桑普拉能源 (SRE) 2010 Q1 法說會逐字稿

Good day, and welcome to the Sempra Energy first quarter 2010 earnings results conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Steve Davis. Please go ahead, sir.

Good morning, and thank you for joining us.

I'm Steve Davis, Vice-President of Investor Relations. This morning we'll be discussing Sempra Energy's first quarter 2010 financial results. A live webcast of this teleconference and slide presentation is available on our website under the Investor section. With us today in San Diego are several members of our management team including Don Felsinger, Chairman and Chief Executive Officer; Neal Schmale, President and Chief Operating Officer; Mark Snell, EVP and Chief Financial Officer; Debbie Reed, EVP; and Joe Householder, Senior Vice President and Controller.

You'll note that slide two contains our Safe Harbor statement. Please remember that this call contains forward-looking statements that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. As you know, they involve risks, uncertainties, and assumptions, so future results may differ materially from those expressed on our call. These risks, uncertainties, and assumptions are described at the bottom of today's press release, and are further discussed in the Company's reports filed with the Securities and Exchange Commission. It's important to note that all of the earnings per share amounts in our presentation are shown on a diluted basis.

With that, I'll turn it over to Don, who will begin with slide three.

Thanks. And again, thank you all for joining us.

On today's call, I would like to accomplish several things. First, review with you our first quarter financial results, then give you an operational update on our utilities and infrastructure businesses. Before I get into our financial results, I would like to spend a moment on the litigation settlement we announced last week. I realize that some of you may have been surprised by this, but I strongly believe the settlement was the best solution to put to rest litigation that has gone on for nearly a decade, and could have continued for years to come. I'll discuss the settlement in more detail later in the call.

Now to the financial results. Earlier this morning, we reported first quarter earnings of $106 million, or $0.42 per share, compared with $316 million, or $1.29 per share in the same period last year. The decrease in earnings was primarily due to the $96 million or $0.38 per share impact of the litigation settlement and reduced results from the RBS Sempra Commodities joint venture. Earnings, excluding the settlement amount were $202 million or $0.81 per share. Due to the impact of the litigation settlements, and assuming break-even performance at RBS Sempra Commodities, we now expect earnings of $3.15 to $3.40 per share in 2010.

Now, let me hand it over to Mark so he can take you through some of the detailed financial results, beginning with slide four.

Thanks, Don.

At San Diego Gas and Electric, earnings for the first quarter were $83 million, compared with earnings of $99 million in the year-ago quarter. The decrease was primarily due to $5 million of higher wildfire insurance premiums, and a $3 million charge due to the elimination of a tax benefit that was associated with the recent passage of the healthcare bill. The first quarter of 2009 benefited $5 million from the favorable resolution of a litigation matter. During the first quarter, SDG&E recorded $107 million regulatory asset relating to reserves for wildfire claims that exceeded our $1.1 billion of insurance.

We believe that SDG&E will ultimately recover substantially all wildfire costs in excess of its insurance limits. There are co-defendants in the litigation, and other responsible parties that SDG&E has a claim against. In addition, based on our regulatory experience, we believe SDG&E will be able to recover substantially all wildfire related costs that exceed our coverage and are not recovered from other responsible parties.

At Southern California Gas, first quarter 2010 earnings were $65 million, up from $59 million in the first quarter of 2009. The increase was due to $9 million of higher margin, $3 million of higher regulatory awards, and $2 million of lower bad debt expense. These benefits were offset by a $13 million charge due to the passage of the healthcare bill.

Now let's go to slide five. Our generation business recorded a loss of $53 million in the first quarter, compared with earnings of $43 million in the same quarter in 2009. The decrease for the quarter is primarily the result of an $84 million charge related to the energy crisis litigation settlement. The quarter was also impacted by $12 million of lower earnings from operations, primarily due to increased scheduled maintenance and associated downtime.

Now, please move to slide six. Sempra Pipeline and Storage recorded earnings of $38 million in the first quarter of 2010, up from earnings of $37 million in the same quarter of 2009. The quarter benefited from $6 million of higher earnings from foreign currency exchange rate effects offset by $4 million of lower earnings from its storage operations.

Now turn to slide seven. Sempra LNG had earnings of $32 million in the first quarter of 2010, compared with a loss of $7 million in the prior year's period. The increase for the quarter was primarily due to the start-up of marketing and terminal operations. We also benefited in the quarter from $11 million of payments related to nondelivery of cargoes, and from $7 million of mark to market earnings.

Now move to slide eight. Sempra Commodities recorded a loss of $5 million in the first quarter of 2010, compared to earnings of $114 million in the last year's first quarter. The loss was due primarily to reduced margins in oil, and European natural gas marketing, as well as higher costs for employee retention and a $12 million charge related to the energy crisis litigation settlement. Just in the last few days, we received a $197 million cash distribution from the joint venture related to 2009 earnings. This distribution will be reflected in our second quarter results.

Now let's move to slide nine. This slide provides a summary of our business unit results. I would like to highlight our results of parent and other where we recorded a loss of $54 million in the first quarter, compared with a loss of $29 million in the same quarter in 2009. The increase in loss is primarily due to the impact of $17 million of higher Mexican taxes. The quarter was also impacted by a higher consolidated tax adjustment and additional interest expense.

And with that, I would like to turn it back over to Don who will begin with slide 10.

Thanks, Mark.

Before I get into an update on our business activities, I want to provide some additional color on the energy crisis litigation settlement we announced last week. The $410 million settlement ends two main pieces of litigation, each of which is funded separately. $260 million will be funded from RBS Sempra Commodities, and $150 million from Sempra Energy and Sempra Generation. The after-tax cash effect to Sempra is $96 million. This settlement ends the FERC refund proceeding. As many of you may recall, this proceeding relates to the FERC's formulaic adjustment of market prices for short term energy sales in the years 2000 and 2001.

The settlement also ends the litigation related to Sempra Generation's contract with the California Department of Water Resources. Although we have successfully defended this contract numerous times, this settlement will put an end to the continued litigation, appeals, and arbitrations. As many of you know, we've been dealing with energy crisis litigation for nearly a decade. This settlement gives us the opportunity to put to an end this litigation, which could have continued for many more years and had unforeseen risks. We can now move to a more constructive relationship with all of the California parties.

And, with that, I'll have you go to slide 11. Let me now update you on the activities at our California utilities. We still expect the Sunrise Power link transmission line to be in service in the second half of 2012. We're awaiting the final approval from the U.S. Forest Service, which is expected this quarter. Procurement and right of way work still continue. We have now locked in half of the material and roughly 80% of the construction costs.

Turning to our Smart Meter programs. At SDG&E, we have now installed more than 800,000 meters, and we expect to have all 2.3 million gas and electric meters installed by year end 2011. At SoCal Gas, in April, the CPUC approved our $900 million gas smart meter project, and we will be installing 6 million gas smart meters in phases from 2012 to year-end 2017. At San Diego Gas & Electric and SoCal Gas, we will be filing our applications for both utilities 2012 general rate cases in the second half of this year. The CPUC rate case plan calls for a decision by year-end 2011.

Now please go to slide 12. At Sempra Generation, we began construction on our Copper Mountain solar project in Boulder City, Nevada. This project is a 48 megawatt expansion of existing 10 megawatt El Dorado solar facility. The power generated by this expansion will be sold under a 20-year contract to PG&E. We'll bring the project online in phases and expect to complete construction by the end of this year, or at the latest, very early in 2011.

Moving to our LNG business unit. We have recently announced a supply agreement with Gas Prom. Under this multi-year agreement, Gas Prom will play Sempra LNG for the right to deliver up to two LNG cargos per month to the Cameron LNG terminal at a predetermined price formula. This agreement will commence in June of this year. This agreement, along with our previously announced RAZ Gas arrangement will utilize available capacity at our Cameron LNG terminal. These two agreements are in addition to our 20-year contracts that account for nearly 65% of our combined LNG total capacity.

At our pipelines and storage business, we have now closed on our acquisition of El Paso's Pipeline and Gas infrastructure assets for $300 million, or $260 million net of cash and debt. The acquisition includes a natural gas pipeline and compression assets in the Mexican state of Sonora, and a 50% interest in a joint venture with PMEX, the Mexican state owned oil company. The joint venture operates two natural gas pipes and a propane system in northern Mexico.

PMEX has filed a plan with the Mexican government to dispose of their 50% in the joint venture. Any sale is subject to our right of first refusal. PMEX has long-term contracts to utilize the pipeline's capacity will remain unchanged. The assets are all in operation and provide stable revenue streams under long-term contracts, representing a weighted average length of 13 years with PMEX and the Mexican federal electricity company.

In early April, a 7.2 magnitude earthquake hit the Mexicali region of northern Baja, Mexico. Our pipeline, LNG, and power plants located in that area did not suffer any major damage. Our Mexicali power plant has been out of service since that time waiting for replacement parts for some relatively inexpensive, but critical equipment that was damaged during the quake. We expect the plant to be back in service later this month.

Before we move on, I would like to update you on the progress of our sales process at RBS Sempra Commodities. We are moving forward in obtaining the neccessary approvals for the sale of our metals, oil, and European energy segments to JPMorgan. We anticipate the closing of this estimated $1.7 billion transaction early in the second half of this year. The closing was delayed several weeks because of the inability to schedule meetings with European union regulatory officials due to the volcanic ash situation that impacted travel and business throughout Europe.

Negotiations for the sale of our North American Power and Gas segments are moving forward as well. We have narrowed the list of successful bidders to a second round of offers, and expect to announce a buyer within the next four to six weeks. Our assumption of break even earnings for the joint venture prior to a sale has not changed our expectations that total proceeds to Sempra Energy from both transactions will be approximately $2 billion.

Now please go to the next slide. While the results for the quarter at our commodities joint venture were disappointing, our core utility and infrastructure businesses continue to perform well. This year, we have settled major litigation and reduced risk to our shareholders. We're moving forward with major projects at the utilities. Our recent approval of the SoCAL gas Smart Meter program and the progress we've made for the construction of Sunrise Power Link are very positive.

At our infrastructure businesses, we're focussed on the continued development of our storage and solar projects, and we're making progress with the completion of the sale transaction RBS Sempra Commodities. The proceeds from those transactions will help fund our robust capital program, facilitate our expected share repurchase program, and lead to strong predictable growth.

With that, let me stop now and take any questions that you may have.

Thank you. (Operator Instructions)

And we'll go first to Faisel Khan with Citi.

On the joint venture, I just want to understand, the premium--the sale to JPMorgan is based on a fixed premium, based on a book value of the assets. And so with the loss that you guys incurred, specifically in the crude line, it's only $13 million, but is there any significant sort of impairment to that book value?

No, there's not. Let me ask Mark if he can maybe spend just a few minutes on the sales process in general.

Well, Faisel, you're absolutely correct, in that it is a fixed premium to book value, but--and we did have some small losses at the--on those businesses, but they really didn't impact--they were really minor impacts on the book value, and it really doesn't change our expectation of proceeds.

Okay. Great.

And then just on a different product lines, it looks like except for crude oil, everything else did okay. Was there anything in particular in the crude business that didn't go well for you in the quarter?

Well, we just didn't make as much money as we had expected. There's nothing that--there was no major blowout or big problems, we just didn't see some of the opportunities that we--that we had anticipated, and we had some dropping prices during that period. But I think generally-speaking, the rest of the business performed okay, but we also coupled it with the charge from the litigation, and, also, with some higher retention and employee compensation costs that we've--that we instituted at the end of the quarter, and those things affected the earnings negatively.

I just have one more question and I'll get back in the queue.

Specifically on the healthcare costs at Sempra utilities, both at SDG&E and SoCal Gas. It looks like some of the--some of the costs were in the tax line and some of them were in the operating line, and seems to be different between SoCal Gas and SDG&E, I was hoping you could help us reconcile what is going on with this--what appears to be a one-time hit to expenses.

I believe they were all tax. Let me have Mark just validate that.

No, that's right. They all affected the tax line, both of them. It basically is a tax benefit that most companies had recorded that was eliminated as part of this package, and it affected us as it did just about everybody else.

Okay. And it's just a one-time item, is that correct?

Yes, it is, correct.

Okay. Great. Thank you.

Thanks.

And we'll go next to Craig Shere with Tuohy Brothers Investment Research.

Hi, Craig.

Hi. Thanks for the call.

So, Don, is the final sale of the U.S. portion of the JV being impacted at all by turmoil in the financial players, or proposed restrictions on their activities?

Craig, no, it's not. As a matter of fact, we are in the second round of activity now with selling the second half, and Mark was telling me this morning that we expect to open up those bids for the second round sometime either late this week or early next week.

Great.

And Mark, I was a little confused about the comments about the wildfire insurance. When I heard the word higher premiums, I thought, well, you guys had to tap that insurance, and they raised your rates on you going forward, but then what I heard in your discussion was that there are some costs that you expect to recoup later on for past issues. I'm just trying to get a sense for what kind of ongoing expense that might be, and if you think all of it, including higher ongoing premiums would be recouped.

Well, we do have a filing that we are--we have before the regulatory agency in California to recapture the higher premiums that we have been paying since the wildfire.

Do you want to take this, Mark?

Yes, sure.

As Don said, we do have a filing, we expect to do that, but we don't know what the outcome of that is going to be, so we expensed the higher premiums currently. And then in my comments, I also commented on some settlement related actually to the fires that we had, and those settlements now exceed some of our insurance coverage; and therefore, we have recorded a regulatory asset for that. We do expect, over the long term, to collect all of that money from either responsible third parties first, or through our normal tariffs.

Great.

And last question, I don't know if you all could comment a little about the market for gas storage. I think we heard from another Sea Corp that has good growing gas storage business that there's still opportunities for maybe $0.20 per Mcf a month of contracting, and there was recently--and I know you don't need any cash, but there was recently a very attractively priced MLP/IPO in the gas storage space. And I just wonder if you could comment about is the market for contracting storage looking any better? How does it look in terms of how assets are being valued in terms of just physical assets? And down the road, even if you don't need the money, if there's such a wide disparity in the valuation of this part of the business, would you consider some other type of place for them to reside?

Well, I think your comments tend to capture the whole realm of opportunities that are out there. Everybody, I think, by now is seeing the recent transaction and valuation around the Pine Prairie, and the Blue Water assets that at one time I think we owned and sold. But as we stand in the storage business right now, we have about 11.5 BCF of operational storage that's been fully contracted. And by the end of this year, we will have another 12.5 BCF that will go into service, and we've already sold four at about 60% of that. So we're able to access the market, get customers to pay for the storage, and so our opportunities are to develop and sell this forward, and at some point in time, if we're satisfied that the real opportunity is in transacting around these facilities, we'll also look at that.

And are you seeing a healthy market for continuing to contract forward? There was some comments at the Analyst Day, a month-plus ago, that the market was a little weaker, but starting to, perhaps, recover?

Well, it is still--it is still fairly week. You look at the natural gas market in general. Prices are pretty low, volatility is flat, but as we continue to talk to customers, the long-term desirability of having the ability to store natural gas is something that customers are still willing to contract for. We're not seeing the prices that we saw two or three years ago, but they're robust enough to give us comfort we can go ahead and develop.

Great. Thank you.

Thank you.

And we'll go next to Lasan Johong with RBC Capital Markets.

Good afternoon. Let's see.

Can you give us a little bit more clarity on the gas pump contract? You said that it is contracted to pay Sempra LNG. Is this a monthly fee? Is it like a terminal use agreement?

Well, good afternoon, Lasan.

We have been talking for the last--probably the last six months or a year about the opportunities to do something with unsold capacity that exists at Cameron. And that started out with doing a transaction with RAZ Gas for them to bring in spot cargos. And we have a similar arrangement, although a little bit different in the way that it's structured with Gas Prom for them to be willing to pay to use our facility for a number of years, to bring in cargos.

So I can't get into the details for commercial reasons, but I think it bodes well for--from a couple of standpoints. One is, there's a lot of unsold LNG capacity in the Gulf, and the fact that we have two major players that want to transact with us, I think it says something about Sempra and it says something about the location of our facility. So I think these are all positive developments. I'm sorry I can't give you more details around the financial arrangements.

Can you at least tell me if it's a predictable stream of cash flow, or if it's an intermittent stream of cash flow?

We will be getting basically a payment to use our facilities that will happen over time, and then the opportunities as cargos come in to make more money.

I see.

On the healthcare charge in response to Faisel's question, it's a one-time charge. Are there any ongoing recurring cost increases that you expect?

That's it, a one-time charge.

Okay. That's good.

And then lastly, do you know if and when you would perhaps take a look at the PMEX piece of the Mexican assets?

Well, I mean, it's hard for me to speak for PMEX. They have a requirement, as I understand it, by the Mexican competition commission to dispose of their assets. My general understanding is they're going to do that by the end of this year, but it's hard to predict their timing. At point in time when they do transact because of our right of first refusal, we'll definitely take a hard look at it.

One last question.

Cargos of LNG have been flowing very vigorously to the UK, and the prices over there are really high. Does that change your thinking on the global oversupply that's currently in place?

I missed the last part of your question, Lasan.

Oh.

The UK has been importing a lot more LNG than would have been originally expected several months ago, and it sounds like the global oversupply is kind of being soaked up by the Europeans. Does this change the way you view the flow of LNG in the world, or is this just a temporary phenomenon in Europe?

As a matter of fact, this is kind of what we expect is going to happen, that LNG will flow to the market that pays the highest price for it. And I think we're on the very early stages of seeing a global natural gas market where it will flow freely to the location that has the highest price.

Okay. Great. Thank you.

Thanks, Lason.

And next we'll go to Paul Patterson with Glenrock.

Good morning, guys.

Hi, Paul, how are you?

All right.

The Sempra Generation scheduled maintenance, does that--is that sort of a one-timer? Could you just elaborate a little bit more on how that might be throughout the year?

Each of our power plants, I think it's around every three years, goes through a major shut down, from anywhere from a 40 to 60-to day period where we tear everything apart and take a look at it. EDM was returning last month from one of these major overhauls, and had just come up and was operating probably less than a day when the earthquake hit. And the earthquake had so much ground shaking that some ceramic insulators on top of one of the transformers cracked, and that's the inexpensive but critical piece of equipment we're now in the process of fabricating.

Okay.

And then with the LNG mark to market, does that reverse? The $7 million LNG?

Yes, that's actually a reversal of earlier losses, so it's actually--it is the reverse of something that happened several months ago.

Okay. Great.

And then just--I'm sorry if I missed it because there have been a few things going on, but it would seem to me that there should be no change in your 2011 and beyond outlook that you guys gave us just recently, because--is that--the RBS JV was going to be gone anyway, it doesn't look like there's impact from what I understand in terms of what your sales expectation would be. So is it--so is it safe to assume that things probably haven't changed much with respect to the forward-outlook

The only changes that we are making are to the year 2010.

Okay.

And when was the last time that the--that this business had a break even? I'm just sort of curious. Do you guys know?

We have a lost quarter, it was about a year and a half ago.

But we have a long history of profitable quarters, and this was one of only two or three that we've actually broke even or lost money.

Okay.

And could you elaborate a little bit more about the change in parent and other?

Sure.

It's primarily from increased interest cost, because as we bring things online, we're no longer capitalizing interest, and maybe I'll ask Joe if he can elaborate on any of the other pieces.

Sure.

There are two other pieces. The Mexican taxes are affected by the exchange rate between the dollar and the Mexican Peso, and last year we had a benefit there. This year we actually had a detriment of 10, so there was a $17 million swing. And then the effective tax rate caused us to have about a $13 million negative hit in this quarter, which will turn around over the course of the rest of the year. Don't know which quarter exactly it will turn around, but that $13 million negative in the quarter will turn around by year-end.

Okay. Great. Thanks a lot.

Thanks, Paul.

And from Goldman Sachs we'll go next to Michael Lapides.

Hey, guys.

Quick question on Sempra Generation. Can you talk, and your K disclosed roughly 400 to 500 megawatt solar opportunity at one of the sites. But can you talk fleet wide how many megawatts of potential, whether it's within the next three or four years or beyond that, I'm just trying to understand the real estate availability for potential solar megawatt additions at your existing gas sites, or other lay-ins that Sempra Generation controls?

Well, the--we have 58 megawatts, 10 of which is in operation, and 48 being developed in Nevada around an existing site, and then around Mesquite with the land position we have there, depending on what technology we use, we're thinking around 600 megawatts of photovoltaic. And then we have other land positions in Mexico that are primarily being held for wind development, and we have some other wind projects that we're pursuing around the country. But around our existing sites, I would look at the 600 megawatts in Arizona, and the 50 megawatts that we're building in Nevada as the primary opportunities.

Okay.

And when we look at--what happens to the land that is around the El Dorado or El Dorado plant that is being sold back into SDG&E, does Sempra Gen control any additional land that's around that facility? Or does the land, etc., outside the fence, inside the fence, whatever, go to the utility?

The utility is buying the power plant and the footprint on which the power plant sets, and the land around that belongs to Sempra Generation.

And is there room there for Sempra Generation to continue doing above and beyond the--?

Yes, there is. That's correct.

Okay. Thank you.

Thank you.

And our next question comes from Vedula Murti with CDP United States.

Good afternoon.

Hi Vedula.

Two things.

One, you have mentioned in your prepared remarks about the distribution coming here that will be recognized in the second quarter, and you alluded to that there would be an earnings effect on the 198, for approximately that number. So can you just kind of explain how that would then translate between what sounds like is a gross cash flow number, and how that translates to net income?

I'm going to have Mark address it. I may have confused you.

No, think you may have misunderstood. All I was saying was is that there was an expectation of getting our distribution by the end of the--by this call, and we did get it just prior to the call, $196 million, but it's a cash flow only item. It doesn't have any effect on earnings.

Okay.

And secondarily, when you talked about to the $2 billion, is it correct for me to be thinking that that implies on the North American piece here that would be Bill talking about at book value, but that at least in the past, I think you have alluded to some possibility or probability of being able to achieve above book value. Can you kind of comment a little bit on that?

Yes. Our expectation and what we have been signaling is about at tangible book, but there is a possibility for us to get more than that, especially on parts of the business we're seeing some pretty robust bids. But we really can't say anything until we actually announce something.

And now that you're in, like, second round and that type of thing, I know you have alluded to, I think, close by the end of the year, if I'm not mistaken. Given where you are, do you feel like by the end of the second quarter, by the time we have second quarter call, or something like that, an announcement will have been made, or can you elaborate a little bit about given where you know where you're at, at what point do you feel like you'll be able to tell us what the conclusion is?

Well, Vedula, when we started this process, and at the analyst conference, we have made the assumption that we would probably be in this business through year-end. Based upon the progress we've made with JPMorgan and the progress we're making in selling the second half, we are fairly comfortable now, and it's hard to control the timing, that we'll be out of this early in the second half of this year. When I say early, my expectation is by July or August we'll be out of this business.

Now, I don't control that schedule. There are a lot of parties involved, but we're working as hard as we can so that by the time we have this next call, we'll either be out or be close to being out. That will be in the July?August time frame.

So just to make sure I'm clear, when you're out, that means announced and completely closed in all of the checks have crossed each other, that type of thing?

That's correct.

Okay.

And one last thing is have you--do you have the authorizations in place, in term of flexibility for stock buybacks and that type of thing, or is that something that you would want to take to the board and have tha authorized at the conclusion of this process?

The board has already given us authorization to move forward with stock buyback.

Okay. Thank you.

Thank you.

And our next question comes from Becca Followill from Tudor, Pickering, Holt.

Hi, guys, two quick ones.

On Sunrise Power Link, you guys were previously thinking that you would get approval in the first quarter, now we're seeing second quarter. Has something specifically changed? Are there any issues, or is it just timing?

Becca, I'm an optimist here, and even though the record has been complete and published for a year or more now; the fact that the remaining approval we need is from the U.S. Forest Department, I'm somewhat less concerned about the timing, even though I'm anxious. Because what they're doing is making sure that they have a complete record before they issue their decision, which will make it more litigation-proof going forward.

So the fact that they may take another week, two weeks, or a month, even though it causes me frustration, I think at the end, when we get that decision, it will be a better decision. So we don't expect any holdup. We're still waiting for approval. We firmly believe we're going to get it, just can't pinpoint the week.

Okay. Thank you.

And then back on the storage subject, $4 million in lower storage earnings. Can you talk specifically what that goes to, where the delta comes from?

Becca, this is Joe Householder.

The--that really is about a $2 million loss this quarter, and there was a $2 million gain in the year-ago quarter. And it's a variety of small issues, some G&A, some depreciation, some property tax and a little bit of mark to market on some optimization trades. It's a whole variety of very small issues.

So the storage that you have is producing a net income loss?

The storage operation as a whole had a small loss this quarter. Last year, a year-ago quarter had a small gain.

And do you expect that loss to continue for the rest of the year?

I don't believe so, no. That's not our expectation.

Can you talk a little bit about what kind of swing we could see? I mean, will these--will overall on an annual basis, the 11.5 BCF of storage be positive net income for the year?

We're looking here at the numbers. I'm not sure what it's burdened with right now in terms of other costs. But let us do this, let us take a look and see if we can't give you a more cogent answer, and then maybe post it on our website.

That's great. Thank you.

Thank you.

And we'll go next to John Alli with Decade Capital.

Hi guys. Just a quick question.

I apologize if you've already covered this, there's a few other calls coming on. But the book value of North American Trading, it had been around 800. Is that still fairly consistent?

The book value of North American Trading is actually quite a bit less than that, because--and it is sitting on a fair amount of cash, which we would expect to distribute, and so the total cash distribution would be probably a lot more than just the book value. Because we would distribute the cash prior to sale.

Okay.

Can you give any numbers around what the total number or the total value left post the JPMorgan transaction is?

Well, the JPMorgan transaction was 1.7 billion in total, and our share of that was--what's that? No, that's too high. I think it was like nine something. And then--and then after that, the remaining balance is the North American Power and Gas business, but the big difference there is the net book value is more in the 200 to 250 range. We expect there's a fairly big cash distribution because we've had a big cash build up for when we closed the--when we closed the deal with JPMorgan, we'll--it will pay off the inter-company loans, and so that's why we expect our total proceeds be to around $2 billion.

So that $2 billion number in total proceeds has not changed?

Right, it has not changed. Becca, if you're still there, we have found a sheet that has the numbers on it.

Let me have Neal walk you through what our existing storage business has for earnings this year and then in out years.

Yes. The sheet we dug up has some very fine print on it, Becca. But in any event, we expect the storage business to be just slightly positive this year, and then it will be even more--even more so next year, a few million dollars, and then continue to grow. So the results that we're seeing here are consistent with the plan.

Next question?

And we'll go next to Craig Shere with Tuohy Brothers Investment Research.

Just a follow-up on that storage question from Becca and the answer just given.

It makes sense to me if, in fact, you're burdening storage with the overhead development costs for the significant buildout you have because you're talking about a buildout that's very large compared to the base. Are you folding all of that together in the numbers you just gave? Is that what is going on?

The answer is yes.

Okay. Great. That makes sense. Thanks a lot.

Thank you.

And we have a follow-up question from Faisel Khan with Citi.

Thanks. Sorry. Just a couple of follow-ups.

One is just on the LNG business, the $11 million related to the payment from a counter party for non-delivery, is that the [TANGU] contract?

It was at our Costa Azul facility. That's really the extent of what we want to say about it.

Okay.

If there were--for example, if there were deliveries that actually took place in the foreseeable future, then in theory, the earnings from those volumes would be there, and so this is to make up for the volumes that weren't there; is that correct?

Yes. Just take this as this was both kind of sort of a start up issue on the other end of the LNG business, meaning the supplier, and I would not expect to see these reoccur.

Okay. Got you.

And then just on the wind assets that you have recently purchased into, the Hawaii project and also the--I believe the projects in Indiana; were those contributors at all to the Generation earnings this quarter?

I don't believe they were. The Fowler Ridge, I think, will show up next quarter.

Okay.

And then Hawaii, same thing too?

There's no earnings for Hawaii yet.

Okay, got you.

There is a small amount of Fowler Ridge earnings in there, but not a lot.

And in going forward in terms of how you guys plan to book the tax benefits from these renewable facilities, I take it on a GAAP basis, you're going to amortize this stuff over a long period of time?

On a GAAP basis, currently we're on the flow-through method. We're taking them as they construct.

Okay. Understood. Thank you.

And there are no further questions at this time.

I'll turn the call back over to Mr. Felsinger for any additional or closing remarks.

Well, once again, thanks to all of you for joining our first quarter 2010 call. If you have any follow on questions, as always, feel free to contact Steve, Glenn, or Scott.

Thanks again. Have a great day.

And ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.