公共服務電力與天然氣 (PEG) 2003 Q1 法說會逐字稿

Welcome to the PSEG first quarter earnings announcement conference call. During the presentation, all participants will be in a listen-only mode. We'll conduct a question-and-answer session. At that time, if you have a question, please press the one followed by the four on your telephone.

As a reminder, this conference subbing recorded Wednesday, April 16, 2003.

I will now like to turn the conference over to Sue Carson, Director of Financial Communications. Please go ahead, ma'am.

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 first quarter 2003 results and a discussion of key issues. But first I need to make a couple of quick points.

We issued our earnings release yesterday prior to our annual meeting. 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 earnings contributions by our three major businesses: PSEG Power, our domestic wholesale energy supplier, PSEG Energy Holdings, which is the parent of PSEG Global and PSEG Resources and Public Service Electric and Gas Company, PSE & G, our regulated utility.

In an effort to provide timely and insightful information to investors and analysts, we have also included a reconciliation of 2003 first quarter and 2002 first quarter results and other supporting information for each operating company with the news release; however, we did not include the condensed statements of operations that we have provided in past quarters. That information is undergoing our standard review as part of our disclosure-controls process. It was recently formalized in response to the Sarbanes-Oxley Act.

We expect to file our 10-Q with the Securities and Exchange Commission in early May which will contain all of this information. 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 predicted in our statements today may differ materially from actual results or events. The last word on any of our businesses is contained in the various reports we filed with the Securities and Exchange Commission.

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.

Morning.

I hope you got to the chance to review the earnings release we put out yesterday afternoon. Today, I would like to summarize the results for each company and review some key activities for 2003. Our earnings of $1.42 per share from ongoing operations were up sharply from results of a year ago. This excludes a below-the-line 370 million or $1.64 per share benefit from the adoption of FAS-143 for nuclear and fossil decommissioning costs, and also a 6 cent charge for discontinued operations at Energy Technologies. The gain recorded in the first quarter for FAS-143 was well within the $300 million to $400 million range we indicated on our 2002 10-K. The positive impact of this gain is not reflected in our '03 earnings guidance of $3.70 to $3.90; however, it does provide additional equity that further strengthens our balance sheet. As a result of this accounting gain, as well as retained earnings for the quarter, our recourse debt ratio as defined by our parent lenders has declined from approximately 61% at year end to about 59% at the end of the first quarter.

Overall, our very solid first quarter earnings stemmed from a strong performance by PSEG Power and higher weather-related sales at PSE&G, both of which I will discuss in a minute. One other point, the $1.42 also reflects the diluted impact of 19 million additional common shares we issued last year.

I'll now discuss each of our businesses briefly, starting with PSEG Power.

The principle driver behind powers results in the first quarter was the effective management of its electric and natural gas portfolio. Power's integrated marketing, risk management, and energy trading operation is highly effective in deriving greater value from its generation assets, as well as the gas transportation and storage contracts acquired from PSE&G last year. The successful management of this portfolio enabled Power to produce ongoing results that were 35% higher than the first quarter of last year.

In particular, the addition of the BGSS or basic gas supply service with PSE&G, was a major producer of Power's incremental earnings. The cold weather during the first quarter produced higher volume that increased transportation revenues.

On the electric side, we benefited from higher BGS rates in effect since August of '02. Power also benefited from the addition of two generating facilities in Connecticut, which it acquired in December of 2002. Half the output from these units is under contract and the remainder is available at market prices in the attractive, energy-constrained southern Connecticut region. These three factors: our BGS-related contracts, the BGSS contracts and our new assets in Connecticut accounted for a combined 23 cent boost to Power's year-over-year results.

The first BGS auction in 2002 established uniform rates for every electric customer in New Jersey for a full 12-month period. This year's auction was modified to some degree. Beginning in August of this year, approximately 1700 large commercial and industrial customers will buy their energy based on PJM's hourly-market prices. During the auction, only the capacity and ancillary components for these large customers was subject to bid. The full requirement contracts to serve residential and small businesses was auctioned in two stages. About 2/3 of the load was auctioned for a 10-month period ending May 31, 2004. And the remaining 1/3 was auctioned for a 34-month period ending May 31, 2006. These time frames were selected to align the contract period with PJMs fiscal year end and the start of the summer cooling season.

Because all switching restrictions will be eliminated, the average tariff rates established under the auctions will have a shape to them, that is, the summer rates will be higher than the winter rates. Exact amount varies among utilities, customer class and usage. Overall, Power was again successful in the auction, securing contracts consistent with its targeted range of 75% of its PJM capacity.

Turning to PSE&G.

Here in New Jersey, the first quarter was only 8% colder than "normal", as measured by degree days but was 33% colder than the very mild first quarter of 2002. So weather, year over year, was the primary reason behind PSE&G's improved first quarter results. The weather benefit was slightly offset by higher O&M, pension and other expenses.

On the regulatory front, PSE&G, the staff of the BPU, the rate-payer advocate and the various interveners filed briefs on April 4 in our electric base rate and deferral cases.

At this time, the electric rate case and the deferral case were combined so that various impacts to New Jersey rate-payers could be considered simultaneously. We believe our position, which supports a $298 million rate increase is consistent with the $1.7 billion of capital investments made at the utility in the last 10 years since the last electric rate case. I would note that as a procedural matter, our rate increase is limited to the 250. Initial filing requests were made in May of 2002. We believe a reasonable outcome will be achieved prior to the August 1 schedule effective date. Even with the proposed increase, rates for our customers will be at or near 1999 levels. That would represent, we believe, a fair level for our electric customers who, since '99, have received increasing bill discounts that now amount to 14%. Until the rate case is concluded, PSE&Gs electric business will continue to produce lower terms as a result of no electric rate relief for more than a decade.

Finally, some discussion on PSEG Energy Holdings.

Approximately 14 cents of Energy Holding's year-over-year improvement is due to a tiny issue on the Eagle Point payment. Last year, we received a comparable payment in the second quarter, while this year it was paid in January. Early in March, we signed an agreement with BP Energy to market the output from Global's Texas facilities. Included in the agreement was access to natural gas to operate the plants. While it's still very early in the arrangement, the capacity factors and spark spreads at both plants have improved significantly since we signed the agreement. These developments show some promise for our investment in the overall or top market; however, we continue to budget these plants as being modestly earnings negative this year.

Also during the first quarter, PSEG Resources recorded a pre-tax writedown of $11 million in the value of the private portion of the KKR fund. As of March 31st, the value of the total remaining investments in the public and private KKR funds was $82 million.

In the leaf portfolio, we're encouraged by the successful recent bank refinancings completed by Reliant and Dynegy. Improvements in forward power prices, as well as the structures put in place when we entered into these leases, further support our investments. All payments related to these leases are current. We continue to record the remaining operations of Energy Technologies under discontinued operations. In the first quarter, we recorded additional losses of 6 cents.

We made considerable progress on the sale of our HVAC assets. We expect to complete the disposal of the remaining assets before the end of the second quarter.

Now, to financing matters. In March, we successfully closed on two 364-day credit facilities. The new facilities are a $250 million joint facility at PSEG and Power and a $350 million facility at PSEG. Both contain more flexible terms than the expiring facility and were oversubscribed. We currently have $2.4 billion of facilities with $2 billion maturing in 2004 and beyond. The only renewal we anticipate this year is a $200 million facility at PSE&G. We do not plan to renew an existing $200 million facility at Energy Holdings because of reduced needs and an existing $495 million facility with the May '04 maturity.

More good news on the money front.

About an hour ago, we issued a press release, announcing that PSEG Energy Holdings has closed on a $350 million senior unsecured notes deal, maturing 2007 with a 7 3/4% coupon priced to a 7 7/8% yield. This financing, along with cash flow from the business, will cover holdings to upcoming maturities, namely the $252 million PSEG Capital Corp maturity next month and a $279 million Feb '04 maturity. We were very encouraged by the markets reception to this offering. Based on a strong demand, we upsized the offering from $250 million to $350 million and were still oversubscribed at that level.

Before taking your questions, I would like to emphasize while we had a strong first quarter, there are many influences on our businesses. Continued higher gas-and-energy prices, the final outcome of our electric base-rate case, weather uncertainties and the ongoing reliability of our various generating units all could contribute to the volatility of future earnings.

Our results support our expectation of full year earnings per share in the range of $3.70 to $3.90, excluding the impact of the two below-the-line-items: the adoption of FAS-143 and the recording of disc-ops at Energy Technologies. Beyond 2003, we see better prospects for attaining our 7% annual earnings growth target. On that note, I'll now throw it out for questions.

Ladies and gentlemen, if you would like to register for a question, 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 registration, please press the 1 followed by the 3. If you are using a speakerphone, please lift the handset before entering your request..

Ladies and gentlemen, as a reminder, to register for a question, press the 1 followed by the 4.

Your first question will come from the line of Paul Freemont with Jefferies. Your line is now open. Please proceed with your question.

Thank you. Can you can remind us in 2002 what level of depreciation credit did you report for the distribution system and what level of strain of cost amortization, and I'm assuming the credit ends in August of this year in terms of what you're crediting back to the distribution system?

Yeah, but, Paul, you mean to do with the securitization?

[INAUDIBLE]

[INAUDIBLE] the securitization bonds about 120- 130.

120-130. Okay. And that's reported in the depreciation number for 2002 for PSE&G?

Yeah, Paul, we may want to walk you through these offline, but there is an excess depreciation reserve that ends at the end of July.

Right.

And we go back to more normalized depreciation.

Right.

I think our case was somewhere in 3 1/4, 3 1/2%. Our depreciation is lower this year, and when we say we want a $250 million rate increase, part of that is restoring depreciation to more normal levels, to more traditional levels.

And can you just walk us briefly through, the recent staff proposal and how they propose to deal with the depreciation?

I think, Paul, we can get you offline. I think if you look on page 137 of the K, I think it shows the excess depreciation reserve was about $135 million of depreciation in '02. We can give you more details.

With respect to the staff, we all updated our filings here in the last week or so, as we said, we updated ours with 298 of cost, though, for procedural reasons. We're capped at 250. The staff number was in the mid-160s on a cash-basis and some of the difference in these things without getting into all the details can be in differences and depreciation rates.

Okay, so if we adjust out then the depreciation, we should assume that their position is roughly 160 without depreciation?

They follow 165. I would rather not get into all the differences, but suffice it to say, they can be return assets depreciation rates. We have copies of the staff proposal we can shoot to you.

Okay. Thank you.

The bottom line number, was 163-165.

Thanks.

Okay.

Your next question will come from the line of Andrew Levy with Bear Wagner. Your line is now open, please go ahead.

I'm on the same line, kind of expanding from there. Bottom line, the staff recommendation, did they support your methodology to depreciation? And second, there was some talk before the staff recommendation amongst investors that there could possibly be a rate settlement. I think your CEO inferred that at a conference, that everything was filed.

Can you give us an update as far as whether you guys are talking to the various interveners and whether [INAUDIBLE] obviously, if that's possible, and any type of timing, obviously, not specific timing, but sooner rather than later or anything like that?

Thank you, Tom.

Okay, Andy, let me do it backwards. I think as we said before, our practice in these is to file, document,, and pursue our positions through the normal regulatory channels, to the extent there is opportunities from time to time to settle, we are certainly open to those dialogues as long as they fit within the confines of the practice here in New Jersey, so the extent of something we said was that, in effect, I think, what we said in the past and we continue to say. If you look at the gas case, which we haven't had an electric case in 10 years, so it's hard to find a precedent. You remember the gas case we did go through all the endings and the first week of January, I believe, of 2002, we did sell it was very much toward the end of the process, but it's indicative of our desire, and I think the interest to the sense it makes sense [INAUDIBLE] on the other side to reach an amicable settlement. We considered a settlement at various points along the process.

I think at this point we have to appreciate that we did through the regular procedure, update our feeling, we're once again at 250, supporting greater numbers. The staff was at 165, it now goes forward through to an ALG -- ALJ they believe would be scheduled for decision in the latter part of may, but the extent there is opportunities along the way, sure. That's -- if that makes sense. Those are the things we would pursue. It's hard to be -- certainly wouldn't want to be predictive or anything else. That would be getting way ahead of ourselves. I'm sorry, your other question.

Oh, I just based, you know on, what Paul was bring up on the depreciation, do you remember where the staff's position was on the depreciation rate?

I don't remember offhand. We can get that for you.

Was it similar to yours or was it different?

Our number was in the low 3s, we can, -- we will -- we'll dig up that number.

Okay.

There was a long piece they filed and then there was a whole separate addendum.

Okay. Thanks, Tom.

And -- okay. Your next question will come from the line of David [INAUDIBLE] with Janney Montgomery Scott.

Your line is now open. Please go ahead.

Yes, good morning, Tom.

Morning, David.

Two questions.

First of all, the 18 cents effect from last year, that you attribute to weather, could you give us an idea what have that would have been had you had normal weather.

Dave, I think we're about a nickel over normal.

Okay. And secondly, could you give us color, maybe characterize how the quarter went in Brazil.

I think the quarter was fine in Brazil, dave, the main -- the main focus down there is a rate increase, we asked for something in the 40 zone there, has been some preliminary recommendation, the regulator down there in the 30, low 30s range which would still be, workable from our standpoint, that's the main thing we're watching, I think relative to, -- relative to budget, by might have been a million or two off, relative, due to, higher energy purchases.

Do you sense things are stable there at this point?

Yeah. Yeah, in fact,y think it appears to be picking up. Just seems like the as we look around some of the markets, the things that we can control, one of the businesses, coping the lights on, working with the regulators, they worked out well. The macro things we're furthest from and the macro thing in Brazil appears to have gone in the right direction.

Okay, thanks.

Right.

Your next question is from Paul Patterson. [ INAUDIBLE ] Please proceed with your question.

Hi, I was wondering if you could give us what the operating cash flow was for the quarter.

Yeah, it's -- we will publish this with our financial Wour queue, obviously, but it's -- with our queue, obviously, but it's around the 750, high 7s range.

Okay.

The largest pieces are at -- the largest peacings are at power, -- well, let me take that back, Paul, it's in the mid-60s, though there is one -- there -- mid-6s, though there is one unusual piece within holdings. When we terminate, and I'll use the TXU deal that we did at the end of last year, and then you look at this one, you look at our Ks or Qs. When we terminated the TXU lease, the numbers were roughly, we got about 180 million dollars and 110 or so was a tax payment that we had to pay to uncle Sam. So net-net, our book value was 65, 70, beat go -- we got 70. Cash-from-flow from the termination at least, 70 million comes back to pay down debt and do other good stuff. The issue is that the 180 we get actually goes below the line in financing activities.

So the good stuff, or it comes into investing, I'm sorry. The good stuff is in investing. The bad stuff, the tax payments is inops, so, -- in ops. So, we get hit and both coming and going.

Okay, I hear what you're saying.

So when you look at our queue, you will see 650. You will see holdings as in negative 50 cash from ops. If you back out the 110, you will see a big -- a big tax payment of 110. If you back that out, then that would show holdings as positive about 60 and, the whole company will be 760.

About 760 and that's before or after working capital?

That includes working capital.

And what was working -- if you took out working capital, what would that?

You're ahead of me a the.

Okay.

I think working capital, did not -- I would be surprised -- it's hard to look at this, piece by piece.

Okay.

You know, the power gas inventories went down, but the receivables at PSe&G went up. But net-net, I'm not sure.

Okay. In terms of the eagle point, how long are we going to -- are you going to be getting gains from that?

Two more years.

Two more?

'04, '05, expect the first quarter of each year, and it's about mid- -- it's about 45 and 36, respectively, in '04 and '05.

Okay, and I don't want to harp on the rate case and what have you, and maybe if you will feel comfortable with this, but are you guys comfortable sharing, perhaps, what you think is the net income impact would be the staff versus your own, request or do you think it -- or do you not feel comfortable talking about it?

I think we're really in the, you know, we're certainly in the fourth quarter this, thing, and it really wouldn't be fair to our team to process for us and start speculating. I think what we said is we think there will be a -- will be a reasonable outcome. If you look at the ROE in the electric business, it was in the mid-5s for '02.

Right.

I haven't had relief in 10 years, put a billion 7 in capital in, look at rates going back to where they were in '99. Keep in mind when we say rates now, they're 14% down through a series of, of decreases, of the increase we're asking for, about 2/3 of that increase is related to the BGS bidding, the BGS rates, the old, about 4-4, going to 5.4. 2/3 of the overall sticker-price impact to ratepayers in jersey will be due to a BGS bidding process that was largely outside of control of PSe&G.

Is it fair to say that if you look at the depreciation schedule that the staff is recommending that, in fact, the 163 would be -- you mean in terms of net income benefit would be closer to where you were at the 250 than, in other words it would be a benefit?

Yeah, without getting to the 2s and -- tos and fros, there is a possibility. It happened in the gas case where we got a lower cash relief than requested but through changing the depreciation rates, you're able to make up the majority of that through noncash charges.

Okay.

To both.

Thank you.

Your next question will come from the line of Greg Albert. Your line is now open. Please go ahead.

Great, thanks. Hi. I just had one question. That had to do, your guidance for power. And also for PSe&G. I think you're, if I have this correctly, your results in power for the quarter were up $57 million year over year, and if I take the midpoint of your range through your guidance for power, net income would be up probably 20 million, so you're three times your annual increase already in the first quarter, and the math is not as extreme in PSe&G, but somewhat similar.

I was interested in the reason for your not taking up your guidance. Did it had have something to do with sensitivity around the rate case, and if you could just elaborate on that, please.

I think it's a lot -- I think the ranges we have for the companies are reasonable as we see them, is we look at -- and there are, I think as we said, uncertainties, as there in any business. The rate case is certainly something that is not unknown at this point at PSe&G. It gives us caution, just the volatility power prices, the -- we got revenues, priced per unit, obviously, the total revenues vary upon weather, but just -- if you look at the volatility of gas and of, energy in and PJM over the last month, quarter, it's, it's really quite amazing. Around the clock -- around-the-clock prices, first quarter, we're almost about doubled, possibly more than doubled, first quarter '03 versus first quarter '02. That just gives us caution in terms of, in terms of getting out ahead of ourselves.

I understand on the gas price side, but shouldn't there -- isn't the rate case in uniform positive? I mean even if don't get what you; it's going to be higher and BGS year over year is up. BGS won over pre-BGS pricing for part of the year, and BGS 2 versus BGS 1 for the balance.

Right, you're saying at PSe&G, for instance, we have some increment that you're saying that increment is largely, accounted for through weather and so, therefore, incremental electric may not be fully reflected?

Yes, essentially.

Yeah, I think we also havea have to -- that's fair, we're careful to make reasonable assumptions as we put out these ranges, the other thing, --

how about empoint of viewer --

corporations numbers, just a little without getting into too much of the details, there are operations numbers at e&G causing head winds, pension be one. Pension is up sort of the mid-70s to mid- -- it's up from 78 to $135 million this year, 65% is at e&G. OMN will be up, that creates offsets.

Got you. And in power, if you could just, remind me that your gas -- your gas situation for this summer, I guess your net shore power, is that the rub, the concern that you're -- why you're trying to be conservative in your guidance?

No, I think it just -- keep in mind, we're set at rates. We're really using the forecast earnings is margin. And we are, we do often buy power, in the market, even though we're generating ourselves to the extent that the PJM prices are low, we're able to buy someone else'ser cheap and sell it for the same price. In fact, that's what you saw in the fourth quarter and this quarter, we generally see higher profitability in the shoulder periods, due to, greater margin, to be honest. Now that's going to go away, hopefully didn't lose 20 people in the explanation of the rates going from a fixed rate to a shaked rate, but that's going to be corrected in the new BGS starting in August.

Thank you very much.

Yeah.

Your next question will come from the line of Peggy Jones with ABN AMRO Inc.. Your line is now open. Please proceed with your question.

I had, a couple of questions about energy holdings. The first one was, I don't think that, you mentioned anything about the Edison Mission Loses and I wondered if you could can -- leases and I wondered if you could comment on what is going on there, and also, with regard to, the, level of investment in Energy Holdings, excuse me, going forward, do you plan to, add to the lease portfolio in the future. I know you have a couple of years where you're not anticipating any, significant investment there, and I just wondered how, the portfolio will run off if don't add to it.

Peggy on Mission, we're doing fine. Most of our leases get paid on a semiannual bases -- basis, first, Jan, then July, columns in that banquet. Gets paid quarterly and a couple of weeks ago, in general, I think, of the three assets that we lease out there, two of them are COAL, CA -- COALas ets and gas market. That's good. Mission, we understand, as having some dialogue with some of their banks, I guess the EME -- I'm sorry, the Midwest Holdings level, above our lease stuff. We're not a party to those, but we understand they're going along in a reasonable fashion. Generally, the admission, I think Id specifically, the re -- at dynegy and reliant. We're feeling better about these transactions.

In terms of adding to the portfolio, we have no near-term plans to do that. I think if you look at our Cap Ex plan, we have nothing in there the next couple of years. We have place holders of 50 million or so out a couple three years, but we have got no near-term plans. I think the holdings, debt story that you may have heard here last week or two was really about maximizing the value of assets they have got, maximizing near-term earnings and cash flow, and showing some meaningful deleveraging at holdings and, certainly cash-flow positive and being able to pay the modest dividend to PSEG over time.

And what's the, situation with the negative outlook at this point?

I think with all the agencies, I would say we have an active dialogue with them, we try to let them know as much about our business as we can, all the agencies did affirm their ratings on holdings as a part of the transaction that closed today. so that's -- that's --

thank you very much.

Yeah.

Your next question will come from the line of Steve Fleischman with Merrill Lynch. Your line is now open. Please proceed with your question.

Yes, thanks, hi, Tom. Most of my questions have been asked. I'm just wondering, though, if there is any way you can provide a little more flavor within peg power -- power, how much improvement came from the BGS contract being in place relative to the kind of gas trading and transportation contracts and -- and that other stuff that is kind of a new part of your business now. Is there any -- just give a little more flavor on, you know, breaking up that improvement?

yes, -- yeah, Steve. I would say we got improvement from all the pieces. BGS, BGSS and, from, the Connecticut -- and from the Connecticut piece. I think it's a little hard to get into the margin improvement, specifically too much at this time. I would say we did better on BGSS on a relative basis than BGS.

Uh-huh.

BGS was good. The one issue we had just, on BGS that hurt us, a little bit in the first quarter, we still have a great quarter of power, but, plants were down a little bit during some very peaky power prices. Hope creek was down 1 pent for not a lot of time, but for a week and a half, but the gas was $7, $8, around the clock, prices were $60. So, the Hope Creek is still doing great, but their timing wasn't so good. So we lost a little bit, just through that and you got -- a little bit at a difficult time. I think ceerght Keystone or KANAMA we own 20% from that venture was out, too. So, that, still had a great quarter but in a very, when prices flare-up like that, in any little neck -- .

[INAUDIBLE ] Can really commcost you money, so, it's really all three pieces. I haven't got the numbers at my fingertips in terms of contribution made. It may come out more in the queue.

Right.

Going back to a prior question, I guess the other reason why you might see -- you have seen a lot of the gain, the peg power in the quarter relative year, I guess the MTC falls off?

Yes.

It's about 1 pep -- 110 million, I believe. It falls off in July. So, so in terms of, overall, let's say seasonality, we don't give quarter-to-quarter numbers but somebody elsed can asked me a couple of questions ago you're doing great, looks like you might be above your guidance. That's another issue. We do have some of our -- we'll do a little better in the first, part of the year and MTC is certainly contributory to that.

Thank you.

Okay. just one thing, we can get into more details on follow-up stuff, but as far as I understand on the decommission, on the depreciation side, sorry, I think ours in the rate case was in the mid-3 1/2%, sort of degreesh -- depreciation rates and I believe the staff is in the 2 1/2% level. The 3 1/2 is consistent with what we have been asking for all along. So you can kind of back in the staff would be at a sort of a 40-year life, and we would be at 28 or something.

Your next question will come from the line of Paul Richmond with McDonald Invesments Inc.s. Your line is now open. Prize proceed with your question.

Please let us know how big your equity investment is in HVAC, and kind of given the softness in that market, whether you expect -- how you expect to come out from that sale.

We have 11 companies. I believe seven are sold, ourk witty investment at this point at the end of the quarter is $40 million, about 3/4 of that is tax assets, we took a -- the 6 cent, disk ops number, we think we're flex conservative estimates on the sale of the remaining companies, and the other thing I throw out, the accounts receivable. It's a contracting business. At the end of the year, that number was in the mid-80s, it's now in the, I believe, shy of 30. That's different than the equity, but our receivables at risk, if you will, shrunk down materially, so, we expect to be out of that, this, in the second quarter.

Is it safe to say you got the 50 Delta NARaertion -- NARs, or did you have to take bad debt writedowns?

That was some. Someone was in the 6 cent piece.

Okay, thank you very much.

largely we -- largely we sold the receivables as -- we sold them with companies, so the receivables payables went with them. In a couple of cases, there was, -- there was necks we took, part of the 6 cents.

Thank you again.

Your next question will come from the line of Michael Goldenberg with Luminus. Your line is now open, please proceed with your question.

Morning. On the BGS-related contracts you have entered into, are those generally fixed price, and if they are, could you walk us through how you managed the gas-related risks associated with on-peak and summertime power and second question was, you can walk us through the KKR writedown and, any history on that, whether you have been take anything writedowns associated with that book before. before.

with the BGS, just to walk through it, the utility, PSe&G, and the other utilities in the state procure power through the BGS contracting. There Sum, power cells to counterparties, that then sell and -- and won the right to provide the power as part of the BGS. in -- in terms of, -- so our contracts are very much like the BGS contracts.

and they're directly with the third parties.

Exactly. That's exactly right. The one exception is these new, what we call the HD -- HEP. They're hourly energy pricing, the 1700 commercial industrial customers, they're directly with those customers. They're a more modest amount of money. I think in general how do we manage those? We manage those as a portfolio, we do generally have our gas hedged for this year. They'll keep in mind there are moving parts in the commodity portfolio.

As I said, there is gas, the big gas influences power and to the extent we're buying power in the open market to sell, to make a margin on, that -- that influences things and weather, we obviously have our models. We have our weather doctor, upon the trading floor. But managing, all of the parts and, the -- and adding the volatility on that that, is something that makes it more difficult business to management. That, can contribute to the volatility of earnings, as we say. We think that, by the way, on a general basis that helps us because we have the biggest portfolio, the biggest, broadest, best position portfolio of assets to work it.

So, if it's complicated for us, it's certainly more complicated for other people. , but just as -- in the -- in terms of any training or anything we do, it's basically all run around to manage our load, our generation, positions around those contracts.

So effectively when you enter into those contracts, do you at that point in time buy the gas that you would expect to need to satisfy the on-peak load in the forward market? How should we think about that? Generally speaking. Generally speaking. You may do it over time, but that's generally speaking, and if you look at the last BGS contract, we said before, I think when the slides, by our presentation, it's been done, I believe on our website, in general, high gas prices are good for us. If you look at the KWH regenerated last year, 89% were from COAL and Nuke. The longer-term high gas is good. In the short-term, though, you -- you need to be careful about your gas costs relative to the BGS. The BGS happened at a time when gas prices were high, it then came up, gas prices continued to clean. We did some hedging along there, but, yet they worked hard to keep your margin in the new BGS bid that happened a month ago.

in terms of KKR, I think you asked, total amount is 82 million, in the public stitch, we have about, 23 1/2 and the private, we got about 58. We have taken impairments before at KKR. It's generally been a very good returning portfolio, been in it about a dozen years, returns are met mid-20s. These last pieces are not, are bringing -- bringing down the weighed average, let's say. Last year we did have a loss on the private side, before $40 million, so this is -- we had that, --

this is incremental to that 40 million?

Yes, yes, yes.

what was the size of this particular loss? particular loss?

$11 million.

$11 million. Okay.

Pretax.

Okay. You can also give us a little update on the construction portfolio, where waterford, Lawrenceberg, Lindaen and the Albany plant stands.

Yeah, Waterford is expected to come in service in the certainly, -- summer, Lawrenceberg at the end of the year, December, and the other plants are largely first quarter of '05.

Are both of those under construction?

Yes. It's Albany and Linden are both under construction.

great.

We stretched out the schedules largely to bring cash from forward into this year to accelerate debt paydown. Those are essentially first, second quarter of '05.

Thank you very much.

Your next question alcohol from the line of Danielle Sykes with Solomon Smith Barney. Please proceed with your question. Your line is now open.

Hi, I was just wondering in ONM doesn't seem to have gone up that much, and I was wondering if it was cued toward the summer as well, or because of other offsets?

Danielle, that is, you know, one of the things we look at carefully in terms of continuing to be efficient, it's not skewed -- OMN is generally, fairly consistent during the year. We do have a little higher -- [ INAUDIBLE ] Periodic close.

Uh-huh.

It's generally reasonably consistent, reasonably consistent run rate.

So that their weren't any savings to offset the impact of pensions and so on that you did. Any other items that, to offset that.

I would say we saw the pension -- it's hard to isolate a one-for-one, we saw the pension thing coming for quite awhile, if you although if you will, so we were working last year to look for savings being on operations or revenue enhancements, or whatever. We do expect this year maybe you can't see it in all of the, you know, in all the piece and parts. We expect to see some increase in the OMN quarter over quarter.

Okay.

Reasonable.

Thanks, because it didn't look like much this quarter.

Yeah, maybe, -- the sheets are brief. Maybe it's hard to see it all in here. It will be in the Q, and as sue mentioned in her intro, these sheets are a little briefer, fewer in number than we normally do. Just Wour annual meeting yesterday, this call with you all got accelerated about a week, so, just so we make sure we're bringing them through the whole stocks box.

UH. Now, I just want -- I just was wondering if we should take into account other things that were upset -- offsetting future higher expenses but you don't think so.

You will see OMN is generally -- [ INAUDIBLE ]

Yeah.

Okay, thanks a lot.

Yeah.

Your next question will come from the line of Chris -- [ INAUDIBLE ] Your line is open with, please proceed with your question

Hello, Tom, how are you doing?

Good, Chris.

I was wondering if you -- the 4.9% rate cut in August, how much did that have an effect on EPS in the quarter.

The rate cut at PSe&G, you mean?

Yes, I think it was 4.9% in August. in August of last year. Right. Like what is the incremental, earnings and impact versus the first quarter of 2002.

The problem is it's not just a simple 5% on revenues because it gets working through other closets. The MTC and there is a lot of soup that getting mixed in. I would be worried about my into youative answer may not be the correct answer.

Okay.

We can circle back with you, Chris. Keep in mind the whole thing -- all the clauses, the NTC, the clauses all got, worked in as part of the stair-step decrease and the, -- in the varying depreciation rates, so you may not be a strike cause-and-effect relationship.

Okay, because the guidance you guys had given previously was at each 1% was 40 million annually, and so I just can't pass the fact to get an earnings impact?

I think they said we use a 1%. We were addressing it a little more to, power.

. Saying about that in terms of the -- the, the BGS.

Right. Well I'm just going back. I looked at previous financial sames and you previously talked about a 2% cut having like a 5% impact on earnings.

Okay. So I'm assuming maybe it's like a 10% impact to earnings in the quarter, just kind of roughing those numbers.

Yeah, I wanted to -- can we circle back on it, Chris?

Sure, no problem.

I'll just touch base with sue offline.

If don't mind, I have a couple of people here.

Okay. -- we know it's not simple. It's not a strict cause-and-effect relationship.

Sure, no problem.

It will be going forward. Okay, I'll touch base with you. -- sue. Thanks a lot.

Ladies and gentlemen, as a reminder to register for a question, please press the one followed by the four.

sounds like people are hungry.

I'm showing no more questions at this time, please continue.

Okay, well, thanks, everybody. We're pleased we're off to a good start for, for '03.

Just a couple of quick things I would like to remind you about, five things that may have already addressed them, but we have a good record of delivering on earnings, got a good balance business mix, low-cost COAL and nuclear we like, especially in a high gas environment.

Financial stability has been helped today, we have good cash flow and our liquid and lastly, a solid utility with restructuring complete.

Thanks very much for listening.

Ladies and gentlemen, that does conclude your conference call for today. We thank you for your participation and please ask you to disconnect your lines.