OGE Energy Corp (OGE) 2002 Q2 法說會逐字稿

Good day and all sites are now on the conference line. At this time, I would like to turn the program over to your host Mr. Jim Hatfield, please go ahead.

Thank you and good morning. Welcome to the OGE Energy Corp. second quarter earnings conference call. I am Jim Hatfield, Chief Financial Officer of OGE Energy Corp, I would like to introduce some other people with me today, Mr. Steven Moore, Chairman, President, CEO of OGE Energy Corp; Al Strecker, Executive Vice President, COO; Peter Delaney, Executive Vice President, CEO of the Nonregulated Business; Donald R. Rowlett, Vice President and controller of Energy Corp; Eric Weekes, treasurer of Energy Corp, and Danny P. Harris, Vice President and Chief Operating Officer of Enogex. What we would like to do in the call today as we have in the past is we will start with some comments from Steve. I will review the quarter and the outlook for the reminder of 2002. I will turn it over to Pete Delaney, who will review the nonregulated business operations. Don Rowlett is going to provide an update on our pending Oklahoma rate case and we will end with some Q&A. Before I turn it over to Steve, I just want to point everybody to the Safe Harbor statement that is contained in our release and make sure everybody reads that carefully and with that I will turn it over to Steve Moore. Steve.

Good morning. I would like to add my welcome to James and thank you for joining us. We do appreciate your contiued interest in OGE. Today we reported earnings of 36 cents a share for the second quarter that is a 12 percent improvement from last year this time and we are in 32 cents a share. We are pleased that we are able to report a postive comparison the last year eventhough we had cooler weather in our (Indiscernible) area this year. We are encouraged by the improvements we have achieved in our business processes, particularly in the unregulated pipeline operation but there is plenty of work left to do and we are committed to that work. We will have a more detailed update on our process improvement in Enogex from Pete Delaney in just a moment. Also, this morning we will have an update from Don Rowlett on the OG&E rate case at our Oklahoma Corporation Commission. There are a lot of numbers involved in our rate case and here in Oklahoma, those numbers have resulted in some big headline, Don will summarize the various proposals and bring us up todate on the latest rate-case schedule. I can tell you that we were surprised and very disappointed with the filing by our State Attorney General calling for a rate decrease of about 106 million dollars a year. Such an outcome legally is extremely unlikely because we expressed a complete review of the facts in this case to show a rate cut is obviously not in the best interest of our state. I want to assure our shareholders and our customers that we stand strongly by our case; it balances competitive electric rates, reliable service, and fair value for all of those who have a stake in our continued strength and success. The cumulative caused damage by storms to our electric system over the last five years has been significant and those causes deserve to be recovered. At the same time, as our results show today, customer growth in our home service territory continues and for that growth to be sustainable, investments in electric infrastructure at lower times are required and necessary.

We expect that a reasonable consideration of these facts will show rate cuts in this environment to be cool public policy. As we all know, these are times, there are tremendous uncertainties not just for our industry but also for the economy as a whole and for economies of all kinds. The financial market pressure, as you are well aware has seen huge losses as a result, whether the market is up or down, our company remains steady and stable, reliably paying dividend. Our dividend represents real value today and our stock price in this market reflects our strong track record or defending it. As always we are strongly committed to the dividend and committed to sustaining our record of generating the cash flow and earnings required to sustain it. You continue, you can continue to count on us to stay focused on our core assets, our core operations and improving the processes necessary to generate value for customers and shareholders alike. One advantage that we have in our field is that we do not have to go back and rediscover our core business we have been focused on all along and we will remain focused on our work, of that you can be certain. Thanks again for listening, I personally appreciate your interest in the company and now let me turn it back over to Jim Hatfield for a more detailed review of our positive results in the quarter. Jim.

Thank you Steve. We will start first with second quarter 2002 versus the similar quarter in 2001. Consolidated 36 cents versus 32 cents in last year's quarter. Break that down by segment, holding company lost 5 cents versus 4 last year. Holding company is where we have our commercial paper program and do the financing for the NSEs on a short-term basis. Utility, 40 cents versus 36 cents contribution in the last year's quarter and in Enogex paying positive contribution versus a flat quarter in 2001.

We will start with the, look at the comparison in the utility; revenue net at fuel was up 4.6 million dollars or 3 cents over last year's quarter. Firstly, we had strong industrial sales growth, industrial sales up 4 percent this year versus last year's of growth and other contributing 6.9 million offset by weather, cooler than normal caused us 2.3 million revenue net at fuel. Weather was 6 percent below normal, but most importantly 15 percent below the second quarter 2001 where we had very warm quarter. O&M expenses, 3.7 million up over last year primarily driven by contract labor expense as we had a lot of people working on the storm in the restoration in the first quarter, there is some carry over from first quarter in the second quarter because of storm and timing of work. Our net was offset some what by lower un-collectables of about 1.9 million and as you know we talked about un-collectables last year being a O&M issue for us, so, we are working on that very carefully. I would also add that we have setup as a regulatory asset 5.4 million O&M pending the resolution of the rate case. Interest and taxes lower contributed about 3.5 million positive contribution quarter-over-quarter. So the utility about 4.6 million of better contribution 40 cents versus 36 cents. In terms of Enogex positive versus flat last year. If we look at the segment contributions, transportation storage 9.9 million versus 7.2 last year, this is on an EBIT basis. Gathering and processing, negative million versus 3.5 million last year. E&P 2.2 versus 2.2 last year, so fairly flat and marketing was flat versus negative quarter, 1000 EBIT last year, also point out that, big driver in the quarter was lower interest expense of taxes, interest expense was down from 13.9 million to 11.9 million or 2 million dollars which helped on the comparative basis.

The key drivers of transportation and storage, really transportation was fairly flat. We have the new IPP contract in the second quarter, which started January 1. We did have a bankruptcy farmland in that quarter which essentially offset the positive contribution of the new IPP contract. In storage, we saw an increase of million 2 EBIT contribution, lower fuel expenses about 3.5 million dollars, and then we had expenses of another 2 million and higher for the net of 2.7 million on a EBIT basis. Volumes were down 6 percent for the quarter year-over-year. In gathering and processing, we started with gathering first. Gathering volumes were down 19 percent year-over-year. I will point out; we worked hard on the market contribution. Margins were actually up 3 percent this quarter over last year reflecting continued efforts to improve the possibility of the business.

Processing was off 2 million dollar. Frac spread for the quarter was a dollar versus dollar 8 last year. Volumes were down about 19 percent as well in that sector, accounting for rejected volumes as well. Expenses and other were up about 200,000 thousand for the 4.5 million dollar negative EBIT variance. Marketing and trading was just flat versus negative 400,000 last year, primarily improved margin contributions in natural gas sales and trading. I will again point out our marketing strategy as an asset-based strategy focused on improving the possibilities and optimizing our existing asset portfolio as well as managing commodity risks for the organization.

And then an of production with the flat year-to-year lower volumes and prices which were just offset lower expenses and if you recall we announced we were selling in last quarter's conference call and Pete will provide an update on the status of that going forward. 2002 outlook, moving from the lower $1.60 dollar $1.80 to $1.40, $1.50 if you were to look at that relative contribution wholly coming in, staying flat at 19 cents from our prior estimates. Utilities down about 5 cents at $1.62 or $1.57 which really reflects the cooler than normal weather in the service territory through July and as well as the incrementally higher for the rest of the year and in interjection of about 17 cents down that, 8 cents which really reflect about, in fact, we have had the bankruptcy and the chemstation storage sector. We had an IPP contract which is scheduled to come out in the second quarter, it has now been pushed off into the third and at lower volumes than we originally saw. We have had some inability to move some transportation volumes, now those are not there due to the reduced stability of a pipeline on repair and maintenance. So, most of that comes out in transportation and storage sector. As well as marketing reflects a fairly flat contribution this year, reflecting sort of the economics of that business, at this point. We continue to see lower volumes, rig counts, for example in the second quarter, statewide rig counts down 34 percent from last year. Well connects on the interject systems down 67 percent, 25 versus 76. So, continued lack of drilling in our area contributing to the revised outlook. With that, I am going to turn it over to Pete Delaney, whose is going to provide an update of the nonregulated operations.

Jim has gone through with you the results from operations for the first six months of the year. Well, our results have improved over last year. We still have a lot of working ahead of us, in terms of achieving acceptable level of profit building. Let me spend a few minutes updating you on our initiatives for improving our performance. As you may recall, our initiatives are centered on work process we design, that will reduce our cost and increase our capabilities in all areas. And yet, reduced risks to our return as to more effective risk management. Let's talk about the redesign and the reorganization initiatives. We have completed the corporate restructuring of our field operations which involves in terms of personnel talks with 287 people, about half of the company. In the commercial division which is represented by another 100 people, we have announced a new management structure, and we expect to have all those commercial decisions, though by the end of August. We have not changed our original plans. We have to complete the reorganization by the end of the fourth quarter. As we discussed, reorganization of our company incorporates redesign of work process, in terms of process redesign, over half of our mission critical work process have been redesigned and recommended changes are in implementation. We are now receiving recommendations on our critical work process. What it does to all this mean in terms of cost reduction. In terms of headcount at the end of June, the total number of employees were 562, down approximately 5 percent from June of last year. These reductions have resulted from the redesign of our work processes, which has increased again our productivity. Accordingly, we have seen reduction in labor costs from the first six months and we expect to accelerate that cost reduction during the last six months. Direct O&M expenses excluding any allocations from corporate fell by 2 million or roughly 4 percent during the first six months. Most of these reductions are related to our operations area, which as I said before, where we have completed our restructuring and a lot of our work process re-design work is complete.

We committed on the April call to reduce our operating expenses by at least 15 million dollars on an annual basis over the next 12 to 18 months. Our projections this time indicate that we will meet or exceed that estimate. For 2002 and then our outlook for 2002, we expect to realize some 4 to 5 million of margin here. As you know, again on the risk side, we have been focused on reducing our key processing portfolio and as we discussed in the first quarter call in January this year, we instituted a trading fee, part of our statement of offering conditions on the pipeline part of FERC, that would allow us to collect fees from producers in the event of cash margins from processing were negative due to a unfavorable which occurred in January 2001 and which has occurred several times this year for brief periods. The trading fee is part of our accomplishing the FERC, which is, behind the setting to approve the changes to our statement of operating conditions. We have had several, several conferences with the Oklahoma Independent Producers Association and as requested by FERC we have reported back, just last week, that both parties are close to a settlement and due to the fact that we are in negotiation, I am not able to divulge any more detail at this time, although we believe that any settlement will help mitigate our fracs-spread exposure. In the first quarter, as Jim mentioned, we announced the sale of our E&P assets. As far as that, it is well underway, this week; we expect to sign a preliminary sale agreement to sell the 8 Bcf of natural gas reserves in Oklahoma. Additionally, we have received final bids for the Michigan properties and as expected the sales price in that should exceed the 43 million dollar book value of the property. Both transactions should be completed this quarter and the proceeds will be used to pay down debts. So as I mentioned in the opening we still have a lot of work ahead of us. Also we continue to be tested, as Jim said by low fracs-spread and as everybody else in this business right now, a declining credit environment. However we are making great progress on our initiatives and we expect to begin to realize benefits of that progress in the last half of this year. We enjoy a strong cash flow producing over 60 million per year of free cash flow, which we are using to reduce our leverage. We are executing the profit improvement plan as was said in the first quarter. We believe it is the right plan over the same course. Jim.

Thanks Pete.Now I am going to turn over to Don Rowlett for a update on our current breakage. Don...

Thank you. Good morning, before I update the status of OGE's rate case let me first review what has occured todate. If you recall OGE filed an application with the Oklahoma corporation commission on January 28th. In that application OGE requested a 22.1 million dollar annual rate increase, a 11.7 million dollar related to increased cost provided service and $10.4 million related to increased costs related to 911 security measures. Two days later OGE experienced a major ice storm, which in terms caused repair to the store power was the worse in the company's history. The company's original filing obviously did not include any recovery for storm damage. Subsequent to the storm the commission decided to move the security-related issues to a separate case and assigned it a separate cause number. The cause for the ice storm was included in the current case in a few phase testimony schedules was adopted. Phase 1 began with the company's January 28th application and direct testimony. The commission staff and other intervening parties filed responsive testimony on June 11th. The company and all other parties of the case filed rebuttal testimony on July 15th and stll rebuttal testimony will be filed on August 15th. Phase II now includes the storm damage and rate of return. OGE filed the rate testimonies to support storm recovery on July 1st. Staff and other interveners will follow their responsive testimony a week from today on August 5th. All parties will follow the above testimony on September 9th on phase II. The company's January to July 1st ice storm damage testimony requested that 14.5 million dollar annual increase in revenue requirements. The request includes recovery of, you know, return on 86.6 million dollars of capital investment related to the storm and recovery over 3 years of the 5.4 million dollars deferred operation and maintenance cost.

As reflected in the file testimony, recommendations for phase I issues range from OGE rate increase of 11.7 million dollars to the Attorney General's recommendation of a 105.8 million dollar decrease. The staff phase I proposal recommendation is for 17.4 million dollar reduction and one of our gas transmission has recommended 29.4 million dollar reduction. The Attorney General's and the consultants for the intervening industrial customers' recommendations have many similarities. Their positions are misleading and as identified in our above testimony contains many erroneous adjustments. For example, approximately 31 million dollars of the decrease proposed relates to co-generation capacity payments. The AG's proposal as well as the industrial customers' proposal simply moves the recovery of these co-generation capacity payments from base rate to the fuel on purchase tariff recovery mechanism.

After removing what we believe are misleading adjustments, the AG's recommendation is for 33.4 million dollar reduction. We have identified similar adjustments in the industrial customers' consultant proposed reduction and when we removed their adjustment, their adjusted reduction would be 29.3 million dollars. The settlement conference is scheduled for September 18th, hearing dates for the case are scheduled to occur between September 24th and 26th and the administrator ward judge report is due on October 14th. Notices for appeals that are necessary due October 24th and the hearing for the commission has to consider the administrator ward judge's recommendation that is set for November 20th.

Great thanks Donald. With that, that concludes our prepared remarks and we will be happy to answer any questions that anybody might have.

Yeah.

Yeah

Very good. At this time, if you would like to ask a question, please press the one on your touchtone phone and you may withdraw your question at anytime by pressing the pound key. Again, to register your side for a question, please press the one on your touchtone phone. We will go first to the side of Kevin Antony with Moody's. Please go ahead. Well Mr. Antony, your line is open, if you would like to ask any questions.

We will go to the side of Mark with A.G Edwards. Please go ahead.

Good morning. Could you provide us maybe a little more detail on your revised 2002 guidance specifically, the 5-cent difference with the utility? How much of that on a per-share basis is O&M and how much is weather, and then, could maybe provide an explanation on the higher O&M, you know, is it a higher pension expense, you know, what is it and then also the on the 9-cent difference per Enogex, you know, going from the 17 cents to the 8 cents. If you could provide, you know, the contrib, the difference in the contributions by segments with a little explanation would be helpful. Thanks.

Thanks Mark. First of all going to the utility, the big driver is going to be O&M and it's contract labor is trying to catch up on work that we didn't get done because everybody is working on store restoration, it is medical, it is pension. Those are the big pieces of that and total contribution to that nickels about 80 percent of that, a little bit remaining, and that's where they are in and we are trying to incorporate just July when we've had a cooler than normal July as well.

In terms of the Enogex's reconciliation in that drop, the majority of that drop is in the transmission and the storage sector. If you look at the drivers of transportation and storage, it's the sort of thing I've mentioned before. We have an IPP that has come out later than we planned, that's a revenue item, we've had the credit and the charge due to the bankruptcy of a large in these customer. We've had the Ozark issue where we are losing........, you know, can be expressed in about million dollars of revenue, just a factor that we can transport on the pipeline, about 60 million a day, so, and we have tthoughput stuffs to be down about percent in that sector as well. That is going to be 80 percentage drop of your earnings revised guidance. There is a little bit of a drop in gathering and processing, and, a little bit of drop in the market and trading business who will really show with how much contribution on account year basis in 2002 at this point.

Okay and then, lastly, you were going through the reconciliation between the second quarter of 2001 and the second quarter of 2002 and, I kind of got lost there, in terms of, you can just run through this quickly on a earnings per share basis, you know, at least for the Oklahoma Gas and Electric, you know the revenue, net of fuel, the O&M and the interest in taxes and then also Enogex by segment?

Revenue, net of fuel was up and these are margin contributions 4.6 million, which was driven by a 4 percent increase in sales growth and on that, we had, for example, for a large customer General Motors who was down for last year and backup this year. So we, those industrial and then can the drive have a material effect on that sector offset by weather about 2.3 million which represented reading 6 percent below normal and 16 percent below second quarter 2001 and as of last week we were about 11 percent below normal.

Okay. So, revenue, net of fuel was up about 3 cents. Right? On a per share basis.

Yes, roughly.

Okay. How about O&M? That was.

O&M was up 3.7 million.

Okay.

And then that was offset by lower interest and tax.

Which was about 3.7 million lower of your O&M and 3.5 million interest and taxes?

It was 3.7 higher for O&M and

Higher.

3.5 lower on interest and tax because their cost and all that, and the net 4.6 made up 4 cents per share.

Okay and 4 cents per share.

Yeah, 4.6 million margin and 4 cents a share total.

Okay and then Enogex quickly on a per share basis?

Well, we don't have a per share, we have a by EBIT, becuse we have interest and taxes.

Okay.

Interest were down about 2 million dollars.

Okay.

And that's consolidated number obviously.

Okay.

And Income taxes were down about 700,000 as well. On a segment EBIT basis, you have transportation and storage segment up about 2.7 million, driven largely by lower fuel expenses, gathering process resulted about 4.5 million EBIT driven by more volumes primarily.

Okay.

Then you had E&P flat marketing up about 400,000.

Okay. Is some of Enogex reducing the debt. My understanding was that you are planning on reducing debt down to about a 50 percent debt ratio over time.

That's correct.

What timeframe are you looking at, I mean in terms of doing that?

Based on current plans and asset sales and profitability, that we talked about, we could achieve the fifty-fifty capital structure laid up for fourth quarter 2003.

Okay.Great. Well, thanks very much.

Thanks Mark.

We will go next to the line of Doug Destabilo, Zimmer Lucas Partners, please go ahead.

Good morning, thank you very much. I just had a couple of questions on the regulatory proceedings. Understanding that from your comments earlier, I guess the Rate Case has been bifurcated and is it the phase two we are going to get intervening testimony on August 5th? Is that the aura we are in storm damage part of the Rate Case. Is that right?

Thats correct.

And what have you folks filed for in the, what's the company's position in the phase two of the rate case?

We have on phase...actually while the case was bifurcated after storm damage on ROE we had filed our testimony before we bifurcated, so our increase with respect to storm damage was a 14.5 million dollar rate revenue requirement increase. And as I said that was cover return on and returned out, the 86.6 million dollars of capital investment related to storm restoration and then we deferred 5.4 million dollars of O&M cost related to the storm which we have requested recovery over 3 years.

Okay. And what's your position on ROE?

We have filed with a 12 percent ROE.

And was there any rate hike reduction associated with that?

Not with respect to the ROE.

Okay. I'm trying to figure out was I right in my notes that your guidance for this year's utility is 1.57 dollars, is that right?

It would be a 1.57dollars, that's correct and that assumes no, no impact of the rate case.

Right. And do you know off-hand approximately, what ROE that would equate to?

The dollar 57 at the utility?

Yeah

Would equate to roughly about a 11.2 percent or so. Because remember, I guess just to clarify the question of Don. It was a rate increase associated with the 12 percent. There was a rate increase associated with our O&M expenses to get back to a jurisdictional 12 percent ROE, and that was the additional 10 million dollars in our original filing. So, we would be not achieving the 12 percent target unless we get positive.

All right, but the $1.57 is, would, would roughly equate to 11, 11.5 ROE or something like that?

Oh you have to take out the, I will talk about jurisdiction, you have to take out the definite tax credit,

Yeah

earnings, sort of positive impact, offset from sales, part of our intended program as well as the fact that we have the cumulated pension benefit obligation, which is reducing the equity.

So, what's the typical spread? Something like a 100 - 150 basis points or something like that between financial and jurisdictional?

Yes.

Okay.

The big driver in that of course is the ITC, which is about half of one percent.

All right. I apologize; I'm not as familiar with the company. So, I apologize about the detailed questions. But really what I'm trying to get at is, if I look at 2003, you know, if you were to assume presumably the interveners when they file their testimonial probably going to file something lower than what the company asks for, if we look at 2003, would you expect, either you tell the earnings or company earnings as a whole to be up from your 2002 guidance, you know, I'm just trying to figure out if this thing ends up within eleven half or we hear something like that, and the utility results are flattish next year, is there something going on at Enogex that we should expect, you know a material change from your current 2002 guidance?

I think in terms of the utility, we will just have to wait and see what is the impact of that regulatory proceeding is, and in terms of Enogex, you know, Pete talked about...

.

Yeah.

The plan in terms of, you know, reduced expenses and that's sort of thing and we would expect to see some incremental impact of that this year over last year.

Okay.

Roughly 9 million or so on EBIT.

Okay and and your prepared comments on the dividend. Is that not withstanding the final resolution of the rate case or when we know what the final resolution is of the rate case, well the board and the management kind of take another look at that if there is some, you know, aggreegious final outcome or are you guys committed to that, you know, irrespective if you were to frame kind of reasonable outcome are you still committed to that/ Next year you know, the despite high ratio we are seeing this year?

Absolutely, we remain committed to the dividend as I said and we do expect a reasonable outcome of the case and we are committed to the dividend.

Okay. Thanks a lot for your help.

Our next question comes from the side of Zac with . Please go ahead.

Hi its Zac from can you hear me?

Yes Zac how are you there?

How are you? I was just wondering if you update us on operating cash flows by the different business segments CAPEX? If I recall we are slow on a fair amount of free cash flow at the utility and utility was covering all its cash needs and cash into the parent and we are some free cash of Enogex just in lieu of the earnings sufficient to revolve a revised operating cash flow projection?

Sure, on a consolidated basis we expect based on our new guidance operating cash flow of about 4 dollars and 17 cents a share and ..

So that's about 300 million dollars.

Yes, 325 million or so and if you look at on the segment basis, Pete referred Enogex with 60 million dollars roughly a year and we are running that at pretty much at that run rate now, if you look at second quarter cash flows are generated about 16.5 million dollars of cash flow, CAPEX and so the rest of the cash generation, since we are going to be in at the utility. If you look at CAPEX Enogex is running right now about well what's in the plan for about 25 million, we are actually running about right at that number now and of course the utility this year has a incremental store. So CAPEX got an incrementally 6 million of what we normally would have. So but that incorporates the force 17 incorporates all other facts.

Okay.I mean but just where are we, sort of, on a going forward basis for 2003 in terms of operating cash flows out of the utility CAPEX, out of the utility without any strong damage and in the same thing for Enogex, I mean, now looking at 2002, looking at?

Well we haven't, you know, outside of the event enhancement at this point, Zac, we have a really talked a whole lot about 2003 and really the reason is we have the rate case in front of us to get resolution and then we have a lot of activities going on the end sector with the process improvements and the new structure being put in place. So beyond the broad comments, we talked about 2003, we are not in a position where we want to discuss 2003 in any detail at this point.

Okay, but which is, as far as utility CAPEX goes, is a normal run rate around 135 million dollars for the utility CAPEX?

It is actually a little bit lower that, I would suspect it is more like 120 on a normal run rate.

And as far as Enogex goes, it is more 25 million dollars of 35 million dollars?

Well 25, 30, you know, I think the lot of that depends on well bookups and sort of commercial activity that we see out there right now or a sort of lower end of range and, you know, we hope that fix up.

And as far as cash needed the holding company, that actually really just the 16 million dollars of parent company interest expense?

We have certainly that in the dividend, the Utility is paying the dividend.

Right.

And the Enogex is paying 16 million on an after-tax basis that goes, that is paid to shareholders.

Okay.

And the rest is consolidating commercial program, and consolidate both.

Where is the balance sheet at the end of the quarter?

In terms of?

In terms of capitalization ratios?

At the end of the quarter we are at, net in cash, we are at 60.2 percent long-term debt versus 61.1 percent last year.

And what have we blend in short-term debt, for commercial paper?

I will calculate that, Zac, can you give me seconds.

Sure, Is there any update as to where we are with the rating agencies and when we are to expect to hear from them or is that really just sort of out there with no time line on it?

Well we, you know we have ongoing conversations with the agencies like everybody else, so, I you know there is really nothing new to say around that, subject at this point.

Okay, okay, I will just call on a short-term debt number. Thanks so much guys.

Thanks.

Again if you would like to register your side for a question please press the one on your touchtone phone. We will go to the side of with A.G. Edwards. Please go ahead.

Just to clarify, you had mentioned the $1.57 your calculation of an ROE for 2002 is roughly 11.2 percent. Could you just, the difference between financial and jurisdictional, is that a 100 basis point by your estimation or do you think it is a roughly 150, which is closer, may be if you could break that up by you know, I guess you said the investment has credits of about half of it?

Well. It is more like a 150 basis points and incorporates ITC, which is 5.2 million dollars. So, that is about 50 basis points. We have offset from sales revenues turnover generation , which is a big part of that as well. We have the any sort of weather would come out of that as well and then you have the accumulated obligations of additional benefits which a new disclosure with comes of our equity and that is about 30 basis points. So those, roughly you had add them all together around a 150 basis points or so.

Okay.So the new item is really that pension and benefits?

Yeah that's of course, in new 2001 disclosure that was not in there prior years.

Okay, all right, thank you.

All right, I would like to address that question in terms of the numbers I gave him including short-term debt.

We will go next to the side of Steven with Angelo Gordon & Co. Please go ahead.

Hi, I just had a question on the well . Did you say that there was a 67 percent decrease in the well and if so, could you talk about what is going on in the area that you deliver from, I mean, is there a lack of drilling activity or they are not finding anything or decline rates you know sort of what the story is?

Well, I will take the first question. The numbers for the quarter were at, you have got them, down 67 percent from prior quarter, 25 well versus 76, Steve do you want to address this.

Yeah, I mean several things were going on, you know, we do see decline in our existing production. As Jim mentioned, we had a large, you know a freeze off with that high score and the caused damage cost us a little business as well and you know. So we saw that actually it is up till May to for a lot of those wells to come on from that freeze off, which is a little longer than we expect it to. We initially, we saw on our existing decline a significant reduction that has actually come back a little bit in the second quarter of this year. We have seen although, you know we have seen higher gas prices than last year. You know last year they got fairly low and we saw a real fall off upon drilling. We did see, we have seen the start coming back particularly in April, somewhat levelized off in May and so we continue to hope to start getting some of that decline back. What seems to be the biggest issue for a lot of producers, that has just developed, so are the enterprises that seems causing a lot of concern and wanting to see if in fact what price levels are going to be sustained for the future. So, we did see as a large can drop off, had come back somewhat, but we are still far below where we wanted to be on plan and again, I think volatility has a lot to do with defect, there is less activity out there that what we would expect.

Okay.So there hasn't been any change in terms of the, the geology in terms of ...

No, but you know we are, we do believe that for this region it is somewhat of a flat-to-slow, small declines going forward and we are in a very competitive environment. There is no lack of competitiors given the, given the supply out here we do believe that in fact we are being competitive and getting our fair share of the deal but, no I don't see in any measure the reevaluation of the geology in this area.

Okay, so given the number of well and the competition in the, in the likelyhood of it picking up, it seems like it should, it should take some time for the floor rates to rebuild, is that a fair statement?

Yes, there is a lag there.

Okay and is there, and is there the potential for more decrease in floor rates in terms of the activity level you are seeing or do you think that, that there may be some kind of a bottom down?

I think we have, I think we have bottomed out I mean I am really potential that we are see right now I think we have we have bottomed out

All right, thank you.

Again for any questions please press the one on your touch-tone phone. It appears we have no further questions at this time.

I would like to close by thanking you for your interest in the company. We appreciate you joining our call this morning. Thank you.

That does concludes today's teleconference. You may now disconnect your lines and thank you for participating.