公共服務電力與天然氣 (PEG) 2004 Q4 法說會逐字稿

Thank you for standing by, Ladies and Gentlemen. This conference will only be in listen-only mode. I'll repeat, this conference will only be in listen-only mode. No question will be able to be asked from this conference. Thank you and have a great conference.

Ladies and Gentlemen, thank you for standing by, and welcome to the Public Service Enterprise Group fourth quarter 2004 earnings result 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. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded, Thursday February 3, 2005 and will be available for telephone replay beginning 1:00 p.m. eastern time today until midnight eastern on February 4, 2005. It will also be available as an audio Webcast on PSEG corporate Webcast at www.pseg.com. I will now like to turn the conference over to Sue Carson, 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 fourth quarter and full year 2004 results and a discussion of key issues. But first, I need to make a few quick points.

We issued our earnings release this morning. In case you have not seen it, a copy is posted on our website: www.pseg.com. We expect to file our 10-k with the Securities and Exchange Commission later this month which will contain additional information.

In today's Webcast, Tom will discuss our future outlook in his remarks and so I must refer you to our forward looking disclaimer. Although we believe that our expectations are based on reasonable assumptions, we can give now 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 that we file with the SEC. I also want to remind everyone that this call is not a solicitation of a proxy from any security holder of PSEG or Exelon. All investors and security holders are urged to read the joint proxy prospectus and all other relevant documents for additional information when they become available. Finally, Tom will take your questions at the conclusion of the prepared remarks and in order to accomplish it effectively we'd appreciate it if you'd limit yourself to one question and one follow up. Thank you, and I will now turn the call over to Tom O'Flynn.

Thanks, Sue. Good morning, All. Just one sidenote first, I'm sure most of you saw we sent a note around a few days ago that we're pleased that Sue has been appointed Director of Investor Communications. I want to congratulate Sue. Brian Smith who I'm sure you know has been doing it for years is now Director of Corporate Communications. He's not too far away, and as he's told Sue many a times, she has big shoes to fill.

I hope you all had a chance to review the release we put out this morning. I'll spend some time during the call going through big drivers of our fourth quarter and full year 2004 results for each company. After that I'll talk about how 2005 is shaping up. And finally, I'll give you the latest on the proposed merger with Exelon.

In a nutshell, outages at Salem and Hope Creek in December and the impact of stronger Polish Zloty at PSEG Global caused us to be somewhat below our guidance of 3.15 to 3.35 with full year results of $3.05 from continuing operations.

Our fourth quarter results for PSEG of 0.38 per share were 0.31 lower than the comparable period last year, driven largely by the 0.26 decline at PSEG Power. For the fourth quarter, Power reported earnings of 0.07 per share, a decrease of 0.26 from 2003's fourth quarter results. The continuation of the outage at Hope Creek delayed the restart into the new year and added 0.11 of O&M in replacement power costs to the outage.

Overall during the quarter the work at Hope Creek, both O&M and replacement power, cost about 0.27 per share, 0.16 of which was anticipated in the revised guidance we provided in July.

The outage at Hope Creek was extensive. As planned, we replaced half the control rod drive mechanisms and we expanded the work effort to include the installation of monitoring equipment for the recirculating pump as well as a number of other activities. In addition to over 70 million in O&M costs and more than 80 million of capital projects at Hope Creek, replacement service during the outage. As a result of the work performed during the outage the plant's material condition has improved.

The [NRC] concur with our restart of Hope Creek, agreeing with our assessment that the [resurp] pump can be replaced during the next refueling outage. We've installed the necessary monitoring equipment to ensure any changes in the condition of the pump will be addressed promptly. The plant is currently operating and the pump is performing as predicted.

Unfortunately, during the Hope Creek refueling outage, an oil spill in the Delaware river prompted us to shut down both Salem units for about two weeks in December. We used water from the Delaware river for cooling the main condensors and any oil residue could have clogged our intake equipment and the related cooling systems. Rather than risk an automatic shut down and damage to the equipment, we took the units offline until the spill was contained. The cost of replacing power during this period was 0.08 per share.

We were able to offset some of the issues with better results from ER&T in the fourth quarter of this year versus last. The ERT improvement stems from a seasonal pattern we've seen from certain products such as emission allowances which tend to be more active later in the year. Also, there were O&M savings quarter-over-quarter that helped mitigate the impact of Hope Creek.

For the full year power reported earnings $1.29 per share, a decrease of 0.78 in 2003 result of $2.07 a share.

There were three events that primarily accounted for this reduction. The loss of MTC revenues, the last remnant the restructuring process in New Jersey. That impact was about 0.29 for the year and was anticipated in our original guidance. Secondly, outages and additional work at Hope Creek reduced 2004 earnings by a total of 0.34 per share: 0.27 in the fourth quarter and 0.07 earlier in the year. This impact is evenly split between O&M and replacement power.

Finally, the cost of replacement power for outages of Salem, some of our fossil units, and the congestion created by the Branchburg transformer D-rating reduced year-over-year by another 0.15 per share. During 2004 we spent the time and money required to support the safe, reliable operation of our nuclear unit. This year we'll be replacing reactor vessel heads on both Salem units during the scheduled refueling outages. We've planned for slightly longer outages to do this work, but again this additional investment in time and money will improve our performance for the long run.

On January 17, Exelon began the day-to-day operation of the three nuclear units on Artificial Island, Hope Creek, and the two Salems units. This was in line with the nuclear operating services contract at Exelon---with Exelon that was announced on December 20, along with the merger. Exelon now has a team of 25 senior leaders at the site and are in the process of implementing the Exelon Nuclear management model.

Our contract with Exelon is expected to reduce overall costs and improve capacity factors, all within a framework of safe reliable operations. Team reports to Frank Cassidy, President PSEG Power, and we continue to hold the licenses on all three units.

Turning now to PSE&G: The fourth quarter was as expected. Results of 0.26 per share were 0.03 better than fourth quarter of 2003. Weather was slightly favorable and the utility continued to benefit from reduced interest expense as a result of refinancings done in 2003. For the full year, PSE&G reported earnings of $1.44 per share, an increase of 0.38 over the 2003 result of $1.06 per share. Virtually all this improvement stems from the full year benefit of the increase in electric base rates that was granted in August 2003. Weather caused earnings to be about 0.05 lower than 2003 and about a penny better than normal for the year. The loss due to weather was nothing more than offset by the full year benefit of reduced interest expense of about 0.08 per share.

Energy holdings reported earnings of 0.14 for the quarter, a 0.02 decline from the fourth quarter of '03. Embedded in this result is a loss of 0.08 per share at Global related to currency movements. The largest impact came from a strengthening of Polish Zloty in the fourth quarter. The total amount of this impact was 20 million for the quarter, primarily reflecting mark-to-market on the Zloty portion of the debt.

From an economic and ongoing earnings standpoint, however, going forward, a stronger Zloty will provide a modest benefit to earnings because the underlying Zloty denominated PPA. In the interim we protected ourselves against any future mark to mark to market downside exposure.

An offset to the Zloty loss was a gain of 0.07 per share at Resources and the leasing and KKR portfolios and reduced interest expense. For the full year, holdings reported earnings of 0.52 per share, a decrease of 0.21 from 2003 result of 0.73 per share.

Two big factors in this decline were the net currency impact of 0.09 at Global and the termination of the Collins lease at Resources that reduced '04 results by 0.05. Excluding a loss related to the Zloty, holdings as businesses performed in line with expectations for 2004. At the PSEG level the reduction in preferred dividends starting from the repayments by Energy holdings during 2004 reduced earnings by about 0.04. Cost associated with the merger during the fourth quarter were 0.02 at PSEG.

Turning now to financing and cash flow results for 2004 and the year ahead, I'll start with the asset sales and energy holdings during the year. In line with our continuing strategy of reviewing monetization opportunities on various assets we sold the [ Mya ] power company late in the year for 236 million; proceeds of approximately 140 million in cash have been received, and we expect to receive balance by the end of march.

For the full year asset sales, lease terminations, and ownership reductions at Energy Holdings resulted in over 300 million of net cash proceeds. Combined with cash from operations and cash on-hand Energy Holdings retired over 300 million of debt and returned 475 million of capital to PSEG during the year. Overall, cash flow after dividends 2004 was about 115 million positive including cash from ops, asset sales and lease terminations. For 2005, we're expecting a comparable number.

Our financing needs for 2005 are very modest. PSE&G has a small maturity in July that we expect to refinance in the summer. We have 650 million of credit facilities that will expire in 2005 that we will renew during the year. We continue to work on reducing our leverage. At the end 2004 with leverage of 57 percent as defined by our banks. By the end of 2005 we expect to have our leverage down to about 53 percent primarily as a result of our mandatory convert in November. More recently we announced an increase in our quarterly dividend at 0.01 per share. This brings the [indicated] annual dividend up to $2.24 per share. We believe our cash flow and outlooks support this modest increase in the dividend. From an earnings perspective we're reaffirming our existing 2005 guidance of $3.15 to $3.35 per share.

Improving operations, Power looks increase the 2005 earnings to a range of 335 to 385 million. We continue to expect a range of 325 to 345 million at the Utility and 135 to 155 million at Holdings. These ranges do not incorporate any merger costs that could run up to 0.05 for the year.

Looking forward there's been so much activity in both PGM and Connecticut in developing more effective capacity markets; in Connecticut our request for RMR payments that was filed in November of last year was approved with an effective date of January 17. These payments are still subject to further hearings and are subject to refunds, but we are encouraged by the progress to date.

Last fall we filed a PGM to shut down some of our units at three stations that were not economically viable under the current market structure. At that time PGM indicated the units were needed for reliability within PGM, however the existing PGM [tiers] had no provision for reliability compensation. PGM filed a request with [FIRK] to allow for such recoverability for reliability purposes. Last week [FIRK] ruled on this issue and approved a mechanism for such payments to be made.

Simultaneously, PGM has been working toward the change of structure of capacity markets to provide differentiating based on location and operational characteristics. All three of these events support our belief that there'll be some uplift in capacity revenue for our fleet sometime in the future.

Looking at 2005, we're in pretty good shape. The extensive work done at Hope Creek last year combined with the effects of the nuclear operating services contract we signed with Exelon should improve the overall capacity factor at the sites. We're over 90 percent hedge for coal 2005. Our objective remains to have over 95---over 75 percent of our plant output sold forward over an 18 to 24 month period. BGS auction is scheduled to begin next week. This is the first year that only three year contracts are being auctioned. So that reduces the total size of the auction to about 50 [traunches]. We have 17 [traunches] that expire on June first of this year. Depending on the prices in the auction, we may term some or all of that back up.

Finally, I just want to say there are many folks working very hard on securing the necessary approvals for our proposed merger with Exelon. We expect to making the key regulatory filings shortly, including [FIRK], New Jersey, Pennsylvania, and Illinois. The proxy also will be file shortly with the SEC. The Department of Justice, [Hart-Scott] Redino filings are expected before the end of the first quarter. We are looking to close the transaction by the end of the first quarter of 2006.

We're very excited by this combination because it truly takes the best of both worlds and puts them together in the one company. We'll benefit from Exelon experience and operating strengths, and Exelon will benefit from our first-rate T&D business and our BGS experience. Safe low cost operation of nuclear facilities is a key strength of Exelon. Improvements in the nuclear capacity factors as well as overall costs at our plants will add meaningful benefits to the shareholders and rate payers of both companies.

Finally, the resulting balance sheet will be stronger with more flexibility. We'll continue to update the financial community as filings and -- are made and schedules are established. Copes of filings will be posted on both websites: www.pseg.com and www.exeloncorp.com when they're made. For now the employees of PSEG continue to focus on providing safe, reliable, cost effective service to our customers. With that I'll open it up to Q&A.

Operator can you provide instructions for the callers, please?

Yes, ma'am. [ OPERATOR INSTRUCTIONS ] Our first question comes from the line of Mr. Paul Fremont from Jefferies & Company, Incorporated. Please proceed with your question.

The first one -- well, I guess with one question, can you tell us in terms of the decision about the plant retirements, what the timing will be for PJM to make up its mind, and what you think we should expect in terms of whether they'll allow those plants to retire or whether we should assume that those plants will likely continue to remain in operation?

Paul, in terms of timing it could take months and it's hard to put a fine point on it. I think our expectation is a large portion of those plants continue to stay in service, there are some reliability characteristics for them. Whether that's all of them, I think it would be a meaningful portion; the compensation we're expecting from PJM is fairly modest. It's not going to move our earnings significantly, but it's meaningful enough for us certainly on---on those units. There are some new processes and procedures PJM is going through so that's why it may take longer than the subsequent filings of this nature.

And the compensation for those units would be in the form of a capacity payment?

Yeah. Payments basically from PJM; l they're effectively a capacity payment--without technically not the right terminology but that's effectively what it is.

Thank you.

Thank you. Ladies and Gentlemen, as a reminder if you would like to register for a question please press the one-four on your telephone. Our next question comes from the line of Stephen Hung from Smith Barney Citigroup. Please proceed with your question.

Good morning Tom and Sue. I had a question here related to the nuclear plants. You guys mention that the Salem plant should go down for replacement on the nuclear vessel heads this year. Was that part of your original guidance when you guys came out, or is this something you guys are moving up front?

No. That was planned. We have two----the Salem that's got an outage in the spring and one that's got an outage in the fall. Both of them are on their 18 month general cycle. The vessel head replacements are----as you know as things that come up in the industry over the last couple, three years, so we've had a lot of planning put into this. It does extend the outages and I think we got them scheduled for 40, 45 days at this point.

Okay, so when you guys looked at -- when you guys gave the guidance last year in terms of, you know, when you could see some improvements on O&M outages this was already factored into your numbers---this, so it wasn't something that we're looking at like '07, '08 where you just moved up a year or two?

That's all correct. You may remember when the November present--what was that October presentation we had, I'm sorry -- we went through some of the nuclear slides. We talked about Nuclear capacity improvements. We did say that it was a little tough to make---to make improvements that we expected in the long run because we had longer outages expected.

Okay. Great, thank you.

Thank you . Our next question from the line of [Asah Kwan from SAC Capital Management. ] Please proceed with your question.

Good afternoon. Tom, can you mention what ER&T contributed for the year? .

It was very consistent at the end of the day with what we had last year. If you remember in the presentation that we had in October.

You had a figure like 180 million in margins.

Yeah.

For 2004?

Yes.

Is that what you earned? Exactly?

That's very close. We don't report specific ER&T number, but that's very close. And that's consistent where where we were with what we --- it's consistent with both '03 and consistent about some revised expectations we put out in July.

Okay. Could you just -- with the auction just happening now, around the next Monday, could you just share us where the round the clock forward prices are right now?

You folks can see them, I think PGM around about 44 bucks around the clock.

Okay.

This year. -- I mean, last year. Same number about 36, 37.

Okay.

We have also seen, if not the basis differential west to east, doesn't trade a lot, but when it's been trading it's been trading a little higher than it has in the past. That would also be encouraging from us.

So, as there's less blocks this time, should we expect the auction to happen quicker?

It's hard to say. I think the one---- last year, I think it was seven days or something, but we had a conversation yesterday, it seemed like it was longer than that -- longer than that, but bounced back and fourth. First I'll say we don't run the auction. That's all run by the commission, by the consultants, and I----or others here---have had no discussion whatsoever with how that's run, so I'd be strictly guessing that it, perhaps, it's smaller and also I think the last, the last day or so, was really just focusing on one [traunch] that was pretty small, so I think they may try to secure that, so maybe a day or two shorter but I'm honestly guessing.

Okay. Meanwhile, I know nuclear Exelon is taking over, but on the fossil there was also initiative to improve and cost and everything. Is that focus still going to be maintained?

Certainly from our standpoint. We think we can do things on the cost side and probable more importantly do some things on the reliability and reducing our forced outage rate. We do have 36 month plans in process in shape and we're making -- Mike Thompson who runs Fossil for Frank is making some good progress. We did get the FCR on it, Mercer, a coal unit down by Trenton. It was out for a fair amount of time on a planned SCR installation last year, so that'll up running for us more. In Hudson, so far, it's a plant just 10-miles from here has been doing well and that's an important plant in a very key physical location.

When can we expect just going over the time now when can we expect a filing with the New Jersey commission?

I think all of the our filings I would say are shortly. You can look---and shortly I define in days.

In days?

Yeah.

Okay. Thank you very much.

And you'll be able to see all of that stuff on the website. And except people that want to ask questions, I'd rather not get in front of the filings. You can imagine the large team that's got pages and pages of filings that we're all trying to coordinate together, so I'm going to stay away from---any, any early indications of what the details are going to be.

Okay. Thank you.

Thank you. Our next question comes from the line of Margaret Jones. Please proceed with your question.

Yes. Hello.

Yes, Peggy.

Thanks for the rundown and I had two questions the first one was what can you tell us about plans to repatriate some funds from Energy Holdings investments in South America? And then I just wanted to ask a question about the personnel review that's going on now with the nuclear plants and whether there's anything that we should be looking out for in that regard? .

On the repatriation, if you're referring to the legislation from last year.

Yes. Whatever opportunities that gives you?

Yes. We have about $140 million in cash offshore at this point. We're assessing opportunities, the legislation, and other things, but as we look at things, we'll----during the year, we'll assess whether it may be appropriate to repatriate some of that. I think a ballpark number at this point could be something at $150 million range , but that's still under review.

Would you raise additional funds offshore to bring back?

We may. Yes.. I think that's part of what we're doing, is looking at the earnings and profits we have. But the $150 million number is a reasonably conservative one, whether we expect to do more, that was based upon earnings---if we have greater earnings and profits.

In terms of nuclear, Peggy, there's the Exelon agreement that started as planned on the 17th. A couple dozen senior folks from Exelon game in, all as planned. There were some ----- handful of people from our side that stepped aside at that time. I think those have largely been done. And there's -- if you're asking other things to be expecting, nothing material that we're aware of, though obviously, Exelon's starting to get their arms around the day-to-day operations of planning and implementing their nuclear management model which is extremely impressive and one would expect over time to have modifications.

Thank you very much.

Thank you. Our next question comes from the line of Paul Ridzon from KeyBanc Capital Markets. Please proceed with your question.

When you initially issued your guidance what was your expectation with regards to timing of the nuclear restarts? How much of that had bled into '05? .

Clearly, we expected Hope Creek to be running on New Year's day. I think we had said what -- when we put out our guidance, I guess it was at our October conference and we thought Hope Creek would be out til mid-late -- really, mid December. So that's provided some negatives on the same -- from the same token there's some offsets that we think we may be able to get. Still early in the year. But that -- but at least Hope Creek in and of itself is providing a headwind.

How much in the hole are we?

In general Hope Creek for a day, is about 750, 850, depending upon the market price and it's been softer and it's obviously higher than that in the summer. So 20 million buck something like that as a ballpark off the top of my head.

There are some offsets. I think we mentioned the RMRs in Connecticut and some of the PJM reliability stuff are some modest improvements. I think we're -- as I said, we're encouraged by progress to date but it's still earlier on in some of the processes.

Okay thank you very much.

Thank you. Our next question comes from the line of Paul Patterson from Glenrock Associates. Please proceed with your question.

Good morning, can you hear me?

Yes, I can.

I wanted to ask you about the NDT income. It seemed to fluctuate a bit. Over the year and I was just wondering what drove it in the quarter? It seemed like it went down 0.05. Just what was the factor that caused that, if you could just give a little more flavor on that? I also wanted to ask you: Working capital adjustments for -- actually, just the sort of reconciling the net income to the cash flow there seemed to be a big jump in that and I was wondering when -- wondering what was the -- you know, a few of the drivers that might have been causing that?

Yeah. Paul, just on the NDT, I think fourth quarter of '03 was probably larger, so that the fact it went down in the fourth quarter of '04, it was really just -- it was very much in line with our expectations. but it was lower than what was a large fourth quarter. Back in '03. The---

Okay.

Those are managed about outside trustees and that make some sales in the market subject to some broad criteria we give them and the quarter-to-quarter, month to month timing is, frankly, very much in their hands.

Okay. So nothing unusual there?

No. No. The-- no.

Okay.

I'm sorry, your cash flow question?

Yeah. I mean, just going from the, you know, the adjustments from net income to operating cash flow '04 over '03 there just was a large increase and it's in attachment 5, the consolidated, the condensed, I mean, pretty condensed here, what you guys do, is you guys just give an adjust, and I was just wondering if you could just give us a feel for you know how much of that was working capital or what have you. Do you follow me?

Yes, I do. We obviously file a full piece with the K.

Okay so if you don't have the info., can I ask another question? [ LAUGHTER ]

After -- why don't we circle back with you on the cash flow. There's a number of moving parts. There's no one thing that pops out there.

Okay. Thanks.

Thank you. Our next question comes from the line of Michael Goldenberg from Luminous Management. Please proceed with your question.

Good morning, guys.

Good morning.

I actually just have a quick question. I don't know maybe you discussed it, I don't know as I was adding up net income of each individual units I was getting numbers that would seem to point me to a high EPS number. Is the corporate going to be lower number in '05 than historically? Or did you just, basically, you know, try to tighten the band when you gave out the earnings?

No. I think the corporate, if you look at this this year, and for next year will be a meaningful number--- be equal to or maybe a tad higher. Probable what's driving the corporate fair amount in intercompany effect and holdings has paid off a large portion of the intra company preferred. They payed off--

Oh, that's right. That's right.

$325 million of that was a coupon bearing preferred from the holdings to the parent. As it comes up that's good, that's return of capital from holdings, but then that obviously increases income at Holdings; reduces income at the Parent.

So, it we look at year-over-year, Corporate should be about 25 mill worse off assuming nothing else changes and Holdings should be better 25 million.

On an average basis, yes. Keep in mind that was done over time. But corporate could be you know a nickle or so worse in '05 versus '04.

Uh-huh. Got you. So-- and even with this improvement because of the debt repayment holdings is about flatish year-over-year?

Somewhat.

Got you, got you. What are the major drivers there besides the repayment of debt for the year-over-year change?

I think the biggest thing is obviously, the absence of the Zloty loft which is $20 million on an after-tax basis. That was pretty material.

One thing actually about that, is there a reason why you can't just move it to the equity line on the balance sheet and have to flow that through the income statement? Seems like a pretty non-cash charge.

You know, do you want to talk to our accountants that's fine. No, it effectively it's a mark to market on the debt and we have for that project we have about 60 percent of the debt is in dollars; about 40 percent is in Zloty's actually the PPA is part indexed and part non- indexed, so when the debt lines up pretty well---- you got to pick a functional courtesy. There's arguments can be made to be honest with it could be Zloty or dollar, but when we---at the section of the projects we picked dollar, which does make some sense so you the have the counterintuitive results of the Zloty improved which is good for the longer run earnings of the projects, but you get a market-to-market hit on the debt putting it the mild way. I think i'ts pretty clear from the accounting side that that is close to the P&L as opposed to equity or OCI part of the balance sheet.

But the cash flow is a completely unaffected then really?

Completely unaffected and if we look at the equity value of the project --- that the expected earnings and the equity value of the project is higher today than it was a year ago cause that's really driven by the Zloty's which are worth more today than they were a year ago.

Got you. Thank you very much.

Thanks.

Thank you. Our next question comes from the line of Mitchell Moss for Morgan Stanley & Company Incorporated. Please proceed with the question.

I was hoping to get an update on the coal cost I know you previously spoken about a 10 to 15 percent higher cost in '05? Is that sort of still consistent or...

15 is a good number.

15 percent?

15 is a good number, you'll see our overall coal costs go up because we're probably going to burn about 10 percent more coal.

Okay.

Those costs are locked up and I think we showed a chart back in October about 98 percent hedge for this year; about 75 for '06. Those are still good numbers.

Okay and looking at the Capex forecast, is there anything new in terms of higher spending expected versus sort of what you guys put on the third quarter?

Not material. Just some numbers moving around somewhat, not material. Numbers are generally in line, things to watch, frankly, maybe, more the utility in terms of some of the regional transmission stuff. The-- that won't be in the K but there may be some increases over time as PJM assesses long term grid---- reliability plans. Maybe something, I think our Q had discussion of Keystone column and we'll continue review whether it'll Keystone column numbers in the I think it's $125 million range. Those are largely '06, 7 and those are still under review by the honors committee.

Okay. So the environmental costs of -- will basically nothing new?

No. Nothing material.

Okay. Thank you.

Thank you. Our next question comes from the line of [Tim Chandler from Pimco] please proceed with the question.

Hi, guys. Could you just go over the cash flows associated with the tax agreements over the energy holdings? For what it was in '04 and what you expect in '05?

In terms of resources and revenues, or how much driven by -- how much was driven by cash payments from the payment from PSEG down to holdings and resources?

Yes. Please.

I'm not sure if I got that number here, handy. I mean, they're generally consistent with what they've been in the past, which is about, you know, 75 percent of the cash flow from resources is in the form of tax benefits.

Yes. Unfortunately with the disclosures we had today we had great earnings numbers but it was hard to back out the cash. So if we use '03 would it be in line? Or? .

Would be in line in '03. The only thing you got to normalize for the tax payment upon the termination of the lease. as you know, when we -- in fact with the Collins lease about $185 million in cash and tax payment of $100 million so the $100 million is actually above the line in terms of cash from ops. But, if you think about it as a net proceeds from sale, it's really $85 million.

The $180 -- the 185 goes down below the line in investigating activities and the negative catch payment goes up in ops. So you have to make some adjustments, that's why I'm pausing, but if you adjust out to that confusing way that GAAP asks you to display lease terminations, then '04 would be in line with '03. Yes.

Maybe an alternative way to ask the same question is: what do you expect for FFO to interest in '05 and when do you expect dividends up to the Parent ultimately to be from Energy Holdings up to the Parent?

I think, Tim, you know we said the three times FFO is a good target range. I think we're materially above that in '04. We expect to be generally in that range in '05. There's 475 paid up from Holdings to PSEG during the year 3 1/4 preferred; 150 common. That's obviously a considerably large number absent modifications currently that are not cooked. We expect that number to be much less. 150, something like that?

Okay. Thank you very much.

Thank you. Our next question comes from the line of [ Stephen Runtos].

I've got a clarification on the Hope Creek. You said there was a 0.34 impact year-over-year for replacing power and O&M. Dy hear you correctly when you said half of that is O&M roughly; half was Replacement Power?

That's correct.

Okay. And then the $20 million flow over that was -- that was for replacement power in '05? .

Yes.

Hope Creek? And that is above and beyond what you had planned? I assume you don't plan in the '05 guidance, originally for that?

Yes. Just to clarify, when we put out our '05 guidance it was early October and we thought at that time Hope Creek would return about mid December.

Okay.

So Hope Creek is just returning now. It's just off the top of my head, it'll be about $20 million.

Okay. And how much of those of the increased O&M costs in '04 are going to be ongoing as you ramp up the nuclear assets to a higher, hopefully higher capacity factors?

The O&M is really independent of the capacity factors. I think we said before, the O&M will be about $50 million higher '04 than it was in '03. The number was higher because of the plant was out we used that opportunity to make a number of -- to get to reduce the backlog and get some things done. So the '05 number would be lower than the '04 number closer to what we had been originally expecting.

Okay. I guess the other way to ask it is: In '05 you see obviously adjusting for the $20 million replacement power that you had for Hope Creek you'll see obviously lower cost replacement power, but you'll keep spending on O&M and as you improve the fleet operations. So it's not fair to say all of the O&M will roll off in '05 that you'll still have in increased O&M spending?

We will---'05 O&M spending on nuclear will be less than '04 O&M spending. It will be more than '03 O&M spending. I think what we said is that we---'03 number in '04 we thought it would go up about 50; it ended up going up more that 50. I think the up----the actual '05 number will be like the '04 number that was revised up 50.

Okay. All right. Thank you.

Thank you. Our next question comes from the line of [inaudible] Smith Barney CitiGroup. Please proceed with the question.

Just another way to look at this, I suppose. On the Hope Creek question. In the fourth quarter, we probably had about another 0.06-0.08 in O&M from Hope Creek that we had not expect; that was a result of the longer outage. That would be money that we would not expect to see in '05. Sorry, go ahead.

Tom, one more question here related to the rate case at the end of the year here for the $64 million. Before my understanding reading through the K's & Q's I think it was, you know, a filing and it was basically going to be implement to the rates. With the merger now coming up, could you talk a little bit about how it will impact that case and what you guys are thinking in in forecasting to that?

Okay, we still have the $64 million case was originally expected to six week proceeding based upon data that we'd be filing mid November this year and we'll be filing shortly with NJBPU and obviously want to get that process going. As to whether the merger process will be looked at in concert with that 64, I think I'd be getting ahead of myself if I were to be projecting that.

Okay.

Okay.

Is there one last question?

Thank you. Our last question is follow-up from the line of Paul Patterson from Glenrock associates. Please proceed with your question.

Just on the Capex for 2004, what was that, again?

It is very consistent with the Q.

Okay.

Which is about 1.1 billion.

Okay and then the transmission rate case at [FIRK]. Any update on that?

We filed, not for a rate case, it was for a tariff----for a continuation of the tariff and realignment of some the costs, but we did not file for a full rate case at [FIRK].

Are you expecting the same impact you guys had in October?

At this point we're expecting something a little less. Actually, tariff the transmission demand gets set on a summer peak and the summer peak last year was fairly -- was more modest than it has been, so the overall demand levels will impact as this year.

Okay, but you expect that to be less than what you guys gave us in terms of guidance?

Modestly less.

Okay. Okay. Thank you.

Okay.

Thank you. Mr.. Flynn. There are no questions at this time please proceed with your presentational closing remarks.

I think we're all done, thank you very much for joining us.

Ladies and Gentlemen, that does conclude the conference call for today. You may disconnect your lines and thank you for your participation. Have a great afternoon, everyone.