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 ]