公共服務電力與天然氣 (PEG) 2002 Q4 法說會逐字稿

Welcome to the Public Service Enterprise Group fourth quarter and year end 2002 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 need to press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded Tuesday, January 28th, 2003. And it will be available for telephone replay for 48 hours beginning at 1:00 p.m. eastern today until 1:00 p.m. eastern on January 30th, 2003. It will also be available as an audio webcast on PSEG's corporate website at www.PSEG.com. I would now like to turn the conference over to Sue Carson. Please go ahead.

Thank you, and good morning. We appreciate your listening in today either by telephone or over our website. I'll be turning the call over to Tom O'Flynn, PSEG's Chief Financial Officer for a review of our 2002 results and a discussion of key 2003 issues, but first I need to make a couple of quick points. We issued our earnings release before the market opened this morning. In case you have not seen the release, a copy is posted on our website, www.PSEG.com. For those of you listening online, there is a table that shows earning contributions by our three major businesses: PSEG Power, our domestic wholesale energy supplier; PSEG Energy Holdings, the parent of PSEG Global and PSEG Resources; and Public Service Electric and Gas companies, PSE&G, our regulated utilities.

Tom will discuss our future outlook in his remarks and so I must refer you to our forward looking disclaimer. Although we believe our expectations are based on reasonable assumptions, we can give no assurance they will be achieved. The results or events may differ materially from actual results or events. The last word on any of our businesses is contained in the various reports we file in the Securities and Exchange Commission. We expect to file our annual report on form 10K in late February. Finally, we would like to give all of you a chance to participate in the Q&A session at the conclusion of Tom's remarks. In order to accomplish this, we would appreciate it if you limit yourself to one question and one follow-up. Thank you, and now I will turn the call over to Tom O'Flynn.

Thanks, Sue, and welcome. Just a couple of quick notes on Sue. Sue joined Bryant Smith and Greg McLaughlin in Investor Relations a couple of weeks ago from our company's accounting group. She has considerable experience in treasury and financial statement analysis which I'm sure you'll appreciate. I know she's looking forward to meeting all of you in the near future. Meanwhile, Hank Butler has accepted a promotion to another area within PSEG. We wish him well. Now to the topic at hand. In my remarks, I'll summarize the results we've discussed in the release and also address some of the significant events in the fourth quarter. Most notably, the continuation of the program we started in September to strengthen our balance sheet and liquidity. Finally, I will outline our expectations for 2003.

Before getting into specifics, I'd like to emphasize that we were very pleased with our overall results for the year, especially in the fourth quarter, when the financial and energy markets were under extreme pressure. Our 2002 results, excluding various charges, we've highlighted all year, were 376 per share. This was well within our target range of 370 to 390, which we provided back in July of 2002. These results were also closely aligned with the company-by-company guidance we provided. We ended the year with PSE&G coming in a little better, power well within our guidance, and holdings slightly below the range we indicated. These results from ongoing operations do not include toll charges of 259 as discussed in the second quarter, reflecting our adoption of FAS-142 related to goodwill, our decision to discontinue operations at a facility in India, and also at Energy Technologies, and our write-down of investments in Argentina. As a result, our GAAP, or reported earnings for 2002, were $1.17, including the impact of these charges.

There were a couple of key drivers to 2002's ongoing results. One was PSEG Power's success as an energy provider to participants in the first PGS option. Power started to see the benefits of the higher prices in August. The fourth quarter was particularly strong as we were able to source lower-cost energy during the shoulder season to serve the fixed price BGS load, thereby improving our margins. The other key driver was PSE&G's strong performance in 2002. The utility had lower operating expenses all year and higher gas margins in the fourth quarter. PSE&G implemented cost-containment measures to reduce expenses which more than offset the effects of the mild weather in the first quarter of the year. Favorable weather late in the year combined with the impact of last year's 90 million rate increase provided higher gas margins in the fourth quarter.

These positive impacts were offset primarily by higher financing expenses, the absence of certain tax benefits realized by PSE&G in 2001, and lower contributions from energy holdings due to loss of expected earnings in Argentina, disappointing results in Texas, and lower earnings from the Eagle Point transactions. The difficult markets experienced during 2002 seemed to impact every company in our industry, including PSEG. Our stock and bond prices suffered temporary setbacks, especially in the fall. We had already started the process of enhancing our balance sheet with the issuance of 460 million of equity converts in September. However, given the continued volatility in the marketplace, we took additional steps -- and issued 460 million of common equity in November, which complemented approximately 20 million of common we began issuing quarterly in March through our drip. Finally, in December, we issued 180 million of preferred securities. In summary, since labor day, we've issued over 1.1 billion of equity-type securities.

In December, we closed a three-year, $350 million credit facility on favorable terms. In this environment, three year deals are rare events. At year end, we had about 2.5 billion of committed credit facilities in place with approximately 600 million of short-term debt and letters of credit outstanding against those facilities. This left us with about 1.9 billion of committed available liquidity. We have modest long-term debt maturities for the remainder of this year. 250 million at holdings and 150 million at PSE&G. Also in 2003, we have about 1.1 billion of bank renewals we plan to modestly downsize due to our positive cash flow position. The remaining 1.4 billion of our credit facilities have maturities in 2004 and beyond. In summary, we are very comfortable with our liquidity position.

PSEG energy holdings have increased its focus on near-term cash realization. Global received a total of about 60 million from the sale of Tonner Bobbi in India and a portion of the ADS Argentina settlement. Resources successfully recovered its investment in two generating assets in the U.K., owned by TXU Europe with the net recovery of almost 70 million. We continue to move forward with a reasoned and critical analysis of Global's portfolio. We may selectively monetize certain assets in an effort to enhance stake holder value.

Continuing on balance sheet issues, PSEG recorded a 300 million charge to other comprehensive income at year end, reflecting the shortfall in our pension fund assets versus the accumulated benefit obligation, or ABO. This charge stems from poor performance of the trust over the last two to three years, consistent with the broader market, as well as reductions in the discount rate used to measure the liabilities. In accordance with FAS-87, discharge will be adjusted up or down at the end of each year for as long as the assets remain below the ABO.

In 2000, we made contributions totaling $250 million. We had a planned contribution level of 175 million in 2003, depending on market conditions, we may consider increasing our contributions to a level so that we can eliminate the OCI charge completely by the end of this year. Early in 2003, both the balance sheet and income statement are going to benefit from the adoption of FAS-143, accounting for asset retirement obligations. This standard directs companies to record on their balance sheet the present value of legally required decommissioning and removal costs for generating facilities. Adoption of this standard is required during the first quarter of 2003 and will result in an increase in net income and, therefore, equity, sufficient to more than offset the impact of the pension OCI charge recorded at year end '02.

On another front, sometime in the second half of the year, PSE&G expects to securitize deferred energy costs associated with the first BGS auction period. Our securitization will be done in accordance with legislation enacted last year that allowed New Jersey's utilities to securitize their deferred costs. The securitization has no impact on our income statement. The expected deferred energy costs are about 250 million pretax. In summarizing our balance sheet activities, the key point to remember is that PSEG entered 2003 with a debt ratio of approximately 61% and expects to end 2003 with a debt ratio in the high 50s.

The declining debt ratio will be achieved through three means. One, the combined 500 million scale-back of our capital program at PSEG energy holdings and PSEG power, yielding approximately 300 million of free cash flow available to reduce recourse debt. Two, the adoption of FAS-143 in the first quarter, and, three, the anticipated growth from obtained earnings during the year. These debt ratios, as we've explained to you previously, are consistent with our parent-lender definitions -- they do not include securitization or nonrecourse debt but incorporate the base adjustment of power that resulted from the transfer of the generation assets from the utility in 2000. Cash flow coverages continue to be strong, perhaps best evidenced by high ROEs, above 40% at power and about 20% overall at PSEG, excluding the various charges.

Now with an improved balance sheet, let's talk about 2003 earnings. Including the dilutive impact of our equity offering in November, we expect 2000 results to be in the range of 370 to 390 per share. This excludes the adoption of FAS-143. There are two key events that will take place in '03. The second BGS auction and the conclusion of the electric rate case. The second BGS option is scheduled to begin on February 3rd. The process should take up to two weeks or about the same as last year. There are additional details available on the auction website, www.BGS-auction com.

This year's structure is different than last year's in several ways. First, there are two auctions being held at the same time. The first auction, referred to as the hourly energy price or HEP auction, is intended to provide capacity needs for about 1,700 large customers, or 2,500 to 3,000 megawatts of load in New Jersey. These customers will be subject to hourly energy prices for the 10-month duration of the contract in the HEP auction, power intends to be a direct participant. The needs for other New Jersey customers are about 15,000 megawatts of peak load, auctioned off in two segments, a 10-month segment, which represents about two-thirds of the load, and the 34-month segment, for the other one-third. As a reminder, the 10-month contract is intended to establish June 1st as the starting date for future contracts, because it coincides with the start of the summer months. The 34-month contract also moves the start date to June 1st and establishes the first multiyear contract under the BGS structure. This is a structure we hope will lead to a dollar-cost averaging approach to BGS pricing on a fixed seasonal basis. In the second auction, power will once again be an indirect participant by contracting with various direct bidders. Overall, power expects to term up more than 75% of its PJAM generation capacity.

With the auction less than a week away, I won't go into our strategy or attempt to predict the outcome, but I will say the current price of natural gas in on-peak PJAM floor prices are above the respective prices at this time last year. You should keep in mind that since there are no 12-month crosses in the auction, a direct comparison to last year's prices may be difficult. On the electric rate case, the current schedule calls for discovery, hearings, and briefings to run through March. The ALJ is scheduled to render a decision in May with the BPU's decision expected by mid-June. The new rates will be effective August 1st. PSE&G filed for a $250 million increase in rates last May. Although without refiling, we're limited to this amount, updates of our filing would support over 300 million in rate relief. We believe the BP will acknowledge these increased expenses, such as pensions, helping us to achieve a reasonable outcome.

In support of our '03 guidance of 370 to 390, we expect a slight increase at the utility, from five months of new electric rates. Power will benefit for the first seven months from last year's BGS auction results, and the addition of the former [INAUDIBLE] assets in Connecticut that we purchased in December. Also during 2003, PSEG global is scheduled to bring online facilities in Poland, Oman and Taiwan, as well as the GWF expansion in California. These and other factors will offset the impact on EPS of additional shares issued in '02.

Before concluding, I want to remind you that PSEG remains committed to our dividend, a long-standing part of PSEG's business strategy that has recently gained increased attention from the investment community. Earlier this month, we declared a regular 54-cent per share dividend on common stock through the first quarter. A dividend payout ratio is currently about 57%. As that ratio drops below 50%, we will consider increasing the dividend. As we get further into '03 and have clarity on some of the major events I've outlined, we will provide guidance for 2004. At this juncture, we would expect that 2004 would reflect a reasonable improvement over 2003 with a full-year of new electric rates in place and the result for the upcoming BGS auction in effect. Meanwhile, PSEG continues to focus on improved contributions from our existing businesses and maintain our position as a leader in the energy industry. We're committed to a 7% growth rate over the long term. Thank you, and I'll now take questions.

Ladies and gentlemen, we now begin the question and answer session for members of the financial community. If you have a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you wish to withdraw your polling request, you may do so by pressing the 1 followed by the 3. If you are on a speakerphone, please pick up your handset before entering your request. One moment, please, for the first question. Our first question is from Paul Ricon with McDonald Investments. Please proceed with your question.

Thank you. Do you anticipate any impact from EITF 0203?

Nothing material, no.

Okay, thank you.

Our next question is from Jeff Gildersplese with August Research. Please proceed with your question.

Good morning, Tom.

Good morning, Jeff.

I had a few questions. First, you mentioned Global and cutting back there, I guess it's really not new announcement, but not going forward with any more expansion, and, also, you did expect the Poland and Oman facilities to come online. Can you just talk about what you expect at Global for the next year?

I think, Jeff, it's fair that the -- we said, I think quite consistently since last year, that we would not pursue new investments at Global, we would continue to build out the plants that were already under construction, so that would include Poland and Oman and GWF, two of those three facilities are up and running at GWF, and a third is going to hit the grid in April/May, an those are all of new renegotiated GWR contracts. Generally, with Global, we continue to see those businesses run reasonably well, but, as we've said before, about 70%, 75% of the cash flow and earnings contribution come from investment grade sources, i.e., either the U.S. or foreign economies with investment grade country ratings. We see some reasonable growth out of Global as they focus on nuts and bolts operations, bringing cash home and de-levering .

Okay, great. And I know in the past, or I believe you have broken out segment -- guidance, are you prepared to do that today?

Not today, Jeff. It's a fair question. I think once we get the BGS behind us and perhaps a couple months into the year we may do it, perhaps when we announce first quarter earnings.

Okay. And as far as the 2003 range now, 370, 390, how should we think of your assumptions within that range as far as BGS and the rate case?

We think -- at a high level, we think they're reasonable, conservative. We think the BGS, our numbers are consistent with the general expectations we got from the market last year. I think, hopefully, appreciate it -- it's just too close to the auction to get into specific volumes or sizes or pricing. That's not -- that's not reasonable for us to do. It wouldn't be fair to the auction as a whole. But we think the reasonable assumption, and we feel perhaps more comfortable with them having -- having been through it once before. The rate case, we're not looking for a lot this year. There'll be some modest improvements, as I said, for the latter five months of the year, once the rates kick in in August, so overall, looking for a modest level improvement from PSE&G, but we're looking for a quite a good up tick in '04 once we got a full year of the electric under our belt.

Okay. And not to take up too much time, but last question, on the debt to cap, I'm looking at your disclosure, which is very helpful, and, you know, putting all the debt in there, it seems debt to cap is, you know, in the upper 60% range, what are you looking at when you -- when you're quoting your figures, and how should we think of the rating agency's looking at this?

Yeah, the number I get is -- the number that we quoted was 61%. That excludes securitization debt of, I think it's 2.3, 2.4 billion at that time, that securitization was done at PSE&G in January/February of '01. That's consistent with other rate securitizations that have been done around the country, so that's AAA rated. I don't think anybody looks at that as being our debt. We also exclude a billion-seven of nonrecourse project debt. That's roughly split, 800 Power, about 800,900 million at Global, and those are project-finance facilities that have just the credit of those facilities behind them. So we also exclude that number. That's what takes us down to the 61% number, Jeff. That's consistent with how the parent lenders look at these -- at these ratios.

Sure.

And it's hard to put words in the mouth of the rating agencies, but at least as we portray our numbers to the rating agencies, that's the language, the currency we talk at.

Okay, very helpful. Thank you.

Our they question is from Greg Gordon with Goldman Sachs, please proceed with your question.

Thanks. Can you hear me?

Yeah, hey, Greg.

First of all, thanks for the very fulsome segment disclosure in the release and the balance sheet. You know, there's only a few companies that put the balance sheet up before the keel, so we appreciate that. On '04, you said you expected modest, you know, modest improvement in '03. I think you laid out some of the pieces here. You talk about, you know, getting really the full -- the majority of the impact from whatever rate case decision you get in '04, not '03, but can you also remind us sort of what the -- what the impact of the removal of the MTC is in '04, is that something you have to overcome to get to a flacked-up year?

Yeah, I think it's about 20, 23 cents, something in that range.

Great. Thank you.

Yeah.

Our next question is from Andrew Levi with Bear Wagner. Please proceed with your question.

Hey, Tom, how you doing?

Hey, Andy.

Kept the lights on this quarter. Very happy. On a serious note, could you just give us first quarter weather impact this year? I mean, last year versus normal?

Yeah, Andy, our safety and reliability numbers are very good, just for the record --

Okay. [ Laughter ]

Last year, the first quarter, we were down about 12 or 14 cents due to January and February gulfing.

That's verse normal?

Versus normal, right. And is there any -- and in '02, I'm trying to think what the comparison -- in '02 versus normal, we were down about 4 cents, gas was down about 8 cents, electric was up about 4, so net-net, '02 versus normal Jersey weather, that's all about 4 cents.

That's all of '02, but 12 to 14 cents in the first quarter?

12 to 14 cents of loss of gas in the first quarter, yes.

And do you have any weather data at all for the first month? I would assume it was above the days -- slightly above normal, is that fair?

Yeah, helpful. And do week-to-week forecasts, but it was helpful. In the first few days, you may forget, having the winter coat on for so long, the first few days of January were actually not above or below normal, I'm sorry. Not better than normal.

Okay.

But we've been rapidly catching up since the first week or so. We are now colder than normal for January, so it will be a help, yes.

Okay. And is there a schedule on the rate case that you can share with us, significant dates we should watch out for?

I mentioned it a little bit there. Some of the -- well, right now in hearings, folks are filing -- will file briefs I think the first couple days of March, the initial briefs, reply briefs are due mid-March. The initial decision by the ALJ, that would be a key day on May 1st.

May 1st, okay.

The BPU decision expected mid-June.

Mid-June, okay. Great. Well, good luck this year. I hope you guys have a great year.

Thank you.

Our next question is from Steve Fleischman with Merrill Lynch.

Please proceed with your question. Yeah, hi, Tom.

Hey, Steve.

A couple of questions. First, with respect to energy holding, now that the bonds there have been rallying significantly, can you give us a little more thought process on how you plan to deal with maturity this year and then the end of the bank line next year? I think you were planning to just take the maturity up on your bank line for this year, is that still the case?

Yes, we've got -- right now, we have 695 of bank lines as holdings, 200 matures in May of this year and 494 matures in May of next year '04. We have two maturities, one in May of this year, $250 million, that's the last of the Capital Corp financings, it's at holdings, but also guaranteed by the parent. That Capital Corp facility will go away, but as we see it now, Steve, we have -- we have no drawings, frankly, at the end of the year, holdings was a net lender to the corporation, so when I talked about the $600 million of liquidity, that's a net number, holdings actually negative short-term debt, I guess, net lender to the company. So they got more than enough capacity on that existing 495 bank line, if you send the 200 goes away, but we don't -- we don't renew that. The 495, it's also May of '04, lots of capacity to repay that. There is a maturity early, first quarter of next year of $300 million at holdings, going out now to '04, as we look at -- we've got strong cash flow from holdings this year, we'll be able to make a dent in cash available to pay that down. Obviously, we'll try to think forward in terms of other modest sized financings we can do to take care of that well in advance.

Okay.

We did the '04 piece is actually more, like, 280, 285, something like that, we did buy a little bit of that back.

Right. Okay. Okay. So your thought process here generally is that between cash generated by holdings and potentially some small asset sales or other financings you could deal with a lot of these maturities just internally as holdings?

Yes. Yeah, that's our expectation, that holdings will be able to deal with these maturities on their own.

Okay.

After that, as you probably know, Steve, after '04, there's no maturity until '08. So we've got a lot of -- a lot of room in holdings.

And then, secondly, in this -- you ended up earning 138 million there in 2002 and you mentioned in '03 that might be, I guess, slightly down, the holdings about the same?

I think holdings will be slightly up. Somewhat -- I'm going to be cautious and not get into piece by piece guidance.

Right. In the -- in the 2002 number, you had this weak fourth quarter there at Global, and it looks like the weakness for the year, if anything, was at Global? Any particular business at Global?

Well, there were -- there was the -- relative to last year, there was an Eagle Point transaction in '01 that we did not -- you may remember, there's an incrementally Eagle Point transaction we did in the fourth quarter of '01 that was not there in the fourth quarter this year. There were also a couple of modest impairments we took at [INAUDIBLE] in one other spot, and then Texas continues to be a drag, to be honest. We think some of that drag will be somewhat less in '03, but Texas continues to be a disappointment. So it wasn't -- it was more smaller pieces, Steve. It wasn't anything other than the Eagle Point transaction.

Okay. And I guess any communication from Moody's with respect to their remaining rating watches they have on some of the companies -- excuse me, outlooks? Any communication there on if they plan to address those anytime soon?

No, I think I'd be cautious to put words in the mouth of rating agencies. We obviously have a very frequent dialogue with them, keep them updated on a regular basis on things that we're up to. I'd say since folks and I have reminded them, since we got moved to a outlook negative that was back in October/November, we've done a lot. A lot of balance sheet improvement, issued equity, issued a preferred bank deal, cut some capex, we've done a lot of things, so we believe our momentum is going the right way, but we currently have an active -- an active dialogue with them, until, as we said, the rate case and BGS are big issues for us. I'm sure they're well aware of that.

Okay. Congratulations again on the numbers this year.

Thanks, Steve.

Thank you. Ladies and gentlemen, as a reminder please limit yourself to one question and one follow-up question. Our next question is from Craig Albers from Osprey Fund. Please proceed with your question.

Hi, good morning. I just had a couple of just balance sheet issues or numbers that weren't disclosed, if you could. Can you update us, Tom, on the capex and what it came in at '02 and what your forecast is for '03?

The capex was very close to what we had projected from our Q.

Okay.

No major changes. In fact, respect our capex disclosure, that in the -- in the Q, we showed consolidated basis, 2.1, 2.2, that's quite close to where we expect, and the forward capex should be consistent with our last Q.

Okay. What were your cash from operations, then, in '02? What did that come in at?

The cash from operations was in the billion-six, billion-seven zone, be consistent with some of the charts we've shown. I'm sorry, closer to billion-eight, billion-nine range.

What are you including in that, because through three quarters it was only 858 million.

Well, I think as you -- we can go through the balance sheet -- the balance sheet and cash flows once they're available, but generally power and PSE&G, generate something in the 650-type range, 657-100 range and the rest is at holdings.

Okay. Of the $300 million rate increase that you're asking for on the electric side, how much -- let's just say you got all of it, for a second, which you won't, but what percent of that amount would be cash to you as opposed to lower D&A and other noncash items?

Yeah, let me say just to be clear, we've asked for a $250 million rate increase. We are capped at that level, so when I said there's -- we've updated some of our filing information to support a rate increase in excess of $300 million, I think that substantiates our arguments, but without refiling, we can't ask for a larger number.

Okay.

In terms of a request for a cash rate increase, there is, obviously, in any kind of rate increase discussion, there's a review of cash versus noncash items, so I'd rather at this point not speculate cash versus noncash. We're just in the middle of all of this obviously with the BPU.

Okay. One last question. When you talk about all of the debt and you broke out the instruments that you strip out and calculating your debt to cap, the way you say the rating agencies look at it, how much would operating cash flow on an annual basis be reduced, i.e, what is the cashflow that's attributable to pay down that debt?

Last year, we were net borrower, this year we'll be a net payer back of debt. When I said 300, net-net, our cash flow forecast shows we'll reduce recourse debt, excluding the stuff I mentioned, excluding the project debt, excluding securitization debt, we'll bring recourse debt down by about 300.

Right. But how much operating cash flow per year is associated with paying down the nonrecourse in the securitization stuff?

It's a fairly modest amount. It's probably a couple hundred. The securitization goes down by about 125 a year and the rest maybe 100ish.

Okay, thank you.

But I -- we should try to get back to the one question per customer at least for a while here.

Thank you.

Okay.

Our next question is from Badulah Murty with FAC Capital, please proceed with your question.

Good morning, Tom.

Good morning, Badulah.

Let's see, just to follow up a little bit on what Craig was asking about, I think in the past, you'd indicated capex for '03 of roughly a billion dollars and '04 like a billion-one, is that correct?

Yes, still fair.

Okay. And I think you'd indicated also at that point in time you'd be looking to be, you know, free cash flow positive, I think based on your answer, it sounds like about 300 million in '03 and then growing in '04, is that fair as well?

'04 is actually a closer number. We see the number as we currently sit here today, although less than that. Remember that fourth quarter last year, we stretched out a couple construction projects, Linden in Jersey here, and Albany, Bethlehem, up in Albany, so that helped our '03 capex and cash flow, as you see in the -- in our Q, we show power approximately -- 500 this year of capex and about 675 next year, we'd still around those zip codes for numbers, so '04 is tighter and '05 and '06 get quite strong.

Okay. Just to make sure, then, I'm clear, then, in terms of after operating, you know, operating cash flow, less capex, less common dividends, are we somewhere in each the '03, '04, 300 million, 400 million positive area?

That's a reasonable number for '03 you're high for '04.

But you'll still be net positive?

Net positive, but it'll be -- it'll be less than the numbers you were saying.

Okay.

100-ish in this range if you asked me to guess, 100, 150, if you asked me to guess, but that's obviously -- last year, I think from start to finish, we did a lot in terms of the year forward cash flow, a couple of selected modifications, being very careful with capex, and, obviously, those are things we continue to pursue.

And two last things, if I may. One with the rate case schedule, briefs in March and the ALJ in May, if you can tell us usually when's the most opportune time to reach settlement given that that's your long history in terms of these types of proceedings?

It's probably in the May/June time frame. I think we will expect it to happen before the 11th hour, summer's a difficult time to do these things. It's helpful to have, I think, our approach, it would be to put all the information on the table from a testimony and the submission standpoint, but then pursue settlement if that's reasonable.

Thank you, that would be before the ALJ or after the ALJ in terms of your view?

It's around that time period.

Okay. And my last question is, in terms of you reiterated your long-term growth rate of about 7%, I'm wondering is that -- is that achievable from just an ongoing basis from internally generated cash sources or going back to an expansionist mode to achieve those kinds of targets? I'm trying to ascertain would you consider internal organic capability versus having to go out and raise capital and deploy capital?

Right. No, we think that's a reasonable range. As we look at our business plan that we take apart and build back up -- every -- every December, if not more frequently, we look out five years and we think that 7% is a reasonable target based upon stuff that's currently in the bull pen.

And that can now be going forward here given, you know, your cap Ex plan, anything like that, can you achieve that just from internally funded sources?

Yeah, I'd say the words we're using, it's a reasonable target, and we'll, through '04, we'll get more specific clarity around '04 as we feel comfortable with that.

Thank you.

Okay.

Our next question is from Neil Simon with John Levin &Company.

Hi, Tom. Just have a couple. First, on equal point what, are your assumption for '03?

Assumptions is about $50 million pretax, and that was received in January.

Okay.

That's, I don't know, 17 cents, something like that.

I remember last year you didn't have anything [INAUDIBLE] in the first quarter.

That's right. Last year it was in July.

Yeah.

June. June, I'm sorry. That's right.

So it that all you get for the year?

Yes.

And then, do you get anything in '04?

Yes, an '04 piece and '05, about 40, 45.

Okay. Both years?

Yeah, I think it's about 45 in '03 and 35ish --

Okay. And then anything on energy trading, talked about a growth margin target around 170 million at least in '02 and stopped talking about it, could you talk about the performance of that business in '03, any financial metrics?

Yeah, just to be clear, Neil, the Eagle stuff, it's mid-40s in '04 and mid-30 in '05. If I confused you. Yeah, just on the trading side, the way we run the business now, and this was consistent with our disclosure from the third quarter of last year, is that trading below the assets, it's all in one big pot of soup, so we don't separately track trading from a P&L standpoint and don't think it's reasonable to, therefore, give it to you folks, because that's not how Frank and Steve and folks run that business.

In general, so the 170, I think we've -- what we've said is we've gotten -- we look at the overall results for power last year, we did get equivalent value for that, but to go back and piece apart, the trading pieces, is not as meaningful as perhaps it may have been in our dialogues over a year or so ago. Just the top of the levels we did have the kind of year we thought in trading, we make money in trading from a lot of different pockets. It's the kind of traditional electric and gas stuff, but the BTSS that is now, as you know, power manages the gas supply for PSE&G, that's with a couple [INAUDIBLE] deliverability, about 80 -- trading also includes emissions, FTRs and some other things, so it's a fairly diverse portfolio of things. We continue to like it. We continue to think it's a critical competency for us to make some additional margin, but also do some smart risk management around the whole power bundle.

And just to go back to the comment on Eagle Point and the timing, it looks, I guess, like the weather we've been having in line with Eagle Point, earning for the first quarter should be substantially low from last year?

That's fair, Neil. Yeah, we don't get into specific quarter-by-quarter guidance, but that's fair. We had a very warm first quarter last year, obviously it's not the case this year, but we had some good BGS results that were, just like in the fourth quarter of last year, a shoulder period, fixed BGS load, so we would expect that would be quite helpful in the first quarter and then also Eagle Point is another point.

Thank you very much.

Okay.

Ladies and gentlemen, as a reminder, please limit yourself to one question and one follow-up question. Our next question is from Chris Bezler with Morgan Stanley. Please proceed with your question.

Hey, Tom. How are you doing?

Good, Chris.

Just a point of clarification on the MTC that you discussed earlier, you said it was 23 cents. Is that what it contributed this year? I guess my expectations was that it increased to 35 cents next year and then went away. Is it expected to be flat next year and then go away in '04?

It goes -- this is the last year of it.

Well, in '03.

Yes.

So it's flat relative to '02 and then goes away, is that the trend?

Yes.

Okay. One other quick question, I don't know if you gave this out, but do you have cash on hand at year end?

No, but when I gave you the $600 million borrowing, that's a net number, so that would -- that number would be reduced somewhat, I think I said that holdings had cash on hand effectively lending it to the enterprise, that's a net number.

Okay, thanks.

It's a small amount. In the hundredish range.

Our next question is from Tim Dogman with Salomon Smith Barney. Please proceed with your question.

Good morning.

Good morning.

On the pension, did you say that you put in 250 million last year?

Correct.

Okay. And then in '03, your plans are 75 million?

Our business plan, the guidance and all the rest of the things and that incorporated in the assumption of 175.

175. Okay.

Yeah.

Now, is that a reduction to that 300 to 400 million of cash, free cash, or is that --

that's all part of it.

It is part of it.

That's baked into that number.

Okay. So if you -- if you try to wipe out the OCI reduction, get up to the 300 range, then we're talking free cash would come done by 125 or so incremental?

Yeah, something that you know, the pension, as I said, we will look closely at the ABO numbers. It has a lot of moving parts. It has the performance in the fund, that we assume is about 9%, the discount rate at the end of the year, 6 3/4, as those numbers move around, then the amount required to offset the ABO effectively moves around.

Sure.

At this point, as we do all that, a hundred or so, 100, 125 incremental to the 175 would about eliminate that OCI issue, but there's a lot of movement going on between here and end of the year. It's a strong market, if bond yields go up, the number could come down materially.

Right. You don't change throughout the year. You don't change your return assumption, do you?

No. No, it gets pegged right around this time.

Okay. And just another off-topic one. Do you have any interest in acquiring TECO stake in the TIE plan? The new-found stake?

You mean through the Panda relationship.

Yeah.

We don't have those plants, as you know. We're obviously in discussions to some extent with Panda and, I guess, trying to keep abreast of that situation, but by and large, we see ourselves as 50% equity owner of those facilities.

So you don't want to go above that?

That's not what we -- I think I'd rather not speculate on things, obviously things moving around with Panda and TECO, abreast of that situation, think we're comfortable with where we are at 50%, that's where we'd like to be, obviously discussions and things between those partners move around.

All right. Thanks, Tom. Our next question is from Paul Patterson from Glennrock Associates.

My question's been answered. Thanks a lot.

The next question is from Paul Fremont with Jefferies. Please proceed with your question.

Thank you. The '03 guidance that you're providing at the higher end, would that include some assumed level of increase in the BGS price?

Yeah, Paul, I'd rather not go into kind of what the specific baseline is, if you will for the BGS. I'm sorry if I'm frustrating folks, but we need to be very careful about, especially only a week away from it. What I'd say is a 20-cent range, I'd say at I higher end of that range then it would assume a little better outcome on BGS fall-in than would be the center of the range.

And would it be safe --

but I'd rather not --

Each dollar increase in BGS would equate roughly to a nickel in '03?

Yeah, absent increase in costs, you can think of our generation being somewhere in the 40 million gigawatt hours, if I've got my zeros right, range. So if you just take that, you multiply it by whatever percent you think we're going to sell, and you kind of do the math simply, it gets, of course, harder than that as some of the price dynamics of BGS are related to BGM price dynamics, so generally, a high level.

Also, with respect to -- with respect to the change in accounting for liability, would that have any impact going forward on your reporting of nuclear decommissioning expense on the income statement, which I guess is currently what roughly an eight cent drag?

No, nuclear decommissioning is -- does currently not go through the income statement to the extent that the fund goes up or down, that offsets the liability. Going forward, there will be a potential income statement impacts as we look at it, we think that the accretion of the liability, i.e., the expense, will be by and large offset by the increase in the fund assets and we report those as they become realized. So there are moving parts in it, by and large, we think those are offset. The issue, though, Paul, is there is some volatility. There's not smoothing or five-year averaging or things that are available in pensions and some other things, so there may be some intraquarter or intraperiod -- interperiod changes to the extent there's a good year or bad year in the market by and large.

And last question, can you give us a dollar number for pension expense in '02 and what the expected number would be in '03?

'02 is about 80, and that's family wide, about 55, 57% of that is PSE&G, and the rest, power is the next largest, and then the rest gets spread out, but 57, probably more like 60% if you allocate some of the service company people, is PSE&G related, but 80 is the short answer. This year, the number's going up 130, 135. It's a material increase, and that is incorporated in our guidance. It's a major head wind in our guidance for '03.

Thank you very much.

Okay.

Our next question is from Danielle Sikes with Salomon Smith Barney. Please proceed with your question.

Just a short question. Do you have in mind a specific number for asset sales for --

I'm sorry, do we have a number for asset sales for this year in.

Yes, what are you hoping to get --

In the plant, Danielle, we are looking at a couple of things of modest sizes, nothing --

-- but the total number, as a total source of funding, do you --

The number I gave you in terms of 300 million available after capex, after dividends, that is -- that assumes zero for asset sales.

Okay.

Asset sales would enhance that number.

Okay. And over the next years, you don't visualize -- I mean, it will be remote for you to think you would need some additional equity at this point? You feel you have done it?

We feel like we've -- like we've done a lot.

Yes, I know.

We did a billion-one since Labor Day. We did converts, we did common. We did a preferred, a retail preferred. All that was used to pay down debt, largely short-term debt. We deep the drip going, $80 million a year, strong cash flow, strong cash flow coverages, and reducing debt to cap, you know, a couple, three points a year, so we feel like we're doing what we need to do.

Great. Thanks a lot.

Okay.

Our next question is from David Hollands with Blackhawk Capital Management. Please proceed with your question.

Congratulations on the good year and your ongoing commitment to your balance sheet. My question's really a follow-up to one a few minutes ago regarding the Odessa and Guadalupe power plants in Texas. Was wondering if you could give a little bit more color on your relationship with Panda as well as if you could just kind of go into exactly what the relationship is with those two particular plants. Thank you very much.

Yeah, I'd rather not get too much. Essentially, we're 50/50 partners with Panda down there. We understand TECO has some rights and maybe exercising some of them. We're just, to be clear, not in the middle of that, but TECO may be working with Panda to step in a little more to step in to sell some of Panda's equity ownership, but we -- that is a 50% owner with Panda slash TECO. The loans are project financed, not recourse to Global or holdings or for anyone else. Texas has been a tough market, so it's been a disappointing -- it has been an earnings drag on us. It was an earnings drag in '02, expect a somewhat less earnings drag but still a negative number in '03. From a lender perspective, there may be some need to inject some modest amount of capital, something in the mid-teens in terms of a dollar amount, low to mid-teens in terms of the dollar amount into those plants just to maintain covenants and everything else from a project financing standpoint, we would be responsible for half of that. We're having very constructive dialogue with banks for some period of time, our style and strategies, just to think ahead of that kind of stuff.

Thank you very much.

Our final question will come from Mark Rowenberg with Cowan Capital, please proceed with your question.

Okay, Tom, it's Peter Hark at Cowan, how are you?

Good.

A question on the BGS auction and the sensitivities to pricing, I know you're not giving out any earnings guidance per se that you're building into this year's number from the second auction, but I was hoping you could provide a comparable pricing environment, you know, relative to last year's auction, and that might suggest how much better you might do.

Yeah, all I would say is if you look at gas prices last year, or if you look at power, by gas price, I mean the one you forward gas price, you look at that, the same time last year, or you look at the on-peak prices in PJ&M, both those numbers are materially better right now. Capacity prices are down within PJAM, but that gets overwhelmed quite materially by energy prices.

I was hoping you had the actual pricing, the actual prices that you're seeing this year versus what they actually were last year.

Yeah, I've got them but I think just given how close we are, I want to be careful that those aren't --

okay, that's --

-- overly interpreted to predict the capability to be honest, and the other thing, though, just to be -- just to be clear, the 10-month auction, you need to be a little careful comparing the 10-month to the 12-month, because it's not -- the 10-month auction does not have as many summer months as a 12-month.

Right. That was my second question, kind of how you expect that to play out, you know, the seasonal fixed pricing, as people bid on, you know, the 10-month and 34-month, what's your anticipation of how that will fall out?

Yeah, really not going to get into speculations, the 10-month versus the 34 month. You can look at the forward curve, three-year forward versus the one-year forward and make some of your own expectations, the three-year forward is above the one-year forward, but just on the 10-month versus the 12-month, apples to apples comparison is a little tough, because it is easier to supply 10-month when you're not supplying July and August. Now, that's fine, because that'll -- that same July, August doesn't go away, just comes up in next year's auction, it'll be a 12-month.

Okay, thanks very much.

Mr. O'Flynn, please continue with your presentation or closing remarks.

Okay. Well, thanks, all, for joining. We are enjoying a nice chilly '03 so far. Just quickly, I'd like to mention, everybody, that 2003 does mark PSEG's 100th year of operation, the history of our success is no accident. Our diverse portfolio businesses and our conservative financial philosophy allowed us to weather many tough times. While today's environment is certainly difficult, we believe we're well positioned to succeed in the future. So thanks, all, for joining us.

Ladies and gentlemen, that does conclude your conference call for today. You may disconnect and thank you for participating.