.

We feel like the relative economics of that market versus the U.S.

are roughly comparable.

And we are continuing to develop, this is kind of a first step for us.

We have been looking at developing projects there for about 18 months and we are going to continue to work it and it is going to be part of the growth portfolio going forward.

Without tax credits, it's a better market, so it is roughly equivalent of the U.S.

with tax credits?

The way to think about it, Paul, is it is not a tax driven market.

The way it works is you get a power purchase agreement.

It differs province by province actually, but you get a--in the projects that we purchased this quarter, they have power purchase agreements with good entities in the provinces at prices that are supportive of the overall economics of doing a wind project that's roughly similar to what you would get when you combine the PTC with whatever revenue you get from a customer here in the U.S..

Effectively the top line revenue in Canada is roughly very comparable to the top line revenue of energy revenue plus the PTC in the U.S..

Thank you.

Thank you and we will take our next question with Edward Hein with Catapult Capital.

Please go ahead.

Yeah.

Hi.

It is Steve Fleishman.

Can you hear me okay?

Yes, go ahead Steve.

Okay, great.

Couple of questions.

First, in the quarter your wind metrics were dramatically above normal.

I think at 114%.

You did not really highlight that has a factor in the quarter.

Could you just explain?

I think a couple points there.

I did say, or at least I meant to say that we had a good wind resource quarter.

Hopefully I did not eliminate that from my prepared remarks at the last minute, but I did mean to say that if I didn't.

The second point is, the way I'd would look at the wind information that we provide you is more on a trend basis.

So the trend is going up.

As a trend is going up the wind resource is better than we had expected.

I don't necessarily think that we should -- that you should just take that wind analysis, those wind analysis metrics and do that calculation of 114%.

We are in the process of going through, and as we always do and trying to determine whether that is the best analysis and whether we can make changes to that metric going forward.

I think it is better to look at it on a trend basis as opposed to just a hey, it is 14% over 100, so that must mean that earnings improved by 14% more than what we expected.

Okay.

You have given the rule of thumb in the past of a couple pennies per percent per year.

Are you saying don't, that is not a good rule of thumb to be using?

Hi, Steve this is Moray.

I think we have mentioned before that the wind index itself is not by any means linear with the ultimate production at the relevant sites.

This happens to be a quarter where it is a little bit off where the indexes are up by more than the actual production is up.

Last year we had a couple of quarters where the index was down by more than the production turned out to be down.

Those rules of thumb which we have given you in the past, they work in some cases but not in all cases.

That is why we are working on trying to update the methodology to see if we can get a little more price—precise to give you better guidelines in the future.

There's a lot of sources of variability between the wind index which is based on these referenced towers, some miles away from the actual site, and what we realize net at the site.

That is what we are trying to bridge.

Okay.

And one other question on the utility.

Is there any consideration given the economy to delaying some of your new power plant builds?

When does it get to a point where you might need to consider that?

I will turn that question over to Armando Olivera.

We talked a little bit about this at the investor conference.

Obviously, we keep looking at these numbers, but we are very confident that the West County 3 filing will produce customer savings.

If the need doesn't materialize quite at the same levels that we forecasted, we still will produce significant customer savings, over $400 million of customer savings.

We think that is a very, very strong argument.

And coupled with that they provide an environmental benefit for our customers.

So if you look at the need certification process in Florida, it is not just exclusively driven by need.

It can meet any one of three criteria.

We are confident we can meet all three, but at the very least, two out of the three.

Let me remind you, as paradoxical as it may seem, with gas prices increasing, the economic attractiveness of those gas plants increases so the net savings to the customer is actually higher.

Right.

And you mentioned some announcement on I guess it was, I thought environmental related today.

Could you repeat what you said there?

Armando, go ahead with that one.

Sure.

Later on this morning we are going to be making an announcement about really converting two existing older plants that are primarily fueled by oil and converting them to gas fired plants.

Again, for really the same drivers that West County 3 makes sense.

These are two plants that were facing significant costs associated with environmental pollution control equipment.

Close to about $450 million over the next 10 years.

We looked at those costs, we looked at the price of natural gas and fossil fuel and we can modernize them, put in more efficient combined gas turbines and it still comes out to be a huge positive for the customer.

So we will be announcing that we are going to go forward and seek approval to convert these two plants.

Okay.

Thank you very much.

And we will take our next question with Mark Segal with Cannacord Adams

Good morning.

Just one quick question.

With respect to your advanced (inaudible) activity to date, have you settled on a particular technology or vendor that you are comfortable with to move forward in the process?

And building on that, are you able to give us a sense of timing of future project milestones and what they may entail?

Go ahead, Armando.

This is Armando Olivera.

I think we better distinct between the two Armandos.

We are still in a pilot phase.

The current pilot phase has about 50,000 customers.

The next phase will ramp it up to 100,000 customers.

We are still not in a position that we would choose a technology.

We are trying several different technologies right now, several different vendor manufacturers and we are not prepared to make any announcement.

Okay.

Thank you.

And there are no further questions at this time.

I would like to turn it back over to management for any additional or closing remarks.

Seeing that there are no further questions, thank you for joining us and that concludes our call.

Once again this will conclude today's conference.

We thank you for your participation.

You may now disconnect.