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Executives

Susan Giles - VP, IR

Kim Cocklin - President and CEO

Fred Meisenheimer - SVP and CFO

Analysts

Theodore Durbin – Goldman Sachs

Faisel Khan – Citigroup

John Hansen

(Peter Arch – ZLP)

Atmos Energy Corporation (ATO) F1Q12 Earnings Call February 8, 2012 8:00 AM ET

Operator

Greetings, and welcome to the Atmos Energy first quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions). As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Susan Giles, Vice President of Investor Relations for Atmos Energy Corporation.

Thank you Mrs. Giles you may begin.

Susan Giles

Good morning, everyone, and thank you all for joining us. This call is open to the general public and media but designed for financial analysts. It is being webcast live over the Internet. We have placed slides on our website that summarize the financial results. We will refer to just a few of the slides during the call, but we will be happy to take any questions on any of them at the end of our prepared remarks.

If you would like to access the webcast for slides, please visit our website at atlasenergy.com and click on the conference call link. Additionally, we plan to file the Company’s Form 10-Q later today.

Our speakers this morning are Kim Cocklin, President, and CEO, and Fred Meisenheimer, Senior Vice President and CFO. There are also other members of our leadership team here to assist with questions as needed.

As we review these financial results and discuss future expectations; please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Any forward-looking statements are intended to fall within the Safe Harbor rules of the Private Securities Litigation Reform Act of 1995.

And now, I would like to turn the call over to Kim Cocklin. Kim.

Kim Cocklin

Thank you, Susan. Good morning, everybody, and we certainly appreciate you joining us, and your interest in Atmos Energy. Before we begin, I’d like to extend my congratulations to all the Giants fans on the phone, and condolences to the Patriots and the Cowboy fans.

Yesterday, we did report first quarter consolidated net income of $69 million or $0.75 per diluted share compared to $74 million or $0.81 per share one year ago. When you exclude the unrealized gains in both periods, net income was $56 million or $0.61 per share this quarter compared to 74 million or $0.81 last year.

Regulated operations contributed 93% of our net income and non-regulated operations contributed the remaining 7%.

Regulated earnings were in line with our first quarter expectations of fiscal ’12. Abundant natural gas supply across the nation has created a low gas price environment, which is extremely good for utility customers. However, our non-regulated operations are adversely impacted by such a low price and low volatility and did not contribute as expected.

Our liquidity and financial position remain very strong. Our debt capitalization ratio is 53.4% at December 31, compared with 51.4% one year ago. Short-term debt this quarter increased to $390 million compared to $248 million in last year’s quarter, primarily to fund natural gas purchases in our non-regulated segment and increase capital spending.

During the quarter we purchased about 388,000 shares under our current share repurchase program at an average price of $32.31 per share.

Also during the quarter, we resolved the FERC investigation that arose in 2007 in our non-regulated segment. Under the terms of that agreement, we paid about $12 million plus accrued interest. We cooperated with the FERC throughout the process, and had adequate reserves for the resolution.

Yesterday, our Board of Directors declared the 113th consecutive quarterly cash dividend. The indicated annual dividend rate for fiscal ’12 is $1.38. Our CFO, Fred Meisenheimer, will review our financial results in greater details now, and I’ll return for closing comments and we’ll open up the call for questions. Fred?

Fred Meisenheimer

Thanks, Kim, good morning, everyone. As a reminder, because of the agreement to sell our distribution assets in Missouri, Illinois and Iowa, we combine and report financial results for those assets on the income statement as discontinued operations. Therefore, the corresponding detail by line item will be excluded from my prepared discussions.

Rate relief remains the primary driver of our success in the regulated operations. Rate increases for distribution Atmos’ pipeline Texas combined, generated almost $13 million of incremental margin quarter-over-quarter with about $5 million for distribution, and $8 million for APT.

Specifically, distribution margins were negatively impacted by utilizing required updated weather data to calculate the weather normalization adjustment in the Mid-Tex division, which we expect to substantially flip around by the end of the heating season.

Regulated Transmission and Storage, we refer to as APT, benefited from the rate case that became effective last May. Also, during the current quarter, APT’s consolidated throughput rose 5% due to increase through system demand and the execution of new delivery contracts with local producers.

Turning now to our non-regulated operations, and you may want to turn to slide number 7. The on-going and on-favorable market cash conditions continue to pressure this segment. We anticipate natural gas storage levels will remain high for an extended period of time, and for unseasonably warm weather to continue during the second quarter of fiscal 2012.

We expect gas prices to remain relatively low, with little volatility, and spot to [inaudible] spread values and basis differentials to remain compressed.

Realized delivery gas margins decreased about $5 million for the same period one year ago, due to a 4% decrease in consolidated sales volumes, mainly due to warmer weather, which reduced sales to our utility, municipal and other weather-sensitive customers. These decreases were partially offset by a 6% period-over-period increase in sales, to new and existing industrial and power generation customers.

A decrease in gas delivery [inaudible] margins from $0.15 per MCL in the prior year quarter, to $0.10 per MCL in the current year quarter, primarily due to lower basis differentials, resulting from high natural gas storage levels, coupled with increased transportation rates charged by the interstate pipelines to be utilized to deliver natural gas to our customers.

Realized asset optimization margins decreased to about $26 million from the prior year quarter. The prior year quarter, due to compressed spot forward spread values, AEH traded more frequently in the daily cash market, and earned intra-month trading gains that exceeded the demand fees paid for its contracted storage capacity.

In the current quarter, AEH elected to take advantage of falling natural gas prices by purchasing and injecting a net 15.7 Bcf into storage, and capturing incremental physical spread values that should be realized in future periods. As a result of this decision, we realized no storage withdraw gains to offset the realized losses on the settlement of financial instruments used to hedge these natural gas purchases.

We anticipate this trend will continue during the fiscal second quarter. However, based on the current setup, a substantial portion of the incremental margins captured during the quarter are anticipated to be realized during the third and fourth quarters of fiscal 2012 when contracts expire and the realized gains are recognized.

Moving now to our earnings guidance for fiscal 2012. As a reminder, our practice is to provide annual earnings guidance only. We have affirmed our fiscal 2012 earnings per share guidance of $2.30 to $2.40 per diluted share and have updated the expected contribution by the business segment. This range assumes no mark-to-market impact as of December 31, 2012, but does include a pre-tax book gain of $5 million from the sale of our Missouri, Illinois and Iowa distribution assets, which is still anticipated to close by the end of fiscal 2012.

Let me draw your attention to Slides 20 and 21, where we have outlined our budget assumptions and net income by segment. Our projections now include a $3 million increase to net income reach at the regulated gas distribution segment and the regulated transmission and storage segment, with an equal and offsetting $6 million decrease in the non-regulated segment.

As a result of the challenges of high natural gas storage levels, and the unseasonably warm weather, we are now re-projecting non-regulated delivered gas and storage and transportation margins to range between 70 to $75 million, down slightly from the $74 to $82 million previously.

We also anticipate delivered gas volumes of between 435 to 445 Bcf, down about 10 Bcf at a per unit rate of $0.12 to $0.13, which were originally forecast at $0.13 to $0.14.

Our original guidance for non-regulated asset optimization margin assumed summer/winter spreads of about $0.49, with associated storage fees of $0.34, netting to $0.15 per decatherm.

Due to the erosion of spread values and the continued weak market fundamentals I just mentioned, we are lowering our expectations for asset optimization margins to the range of breakeven to $2 million.

For the near-term, we are expecting asset optimization activities, to at least offset the contracted storage demands. We do not perceive returning to the level of margin contribution we experienced in previous years of high market volatility.

Keep in mind, however, storage is essential for the over 1,000 customers to which AEH provides services, such as our distribution divisions, utilities, and other regulated municipalities contracting for firm natural gas supply.

We are working to shorten the lease terms for the contracted storage to one year or less, to better manage storage cost. Total amount of regulated margins are expected to be between $70 and $77 million, again with no impact from mark-to-market of our physical storage and offsetting financial hedges.

In the regulated segments, we have confidence that we can achieve a $6 million increase in net income. Because of the mild weather we encountered in the first quarter, and continue to experience in the current quarter, our crews are able to focus on capital projects, thus reducing O&M expenses.

Additionally, they have not encountered an adverse weather event, which drives incremental O&M to overtime and general expenses associated with such a weather event. This held true for both our distribution and regulated pipeline operations.

Also in our distribution business, the new Rule 8 regulated, encourages spending for [inaudible] safety and reliability in Texas. It also allows regulatory asset treatment, and defers expenses for carrying costs. We now have more clarity and a better understanding as to the treatment of these expenses, and believe there’s a upside, which we did not anticipate when our fiscal 2012 guidance was first announced.

In our regulated transmission and storage segment, lower O&M cost from the absence of a weather event as I just mentioned, as well as a shift to more capital type work with the 70 degree weather we’ve been experiencing, also should reduce O&M expenses from second quarter. Also, at the regulated pipeline, we’re getting better value for our proprietary storage and commanding higher demand fees on new contracts than we anticipated.

There’s a strong appetite from producers and marketers for firm capacity transportation, which Kim will discuss in a minute. Our original earnings projection assumed an average short-term interest rate of about 60 basis points, which is currently running at just 40 basis points. We think we’ve got about $1 million of upside from the remainder of the fiscal year.

We have increased our capital budget by $50 million, which sets a new range of between $680 to $700 million for fiscal 2012. The increased capital spending will primarily be at Atmos Pipeline Texas. Kim will offer more details in a few minutes.

As you know, the second fiscal quarter historically generates the greatest revenue for us. We remain optimistic that we can achieve earnings per diluted share of between $2.30 to $2.40 and a consolidated net income range between $210 million and $220 million for fiscal 2012.

Thank you for your time, and now I’ll hand the call back over to Kim. Kim?

Kim Cocklin

Thank you very much, Fred. Capital investment, as Fred talked about is an extremely important component of our earnings growth. As you well know, it increases our rate base, and the more valuable the rate base for a regulated operation, the greater opportunity for increased revenues and growth.

And as Fred mentioned, we are projecting investing significant capital on our intrastate Atmos Pipeline Texas system, to increase its capacity to secure new, long-term gas supply on a firm reliable basis and enhance the reliability of our service in certain critical locations along the Mid-Texas system. And this was approved by our Board of Directors yesterday when they added and increased the capital budget for fiscal ’12 by $50 million, as Fred said.

There’s two projects that we’re talking about. The first is the Line W Looping project, which is designed to secure new long-term gas supply for the Dallas/Fort Worth Metroplex area. Atmos Pipeline Texas is going to spend between $47 and $52 million in capital to construct a 34 mile, 24-inch high-pressure pipeline North of Fort Worth, connecting Boyd, Texas to a producer’s interconnect in Montague County. The project is supported by a multi-phased firm transportation agreement, with a producer for deliveries to the North side loop, through the year 2019. The rates, which are designed on a straight fixed variable basis will consist of demand fees, which are expected to generate incremental annual revenue of $10 to $14 million beginning in fiscal 2013. A lot of the project up there is driven by the continued drilling by producers of wet gas and gas that’s associated with oil in the Montague County area.

Also, during fiscal ’12, through fiscal 2014, Atmos Pipeline Texas is projected to spend between $110 and $120 million in capital to construct a 59-mile, 24-inch high-pressure pipe that connects Line X, south of Fort Worth, up to Boyd, and the new Line W that I just talked about. This pipeline is intended to eliminate the dependency of an interruptible exchange agreement, and improve service reliability during critical peak periods to current regulated customers of Atmos Pipeline Texas.

These capital expenses are GRIP eligible with a 11.8% return on equity, and the project certainly improved the reliability of our pipeline system for the customers we serve.

As we outlined last November, we are planning increased capital investment over the next five years, in particular to fortify our regulated asset infrastructure. We expect to grow our regulated rate base from between 6 and 6.5% on a compounded annual basis during this five-year period, resulting in earnings growth and enhancing the reliability and safety of our regulated assets.

We continue to successfully execute our rate strategy to reduce lag, improve return on equities and increase recovery of fixed cost. Last week, we filed a rate case in the Mid-Tex division, which request an annual operating income of 46 million for the effective cities. It’s based on a proposed return on equity of 10.9%, resulting in an overall return, proposed overall return of 8.74%. The cap structure in the case is 49% debt, 51% equity, the authorized rate base investment is $1.53 billion. Case is based on a test year that ended September 30, 2011, with a forward-looking plan investment and associated deferred taxes included through March of 2012.

We’re also seeking the approval of a new annual rate review mechanism, which would allow – continue to allow annual cost adjustments without the need to file future rate cases. The case, you remember, was filed as the result of the existing rate review mechanism expiring at the end of January. We were unable to renew that rate review mechanism, so we did file this rate case to address the deficiency in the Mid-Tex division.

As you may recall, our fiscal 2012 projections did not include any rate increase in the Mid-Tex division because we were continuing negotiations with the cities at that time to renew the rate review mechanism.

Also, in the Mid-Tex division we filed the first City of Dallas annual rate review filing in January, requesting an increase in operating income of $2.5 million. Copies of the Mid-Tex filings can be found on our website.

So far this fiscal year, rate outcomes have provided annual operating increases of $7.7 million. Other rate actions, which we have filed and are pending include a Kanas case, which seeks an increase of 6.1 million, and a filing that we made yesterday for West Texas, which seeks $11 million there.

In total, we have about $66 million in rate request outstanding, and anticipate filing another 10 to 15 cases this fiscal year, which would request between $20 and $30 million of additional operating income increases.

We started fiscal ’12 on solid footing. We’ve got – continue to have very healthy credit ratings, which lets us borrow money at very attractive rates. Our balance sheet is very strong, and we’re focused on keeping our cap structure within the 50 to 55% range. And we remain committed to growing our assets and delivering consistent long-term financial success.

We thank you for your time this morning, and we’ll open the call up for questions now. Jackie?

Question-and-Answer Session

Operator

(Operator instructions). Our first question is coming from Ted Durbin of Goldman Sachs.

Theodore Durbin – Goldman Sachs

Good morning, guys.

Fred Meisenheimer

Good morning, Ted. It’s a shock that you’d be the first one.

Theodore Durbin – Goldman Sachs

Maybe I can just come back to the distribution segment. I’m kind of trying to understand exactly – I’m not sure I followed the weather normalization impact here. You’re saying that you think it will largely reverse, it sounds like, in your fiscal second quarter. Can you go again into the drivers of – you bulked up a little bit in the segment, I think about $3 million. What were the drivers for why that went up this quarter?

Fred Meisenheimer

Well, you know, we’re experiencing unusually warm weather, and so we have redirected our crews, instead of doing O&M type work, they’re working more on capital projects. With the absence of any weather events, we’re not incurring the overtime and additional administrative costs that are related to that and so we’re seeing upsides from those things occurring and reducing the expenses. We’ve gotten some results in some of our rate activity that we’ve had that has been a little better than what we had in our original estimates and so that has improved things.

And then also, as we’ve gotten more into this Rule 8 and the benefits from that, we’re able to defer and capitalize certain costs. We’ve realized that there’s more benefit there than what we originally anticipated. So kind of a combination of all of those things.

We feel very, very confident in being able to raise the level of income for most of our regulated unit segments, both the utility and the pipeline.

Theodore Durbin – Goldman Sachs

Okay, thank, Fred, that’s helpful. And next for me, on the Mid-Tex rate case here, I guess I’m trying to understand how you’re seeing this play out. It looks like you’re – if I look at your Slide 14, you’re thinking you’re probably going to have this 90-day suspension and then, I’m just wondering what kind of feedback you’re getting with your initial filing for the cities. It may be a couple of things. It looks like your more than doubling the fixed charges for the residential customers off kind of the thinking there. And then are you looking to make this into a multi-year settlement like you had last time where you’ll have the RM go forward for three or five years?

Kim Cocklin

Ted, this is Kim. The filing was obviously well known by all of the effected customers because we had a lot of discussions leading up to the time that the case was filed. So they were very familiar with what the case involved and what the case was going to require because all of this was part of the negotiations to extend the current RM.

We’re extremely pleased with the relationships that we’ve developed in that we continue to strength with all of the city customer in the Mid-Tex division. You’re exactly correct, we are proposing to increase the fixed customer charge that would be very similar to the way that we designed rates and a lot of other division including – well, most other divisions, but it would reduce the commodity charge. You know, I think the case, the customers continue to be very open and receptive about discussions and are interested and are taking – I mean, this is their opportunity to look and see, you know, why we need what we need, or why we’re proposing what we’re proposing.

So we think that there’s a good likelihood, at least we are going to be very earnest and sincere and desires of reaching a settlement in the case. But we, you know, we haven’t baked any upside in the 2012 results. But I think, you know, that the – at the end of the day, the customers are very, very satisfied and I think happy with the way that they are and has operated up to this point. It’s kind of a considered pain of everyone that, you know, at the end of the day we will seek a middle ground, which provides a win-win outcome for all of the parties involved in the case and continue to have an RM after we finish the proceedings.

Theodore Durbin – Goldman Sachs

Okay.

Kim Cocklin

We’re pretty optimistic because of the relationships that are there.

Theodore Durbin – Goldman Sachs

Okay, that’s helpful and the just this last one for me on these – the new regulated transition lines. I saw that you’ve got the Line W project contracted out to 2019, but I didn’t see what the duration of the contracts for the Line X to Boyd. Can you just talk about that? And then I guess I’m trying to understand, if you’ve got these demand terms that are already locked in from your pre-cert customers, but you’re also going to get GRIP recovery, are you really recovering your cost twice or how does that interplay between GRIP and the drifting demand charges?

Kim Cocklin

Yes, we’ve never recovered our cost twice. No, we’re not recovering our cost twice. They’re two separate projects. The one project is essentially, you know, with the – part of the Rider Rev treatment revenues for third-party transportation. That contract with the producer would be considered part of those third-party revenues and so what we would experience is 25% of the upside associated with those revenues and credit 75% back. The project is very beneficial and it is, you know, moving a lot of volumes that are associated with gas, or I should say with oil in [Inaudible] County. So they’ve got to move.

The other project that you’re talking about really replaces an interruptible agreement that the pipeline had been relying upon to provide service for a lot of the regulated customers that it has, in particular, the Mid-Tex division. So you know, we experienced some operating history last year when we had the very peak conditions at the end of January and early February and during those times we have an opportunity to look where certain sensitive spots are on the system and where we need to fortify our assets, and that’s essentially what that project is doing, it’s replacing the interruptible exchange that was relied upon and replacing it with a firm capability to reach the areas that we’re currently serving and that are growing at a pretty good clip in the Dallas-Fort Worth area.

Theodore Durbin – Goldman Sachs

Okay. Thanks, I appreciate the detailed answers.

Kim Cocklin

Thank you.

Operator

Thank you. Our next question is coming from Faisel Khan of Citigroup.

Faisel Khan – Citigroup

Good morning, guys.

Kim Cocklin

Good morning, Faisel.

Faisel Khan – Citigroup

On the Line X to Boyd, I just wanted to get a clarification there. What are your expected revenues from that line? You gave us the Line W, but I’m trying to figure out the Line X.

Fred Meisenheimer

The revenues?

Faisel Khan – Citigroup

Right, the revenues that you’ll be producing annually from that particular project.

Fred Meisenheimer

You’re talking about not the Line W?

Faisel Khan – Citigroup

Right, the Line X.

Fred Meisenheimer

Well, we don’t – it’s a, you know, it would receive the regular rate treatment, so it’s going to earn 11.8% return on equity. It’s going to be – it would be included in our GRIP filing that we make. So it’s going to be treated as part of the regulated revenue side of that business.

Faisel Khan – Citigroup

Understood. Can you remind us, on this particular pipeline, how much of that volume – how much of that customer volume is utility base and is producer based?

Fred Meisenheimer

Yeah, I mean, X would be pretty much all dedicated to providing service to the regulated customers, the utility customers, and that, right now, I mean, you know, we rely on an interruptible exchange agreement with another party that we’ve been told cannot be made firm. What we’ve experienced in that extremely cold snap is that, you know, we need some – we need firm reliable service, particularly on that area of the system because we’ve got some low spots over there on the West side of Fort Worth and then we’ve also got a lot of growth that’s occurring in that area. So it’s going to be regulated, service for regulated customers. To the extent that there’s, you know, additional services provided for third-party producers on off-peak areas, then that revenue also would be counted towards the Rider Rev calculation and then the benefit of credited 75% to the customers and 25% to us.

But it’s really a very, very good deal and it’s, you know, it’s an excellent project for the customers that are served by Mid-Tex in terms of reliability and diversity of supplies, but it also provides us significant growth opportunities of our rate base.

Faisel Khan – Citigroup

Understood. I just want to make sure I went back to one of your other comments. You said you were projected to grow rate base by about 6% a year for the next four to five years. Is that correct?

Fred Meisenheimer

No, 6 to 6.5%.

Faisel Khan – Citigroup

And what kind of – how much capital are you going to spend to kind of achieve those rates?

Fred Meisenheimer

This year, we’re – capital budget, we’re expecting to spend $700 million. You know, that’s a $50 million increase as of yesterday. This year, the 638 that we were starting out with was an increase of about 40 million or so over the prior year.

Faisel Khan – Citigroup

As you spend that incremental capital, is there going to be a regulatory lag in terms of getting recovery?

Fred Meisenheimer

A lot of reg money being spent is GRIP eligible and a lot of it comes out of this Rule 8, this new Rule 8, which totally eliminates any lag. A good portion of the money that Mid-Tex will be spending also will be on steel service lines and there’s no lag on that money either. So we’ve got the steel service lines, we will complete that program on 100,000 steel service lines this year and so that money is no lag, GRIP money comes in very quickly and the Rule 8 money is no lag, plus we’re able to defer a lot of the cost; depreciation, interest, et cetera in relation to the Rule 8 spending. So it’s a very beneficial type spending money.

Kim Cocklin

And Susan can get you the reg rate on the capital investment, you know, historically and it’s wrapped up pretty considerably. And then it supports further the lag what we’ve done there. At last count, and I don’t know where we’re at right now, about 90 to 93% of the capital that’s invested on the regulative side of the business begins to earn a return on it’s investment within 12 months. We’ve cut it down considerably and as Fred said, this Rule 8 treatment is really – has ramped up the opportunity to reduce lag.

Faisel Khan – Citigroup

And what would you guys say your – the growth rate was in the rate base in the last five years?

Fred Meisenheimer

4 to 4.5%.

Faisel Khan – Citigroup

Okay. Fair enough. Okay, I appreciate the time.

Kim Cocklin

Thank you. We appreciate your time and interest.

Operator

Thank you. (Operator instructions). Our next question is coming from John Hansen of [Inaudible].

John Hansen

Good morning.

Kim Cocklin

Good morning, John.

John Hansen

I just want to double check one thing and make sure I got this straight here. In the release, you talked about the, how optimization and the inventory of gas and how some of the accounting worked. I just want to make sure I understand; you made the statement that you expected that to be realized in the third and fourth quarters, the incremental margin kind of got available in inventory there. My question is, is that locked in at this particular point in time, or is it contingent on any kind of changes in price, or is that pretty much locked in?

Fred Meisenheimer

It’s locked in. The way it’s set up right now, third and fourth quarter, we have locked in gains, you know, that roll off and we will realize the money from that.

John Hansen

So in between now and then, we’re just going to be probably subject to the whims of the prices and remarking each quarter in terms of the inventory?

Kim Cocklin

Yes. You’re going to probably see that, you know, what we’ve experienced in the first quarter for non-reg will continue in the second.

John Hansen

Okay, good. Thank you very much.

Fred Meisenheimer

And it will be [inaudible] five quarters, three and four.

Operator

(Operator instructions). Thank you. Our next question is coming from (Peter Arch of ZLP).

(Peter Arch – ZLP)

Yes, good morning.

Kim Cocklin

Good morning, Peter.

(Peter Arch – ZLP)

A couple of housekeeping questions. First, on the sale of the distribution assets, Kim, I was hoping you could update us on where that stands and what needs to happen to get across the finish line.

Kim Cocklin

That’s on track and everything continues to work it’s way through the regulatory process and on the timeline that we anticipated and we continue to expect to have a successful close in fiscal 2012. Probably looking at a May timeline right now when the transaction would close for us. I mean, Iowa and Missouri waived on it and Illinois and Missouri, we’ve had several very positive and successful meeting with the purchaser included and the staff of the Commission involved, and we seem to be working our way with really no big – no show-stoppers, no big issues.

(Peter Arch – ZLP)

Okay, thanks. And that kind of leads to the next question. On Slide 20, one of the assumptions you’re making, you know, the 230 to 240 this year, the first bullet point is assuming a contribution from these properties of 9 to $0.11 in that - so I'm just trying to understand that that – is that an annualized number or is that the earnings of the discontinued opts that you anticipate through May?

Fred Meisenheimer

That’s an annual number.

(Peter Arch – ZLP)

Okay, Fred, and would you have the quarterly breakout, like you did for this quarter where you broke out the discontinued ops for the first quarters of ’11 and ’12? Would you have the third through – second through fourth quarters’ contributions?

Fred Meisenheimer

No, we don’t have that. We break it out as we report the results, you know, consolidated results and then we break out the discontinued portion and then give some granularity on that because on the [inaudible] financials, it’s a one-liner, but then we show a breakdown on that as we’re reporting our earnings.

(Peter Arch – ZLP)

Okay, great. And then you know, again, the [inaudible], you lose this 9 to $0.11 of annualized earnings but redeploy the 124 million of proceeds. What will that be…

Fred Meisenheimer

And that’s correct. And one thing to remember, this discontinued earnings is the accounting required calculation of that and so they do not – the accounting rules do not allow certain costs to be allocated that normally would be allocated to those operations And in the regulated environment, we have the ability to, once we dispose of these assets, to reallocate those overhead costs to other restrictions and recoup that.

(Peter Arch – ZLP)

I see.

Fred Meisenheimer

Normal – you know, an unregulated type environment, those certain overhead costs would discontinue and you don’t recoup them. We’re able to reallocate that and recoup those down the road.

(Peter Arch – ZLP)

How much, Fred?

Fred Meisenheimer

Oh, it’s in the neighborhood of 6 to $8 million on an annual basis.

(Peter Arch – ZLP)

Okay, great. Thank you. And the – have you – remind us, have you said what the after-tax proceeds will be out of the 124 million in after-tax…?

Fred Meisenheimer

Proceeds or gain?

(Peter Arch – ZLP)

Well, I mean, yeah, the after-tax proceeds.

Fred Meisenheimer

We just disclosed about a $5 million pre-tax gain is the only thing that we’ve disclosed.

(Peter Arch – ZLP)

Okay. Fair enough. The other questions have to do with the FERC investigation and you had – you got paid a penalty and some disgorgement of profits, just $12 million. I didn’t know if you had reserved against that or is there earnings that that you felt in your first quarter?

Fred Meisenheimer

There was no earnings impact to us currently on that. It had been reserved in prior time periods.

(Peter Arch – ZLP)

Okay, great. Thanks very much, Fred.

Operator

Thank you. (Operator instructions). Thank you. There are no further questions at this time. I’d like to hand the call back over to management for any closing remarks.

Susan Giles

Thank you, Jackie. I just want to remind you all that recording of this call is available for replay on the website through May the 2nd. Again, we appreciate your time.

Operator

Thank you. This does conclude today’s conference. You many disconnect your lines.

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