Question-and-Answer Session
Operator
Thank you. Ladies and Gentlemen we will now begin the question and answer session for the members of the financial community. (Operator Instructions). One moment please, for the first question.
The first question is from Gregory Gordon from Citigroup Investment Research, please proceed.
Gregory Gordon - Citigroup Investment Research
Thanks, I’ve got a couple of much in both questions on the quarter and then a larger question on the merger. First on the, on the new guidance for the utility the $270 million to $290 million operating earnings guidance, what type of ROEs at the electric and gas business does that infer?
Thomas O’ Flynn
Greg its Tom, we usually don’t give specific ROEs for each of our segment which are electric gas and of course, our transmission business. I’d say the gas business is materially under earning to 10% it got in this last case of 2002. It’s in the, it’s materially under earning it’s in the, it’s currently in the 6% to 7% ROE kind of range. So we certainly need a rate increase. The electric has been earning on historical basis somewhat higher than the 975 it got back in its August ’03 case. So on a rolling basis, we will over the next quarter or so, come down to that level and ultimately below that level and I feel to get the kind of credit recognition that that we need in the transmission business to go better.
Gregory Gordon - Citigroup Investment Research
Yeah and then the other question before I get to the larger is, strategic issues is on the, that transmission the PGSS, it appears that you guys are well aware that there is a structural mismatch there that can happen because the pricing is based on NYMEX but you obviously take positions in terms of storage for gas. So I would like to, I want to understand how you wouldn’t hedge some of that financial risk, sort of near-term fluctuations in NYMEX versus the gas that you have in storage, the NYMEX is a liquid financial product, to lose $0.11 because the gas price is falling sort of month-to-month versus the basis you had in storage is sort of, doesn’t make any sense to me that you wouldn’t somehow try to hedge that risk?
Thomas O’ Flynn
Yeah it’s a fair point Greg. Let me just put in context the $0.11 was versus first quarter of last year which is the very strong quarter versus that normalized year was about $0.07 below that. So, of the $0.11 but $0.04 was, comparing to a strong quarter last year and then $0.07 was a more was versus expectations of our internal plan. Of this $0.07, about a four of that number is just plain volumes. There is a general volume based kind of number, so we’re talking about $0.04 or $0.05. Historically, this has been very solid stable business frankly we talk about a lot because it’s quite solid and reliable. And generally, we find some, in a normal, continual as I guess you call it curved, it has upward sloping curve generally our inventory cost compared reasonably favorably with our cost during the season. This year as you know prices were quite high, quite high and then sell-off dramatically over a very short period of time, we do, do some hedging. It varies from period-to-period, we do, do some hedging of course we can’t hedge, everything as you know always volumes are going to be. This year volumes were down materially but we did do some hedging this year, in hind side, we probably wished we would have hedged a little more back in fall, but I would say over time, over the last number of years we’ve done very well. In fact the first quarter of ’05 we would be testament to that.
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