PG&E Corp (PCG) 2002 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the PG&E Corporation first quarter earnings release call. At this time, I would like to turn the conference over to Mr. Gabe Togneri. Go ahead Mr. Togneri.

Thanks, Steve. Welcome, and thank you for joining our call to report first quarter earnings. Let me just remind you all participants are in listen-only mode through a simultaneous Webcast or via conference call. After the call, a replay of the Webcast will be available on the PG&E Corporation homepage. To discuss our earnings today and provide a perspective on the corporate activities, we have Bob Glynn, Chairman, CEO and President of PG&E Corporation, and Peter Darbee, Senior Vice President and CFO. Also joining us are Tom Boren, President and CEO of the PG&E National Energy Group, Lyn Maddox, President of NEG Trading, Gordon Smith, President and CEO of Pacific Gas & Electric, and Kent Harvey, Senior Vice President and CFO at the utility. Other members of our team are also here, and may be called upon during the question and answer session. I hope you've all had an opportunity to review our earnings release, which we distributed this morning, it includes a statement of consolidated income and supplemental performance metrics for both the utility and the NEG. These materials can be accessed via our Webpage, and that's WWW.PG&ECorp.com. We've also filed our form 10Q report today with the Securities and Exchange Commission. Finally, let me remind you that the call and the subsequent discussion will contain a number of forward-looking statements based on expectations and assumptions reflecting information currently available to management. Actual results may differ materially from those forward-looking statements, and as always, we encourage you to review our SEC filings and obtain additional information to better understand the many factors that can influence the future results. And with that, I'll turn the call over to Bob Glynn.

Thank you and good morning. We've identified several priorities for our company for 2002. First on securing confirmation of the plan of reorganization for resolving Pacific Gas and Electric Company's Chapter 11 proceedings, a second on strengthening the balance sheet and credit ratings of PG&E National Energy Group and imprudently deploying capital in that unit, third in providing safe, reliable and responsive service to all of our customers, and fourth to delivering good financial and operational performance, and this morning we'll report on accomplishments in those areas for the first quarter. Starting with the financial results, we've reported consolidated earnings of -- from operations at 60 cents per share for the quarter, that's excluding head room, and it's compared with 70 cents per share reported in the same period a year ago, and the per-share amounts are on a diluted basis. Total reported net income, including head room and items impacting comparability was $1.71 per share, compared with a loss of $2.62 per share in the first quarter of 2001. At PG&E National Energy Group, the performance this quarter reflects overall conditions in the energy merchant sector, narrow sparks spreads driven by increased supply and reduced demands. Their accomplishments for the quarter include getting new generating units online and continued successful financing of their construction program. At Pacific Gas and Electric Company, their focus on operations continues, a few highlights including the Diablo Canyon units, continue to perform at a very high level in 2002, with a current year-to-date capacity factor of 98%. And customer satisfaction ratings during the quarter remain strong. Nearly 9 out of 10 customers surveyed continue to rate our service as good, very good, or excellent. Regarding the Chapter 11 proceeding, last week we received the bankruptcy court's approval of our disclosure statement. This is a major milestone, as the court also set dates to allow us to begin creditor solicitation for our plan by mid-June. As we've said many times before, our plan of reorganization pays all valid claims in full, with interest, and it provides for financially healthy investment grade businesses on day one as the plan is implemented. And now we're very much looking forward to putting our plan in front of creditors for their formal vote and then moving to the confirmation process. Regarding a proposal by the California Public Utilities Commission in the bankruptcy court, we believe that the Commission's approach is fatally flawed because it is infeasible, impractical, and unlawful. It's not feasible because it doesn't address the regulatory failures that led to the credit downgrades for both of California's big utilities in the first place, and won't restore the utilities' investment grade credit rating. The plan's not practical because the billions of dollars of new debt in their plan would be at junk bond levels, and it's not lawful because it would attempt to force us to sell one and three quarter billion dollars of new common stock in Pacific Gas & Electric Company, diluting the value to the detriment of the existing shareholders. This is a deliberate attempt to force our shareholders to pay California's back power bills. And it asks the bankruptcy judge to violate their rights to be treated fairly in bankruptcy. Of course, we'll vigorously assert the rights of our shareholders in bankruptcy court, and we believe very strongly that our plan of reorganization is the best plan, that creditors will continue to support that plan, and that it'll be approved. Next, National Energy Group's credit rating. Maintaining investment grade credit remains a very, very important focus for this management team. The NEG has a number of positives supporting its rating, including predictable cash flows, secure construction financing, reduced capital expenditures and sufficient liquidity to manage its trading operations, and we were pleased that Moody's recently cited these factors when they reviewed our rating. We, of course, would have preferred that they'd opted not to change the credit outlook for NEG to negative, but given the conditions in the Energy Merchant Sector we believe the fact that our rating remains at investment grade reflects positively on the efforts we've been undertaking to address those factors that are within our control. So in sum, we're focused on confirming the plan, strengthening NEG's balance sheet and credit ratings and continuing to run the business well and deliver good operational and financial performance. We've made very good progress on each of these in the first quarter, and we are, will continue to do that throughout the year. Now I'll turn the call over to Peter Darbee.

Thanks, Bob. As Bob mentioned we reported 60 cents per share on a diluted basis from operations for the first quarter. This compares with 70 cents per share for the same period a year ago. I'm going to cover earnings from operations for each segment. That will be followed by a discussion of items impacting comparability and 2002 guidance. Beginning with the Pacific Gas & Electric Company, the utility earned 44 cents per share from operations for the quarter. This compares with 56 cents per share for the same period last year. The primary differences are as follows: About six cents of the decrease is related to higher operating expenses. About half of this amount is due to additional expenses in general cost inflation, without 2002 attrition relief. The remainder is due to lower expenditures in the first quarter of last year, when we were conserving cash prior to entering bankruptcy. Results for the utility were also negatively impacted by two cents, due to the California gas transmission operations. As we expected. Gas transport volumes were very high last year, and are tracking more normal levels now. The CPUC's utility retain generation decision resulted in a four cents decrease to earnings for the quarter. The URG decision established a cost base revenue requirement, which is collected evenly throughout the year. Previously, Diablo Canyon operated on an incentive mechanism. This resulted in higher earnings in first quarter 2001, due to high operational performance. On an annual basis, we expect the URG decision to result in generation earnings, not materially different from 2001. The decision does not change the utility's overall electric rates. It defers any changes until after the commission has considered the status of the rate freeze, the recovery of previously under-collected power costs, and the DWR revenue requirement rate making issues. The CPUC will be scheduling an additional proceeding to consider the disposition of such costs and of the rate-freeze issues. The timing for the proceeding is unclear. With respect to head room, this quarter the utility reported approximately $106, $176 million, or 48 cents per share. There were no head room amounts reported in the first quarter last year. Recall, the CPUC did not authorize a substantial rate increase until late March, 2001. Turning to the PG&E National Energy Group, it contributed 10 cents per share this year, compared with 15 cents last year, reflecting current wholesale market conditions. Specifically, integrated energy and marketing reported 7 cents per share, compared with 10 cents for the quarter a year ago. This decline is driven primarily by the continued soft-powered market that Bob alluded to earlier. Interstate pipeline operations reported 5 cents a share, no change compared with the quarter last year. The NEG's Pacific Northwest gas pipeline continues to perform right on target, and in-line with our expectations. I'm also pleased to report the following developments at the NEG. Its Jet holdings facilities was upsized from 1.1 billion to 1.5 billion dollars. This additional financing capability ties to the project's currently under construction. At the same time, the NEG was able to remove the ratings triggers associated with the facility. We are continuing to work on removal of ratings triggers in other facilities. Lastly, two of the three units at the NEG's Lake Road plant in Connecticut began commercial operation in the first quarter. The remaining unit will begin operation this quarter. We continue to update you with our progress on these objectives and other developments throughout the year. Rounding out the results for PG&E Corporation, we recorded 6 cents of earnings at the holding company, compared with a penny loss for the quarter last year. These earnings reflect consolidated tax benefits and the first-quarter change in valuation of the NEG warrants associated with the GE Lehman loan. Now, for items impacting comparability. During the quarter, we reported 63 cents per share of earnings related to the California energy crisis and the utility's Chapter 11 filing. This is comprised of $352 million, or 95 cents per share, made up of a reversal of ISO expenses booked in early 2001, net of a reconciliation of DWR power purchase expenses for 2001. The adjustment is consistent with recent FURK and CPUC decisions. Items impacting comparability are also impacted by approximately $117 million, or 32 cents per share of bankruptcy and California energy crisis-related costs. I should also mention that the items impacting comparability for first-quarter '01 include $12 million or 3 cents per share of Chapter 11-related costs that were previously reported under operating earnings. This is consistent with the classification of these costs in subsequent 2001 quarters and the year as a whole. Turning to guidance. As we indicated in prior calls, we have pulled head room out of the items impacting comparability category. We are identifying operating earnings with and without the impact of head room. Earlier this year, we provided 2002 guidance in the $3 per share range, including head room. As we also indicated, quarterly head room amounts can fluctuate materially. It continues to be difficult to predict head room precisely for any period, as a result, analysts have focused on earnings from operations without head room. Based on the streets treatment of the head room for our expectation for 2002, operating earnings excluding head room, is in the range of $2.50 to -- and $2.55 per share. This range is in line with the street's current earnings estimate for 2002. We will continue to review this range as we progress through the year. Head room revenues reflect recovery of prior uncollected costs we previously wrote off for GAP purposes, which are now being recovered in existing electric rates. These revenues are significant in that they are cash earnings and they have a rehabilitative effect on our bounce sheet. We also continue to stress that 2002 is a transition year from the current environment to our proposed plan of reorganization. This means that 2003 and beyond should be your best basis for long-term valuation of the company. As always, our earnings guidance is subject to the uncertainty of bankruptcy-related events as well as regulatory proceedings. This includes those related to attrition or DWR-related decisions by the CPUC. We expect to apply for 2002 attrition relief shortly. I would like to mention another issue which is forward-looking. As of April 1, we, we began implementing new interpretations established by the FASBE's Derivatives Implementation group under FAS 133. In applying this new guidance, certain of our power sales and fuel supply contracts at the NEG no longer qualify for normal purchases and sales treatment, and will be marked to market through earnings. The cumulative effect of this change and accounting principle is expected to impact second quarter and could be in the range of a negative $170 million to a positive $250 million. We will finalize our review of these contracts and their market value during the second quarter. It is important to note that this change will have no impact on the timing or amount of cash collected on these contracts. When the time comes, you will be able to further analyze the impact of this change. We will modify our disclosures as necessary to provide the transparency as the impact of this accounting change is made. To close, I will echo Bob's sentiment that we remain focused on safe, efficient, and reliable operations, with long-term growth prospects for our shareholders. And with that, let me turn it back to Gabe before we take any questions.

Okay. We'd like to ask during the question and answer session that everybody limit themselves to one question. You're then welcome to get back in the cue, if you have additional questions, and I realize some of you may have several questions, but by giving everyone a chance to get on the line, the likelihood is that all those questions will be covered. With that, Steve, let's set up the q & a.

Very well, Sir. Ladies and Gentlemen, if you'd like to ask a question, press star followed by 1. If you'd like to withdraw that question, press star followed by 2. First question is from Greg Gordon of Goldman Sachs. Go ahead, Mr. Gordon.

Thanks. I only have one question. But it's in 27 parts.

[ laughter ]

That's challenging character Greg.

I'll ask, I'll ask question one, part one. With regard to uh, with regard to this- the, the issue of head room, I think we've all become pretty comfortable with the concept of you guys bringing in a lot more cash than you're booking, sort of operating earnings. And that, that cash flow is the cash that will ultimately be used at least in part to pay down the debt when you come out of bankruptcy. But wasn't that cash supposed go away at the end of the rate freeze? And, and I think we all forgot that was supposed to happen right about now. So can you give us an update on what the situation is, with the end of the rate freeze, you know, are we gonna to continue to be collecting head room? Is there something the regulators can do vis-a-vis a decision on the rate freeze which could potentially stop the flow of that cash flow, or would that uh, basically put them at loggerheads with the bankruptcy court?

Okay. That was a good set-up question. Let me respond to that. The first is that you might note that the CPUC included head room in their alternative plan that they've put forward. And so as they look at it, they would anticipate the company continuing to collect head room. And I think they did that because it's necessary in order to support their plan from their standpoint. Additionally, the CPUC has made statements since the implementation of AB-6 X, to the effect that stranded costs could continue to be recovered, as we go forward in 2002, beyond either the end of the year '01 or March '02. And they didn't necessarily constitute unrecovered costs, as defined by AB 1890, which precluded the recovery of those costs. So the CPUC not only in its own plan but also in some interpretations has suggested that they have the authority to authorize recovery of these costs. And finally, Greg, as you point out, there is the issue that we are in bankruptcy, and so I believe that the CPUC is aware that were they to move forward aggressively to try and cut rates, that they might run into a head-on collision with the bankruptcy court. And could be restrained in that regard. Thank you.

Great.

Next question?

Next question is from Kathleen Malley of JK Utility Advisory.

Thanks very much. With regard to the utility and the various rate proceedings in front of the commission, could you just update us on the size of the '02 attrition rate proceeding and what impact, if any, that has on what you file for for the '03 GRC? And we recently saw SoCal Ed get recognized for -- or get in place an electric revenue adjustment mechanism effective back to June of '01. Is that -- type of mechanism available to PG&E? And, and if so, when is the commission go to act on that for, for you all?

Kathleen, this is Gordon Smith. And good afternoon. Let me answer the first part your question and the second one to Kent Harvey of the Utility CFO. On April 15th, Pacific Gas & Electric filed the, the notice of intent known also an an NOI to file its 2003 general rate case, and then get 2003 would be the test year. Application to the Office of Ratepayer Advocates in the PUC. The application requested an increase in our electric revenues of about $400 million, and of our, our gas distribution revenues of about $70 million. Now, the ORA has approximately or exactly 25 days to review the NOI, and notify us of any deficiencies .

Okay.

We will then correct those deficiencies and we can then file a GRC, no sooner than 60 days after the acceptance, which is the time the deficiency had been corrected, and accepted by the ORA. And then we will also request that the GRC for 2003 go into effect on January 1. Now, the PUC issued a, kind of a uh, a, a bleak decision related to the 2002 attrition on April 22. They issued an interim decision that, - that appears to us to give them the option of making the 2002 attrition case effective as of either the April 22nd date or when we actually file the 2003 GRC. And I, I think the PUC said that we need further hearings on the entrusting the procedural issues related to this. Now, in terms of your last part of your question, referring to going back and making dates effective, let me turn it over to Kent.

Thanks. Yeah, Kathleen, this is Kent. I guess um, the question about the E-ram and how it might be resolved going forward, I, I, I think it's our expectation that that issue will be taken up in the broader context of the GRC proceedings, and there's no separate proceeding underway right now.

Okay. And Kent, would -- would it be effective for you back to June of '01? 'Cause I thought that was the date that was, uh, uh, uh instituted or effective as a result of actions taken by the legislature, a year ago. June date.

I don't have the answer that question, Kathleen.

Okay. All right. Thanks very much.

Next question's from Kit Conilege of Sorgan Stanley. Go ahead.

Uh, good morning uh, good afternoon. It's actually Carrie Stevens. I had a question for Tom Boren. With regard to the credit of NEG, I was curious if you could maybe go into a little bit more detail on discussing the projects that you are continuing with in terms of development, how you're going to finance those remaining projects, with a focus on maintaining the current credit rating at the National Energy Group.

Yeah, frankly, we don't see our -- any difficulty maintaining the credit, I say, I say that easily here, but we don't see a big issue for us. Our debt ratios, we don't see them deteriorating, because the debt we need for construction to substantially uh, in place with the recent closure of our $1.5 billion Jet Holdings Facilities. We're also going to continue to use a number of other ways to control our recourse debt, and that's going to include accommodation things like bunts and operations, non-recourse debt, operating leases and so forth. We have very good liquidity now and working capitol and cash on hand at the end of the first quarter, we had about $691 million of cash on hand. We had $700 million of undrawn lines of credit. We maintain good banking facilities and relationships with folks. We're continuing frankly to reduce our construction budget and our A & T cost, and we're also continuing to remove ratings triggers -- we did that with this Jet Holdings Facility we closed in. We had removed the ratings triggers from it. So overall, you know, that's how we're gonna continue to finance the projects. We have also continue to maintain very close communications with the rating agencies to know, to make sure that we adhere to what could only be described as the evolving rating criteria. We worked very hard to get that investment grade, to credit rating last year, and we're very committed to continuing that and to maintaining that. And continue to build on those half dozen projects we currently have under way now.

Okay. Thank you.

Okay.

The next question's from Zach Shriver of Silk Cap. Go ahead, please.

Hi, guys. It's Zach Shriver from Silk Cap. Can you hear me?

Good morning, Zach.

Question for Bob. Bob, now that the CPUC plan is out, do you still feel confident that you can emerge from bankruptcy by year end 2002?

Well, our schedule calls for completion of the reorganization by the end of 2002. And what we have more recently going for us is uh, disclosure statement approval and the date set by the bankruptcy court for mailing it out to creditors. This is an ambitious timetable, but every schedule milestone that we've set since the filing has been an ambitious one and we've met each one. So we believe this is an achievable schedule and we're doing everything in our control to secure its occurrence. And we've filed the necessary applications with the FURC, with the Nuclear Regulatory Commission and the Securities Exchange Commission, in time to get us ready for this end date, and to date the court has made sure, the bankruptcy court has made sure, that the issues regarding plan confirmation, competing plans and the like are moving on parallel paths, not sequential paths. We also believe that our plan is the best one for creditors, customers and shareholder alike, and that's gonna be born out when creditors vote and the judge rules. As always, the risks are that there will be delays in hearing processes and delays occasioned by appeals. But looking at the fundamental schedule that we have set, it remains as stated.

Thank you so much.

K, Next question's from Michael Lucas of Appalucia Management, go ahead, please.

Yeah, hello, everybody.

Good morning.

I'm trying to understand one thing on the casual statement. The net changes and liability subject to compromise, 1.1 billion. Is that effectively, just the trade creditors of the issue with the DWR that, the FURC ruling in March 20th or whatever it was that you're not actually gonna have those as liabilities?

I, I couldn't -- this is Kent Harvey. I couldn't hear all your question but you referenced a 1.1 change, and that may reflect the reversal that we did for the first quarter of 2001 for the ISO charges.

Okay. That's, that's what I --

In the quarter.

Okay. I thought that. But that's not -- how is that cash? Why would it be a negative adjustment on the casual statement? It's not a, I mean you never actually paid cash for this, did you?

No. We have not -- we have not paid the cash for these liabilities yet.

So how -- I'm just tryin to understand, you know, in counting wise, why would this run through the casual statement as a negative item to net income?

This is a non- cash [INAUDIBLE]

It is a non-cash item -- But we're --

The answer is, is because the starting net income includes that as income, and that's a non-cash income. So we have to reverse those out. Cash flow statement. They net so it's a non-cash item.

Oh, I just, how does, How does it include it as income? When you, when you recorded this originally, I was trying to understand the transaction, I would assume that would have been something like an accrued expense and an accounts payable?

It was an accrued expense and we recognized the expense last year and we had a liability on our books this year. And in -- or last year also. And so in the first quarter of this year, when we reversed a piece of that accrual out, as we've disclosed, that gets reflected back as income for the period. And that's why we have that as an item impacting comparability on our income statement saying that that is, that is income, but that's non-cash income, and so we have to on the cash flow statement make that as an adjustment to our net income to reflect the fact that it's not cash.

Okay. Thank you.

Next question's from Jason West of Deutsche Bank. Go ahead, please.

Yeah. I was wondering if you could give us an update, um, if there's anything going on with the mediation process between your plan and the CPC plan? If there's any progress being made there at all?

Jason, all of the participants in the court sanction mediation are under a very strict confidentiality agreement, and we're gonna honor it. So we'll make no comment at all.

All right.

Next have Scott Pearl of Credit Suisse First Boston, go ahead

Hi. Could you just um, I'm not sure is Chris, Chris Warner is on there, but could somebody just elaborate a little bit more about the legal issues, related to the commission's plan to have the utility issue equity as, as part of their solution?

I think Bob Glynn represented what our overall position is on the CPC plan and we will be providing comments on that plan, our objections to the plan, later this week on May 3rd. I'd rather have those speak for themselves at that time.

Thank you.

K, next is Tom O'Neal of Leamann Brothers, go ahead please.

Good afternoon.

Hi, Tom.

Say uh, question on the earnings guidance of 250 to 255. I guess first if you would be willing to break it down between the Utility and National Energy Group, and secondarily, does it include the carrying costs on the billion-dollar loan at the corporation level, and does it include the six cents of income from other enterprises from this quarter?

Yeah, in response to that question, which sounds like three, let me see if I go through them. We, we historically have not broken out the guidance between the utility and the NEG. And we're going to continue with that policy, going forward. So that's the answer to the first question. With respect to the guidance for the 250 to 255, you asked the question, does that include the interest expense up at the parent company? And the answer is no. That is treated, in- included in items impacting comparability, so that would be non-operating, and I'm trying to remember the -- does it include corporate income, which was six cents? And the answer is yes. So that guidance does include the 6 cents at the parent company.

Great. Thank you.

Yep.

K, next question's from David Frank of Zimmer Lucas Partners, go ahead.

Yeah, hi, good a-, uh, good afternoon.

Hi.

Wanted to know just a comment on the rate freeze, I think you guys had a sharing agreement that was endorsed by the CPC regarding Diablo Canyon that would take effect at the end of the rate freeze. And is that still in effect, that agreement? And if the rate freeze was at some point cleared to end, would it eh, would it become effective?

This is Chris Warner. The, I think you're referencing what we call the 50-50 Sharing agreement. And that was effectively revoked by the CPC's recent URG decision that set a revenue requirement, although it didn't change rates, set a revenue requirement for Diablo Canyon effective January 1, 2002, as Kent Harvey referenced. It also had terminated on schedule the incremental cost of setup pricing, revenues that we were scheduled to receive only through December 31st, 2001.

So, so it's no longer -- it was wiped out?

That's right. The URG decision rejected our request that the CPC honor and implement the 50-50 Sharing plan.

Okay. Thank you.

Next question's from Vick Cayton of Deutsche Asset Management.

Yes. Thank you. Question is really on this filed doctrine as to what this status is, and does that cloud up bankruptcy court proceeding in terms of your plan of reorganization, changes materially if you win that one?

First, in answer to your, you question about the procedural status the [INAUDIBLE] doctrine case is moving forward on motions for summary judgment by ourselves and the opponents. And those will be heard later this summer. At least they've been filed and they will be hearings on those. And we also are waiting a decision on the CPC's motion to dismiss our [INAUDIBLE] doctrine claim. So the case is moving forward to a merits decision, hopefully by the end of this year or early next year. In terms of its impact on the bankruptcy court proceeding, as you may recall, the rate [INAUDIBLE] doctrine case is not part of our bankruptcy plan of reorganization. And therefore, it would, the result of that [INAUDIBLE] doctrine case would not impact the financial or regulatory aspects of the plan of reorganization.

But it does have a serious impact on, on significant impact on -- your financials, if you win that case?

Yes, it would. We we, would still expect to recover under the [INAUDIBLE] doctrine case, and that certainly would be a positive impact on the upside, or utility and the corporation going forward.

Okay. Thank you.

This proceeds go entirely the shareholders as opposed to other parties.

I certainly hope so.

We do too.

Next question's from Greg Gordon of Goldman Sachs. Go ahead, please.

Hi, guys. Follow-up question on the plan of reorganization.

Yeah?

Remind us what um, what the judge has said with regard to the concept of implied versus expressed preemption, how many laws or and or regulatory statutes you are asking them to expressly preempt, once the plan gets to confirmation, and just give us a refresher course on once the creditors hopefully endorse your plan, how we get through confirmation and out of bankruptcy.

That's a mouthful of questions, certainly we can provide you the details on our filings. But just as a, as a short answer, as you may know, we believe that our plan meets the judge's criteria for applied preemption and then we'll be able to demonstrate at the confirmation hearing that the small number of laws that we are requiring to be preempted can be preempted lawfully and should be under the judge's criteria. And if those laws indeed are preempted, if the judge supports our position on confirmation, the plan can move forward to a successful effective date.

Also, this Jim [INAUDIBLE] We did appeal the judge's ruling on expressed reemption we just recently filed our opening brief, and we're hoping the district court will expedite the hearing on that appeal.

[Jim], can you refresh our memory, if you have the number of -- exactly how many laws and or regulations you're asking them to expressly preempt or could give us a ballpark number, if you can't remember exactly the number?

In terms of the implied preemption we're requesting really only that I think, three categories of CPC laws be preempted. And so there's not, not easy way to number them, but the way we have classified them is three separate kinds of CPC regulations and laws, that cover things like issuance of securities, transfer of assets, affiliate transactions.

Thank you.

K, next question's from Zach Shriver of Silk Cap [INAUDIBLE]. Go ahead please.

Hi, guys. It's Zach Shriver from Silk Cap. Just a question on where we are with the creditors committee and what the creditors committee official position is relative to your POR. Is there any official or unofficial position that they have relative to the PUC POR? Do we really need to wait until May 3rd to really see how the creditors committee shakes out and whether or not they're going to stick by the POR's if they have previously and if there's any bifurcation of sort of the interest of equity holders and debt holders?

This is Kent Harvey. As you know, the creditors committee supported our plan from the get-go, when we filed it. And uh, and they continue to support our plan at this, at this point. And we expect them to continue to support the plan. They have not taken a position on the recent proposal by the PUC. I think they still are looking that proposal over.

If there were to be a moment in time in this process for the creditors committee to sort of break ranks, with your POR or effectively endorse on equal terms each one of the PORs, when in the process is that most appropriate?

Yeah, that's really their decision. Quite, quite frankly, I mean it's pretty clear our plant treats creditors very very well so-

Sure.

It's hard to imagine our plant won't continue to receive a lot of creditor support going forward.

Okay. Thank you.

K, next question's from Scott Pearl of Credit Suisse First Boston. Go ahead, please.

Hi, understand that you don't give specific Sigma guides but just you know, want to understand what the revised guidance. Is it still appropriate to assume the -- the historical proportion, the 20, 25% coming from NEG, that general type of range?

What I would point out, Scott, is previously we did say that the NEG would be down somewhat in looking at '02 versus '01 so while we didn't provide a numerical breakout, that is the extent of what we've said on the topic. So I would make that point, and then just want to remind everyone, I think you used the term revised guidance, and I would -- I'm not sure I'd be comfortable with that characterization because what, what we said initially in the beginning of the year was that our guidance would be $3 in total, for operating earnings. And we still stand by that, and in fact will exceed that for for the year, including head room. But what we're doing is providing clarification in response to inquiries of research analysts that that $3 includes about 50 cents of head -- head room in it. And you know, we've already had more than that in the first quarter. So we've provided without head room it looks like 250 to 255. So just wanted to make that point.

Certainly appreciate that clarification. I, I, I'd a, didn't mean to mischaracterize your statement. And as far as within that -- the pretty much similar type question, but the 6, the 6 cents, how do we think about those items throughout the rest of the year as far as the tax benefit piece? Is that something that continues to recur?

Yeah, the 6 cents is divided probably about 4 cents and 2 cents, between mark to market recognition of income on the warrants, on the GE loan. And that's really going to be a function of market values out there in the uh, in the industry, although our valuation is driven by DCF analysis. The 2 cents relates to the benefits of consolidated tax treatment. And depending on the income that we realized through the rest of the year, I think there will be some recurring nature to that 2 cents. It could be up a little bit or down a little bit, depending on where the profitability in our company comes from, whether it's in the NEG or what States even in the NEG.

Thank you.

Next question is from Vedula Merti of SAC Capitol. Go ahead please.

Good afternoon.

How are you?

Just a couple of things. One, I'm wondering you touched on DNEG various ratings triggers and things of that nature. Wondering if you could, [INAUDIBLE] that Moody's has you on a negative outlook. Can you review the ratings status right now, and the implications of the existing rating triggers. Should those occur, what would be the financial impacts and responses that are necessary? And my second question has to do with when you came to town with your reorganization plan back in September, you kind of laid out for us an outlook for '03 through '05 under your plan. I'm wondering whether that's been updated somewhere publicly in any fashion or, if not been updated since then, whether you qual-, quan-, quantitate in some fashion update us as to how you think things have shuffled around from those numbers since then.

Vedula, it's Gabe Togneri. I'll take your second question first. The most up to date financial projections for the utility and the plan of reorganization are available on our Website and also through the bankruptcy court Website, consistent with our last disclosure statement. It's been updated a couple times in the most recent numbers are available there. And as to your first question, on NEG credit, --

It's like I said earlier, this is Tom Boren, we've done a very thorough evaluation and regularly monitor our exposure on our ratings triggers. Since the last quarter, for example, we have successfully completed an amendment to our Jet Holdings Facility where we removed those rating triggers and reflect things back to financial [INAUDIBLE] but we also had discussions for amending other facilities, they're ongoing as we speak now. We're optimistic that we'll be successful in removing the majority of them. Some of our trading and third-party agreements contain ratings triggers and I, I would tell you that exposure under many of those is only a fraction of the face amount of these contracts, or their soc- or their guarantees. And we believe that they're within our control to manage them [INAUDIBLE] things that are not

Yeah, it's a, we reduced them substantially, and through the course of 2001 we had the opportunity to revisit a lot of rating triggers, and we were able to reduce those down to all-in we're looking' about maybe $144 million of total exposure to possibly happen with the downgrade, and that's well within our liquidity, just cash alone to cover that.

And I would also tell you that we will go over in great detail in our 10Q, or at least a fair amount of detail the ratings triggers and you can look it, I think it's pages 14, 15 and maybe 28, of the NEG 10Q, so if you want to look through that, you'll get some more detail out of that.

And my last, and also the current status of ratings amongst the three agencies for NEG, if all three have ratings or I'm not sure if they do or not.

The ratings for the NEG, was that the question?

Yes.

Yeah, our ratings that we have for the NEG at NEG itself, by S&P, is DDD. The trading business is BBB+. Our pipeline business is A-. And then we have a number of over routes of assets holding businesses in New England and they are rated BBB-. Now, the Moody's ratings is for NEG is BAA2. And for -- they don't have a rating for energy trading and for GT Northwest, our pipeline business. Their rating is -- tell me what that is --BAA1, I believe.

Thank you very much.

K, next question's from John Riley of Fairlong Capital. Go ahead, Mr. Riley.

Yes. Good afternoon, guys. Had a question for Glynn, given the heat wave we saw through the east in April, your current thoughts on what you're gonna see this quarter as far as spark spreads across the portfolio, and then your current thoughts on what the summer's gonna look like. I know we've heard Dinaty and a few competitors in this sector talk about lagging into the supply-side of the trade lately with the forward curves so depressed. Your current look on what you see spark spreads at over the next, over the coming year.

Okay, fine. We've, we've actually seen some improving spark spreads. We track those -- try to track them on almost every two weeks to see what type of movement. Since the end of 2001 we've seen a general improvement nationwide. And in particular, in a, in New England, we have a large portion of our assets, we've probably seen the most substantial change at least until year-to-date, the -- those continue to improve probably larger than we've seen in any other region. To forecast what's gonna happen for the summer months, I'd like to be good at that. I'd like to fib that I'm good at that. But I'm going to say that so far, if we can keep the general trends in the, from '03 out, we've seen some, we see some very good improvements. What's gonna happen for the remainder of '02 remains to be seen. Joe, I think the markets trying to bank in the amount of new capacity, may become available. We certainly have seen a depression overall in the, the prices for four markets from '02 to '03 have been generally declining, but we see those things improving at a greater rate than what they were declining in the past.

Okay.

So I wish I could be more accurate on forecasting future. I, I think we could make a lot of money doing that.

Maybe you could hire Al Roker.

[laughter]

Alright, thanks.

K, the next question's from Vick Cayton of Deutsche Asset Management. Go ahead please.

Yes. Thank you. Question, Bob. Is there any middle ground to reach some kind of a settlement between yours and CPUC, or you think that the bankruptcy court will end up making that decision, particularly if creditors have agreed to both plans, sort of being that they, they're indifferent about plans or so?

Well, the challenge is, seems to be in the basic premise of the plan, our plan is simple, in that it has investment grade credit ratings right out of the chute, which means strong, healthy companies that don't have crushed equity value. It pays all creditors in full with interest, and it doesn't raise rates. And the challenge that we've seen in other proposals seems to be basically beginning with whether or not there is a unyielding commitment to investment grade ratings. It's very difficult when that kind of a binding commitment isn't made to sort of see the kind of uh, the kind of future that you might suggest. We think we have a plan that's not only fair, legal, but extremely attractive to creditors. We certainly think it's confirmable. Chris has just reviewed our belief as stated in our filings related to being completely comfortable with implied preemption, which is so, the one that the judge is currently going on. So we feel that's plan gonna get confirmed.

So you, you'll just probably stick to the plan and let bankruptcy court make that judgment?

There's gonna be a confirmation process, which is in essence a trial on whether or not the plans deliver what they say they'rel gonna deliver in, in their filings. And we think that process is gonna go forward.

Okay. Thank you.

There are no questions waiting at this time.

All right. In that case, I'd like to thank everybody for participating in the call. And we'll be back to you the second quarter. Thank you. [ call disconnected ]