公共服務電力與天然氣 (PEG) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Public Service Enterprise Group's First Quarter 2002 Earnings Conference Call and Webcast. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session for members of the financial community. At that time if you have a question you will need to press the 1 followed by the 4 on your telephone. As a reminder this conference is being recorded, Wednesday, April 17, 2002, and it will be available for reply for 48 hours beginning at 1:00 p.m. Eastern time today until 1:00 p.m. eastern on April 19, 2002. It will also be available on an audio webcast on PSEG's corporate Web site at www.pseg.com. I would now like to turn the conference over to Brian Smith with Investor Relations. Please go ahead.

Thank you and good morning to everyone. We appreciate your listening in today either by telephone or over our Web site through PSEG's review hosted by Tom O'Flynn of our first quarter results and discussion of PSEG's outlook for the balance of the year. We announced quarterly results yesterday. Two quick points before turning the program over to Tom.

First, because some of Tom's remarks will cover expectations for the future, we must refer you to our forward-looking disclaimer. Financial and business forecast of PSEG and its subsidiaries are based on reasonable assumptions. We can give no assurances that we will achieve our objectives. The last word on any of our businesses is included in the various reports that we file with the SEC.

The second point, is that we continue to have a large number of listeners on our investor calls. Because we hope to conclude today's call within an hour, and because we want to afford all of you the opportunity to participate, we would ask that you limit yourselves to one question and one follow up. Thank you and now I'll turn the call over to Tom O'Flynn.

o'flynn: Thanks Brian, my remarks will be brief. I imagine most of you have had the time to read our earnings release issued yesterday, just prior to our annual meeting. I won't recite all the details. I prefer to make a few observations about the results and then discuss our expectations for the full year. PSEG reported earnings of $.87 per share in the first quarter. I want to emphasize immediately that this included a non-cash charge of $.15 per share associated with the economic crisis in Argentina. Without this charge, earnings would have been a $1.02 per share. This was ill felt generally in line with our internal expectations once the weather impact on our utility sales became apparent as the quarter unfolded.

Overall, there are three major issues that negatively affected first quarter results. The first was the impact of the economic crisis in Argentina on one of our investments there. This involved a change in the functional currency of EDEERSA, a distribution company from the U.S. dollar to the peso. The peso has lost significant value this year due to the turmoil in Argentina. Because of the currency change, about 76 million of non-recourse dollar denominated debt was a peso. This resulted in the non-cash charge of $.15 per share. Consistent with our past discussions with you, we are excluding such non-cash items related to Argentina from our earnings guidance for the year.

The second major consideration was the very mild winter weather in New Jersey that sharply affected PSE&G sales. The days were 23 percent below normal. The weather impact cost the utility about $.13 a share versus last year and about $.15 versus normal. Offsets included higher gas rates implemented in January, and lower own and expenses. These positives together provided $.09 per share. The third key consideration was the timing of distributions to PSEG global, related to its 2001 withdrawal from the interest in the Eagle Point co-generation partnership. No meaningful payments were made in the first quarter of this year compared to an incremental amount representing about $.19 a share in the first quarter of last year. We do expect to recover much of this shortfall with scheduled payments over the balance of this year. For clarity sake, I would remind that the withdrawal contributed to PSEG Global a total of $.25 in 2001. For this year 2002, we anticipate approximately $.18 from this transaction. Most of its $.18 will be booked in the second or third quarter depending on the timing of payments to Global. As a result of these and other factors PSE&G and PSEG Energy Holdings compared to Global and Resources we reported comparatively lower earnings of $.20 and $.27, respectively. However, holdings earnings would have been lower by only $.12 excluding the non-cash charge related to Argentina. One further observation with regard to Argentina. Our previous disclosures clearly spelled out our concerns. Because of the ongoing turmoil we announced earlier this year that we expected no operating earnings contributions from Argentina in '02. Additionally, we said that our total investment exposure in Argentina was $632 million. You should know that the non-cash charge we took in the first quarter reduces that exposure by $47 million on a pretext basis to $585 million. There continues to be significant economic and political uncertainty in Argentina. We're active on a number of fronts in both Argentina and Washington to protect our interests. Let me just remind you that EDEERSA, the company we operate in Argentina, continues to provide services to its customers and it is essentially earnings and cash flow neutral. However, we will be taking a serious look at the value of these assets on our balance sheet in the second quarter. We'd like to take any necessary and permanent actions sooner rather than later provided we have sufficient information.

In the first quarter PSEG Power, our generation business, provided the principle earnings upside. It produced earnings that were $.09 better than in the first quarter of last year. Power benefited from lower customer migration and an approved margin under the BGS contract, as well as from lower interest expenses. These were offset by a lower MTC, the Market Transition Charge and lower trading margins. Primarily resulting from the absence of some emission credits we booked in the first quarter of last year. Trading continues to be on track to achieve its target for the year. With the first quarter behind us, we remain committed to our 2002 EPS guidance of 390 to 410 per share. Strong results anticipated from PSEG Power later this year will more than offset the loss being come from Argentina and the year to date mild weather that has affected PSE&G. Our guidance reflects a loss of $.16 a share in Argentina based operating earnings, which have previously disclosed to you. However, it excludes, as I mentioned, all Argentine non-cash charges for recorded year. It also excludes any affects in the adoption and application of the new accounting standard on goodwill as 142. We're continuing to evaluate the impact of the document's new standard. This application may result in additional non-cash charges this year. But I want to emphasize that such charges related to Argentina and/or to the accounting change would not significantly affect PSEG's ability to meet its objectives. Our assets totaling $25 billion represent a strategically balanced and diversified portfolio of energy businesses here in the United States and around the world. While write-offs for any reason are not desirable, none recorded in 2002 will keep PSEG from meeting its annual EPS growth target of seven percent.

The stronger results we expect in the balance of the year, especially in the third and fourth quarters extend from PSEG power's successful role in New Jersey's recently completed BGS auction. As you know, the auction was held to provide utilities, including PSE&G, with sufficient electricity to meet their customer requirements for a one-year period starting on August 1st. Power participated as an indoor act supplier. It materially surpassed its goal of securing contracts with track of prices on more than 75 percent of its capacity. This will result in a meaningful boost to Power's bottom line when the in August. Power has an excellent mix and locations of assets, and all our plants particularly our nuclear plants are running well. Our trading operation is expected to increase margins by more than 20 percent over last year's result. Power contributed 50 percent of PSEG's earnings in 2001, and that percentage should approach the 60 percent range in '02.

Looking out over the year we continue to be comfortable with the subsidiary level of guidance we provided a couple of months ago. Mainly, we expect Power to earn in the range of $480 to $520 million, an increase of some 20 to 30 percent. I'll use Jim Ferland's words from yesterday's annual meeting and say that Power has become an earnings powerhouse and keep your eye of our growth this year and over the long term. We expect holdings, excluding all non-cash charges, to earn about $160 to $170 million. Within holdings, Global will continue its progress in building sustainable businesses in selected markets where we've had success. Our near term focus, however, will be on slowing somewhat, the growth of our international operations while seeking to improve the profitability. PSEG resources will also continue to be an important source of earnings stability and cash flow.

Finally, we expect PSE&G to earn a $175 to $185 million range. This energy delivery company also provides earnings and cash flow stability and will provide increased earnings contribution following the end of the rate of discount period next summer. On the whole, PSEG is in sound financial shape. Our cash flow remains strong, as does our liquidity position. We filed a shelf registration yesterday allowing us to opportunistically issue up to $1.5 billion of various types of debt preferred and equity securities. We've also changed our DRP, our Dividend Reinvestment Plan, to new issue shares. This allowed approximately $80 million a year of new equity. These steps will enhance our financial flexibility over the near term and better position us to take advantage of growth opportunities. Thanks and I'll now take questions.

Ladies and gentlemen we will now begin the question and answer session for members of the financial community. If you have a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt acknowledging your request. If your question has been answered and you wish to withdraw your polling request, you may do so by pressing the one followed by the three. If you are using a speaker phone please pickup your handset before answering your request. One moment please for the first question. Our first question comes from Neal Stein, CS First Boston, please go ahead.

Yeah, a couple of questions. The first one, could you talk about your financing? I know it's been a year and any conversations you're having with rating agencies.

o'flynn: Let me touch on the rating agencies, Neal. We have been through a lot six, eight weeks of forward view of our all our subsidiaries' businesses and a review of our plants and we really did that post BGS once we had a good handle and how things we're looking at. I think is complete and not to put words in their mouth but I think their comfortable with our current ratings and business outlooks. We're well through of where we are with S&P, we got some follow up questions but I think we're comfortable, once again not to put words in their mouth, but I think we're comfortable that they're comfortable. So, I think from an overall credit and rating agency position we're in good shape.

In terms of financing, we do have a reasonable amount of financing as we always do. But in the organization from a debt perspective, nothing materials certainly firm out less than we did last year, which was a -- I think we did $6 or $7 billion of debt securities last year. From an equity, if you've ask that one as I said, we did file a shelf last night that's really to position us for a potential equity offering. I think I'd stick with what we said in the past is that our plans over the last couple years have had an equity offering in '03. We have and are continuing get some consideration on moving that into '02 at this point. No decisions have been made. Things that would cause us to move in '02 we're just a little bit more concerned around the industry on credit issues. And generally to position us to be opportunistic to the extent growth opportunities arise.

Thank you very much, I'll let someone else ask a question.

Our next question comes from from Morgan Stanley. Please go ahead.

Hi, good morning it's .

o'flynn: Good Morning, .

I'll take my two questions first. Previously on your BGS call you were targeting I think the middle of the range for 2002. I was just wondering if you were still comfortable with that? And then you also targeted a growth rate of 7 percent off of that middle of the range for '03, if you could just follow up with how you're feeling with those expectations as well.

o'flynn: That's fine, , I think we're still -- we're still as you said I think on the BGS call we said 390 to 410 was our range if you have to go look at a specific number. It would be at the $4 number. That's still where we are. We do not have a specific guidance out there for '03 but we're comfortable with the 7 percent. Next year's growth over this year looks about consistent with our overall five-year plan. So you take 7 percent off the middle of this year's range earning. That's where we still are. I should say just maybe as a link with Neal's earlier question that the guidance we're providing, both this year and in that 7 percent number, does contemplate some of our equity considerations.

OK, even for '02?

o'flynn: I'd say that if we do accelerate the equity into '02 we feel comfortable that --

Within the range?

o'flynn: Yes. We feel comfortable with the range in the middle of the range.

OK, and just a question on the equity security, any preferences towards convertibles versus straight equity issuance?

o'flynn: No, I think I'd rather not get into too much detail, , I'd say that -- one thing I'd say is that clearly where a lot of mandatory converts have been done in the industry -- as we -- I should caution that we haven't made a decision to do equity, let alone which kind we might do and when. So don't want to get too far ahead of ourselves. But clearly the convert market is an attractive one and also from a structure standpoint we do have a fairly low amount of preferred. We have about 5 percent preferred on a consolidated basis, so you might argue that that can give you a little bit of room to do something with the preferred supporting it.

One last question. Would you have to have your situation in terms of the expected write-off with Argentina kind of finalized before any potential issuance could occur?

o'flynn: I don't think so. I think we've talked about it enough. That's certainly our feeling. I mean, when we AK'd early Feb after we got the -- a day or so after we got the AF announcement. I think we were, hopefully from your perspective, quite open and honest and looking at it from a worst-case perspective. We identified the 630 as the money we had invested, the money at risk. We characterize that as our worst-case investment, that numbers now about 585. So, at least from our perspective we've been very open, forthcoming in looking at it really going from a worst-case basis.

OK, thanks.

Our next question comes from with Argus Research. Please go ahead.

Good Morning.

o'flynn: Good Morning.

I just wanted to get your sense, you know, over the past months we've seen power prices firm up a little bit. I was wondering if there has been a back off from origination activity or if you've seen an increase coming into the summer months.

o'flynn: Prices have come up somewhat. I think the largest event for us though was really the BGS auction in early February. That's when the majority of our output was committed. I think since that time in early February capacity price at least on PGM have been fairly cost and the average price have come up a little bit. And gas has also moved up, I suppose gas is really what's -- gas and the energy prices obviously move in tandem. But in terms of origination our overall strategy, no, no real changes.

OK, then really quick, I know you have a pretty big options desk. How has that been affected by, you know, recent concerns over energy derivatives, has there been a change, have clients been backing away from that into other products or can you provide any color on that?

o'flynn: Bottom line, no. We do forwards, options in electric, gas, other products. I think we're fairly active in the options market but we're well diversified both in products, financial products and physical products. We did do some options and forwards in late March. Once again around our BGS position.

Right.

I think we continue to see that market being deep and solid. I think the one thing that we haven't really got too close to, so we're not the best ones to ask about this, but its some long dated options in liquid markets. We've frankly been shorter dated liquid markets that are pretty easy to identify and mark and disclose. The most esoteric things we've never been apart. So we're not the best ones to assess that market to be honest.

OK, thank you very much.

Our next question comes from with Janney Montgomery Scott. Please go ahead.

Good morning.

o'flynn: Good morning, Dave.

A couple of despaired questions. First of all, I noticed in your the therm sales, the commercial classification was off 22 percent in the quarter compared with last year. And I was wondering whether that's all weather or whether there's been a reclassified or economic activities that's notable.

Second question is just a kind of trying to figure out -- we've heard a lot of negative case scenarios about Argentina. I was wondering if there's a positive case scenario going forward.

o'flynn: Let me just take it one0by-one Dave. On the gas, the gas therm sales. In the general gas of the .15 cents down for weather versus normal. Once again weather is $.13 versus last year. But $.15 versus normal. But 80 percent of that I'd say 12 and 15 was gas related.

If you're asking for specific differentiations between the commercial and within classes I'd probably have to get back to you on that to be honest.

OK, great. Because the difference is about, well, 8 or 7 percent when you compare it with residential and industrial but commercial specifically is off 22 percent and the others are off in the low teens.

o'flynn: yeah, I think that -- we can double check but I think the commercial class itself where the normalizes are still down. There may be some other things in there that don't pop out immediately.

OK.

o'flynn: Argentina is our silver lining. Yeah, I mean were looking at that just as we talked to our financial community here on a worst-case basis. Because I said briefly setting aside the mark upon EDEERSA debt the business is still continuing to provide essential services to people. People need to have the lights on. We're running a business, obviously its a little bit more challenging political environment down there, but the businesses are running, we're essentially cash flow and earnings neutral. In fact, that the first quarter we were moderately positive but I'd rather just say essentially neutral to be honest. I think there is beginning to be discussions down in Argentina at the Federal and the provincial level bringing the companies in for rate discussions. We certainly think that there's a very strong case we made that there should be some rate adjustments up in the peso. And just given the leverage it doesn't take a whole lot of revenue increase to make a very meaningful impact upon equity and earnings. We're also pushing some issues in Washington to be honest, linking, doing our best to get some of the IMF potential systems to Argentina linked to fair treatment of U.S. interest, U.S. investments in Argentina, specifically in the utility sector. So, yeah there are some potential offsides for these businesses we're cautious so we're not laying out those before you. But at the end of the day these are essential businesses still running well needed by the citizens down there and should provide value over a long term.

Thanks.

Our next question comes from with Deutsche Bank. Please go ahead.

Hey Tom, how are you?

o'flynn: Good Jay, how are you?

Great, thank you. Two quick questions if I can. You sort of talked about higher trading margins and that sort of caught my eye, just wondering if you can sort of characterize what will drive in the higher margins if I really understood sort of the trading side of it and then if you can just characterize what mark to market, particularly on the unrealized side did to the effort quarter?

o'flynn: The trading margins we think will go up from about $140 to $180 million from '01 to '02. If you look at the trading business it's actually looks -- if you look at just the year-to-year margin gross, it looks like one of those bar charts that you draw when you start a business that you had steady growth. One of the things you see prospectively rarely do you see retrospectively. So I'd say that there's no one thing that kind of jumps out in terms of bringing us from 140 to 180 this year. I would say that their on or in fact slightly ahead of our expectations for the year. The one thing that helps if I remember then probably a couple of things that I just point out is, one is the gas contract transfer. That's going to help us. That's the gas contracts from PSE&G being transferred over to Power. Number two, remember that most of our capacity through the BGS, up until the end of July, has been locked up. Most of the power supply has been locked up through the PS2 E&G, which has minimized the amount of let's say free megawatts of . We start to have some more of that in the future. Like into how much we expect to have a little more flexibility so we can trade around that. I guess the last thing I should just point out, number three, if I can extend my list is the new plants. We have coming online in a couple of months, it's in testing right now. Linden early next year. The stuff in the Midwest, next year. So, new toys in the sand box I guess. Realize in the booking, we did have an increase of about $30 million in the first quarter and you'll see this in the queue in our what we hope is a substantial disclosure of trade positions in mark to market accounting. We did have an increase in our recognized but unrealized trading gains. Those are largely -- essentially what happened, Jay, at the end of the last year we some of the trading activity because we were waiting the BGS. Took them -- you know, some of our chips back, if you will, put them in our front pockets waiting for the BGS auction early February. And then once the BGS became known in mid to late February, we put on a number of positions, obviously around that. The majority of the BGS stuff we're doing is against settlement accounting, which means you book it as it shows up. So, those earnings will be recognized and realized for the one-year period starting August 1st. There were some trading positions around that. The minority of the overall book, but there were some trading positions that do go into the mark to market category. And I think the earlier -- one of the first couple of questions I answered was that there was some -- we'll go at some modest increase in trade, prices some of that stuff got a little bit more valuable and we book it.

Hey, Great, thanks a lot Tom.

Our next question comes from with Merrill Lynch. Please go ahead.

Yeah, Hi Tom.

o'flynn: Hi Steve.

Just following up on that same question, so what was the quarter end balance sheet number change in the quarter for the unrealized market?

o'flynn: I think it's in the 40/45 zone.

$40 to $45 million?

o'flynn: Yeah, it was in the low teens. It was at the end of the year it was still in the mid-teens. Mid to high teens. So at the, yeah, 30 on top of that effectively. So you're in the maybe 45 area. And that's a net number. I was thinking it was a lot of ins and outs so they're not always recognized but those are net increases. Still I could say hopefully you appreciate I think that's a pretty low number relative to the overall margin in that business.

OK. And just to -- on the international side, you said a couple of times that Argentina's cash flow and earnings neutral, but I believe there was at least that some temporary disconnect in the, you know, local currency I guess for the fuel or for the power and dollar denominated fuel. And just wanted to make sure there's not a scenario that you go into some kind negative ongoing earnings or negative cash. And just tie in with that any on the other markets you're involved in internationally, is there any other hot spots you're concerned about where you've got material investments?

o'flynn: Yeah, the -- we are earnings and cash flow neutral essentially at the EDEERSA, which is the business we operate. It was some discussions with but that was basically pushed into pesos, so we're still still apply there. To be honest we're taking a tough line there. We're only going to run those businesses with the cash pesos that they generate. Other markets around the world, the other big investments we have down there are doing quite well frankly. Chile's doing well, Peru is doing fine. Brazil is actually a little bit ahead of plan the first quarter. We were able to catch up from some '01 discrepancies on timing of revenue adjustments and that was helpful to us and other people in the sector down there. We do have about $50 million invested in Venezuela, it's with some industrials dollarized so we're generally insulated from the 24/36-hour coo. But that's a -- no always point that out. Other adjustments, Steve, are really in the U.S., Europe and a little bit in Asia.

OK, thanks for the update. I appreciate it.

Our next question is from with . Please go ahead.

Are we on? Can you give us a brief update on how the leverage lease transactions are going relative to plan? Do we have a concentration in one -- in the first quarter or is it sort of, you know, the first of many quarters of, you know, slightly increased leverage lease transactions that were seeing here?

o'flynn: In terms of new business or managing the stuff that we have in the portfolio.

Let's go in terms of new business.

o'flynn: There are no material new transactions that we entered into in the first quarter. We are actively looking at some things. There are a couple of major things that we're looking at quite closely. I identify those because those are still confidential as I'm sure you can appreciate. Despite the leasing business getting some wax in the press, I think we still are seeing reasonable flow and expect that business to continue to grow. I think we're expecting about $400 million or so of investment this year. Let's still stick with that number, we did about 500 or 550 of that last year. In terms of stuff we have, it continues to be the most critical part of our business by far. The leasing business. We did have a slight as we said before as a penny or two for further degradation in our airport portfolio.

It looks resources is up about $.05 this quarter versus first quarter last year. If that's not new leverage leases what is it?

o'flynn: It's actually, portfolio went down a little bit but it went down less than it did first quarter of last year. I think it was down $.02 versus four or five last year.

OK, thank you.

o'flynn: We've got about $25 million left there, it's not -- I think we're getting close to the bottom. Or at least at mark to market stuff.

Thanks guys.

Our next question comes from with Morgan Stanley. Please go ahead.

Hi Tom.

o'flynn: Hi Chris.

Can you give me a sense for cash flows at the operating subsidiary level? Like who's using cash and who's making cash and who's going to benefit from the equity insurance.

o'flynn: Well, we've got good generation around the business. Let's see. Are you thinking about cash generation or more --

I'm looking at roughly, you know, like who's going to be putting cash back up to the parent, and who's going to be generate or who's going to be getting back cash, and who's going to be getting the equity ?

o'flynn: Yeah, I think generally speaking and I think about it from a parent standpoint, let's say they both work from the dividend perspective. The utility will continue to be a supplier of dividends up to the parent. Even though earnings are down a little bit this year with the gas contract transfers it's really a sale by the utility. There's still a reasonable from the utility this year and then as earnings go up we'll continue to get strong. Dividend's up from the utility. Power is more flat this year and into the first part of next year because they're really finishing up their construction program. But then will be substantial dividend contributor up to the parent going forward. And then holdings, I think we did say in our K that we will be putting about $400 million into of holdings this years, that's an equity injection by Enterprise into holdings. We've done about half of that. We did half of that 200 in March. So, we beat that level this year and then going forward will be modest amounts. But in meanwhile will start to reverse of a couple years.

OK, that helps me out thanks.

o'flynn: So actually, Chris, a lot of it. We have a parent debt position at the end of the year, it's at sort of a billion range. So, a lot of it will be used to frankly just pay off some parent debt as opposed to ins and outs of the subs.

OK, thanks.

Our next question comes from Peggy Jones with . Please go ahead with you question.

A couple of my questions have been asked and answered, but two more I had. Well, actually maybe three more. Timing on more information about Argentina is the first. The second is what are the reason shifts in very general terms for the margin improvement in trading, and I'm wondering what the outlook is for that to continue to occur? And wondering if you're driving a benefit from your relatively solid credit positions. There were a lot about that on an earlier call this morning. And then the last question I had was you mentioned, I think, a $400 million increase in the size of the leasing portfolio this year, and that was a little larger than I thought that you had indicated a few weeks ago, and so I just wondered if a couple of new opportunities might have come up since that time?

o'flynn: Well, let me try to hit those . Peggy on Argentina, as I said, we'd like our arms around this sooner rather than later. We're looking hard at the second quarter. I think it's provided we have sufficient information to be able to act, but we look -- take a very serious look at it in the second and are doing that as we speak. Margin at trading I'd say over the year until the three things that I mentioned to you -- to Jay I believe it was. Gas contracts going to power, new plants and some incremental capacity we may have because once again we had all our capacity four locked up on the BGS. And that's really for the year. It's kind of the 20 percent growth up a 140 number as opposed to this quarter. As I said this quarter was actually down a little bit versus first quarter of last year. So we're low 30's instead of about 50. And that's largely due, as I mentioned to some -- I mentioned stuff that we had in the first quarter of last year. That being said that's something I think we folks done in top ten -- I'm sorry trading is ahead of our plan for this year. Last 400 the 400 is a number that we had in the plan at the beginning of the year. I think what mainly we're reading in the newspapers more than we should but just some concern over off balance sheet, leverage lease accounting. I think when we did again may have seen it with the Wall Street but that was the presentation we had in February. I think that was a little more cautious seeing that number may come down a little bit. We're frankly concerned that new stuff just wouldn't come onto the market as much as we thought and frankly when I had seen you folks that day there was just a deal that got pulled that we'd been working on for a few months. I think over the last month that we've seen a reasonable amount of deal flow pick-up. So, I've probably come full circle and be back to an expectation of where we were at the start of the year.

Thank you very much that's great.

Our next question comes from with Lehman Brothers. Please go ahead.

Thanks, good morning.

o'flynn: Good morning.

Two questions, I guess the first one is -- just kind of thinking about equity issuance and whether you would need to do something if you added an incremental, you know, acquisition in there or asset in develop.m.ent to the plan. And then secondly, maybe if you could come back to this idea of sharing the $7.00 incremental margin in -- from the BGS auction just thoughts on, you know, the notion that would have been shared equally with the direct marketer.

o'flynn: Let me see. I'd say that on the first one I'd leave our equity -- what I said about equity kind of where it is. I'd say our -- like any financial plan there's a number of moving parts in terms of capitalization ratios, margins, leverage ratios, even around the different businesses in the family. So, I'd say its not so tightly wound that where one modest acquisition is going to throw us into have to do equity tomorrow sort of situation. We got very strong cash flow. We've also got some good flexibility of our capex in general. About 40 percent is discretionary, so we got different dials to turn. If we got one up dial on an acquisition we got a down dial potentially on Capex. So, not so tightly wound but yeah if we -- if we increase growth a little bit then that would pushed into the little more equity earlier. In terms of the difference between the 44 and the 51 on current BGS versus new if that's what you are asking. I think we just said it provides some meaningful up sight to us how we really have strayed away from -- I got to stick to the script here quantifying that an equal allocation is at more to us, more to them, it's a fair and reasonable and meaningful I think, improvement to the 44 we're currently seeing.

OK, thank you.

Our next question comes from William Dunn with Fort Washington Investment Advisors. Please go ahead.

Yeah, just a follow up and just some comments made about energy holding. Are you done doing the work you need to do there to satisfy the rating agencies at this point or is there more still that needs to be done?

o'flynn: We're done at for that. I believe and S&P have a high-level of comfort. We haven't heard formally back from them that they're done. So, I don't like to put words in their month but I think they have a reasonably high-level of comfort there. We have heard formally back from that they're comfortable with their current rating and outlook.

And that's based on the 400 that show ultimately we put in over time.

o'flynn: yes.

OK.

o'flynn: That was one as you -- that was the function -- that was and a subsequently as you might get with any kind of financial forecast; but, yeah, 400 into holdings 200 which is already done.

All right, thank you.

Our next question is from Craig Lucas with the . Please go ahead.

Hi, thank you very much. I just want go back and one question on the balance but if I look at, like, your year-end common equity ratio that you reported in the K-10, something like 29 percent and that excludes off balance sheet debt and securitization. Is there a target relative to the common equity level? Give us for let's say one year out, two years out or three years out, kind of where you'd expect to see that go over time.

o'flynn: Yeah, I did say -- Craig the way I think about it, let's say debt to cap. The end of the year and the end of this quarter or about 68 percent debt to cap. That's including all short-term debt excluding the securitization. The way, I think we thing about it and the parent banks think about it which is a comforting point. Is they exclude on balance sheet non-recourse debt.

(Inaudible).

o'flynn: Sorry?

It's a billion and a half?

o'flynn: Yes, so that gets you down to 60 to 64. Once again, you may have heard me say before and I'm going to repeat it again, that 64 at the basis adjustment is after taking a billion dollars off the sheet of power. Because the intercompany sale effectively wrote that equity off at the time of that transfer. If you add that back that gets you to 60. That being said I think we'd like to see the leverage ratios in the non -- if you exclude the non-recourse, we'd like to see that get below 60 percent. I think that's out two or three years.

And that's including this billion-dollar credit that the rating agencies give to you?

o'flynn: No, I'd say not including that. We'd like to see our leverage come down. And I would say that just to be -- be the basis adjustment, I think that is an economic adjustment I think the agencies would have different interpretations of that. Another way to look at that is just to look at cash coverage's. That is, we got the assets over cheap. The power for instance is very strong cash coverage's so that's another way -- if you look at debt to cap or cash coverage's they would say that effectively corrects for that naturally. So, they don't -- I wouldn't want to put words in your mouth and say that they accept that face adjustment but I think it's a fair economic argument.

But you make the argument and they listen.

o'flynn: Yeah.

OK. My second question has to do with Eagle Point partnership. My very rough understanding as you said contributed $.25 last year and this year it's $.18.

o'flynn: Yep.

And if I understand it generates something like a $100 million through '05 and then it stops. Something like that.

o'flynn: Something like that, yep.

What is that? Or what exactly is it? What was it and what is it now? And why do you receive payments from it? Is it a sale lease pack? Exactly, what is it?

o'flynn: No, no, no, it's a partnership we had with El Paso when we were each 50 percent. We restructured it with them to get a significant payment stream up front for the first five years and also they take a little more of the energy management of it.

But what is it, what is the .

o'flynn: Well, it's a facility.

Right and does it have debt? Why do they pay you money for five years and then it stops? Do you have a residual?

o'flynn: Effectively, it's a contingent sale.

It's a contingent sale?

o'flynn: Yeah, a contingent sale. I mean we are getting paid on over time.

Oh, so this $100 million that you're getting each quarter through '05 is the sale proceeds?

o'flynn: Yes.

OK.

o'flynn: Well, it's not $100 million. I think the total amount we expect to get this year is about $.18, so what's 18 times four million or something like that.

(Inaudible).

o'flynn: Here, that's the withdrawal proceeds from this year and that's contingent upon some plant operations that aren't materially significant.

So, it generates some -- I apologize it generates something like $.18 net each year through '05 and then it stops doing that.

o'flynn: It goes down a little bit. I just it for -- one bit share I got $.18. Goes down a little bit. Craig, if it's helpful, we can circle back again on more specific numbers.

OK, listen thank you very much.

o'flynn: OK.

Ladies and gentlemen, if there are any additional question, please press the one followed by the four at this time. Our next question comes from with Argus Research, please go ahead.

Yes, hi, I just want to follow up quickly. I'm looking at the first quarter at trading. There's about $32 million in margin. And maybe I misunderstood you but what part of this is unrealized?

o'flynn: Well, I'd say is our trading earnings or trading margin for the year -- I'm sorry for the first quarter --

Right.

o'flynn: -- was about $32 million as you can see on the page here. We did also have earnings that we -- incremental booking of recognized but not realized earnings of about $30 million. Coincidentally, the same number. Yeah, that's not as you can imagine there's a lot of stuff that goes into this stew and comes out of the stew. And then, as you know, there's a settlement of old trades, booking of new trades. It's a meaningful amount but the vast, vast majority of that, as I said, is trades that are in our trading book that need to mark to market. That are associated with the BGS contract that goes August 1 of this year to end of July of '03.

Sure, so -- so the duration is fairly short.

o'flynn: Yes, consistent with our theme of asset based short medium term duration liquid markets.

OK, great and then you mentioned the sort of pull back near term and Global, Global's expansion. Do you have any details there or just, you know, can you provide any more on that?

o'flynn: I just wanted to say a couple of things. One, we thought about our growth point at the end of last year. We would have seen generally a 15 percent growth in earnings at global. We're essentially going sideways to down a little but this year with Argentina, so that kind of knocks you back a little bit. At the same time I think it's a little more cautious world out there for reasons that we can go into. So, I'd say now as we think about our growth rate for Global where as we might of thought about the 15 percent range, I think the range we'd be using would be 10 to 15. And things change in a fairly rapid pace but I'd think we'd be more comfortable in the 10 to 15 ranges as opposed to a 15 range. The other thing I'd say that is that consistent with that we are making some adjustments, I guess, at the people level for our develop.m.ent staff, trimming that back a little bit.

OK, thank you I appreciate it.

Our next follow-up question comes from with Lehman Brothers. Please ahead.

Hi, thanks for the follow up. I was wondering if you could just come back to balance sheet goals. Have you expressed any specific goals at PSEG Power or holdings?

o'flynn: Yeah, I think as we look at it, we run with the basis adjustment that I think is a fairly strong argument at power alone, it's a little more complicated when you go up to Enterprise. But we basically look at Power at 50/50 in terms of leverage ratios and that's reasonably consistent with where we've been. And then what's that excluding the non-recourse debt and including the basis adjustment. At and I'd say that that as you know that's a leverage goal I believe it's a part of the whole picture, credit ratios, risk spectrum. Wouldn't want to circle any one ratio or number. At holdings, we generally look at 50/50 equity to debt within holdings excluding non-recourse debt. And we've been -- I think at the end of the year we were at 52 percent. We've generally been around that level and that's also consistent with how we talk to the and also three times cash coverage's at holdings.

Thanks so much.

Mr. O'Flynn there are no further questions at this time, please continue with your presentation or closing remarks.

o'flynn: I think we're done. Thanks for everybody's time. Take care. Thanks operator.

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