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Covanta Holding Corporation (NYSE:CVA)

Q3 FY08 Earnings Call

October 23, 2008, 8:30 AM ET

Executives

Marisa F. Jacobs - VP, IR and Corporate Communications

Anthony J. Orlando - President and CEO

Mark A. Pytosh - EVP and CFO

Analysts

Ian Zaffino - Oppenheimer

Michael Horwitz - Stanford Group

Elizabeth Parrella - Merrill Lynch

Daniel Mannes - Avondale

JinMing Liu - Ardour Capital

Operator

Good morning, everyone, and welcome to the Covanta Holding Corporation Third Quarter 2008 Financial Results Conference Call and Webcast.

This call is being taped, and a replay will be available to listen to until midnight, Eastern Time, on Friday, October 31st. The playback number is 888-203-1112 for callers in the U.S. and 1-719-457-0820 from outside of the country. The pass-code is 9244630. The webcast will also be archived on www.covantaholdings.com.

At this time for opening remarks and introductions, I'd like to turn the call over to Ms. Marisa Jacobs, Vice President of Investor Relations and Corporate Communications. Please go ahead madam.

Marisa F. Jacobs - Vice President, Investor Relations and Corporate Communications

Thank you and good morning, everyone. Welcome to Covanta Holding Corporation's third quarter 2008 conference call. Joining me on the call today will be our President and CEO, Tony Orlando, and Mark Pytosh, Executive Vice President and CFO. We will provide an operational and business update, review our financial results, and then take your questions.

The following discussion may contain forward-looking statements, and our actual results may differ materially from those expectations. Information concerning factors that could cause such differences can be found in the company's reports and registration statements filed with the Securities and Exchange Commission. The content of this conference call contains time-sensitive information that is only accurate as of the date of this live broadcast, October 23rd, 2008. We do not assume any obligation to update our forward-looking information, unless required by law.

Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Covanta is prohibited.

The information contained, presented includes the non-GAAP financial measures. Reconciliation to the most directly comparable GAAP measure, and management's reasons presenting such information, is set forth in the press release that was issued last night. Because these measures are not calculated in accordance with generally accepted accounting principles, they should not be considered in isolation from our financial statements prepared in accordance with GAAP. It should also be noted that our computation of adjusted EBITDA may differ from similarly titled computations used by other companies.

I will now turn the call over to our President and CEO, Tony Orlando.

Anthony J. Orlando - President and Chief Executive Officer

Thanks, Marisa, and thanks everyone for joining us today. I am very pleased to report that during this period of extraordinary volatility and uncertainty, Covanta continues to turn in good predictable results consistent with our expectations. Facility production is slightly ahead of last year's pace and scheduled maintenance is progressing as planned.

Year-over-year the third quarter results for EPS is up 28%, adjusted EDITDA is up 11% and operating cash flow is up 8.5%. Furthermore we continue to anticipate strong full year results near the high end of our published guidance ranges which we reaffirm today. It's times like these that clearly demonstrate the advantages of our predictable business model, and experienced management team.

Covanta generates significant free cash flow and our balance sheet is strong. We have plenty of liquidity, all of which insulates us from the unprecedented capital market turmoil, and puts us in a good position to capitalize on opportunities to create value. We are in the enviable position of selling essential services, and having a stable base business that will hold up even in the face of an economic slowdown.

There are three primary reasons for our stability. First, we maintain our facilities at a high standard, consistently operating our portfolio above 90% capacity. Second, about three quarters of our revenue is under fixed price contract. These contracts typically include the CPI and other adjustments to reflect changes in our cost. As such we expect to see inflationary type increases for most of our revenue and expense.

And third, municipal solid waste markets tend to be recession resilient, with stable pricing particularly at our facilities which have a competitive advantage of being strategically located, in densely populated areas. Furthermore, through 2009 only a small part of out revenue is exposed to energy and metal prices, and to the extent we do see lower revenue, we'll also see lower expenses, which will reduce the impact.

Let me drill down on metal and energy prices and how they might affect us going forward.

All of the revenue we generate from recovery and resale of metal is linked to scrap metal markets. Scrap prices are very sensitive to the economy and we've already seen a retreat from the unprecedented highs reached during the third quarter. Therefore, we're almost certain to see a reduction in metal revenue.

However, it is not a big source of revenue. We'll probably end this year around $60 million, about 4% of total revenue. I certainly can't predict where metal prices will be next year, but if our revenue were to be cut in half to $30 million, the operating cash flow hit would be something less than that, because we'll also see a reduction into facility maintenance expense.

Now let me turn to energy revenue and more specifically domestic energy revenue since that's what matters. This revenue is almost entirely under contract, and most of that is fixed price or tied to utilities avoided costs which tends to be very stable. And we've already locked in our Union County energy contract for 2009, at a price that is higher than we have locked in this year.

Taking that into account, next year only 20% of our domestic energy revenue, or about 5% of total revenue, will move up and down with changes in electricity and fossil fuel markets. Therefore, we have only modest exposure to a drop in energy prices. And again, I want to point out that any reduction in energy revenue will be mitigated by lower costs for chemicals and other fossil fuel related expenses.

To help frame the potential effect of a likely drop in energy and metal prices, let me give you some ball park numbers from this year. In 2008, the net benefits of higher energy and metal prices after related expense increases will likely be around $20 million, about 5% of our operating cash flow. And that's a big reason that we expect to be at the high end of our guidance range for cash flow.

It's hard to say how the economy will effect this next year. But we'll probably have to give back something along the lines of the benefits that we are seeing this year. Clearly the slowing economy and market turmoil will create new challenges. But with most of our revenue locked up, I feel very good about how we are positioned for 2009. And the turmoil is also likely to create opportunities. And we are in a good position to take advantage of those.

Furthermore, I remain convinced that the macro trends over the long term will reward companies that provide sustainable waste management, clean renewable energy, and carbon reducing technologies. We firmly believe the long term energy prices will rise faster than inflation. And everything I said to you on our last call regarding our desire to have more exposure to energy prices, as our legacy contracts role off, still holds today.

Please keep in mind our exposure to energy markets will increase at the same time project debt has being paid off, which gives us flexibility to either lock in or let rates flow. More often and not we will probably opt to annually lock in electricity sales, similar to what we've just done for the Union County, New Jersey facility.

The short term prices will be affected by the economy. But three long term trends create significant upward pressure, growing worldwide demand for fossil fuel and electricity, new and proposed renewable energy policies, and more restrictions on greenhouse gas emissions, to combat climate change. These trends leave me optimistic and I want to assure you that the entire Covanta team is resolute in our commitment to creating long term shareholder value, by pursuing our vision to be the world's leading energy from waste company, focused on client service, world class operations, superior environmental performance, and technological innovation.

We're continuing to advance our growth initiatives in all regions.

Here are a few highlights. We completed the capital improvements at the biomass facilities acquired last year and the benefits can now be seen in our results. In Tulsa, we are now working hard to return the facility we recently acquired to good working condition, and we expect to begin operating two of the facilities three boilers very soon.

We're also making good progress on the completion of the Harrisburg facility upgrade, and hope to have that running at full capacity next spring. That will benefit both Covanta and our clients. Construction at the Hillsborough expansion project is progressing nicely. We currently anticipate completing construction in this 2009.

I'm pleased to announce that in late September, we entered into a five year contract extension to continue operating our Pasco County forward energy from waste facility. The new contact takes us out to April 1st 2016. This is the fifth operating contract we've extended, which is a real tribute to the excellent service that Covanta employees provide to our client communities.

We'll also continue to pursue a couple of expansions then as well and energy from waste project in Vancouver. Plus we have submitted a bid for our Hartford, Maryland project, so there is a lot of activity going on here in the Americas. With respect to Dublin, we're making good progress. Although we have yet to receive the Environmental Protection Agency waste license. Hopefully, we'll have that in hand very soon and we anticipate breaking ground later this year or early next year.

We continue to be particularly active in the UK, where we are pursing a number of energy from waste projects that involve bid submissions. Several are already underway and we expect to begin the bid process for additional projects during 2009, as the UK moves to come into compliance with the EU Landfill Directive.

Turning to Asia, on our last call we reported that in China our joint venture with Chongqing Iron & Steel executed a 25 year concession contract with the city of Chengdu, for an 1800 ton per day energy from waste facility. Construction on that project is scheduled to begin in early 2009, and we remain very active on a number of other opportunities in China.

This year we've really ramped up our development activity and we expect that to intensify in 2009. Our progress on growth initiatives and our ability to pursue so many projects on so many different fronts at one time is a real testament to the strong team we have on board.

On the policy front, we continue to experience positive momentum. Last week Virginia's Governor came, toured our Fairfax County facility with his Cabinet. We were quite pleased that the Governor took time from his busy schedule to visit our facility and offer comments to highlight the environmental benefits of creating energy from waste.

Also the much publicized Economic Stabilization Act that passed earlier this month included an extension of the renewable energy production tax credits.

For energy from waste projects both, Greenfield and expansions, as well as biomass projects, the tax credits were extended to December 31st 2010. We don't anticipate bringing any Covanta owned capacity online by that time. So there is no direct economic benefit. It is likely however, that this tax credit will continue to be extended beyond 2010.

So I view this is very positive news. And I think it is fair to say, support for renewable power sources is growing and we hope to see additional federal and state endorsements for energy from waste.

Let me mention one final thing before I turn the call over to Mark. Covanta began to operate its first energy from waste facility in 1986. We recently hit a major milestone having processed 250 million tons of waste into clean renewable energy. In so doing, we offset approximately 250 million tons of greenhouse gasses. That has a significant benefit. It translates into the equivalent of planting six billion trees or removing 41 million cars from the road for a year.

And at our current rate of processing approximately 16 million tons of waste annually, we are generating enough renewable electricity to power all the homes in an area the size of Philadelphia.

We couldn't have reached this milestone without the hard work and dedication of our employees, and I want to note how proud I am of the great job that they do, year in and year out.

We have some new information on our website about the benefits of making clean energy from 250 million tons of trash, and I encourage you to check it out at www.covantaholding.com. While there, you will also see that we have introduced a new Asia Pacific section of the website.

Now, let me turn the call over to Mark for a review of our third quarter results and some comments regarding the recent events, reshaping financial markets.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Thanks Tony and good morning everyone. Total operating revenues for the third quarter of 2008 grew 24.5% to $439 million. Net income was $49.7 million or $0.32 per diluted share. Cash flow from operations was $107.1 million and adjusted EBITDA was $167.5 million.

Now, we'll discuss our segment results for the third quarter compared to the previous year.

In the domestic business, total revenues for Q3 increased by $42.6 million or 13.6%. Of the $42.6 million increase, $30.7 million came from existing business and $11.8 million came from the contribution of our new businesses acquired after September 30th 2007.

Domestic waste and service revenues increased by $26.1 million or 12.4%, to a total of $237.3 million which breaks down as follows. Revenues from service fee plans increased by $3.3 million net, due mainly to contractual escalations, offset by lower debt service, pass through revenues of one million.

Revenues from tip fee facility increased by $2.9 million on existing business driven by higher volumes, Tip fee revenue increased by a further $10.6 million due primarily to the acquisition of the Westchester transfer stations in 2007.

Recycled metal revenues increased by $9.3 million due to higher pricing for scrap metal and about 10% increase in volumes recovered. Obviously, metal prices have declined significantly from their summer highs, so this revenue will decline in the fourth quarter, compared to this year's third quarter.

Electricity and steam revenues increased by $17.5 million or 28.1% due to higher production level at our biomass facilities in California and higher energy rates. The majority of this increase came from the biomass facilities.

Electricity rates have declined somewhat since this summer, but as Tony mentioned, most of our energy revenues under contract to the balance of 2008, and only 20% of energy revenues is exposed to market pricing fluctuations in 2009.

Domestic plant operating expenses increased by $19.3 million, the new businesses accounted for $11.2 million of the increase and existing business accounted for $8.1 million. The new business expenses are higher than the base EFW business because the operating cost of the acquired transfer stations are higher as a percentage of revenue on our EFW business.

The profitability from these acquisitions is generally gained through higher net pricing at EFW part.

Now, turning to the international business. Total international revenues increased by $42.7 million, driven by the increase in revenues at the two Indian facilities due to higher electricity generation. International plant operating expenses increased by $38.8 million, also due to the higher generation at the two facilities in India.

And at the consolidated Covanta Holding level, general and administrative expenses for the company increased $4.8 million, to $23.3 million in the third quarter of 2008, from $18.5 million in 2007. As Tony noted, this is driven primarily by higher costs related to our growth initiatives, as well as normal escalation. And we expect these higher costs to carry over into 2009.

Total debt service decreased by $3.7 million to $22.8 million in the third quarter of 2008, primarily due to lower interest rate on outstanding debt offset by lower interest income.

Diluted earnings per share were $0.32 in 2008, which compares to $0.25 in 2007, and in 2007 it included a $0.01 positive impact from the SEMASS fire recovery.

Our effective tax rate for the quarter was 40%, which is approximately where we expected it to be for all of 2008. However, it will most likely remain volatile due to movements in the NOL and associated valuation allowance.

Our net cash taxes are expected to be approximately $25 million in 2008. We had unrestricted cash of a $169 million at September 30th. Total corporate debt including the convertible debentures, was $1.01 billion. Project debt balances declined by $9.2 million during the quarter to $1.2 billion. Total net debt was $1.77 billion.

This amount of net of unrestricted cash and restricted funds satisfied explicitly for project debt principle repayment in the amount of $274 million.

Now turning to our operating cash flow, cash flow from operations for the third quarter was a $107.1 million, up $8.4 million from 2007. The company's investments of cash included maintenance capital expenditures of $7.1 million, $0.5 million of CapEx related to fire damage of SEMASS, $3.6 million of upfront refurbishment capital related to certain acquisitions, and $2.3 million related to alternative energy technology development.

Our maintenance CapEx spending this quarter was inline with our expectations and we still expect to spend approximately $60 million for 2008.

As I mentioned, the company made $9.2 million of scheduled project debt repayments in the quarter. For the fourth quarter, we expect to pay down over $110 million of project debt, of which over 70 million will be funded from restricted funds on our balance sheet, and the remainder from cash flow operations.

We do not expect to use any of the cash on our balance sheet to retire the project debt in the fourth quarter.

As we mentioned in the 10-Q, our client in Stanislaus, California has decided to prepay the project dept outstanding that was due through the balance of 2010. Therefore, we will pay down the $21.3 million of project debt remaining on the Stanislaus project in the fourth quarter, funded entirely by cash that is set aside as part of the $70 million that I mentioned in the restricted fund balance on the balance sheet.

Now, I want to address several recurring questions that have arisen as a result of the recent capital markets turmoil. I want to begin by reiterating what Tony said, Covanta's business is highly contracted and consequently should prove to be very resilient in this difficult economic environment. And the balance sheet is in great shape.

We have plenty of liquidity and a strong bank group providing support for the company's growth plan. Management is focused on finding prudent strategic opportunities that are likely to arise from the turmoil in the financial market.

In terms of questions, one of the most frequent is, 'are there any impending debt maturities?' The only material maturities on our balance sheet are the contractual maturities of project debt. We have an aggregate $274 million of restricted cash set aside to pay the principle amount of the project debt, and we have long term waste delivery and power purchase agreements that contractually deliver cash flow to the projects to pay down the debt as it matures.

So, we are in a strong position to continue to de-leverage the company at the project level. There are no significant corporate debt maturities until 2012.

The second is, 'do you have exposure to Lehman Brothers bankruptcy?' We do not have any financial exposure to Lehman Brothers as a counter party. Lehman is still a provider of $20 million of our $300 million un-drawn revolving credit facility. While this is not material to Covanta, we are working with various members of our bank group to replace the Lehman commitment with another institution.

With the market turmoil are there issues with the project finance market? While many of the credit markets have been closed or severely restricted in recent months, the project finance market appears to be functioning reasonably well for projects in the independent power industry. We expect that project capital structures will be more conservative and the cost of debt maybe a little higher on the order of maybe 25 to 50 basis points.

But long term contracted revenue projects like energy from waste; appear to be able to attract a good universe of lenders still interested in providing capital for these projects.

I have also been being getting a lot of questions about Covanta's economic exposures, if and when the recession comes. Tony has already addressed this question, so let me just reiterate. We have a cash flow stream with very little volatility in any economic environment and that is in an enviable position to be in, given the current economic conditions and those that we see ahead.

Our first three quarters had been very good and I would like to reiterate our 2008 guidance which is unchanged. Adjusted EBITDA in the range of $550 million to $575 million, diluted earnings per share in the range of $0.90 to $1, and cash flow from operations in the range of $380 million to $420 million.

As Tony noted, we currently anticipate full year results will be near the high end of these ranges.

With that we look forward to answering your questions. Operator, please open up the phone lines.

Question And Answer

Operator

[Operator Instructions]

Anthony J. Orlando - President and Chief Executive Officer

Is there a question?

Operator

We'll take our first question from Ian Zaffino from Oppenheimer.

Ian Zaffino - Oppenheimer

Hi, good morning. Good quarter.

Anthony J. Orlando - President and Chief Executive Officer

Thanks. Good morning, Ian.

Ian Zaffino - Oppenheimer

I just wanted to dive a little bit deeper into the expansion opportunity this year. As you look at the capital markets, what are you thinking as far as, I am not asking you specifics, but maybe if you could give us some examples of either acquisitions or expansion efforts that you're looking to do, as far as, the multiple you might pay, the cash outlay and then your ability to get financing for those projects? Thanks.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Sure. Ian this is Mark. What I would say is that, just like the financial markets we've seen a pretty dramatic shift in the, what I call more the M&A markets, where I think the valuations for properties have come down quite substantially with the shrinkage in the credit markets.

We are looking at a number of opportunities. We are trying to be patient in assessing what are the most attractive opportunities. Obviously, the first criteria for us is strategic fit, and we're looking for opportunities that fit our core business. And then our financial metrics, I would tell you that we are certainly looking for much greater returns. Historically, we discuss mid teens leveled returns, I would say.

We're looking for greater, much greater return than that on our capital. As I mentioned, we have $169 million of cash and we continue to generate free cash flow. Of course we have a $300 million un-drawn revolver. So, we would have to expend a lot of capital before we would, I think stress any... well we'd have to go operate the external capital.

So, but we are going to be very prudent and cautious about how we look at external capital raising for opportunities and in terms of value and companies, we're valuing opportunities based on what we perceive as our incremental cost to capital, not the cost of borrowing today in our facility which is on a revolver basis, LIBOR plus 150.

So, we're not going to use that as our bogie for cost to capital.

Ian Zaffino - Oppenheimer

Okay. And then the M&A would be domestic, international and can you give us a order of magnitude of what you are, what it will go up to or what may be the medium might be? Thanks.

Anthony J. Orlando - President and Chief Executive Officer

Well, this is Tony. I think as Mark said I think, our key focus is on where we'll deploy the capital is a strategic fit. We are going to look at opportunities in all the geographic regions that we're pursuing growth. Certainly here in the U.S. we already have a very well established platform and we'll be looking for things that we can add on to that platform and leverage the presence that we already have.

Whereas in both China and Europe, the things that we all want to try to find in a good candidate for acquisition would be, somebody that would help us establish a platform to grow our energy from waste business.

So, I mean that's the types of things that we'll be looking at. And we are going to look at that what creates value. We're not necessarily going to put one this on ourselves. As Mark said, we've got a lot of capital that we can deploy, but we're going to be patient and prudent about how we go about using that capital.

Ian Zaffino - Oppenheimer

Yes, great. Thank you very much and good quarter again.

Anthony J. Orlando - President and Chief Executive Officer

Thank you.

Operator

And we'll go next to Michael Horwitz from the Stanford Group.

Michael Horwitz - Stanford Group

Hi gentlemen, great quarter. And you've answered most of my questions. But let me just follow-up a little bit on what Ian said. It would seem to me given the tax credit extension and the turmoil in the marketplace that there is possibly some projects or companies out there that do have a timeline of projects that could meet the PTC in terms of when they could be commercialized. Are you seeing those kinds of opportunities as well so you could take advantage of that?

Anthony J. Orlando - President and Chief Executive Officer

I think there are likely to be some renewable energy companies that are going to be in need of capital here in the U.S. whether or not that will ultimately be driven by the PTC extension. I don't think necessarily, but I think that those are things that we're going to continue to look at and our focus in the U.S. again is really in, where we have difficult to handle fuel? Certainly waste being one of those, the biomass that we've already entered into.

Those are the renewable energy spaces that we're focused on, as well as other businesses that we think can complement our core energy from waste business.

Michael Horwitz - Stanford Group

And can you remind me, it seems that the timeline of Dublin can you remind me what it is given your comments today about the permits?

Anthony J. Orlando - President and Chief Executive Officer

Yes. We had hoped to have the permit in the end of the third quarter. We... it has not yet been issued. We hope to have it very soon. So, we're... we had originally been giving you dates that we said by the end of this year. We're now may be a couple of months behind where we thought we would be. And we still might get it started this year, that's not out of the cards yet. But it's probably a little bit more likely to be early next year.

And it's really driven by, primarily by the timing of when the regulatory body issues the permit.

Michael Horwitz - Stanford Group

And so does that mean that we'll see commercialization in 2011?

Anthony J. Orlando - President and Chief Executive Officer

It's about a three year construction project. So it would really be more close to 2012,

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

The full year 2012.

Anthony J. Orlando - President and Chief Executive Officer

Yes, full year 2012.

Michael Horwitz - Stanford Group

Great. And then last question, regarding the way China is going to work and I'm really looking out let's call three to five years. It seems you need many Chinese projects to make an impact to move the needle on your P&L. Can you explain how that works and what currency effects might have on that?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Well, we do need many projects there. I've kind of fused this simple explanation a couple of times in the past that an 1800 ton per day project in China is equivalent of about a 900 ton per day project here in the United States because of the heating value. So, I know right of that that is about half the size. And then typically, we are 40 to 49% ownership stake.

So again it's another half the size. And then the capital costs are lower. Almost half the cost of what would be here in the United States. So, for each project we will be deploying much less capital and therefore, it's going to take a lot more projects to have a needle moving impact on the overall company.

But there are a lot of project opportunities there. I mean we do... we fully expect, and certainly over the course of the next 10 years, that there will be well over a 100 projects built in China. So, it does take a lot of projects, but there are a lot of opportunities. And it think we, we're making a good progress. We have a lot going on there. There is a number of bids that we're actively engaged in. And we're also talking to other folks about potential partners to join up, where we can really add some value to the partnership.

So, I think next year should be an exciting year in our efforts in China.

Michael Horwitz - Stanford Group

Okay, great quarter. Thanks guys.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Thanks, Mike.

Operator

And we'll take our next question from Elizabeth Parrella from Merrill Lynch.

Elizabeth Parrella - Merrill Lynch

Thank you. A couple of questions, first on the Pasco renewal, was that on the same terms or extension I mean, or was this on the same terms or was there a revision to the pipeline?

Anthony J. Orlando - President and Chief Executive Officer

There... a substantially similar terms.

Elizabeth Parrella - Merrill Lynch

Okay. And whereas the acquisition of the two biomass plants remains then in terms of closing and how do you intend to finance that acquisition and then also kind of what you're plans are for running those plants and where you'd be selling the power? And I think they're merchant right now?

Anthony J. Orlando - President and Chief Executive Officer

Yes, Yes. While there's a couple, there are still a number of conditions that have to be achieved for closing. So, when we get to the point of closing or anything changes, certainly we'll let folks know where that stands. Those are merchant power generation assets. So, they'll be sold into the merchant power market after the closing.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

And that, the financing there would be cash off the balance sheet

Elizabeth Parrella - Merrill Lynch

And one of the first thing you mentioned that in '09 I think that 20% of the domestic energy revenues are kind of open at this point is that right?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Yes, Yes. Well 20% that are closed to the market. Some of that 20% is under contract. But the way the contract works there's price adjustments for various commodities that affect the energy prices.

Elizabeth Parrella - Merrill Lynch

Can you tell us what the '10 number would be?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

The '10 number is still similar to the numbers that we have talked about on the last call, it's around 50%. It's probably between 40% and 50% for '010 and the big drive, there's a couple of big drivers there, Hempstead is the biggest. The Hempstead contract rolls off late next year.

So, of the 20% that we do have exposed next year, it is somewhat backend loaded. We have a contract that at our Niagara facility that ends on July 1st and then I don't recall the exact date, but it's sometime in the fall, the Hempstead contract.

Anthony J. Orlando - President and Chief Executive Officer

October 31st.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

October 31st, the Hempstead contract rolls off. So, we will in that fourth quarter start to see a bigger percentage of exposure. And then as we move in to 2010, we had to lock up, I mentioned the Union County contract that runs through December 31st of next year.

So, as we stand today we are in the 40 to 50% range for 2010. Now what's likely to happen is, as we get into the next year, we'll start to look will we decide to lock up on a one year forward price arrangement, some of the contracts that we have not yet locked up. But as we stand safe between 40% and 50% for 2010.

Elizabeth Parrella - Merrill Lynch

Okay. Thank you.

Operator

And we'll go next to Ron Nester [ph] from Broadpoint.AmTech.

Unidentified Analyst

Good morning. Real quickly, most of my questions have been answered. Mark between three to heading off most of those but just wondering if there is any preliminary guidance for CapEx looking into next year inline of all the acquisitions that you've made here recently?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Well the way we've historically guided that way, we give the maintenance number. We don't guide on what our acquisition pipeline looks like. But, the maintenance capital will stay pretty much in the same zone as the $60 million area for next year. What I would tell you is that obviously we have a lot of liquidity today. We're going to continue to generate free cash in the base business and, but just clarifying point, we aren't going to challenge our liquidity through a lot of acquisitions.

So, if we do find opportunities, we will be looking for a manner in which to finance that without affecting our overall liquidity. We kind of like the position we are in today, and we are going to look to maintain that. So if any... if we have an elevated level of activity, we are going to be looking for capital to do that before we enter into agreements.

So, we are going to be cautious about that so that we preserve our liquidity.

Unidentified Analyst

Got you. And just a little more clarification on the comments about, you mentioned last quarter, entering into 2010 with 40 to 50% of exposure to market prices for energy. Will you... is that I know that's where it stands now. Is that where you'll enter into that year? Will you continue to maintain that amount of exposure or might you reduce it as the time comes closer?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

We will likely do things like what we did, did a couple of months ago for our Union County facility as an example. A couple of months ago, we signed up a contract that runs from January 1st to December 31st of 2009 at a fixed price for all the power out.

But a couple of clarifying points here, we don't take risks on our power output. We sell, for every megawatt that we produce; it's a fixed price contract. And that's how we've soled the Union County contract this year, that's how we are selling that contract next year. And, we lock that up a couple of months back at a price higher than we have for this year's price.

So, we'll look for opportunities and we'll try to stagger the contract a little bit as well, so that we tend to kind blunt things in as you see... I noted that we have a contract at Niagara, that's a fixed price contract that runs from July 1st to June 30th of next year.

So, we're going to look to kind of blend those contracts in, and we'll be opportunistic. We have the option with debt free assets of deciding whether we want to let something float or even a portion of the output float. But more often than not, I think we'll do what we have just done at the Union County facility which was annually elective to what to get a fixed price contract for the full year, because we like the stability.

And the other think Ron, is that we have a lot of diversity both, geographic and types of power that we're selling. So, it's not as though we're concentrating. We have a concentrated debt on the PJ and on spark spreads or anything like that. We have very diverse portfolio and we have to take into account that diverse.

As we look at '010, we have to take into account our hedging program because what we don't want to do is concentrate albeit in one form or another, where our focus is on getting the best yield from that power production.

So, we've got a nice diverse portfolio, not withstanding the fact that it'll be more exposed to the market but it's not going to be nearly as volatile, I think as some people are predicting there.

Unidentified Analyst

Great. Thank you.

Operator

And we'll take our next question from Greg Oral [ph] from Barclays Capital.

Unidentified Analyst

Thanks a lot. Good morning.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Good morning, Greg.

Anthony J. Orlando - President and Chief Executive Officer

Good morning, Greg.

Unidentified Analyst

Hi. First one is on the Stanislaus prepayment of 21 million. If you could just refresh me on the accounting treatment there for the income statement, does that come... does some of that come through the revenue line because it's a principle repayment? How is that going to affect the guidance for the year?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Part of that will come through as accelerated revenue and a part of it will come through in the EBITDA not on the revenue side. We have it... that is not included in the guidance that we provided today.

So,

Unidentified Analyst

Okay.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

That will be an event in the fourth quarter. We haven't quantified that for all of you. But there will be some benefit to the company in the fourth quarter. That'll be separate from the guidance we provided.

Unidentified Analyst

Okay. And adding to the list of the questions that you tried to head off earlier in your prepared remarks, just to address one on the debentures, is there anything that has happened that would constitute a fundamental change or where you anticipate it would lead to a contention obligation there?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

On the convert?

Unidentified Analyst

Yes.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

No.

Unidentified Analyst

Okay.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

No, no issues there.

Unidentified Analyst

Okay.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

In the queue, the thing on the convert is, as I think most people know, the accounting treatment for these types of converts is going to change in '09. We will be recording incremental non-cash interest expense, it's disclosed in the queue what we expect for next year.

So, that's the one treat that change is going to occur in '09 as we will have some non-ash interest going through the P&L, that we don't have this year.

Unidentified Analyst

Great. Thanks Mark.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Thanks Greg.

Operator

And we'll take our next question from Vance Shaw from Credit Suisse.

Unidentified Analyst

Yes. Hi guys, good morning. Just a couple of sort of fixed income related questions. Now, I understand from looking at your queue and looking at for you're under leverage grid, it would look like you're probably paying L plus 125 in your revolver at this point and L plus 150 on the term loans, is that right?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

We're right on the edge of the revolver line. I don't think we got there in the third, but we're probably going to get there in the fourth

Anthony J. Orlando - President and Chief Executive Officer

On the revolver.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

For the term loans LIBOR plus 150.

Unidentified Analyst

Got you. Got you. Now, you're also pretty close to these, the sweep, like free cash flow sweep going form I guess its about 50% now to 25%, I think there is a 3.5 times leverage test, is that right?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

I don't the cost that... I don't have that definition in front of me. But I know there is a step down there as well.

Unidentified Analyst

Okay. But you're not... you're probably not quite there yet either?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

I don't think we're there yet either.

Unidentified Analyst

Okay. Now on the Lehman Brothers issue, my understanding from your comments in the queue is that, it's basically Lehman was responsible for a 6.8% slice of both of your regular revolver and the LC portion, is that right?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

That was just a revolver.

Unidentified Analyst

Oh just a regular revolver?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Yes. They were only in the revolver. They weren't in either of synthetic or the term loan.

Unidentified Analyst

Okay, I got you. Now, is that a big priority, I mean you guys really on drawn it. It is a big priority to replace them, or is that sort of... so can we of expect you'll do something on that or is it something that's not really... that that big of a issue?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Well, it is a priority. Is that a critical issue? No. It's not a critical issue for the company. But we would like to see that to put into other hands. So, we are working that through. Obviously there continues to be a level of dislocation in the market. So, we are going have to... we are going to work that through on a patient basis.

We are not trying to force the issue. But we... from our discussions, we think there will ultimately be someone who'd be interested in taking the Lehman position.

Unidentified Analyst

Okay. And who are the major banks in your facilities?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

J.P...

Unidentified Analyst

Everybody stands out? J.P. Morgan?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Well, the five agents were JP Morgan, BofA, Barclays, Merrill and Lehman. So we... that group's obviously shrinking from five to three. So we have the... three of the best capitalized banks out there big, JP, BofA and Barclays. So we are very comfortable with the bank group.

Unidentified Analyst

Right. Now does that work because BoA basically take over Merrill Lynch's obligations into those agreements or is that though sort of, I guess part of a negotiation?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

No, I think the assumption is they are going to step to roll in to combine their bank commitment.

Unidentified Analyst

Yes, you think so but hopefully they will. It sounds good, thanks guys and a great quarter.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Thank you.

Operator

And we will take our next question from Dan Mannes from Avondale.

Daniel Mannes - Avondale

Good morning. Nice quarter everybody.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Thanks Dan.

Anthony J. Orlando - President and Chief Executive Officer

Thanks Dan.

Daniel Mannes - Avondale

Couple of quick follow up questions, first just a just clarification. When you talk about 20% open for next year and 50 for 2010, are you including the main biomass plants or is that incremental?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

That would be incremental. This is of our existing portfolio.

Daniel Mannes - Avondale

Okay.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

And again that's 20% of the domestic energy revenue.

Daniel Mannes - Avondale

Well alright, understood. So it'll be a little bit higher since at this point the main plants are open but theoretically, you can do something with that once you got them?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Correct, Yes.

Daniel Mannes - Avondale

Okay. And then moving to the other topic which obviously is probably more interesting, you guys have a lot of free cash flow available to you. You have talked a lot about M&A obviously, as well as the many development opportunities you have. I mean how are you weighing your options? Because the third piece of this is the buyback. Given that you now have a buyback in place and obviously I think investors are really stacking your share price, probably apparently in undervalued. How are you sort of weighing the options there in the risks, especially given the longer timeframes on development relative to maybe the quick returns on M&A or on a buyback pespectively?

Anthony J. Orlando - President and Chief Executive Officer

Yes. I think in terms capital in reviewing it with the Board, we're looking at what kind of returns we think we can get with the capital in the M&A. It's going to be more in the M&A side than the peer point. That development's going to be a longer cycle. And then more immediate term, it's going to be a measurement of what we think we can get in terms of acquisition multiples versus buying the stock back, and the return there.

And so we clearly walk, we monitor the markets closely and we stay in close contact with the Board and assess when things are moving around. How we feel about that versus the returns we can get in the M&A side. It's probably a little early to judge that.

We do have an authorization there set aside but we're going to... again just like we are being prudent about the capital we might put out in an acquisition. We are going to be prudent and fall for about the repurchase programs. It's not to say that we don't think the stocks' undervalued, but liquidity has worked a lot these days. So we need to be patient there and careful.

Daniel Mannes - Avondale

Okay.

Anthony J. Orlando - President and Chief Executive Officer

So we are going to continue to monitor.

Daniel Mannes - Avondale

And then just on the return side, given that valuations are coming down for some of your assets. How is your required returns changed or have they at all? Or just you can now expect that you will get high returns when you do reallocate capital?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

We now value our capital more highly than we did before. And that that our incremental cost is much higher. And so I've... we have always talked about mid-teens levered returns. I think the returns available are much higher than that today. And even though the cost to capital has gone up substantially, the multiples have come down faster than the cost to capital has gone up, at least for Covanta, we can't speak for everybody.

But I think, I actually think their returns are better, not withstanding the fact that cost to capital's gone up.

And again, we're not going to rush into the market to take advantage of that. We're going to be prudent and be certain that we preserve all the liquidity for the business, but I would tell you that I think the returns have grown substantially. And we are seeing competition for acquisition activity fall dramatically.

Daniel Mannes - Avondale

That's great to hear. Just the last thing and you have mentioned the project finance market is holding in fairly well. But I mean, obviously, it is a pretty big not yet double, I mean EUR300 million is obviously, you will be borrowing a chunk of that. Can you talk a little bit about the timeframe in terms of the financing and how you sort of look ahead over the next six to 12 months on how you're going to fund the development there assuming you're ground breaking late this year or early next year?

Anthony J. Orlando - President and Chief Executive Officer

Yes. What I would tell you it's not all finalized in any event. We're working through with the lenders now. But we wouldn't be closing that financing until the first quarter. And so I think there is some pressure in the immediate term for financing that that have to be funded by the end of the calendar year.

So I think it's some what easier to fund into the first quarter. So I think our timing is good from that perspective. And it's going to take us a while to ramp up the spending and we'll have to work out the ordering of when the dollars go in and things like that.

But we certainly have the capacity to start funding that project as soon as we're ready to go. And again, we've been talking to lending group about our structure there that makes sense and we're going to continue to pursue something. And I feel comfortable that we'll have an adequate resolution there. We're not going to have big... we don't expect a huge drain of capital from the company next year for the Dublin project.

So we don't think its going to be a stress point for us at all. And we can adequately fund whatever were needed from the equity perspective in that project.

So I think it will be fine. As I said in my comments, project finance market has got more conservative. The way I view it is, it's gotten back to what it use to be like. Over the last two years, we've got to the point where projects were being financed with excessive leverage and I wouldn't say that where we are today is abnormal; I mean it isn't a constrained market, but it's not a close market.

Daniel Mannes - Avondale

And just a last question on that point, have you guys disclosed yet or discussed what the relationship is with DONG and what the relative ownership and equity stakes are going to be?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

We haven't disclosed that. We haven't disclosed that. And it wouldn't be appropriate for us to do that at this point.

Daniel Mannes - Avondale

Okay. Thank you.

Operator

And we'll take our next question from JinMing Liu from Ardour Capital.

JinMing Liu - Ardour Capital

Good morning. Thanks for taking my question. In terms of acquisition, are you going to focus on the waste from energy facilities or on the bailment of Ron?

Anthony J. Orlando - President and Chief Executive Officer

Well certainly our core focus is energy from waste. And particularly, as we look at Europe and China as I noted, our focus there from a strategic perspective will be acquisitions and partnerships that leverage our ability and help develop a platform since we're relatively new entrants into those two markets.

Whereas here in the United States, we'll be looking to branch out a little bit further from the energy from waste things to compliment, certainly our last couple of acquisitions that we've done have been both energy from waste and biomass. And we'll continue to look at those, because we believe they're very complementary when you put them together in terms of an operating portfolio.

So, here in the U.S., the spectrum might be a little bit more broad. I think we'll be a little bit more focused on energy from waste in Europe and China.

JinMing Liu - Ardour Capital

Okay. Related to your recent announcement I could see some of those two bailment facilities given your purchase price and the dropping of energy prices, what kind of exact return are we talking about in terms of that acquisition?

Anthony J. Orlando - President and Chief Executive Officer

Well, at the beginning of the time we announced that the way we looked at the forward curves there, we still expect to be able to get mid teens leverage return there.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

And what we're looking at any of these acquisitions as long term strategic assets and to the extent the energy revenues I think might be a little bit lower than we had originally anticipated, certainly next year.

But, the long term dynamics, we think still favor increasing energy prices and in particular renewable energy, in that market where we can sell renewable energy credits. We still feel very good about that. And the lot of policies in place that drive the requirements for increased renewal energy. And we think having assets in the ground that producing all the electricity so you're going to take this long term dividend.

JinMing Liu - Ardour Capital

Okay. The recent drop in energy prices will that have significant impact on your international revenue?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

We will have an effect and it's more what I would call a timing. The two big facilities for us are in India. Those are diesel oil plants and the fuel is a pass through, but when you have rapidly shifting markets either on the upside or the downside, it will be a mismatch maybe for a quarter or two on the revenue and the expense.

We've had some benefit from that during the course of the first nine months of the year. We'll obviously give a little bit back here in the fourth and probably the first. But it will level that out because it's again once the market kind of stabilizes, we sell the power and it's tied to the price of the fuel. So it's more of a timing issue, it's not a long-term issue for that business.

Anthony J. Orlando - President and Chief Executive Officer

And just as may be put a fine point on that. You asked a question about our revenue. I think what we're really focused on is cash flow there. The revenue of course does move up and down with oil prices, because those are diesel projects. But, effectively it depends so as Mark said there is a timing, we picked up some timing benefit in the third quarter. That's going to move a little bit against this in the fourth quarter.

But, it's not the revenue so much that we focus on there as the cash flow.

JinMing Liu - Ardour Capital

Okay. Thanks.

Operator

And we'll go next to Tim Dave from Pixet [ph].

Unidentified Analyst

Hello. You've already answered my question, thank you.

Anthony J. Orlando - President and Chief Executive Officer

Thank you, Tim.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Thank you, Tim.

Anthony J. Orlando - President and Chief Executive Officer

Annie, are there any other questions?

Operator

Yes, Sir. And we are going next to Shamo Shatikon [ph] from Letters Partners [ph]

Unidentified Analyst

Yes, hi. Can you talk about how much of your... the electricity that's now under contract and the contracts that roll off over the next year and a half, how much above or below market, spot market prices are those contracts?

Anthony J. Orlando - President and Chief Executive Officer

Well, the amount that we have on the fixed price contract and really our entire portfolio, it's still averaging about $70 per megawatt hour. I guess for the longest time in the face of rising energy prices; I continue to say we are above that market until, until last quarter when market had moved up so much, I finally said that our contracts were below market.

I guess basically we are back at market. So we're on average for the entire portfolio at about $70 a megawatt hour. And we would tell you that today that's abovemarket.

Unidentified Analyst

And do you guys have a view on where that goes based on economic conditions and your kind of understanding of the regional markets that you're in?

Anthony J. Orlando - President and Chief Executive Officer

Yes, I mean for each of the regions, is influenced by different factors. The PJM market here in New York Metro or the New Jersey area tends to be affected by gas. Each market is affected by some different factors and as Mark pointed out earlier, we are very well diversified in the portfolio throughout the US.

Long term where prices go, I think as I mentioned, I think we're going to continue to see upward pricing pressure for a couple of reasons. For example, the RGGI initiative on the regional greenhouse gas initiative in the Northeast just kicked in. Where fossil fired power plants are going to have reduce emissions.

That's going increase electricity cost. There's going to more and more demand for renewable energy. We think that's going to increase pricing for renewable energy.

And fundamentally, while you'll see blitz in the demand obviously as the economy slows down, demand is going to slow and we've all seen that in the last quarter where prices dropped pretty dramatically. But we are not... our pricing won't fluctuate the way you see oil price or natural gas, because our prices are for electricity which is based on a whole blend of different factors.

It's based on obviously in-part the fuel that's used to generate that, which is tends to be a combination of primarily natural gas and coal. And... but it's also got the factors in for utilities to avoid the cost which includes labor and operating cost and maintenance cost.

So, we don't see the volatility in electricity prices like you see the volatility in oil prices because we've got such a wide blend of things that affects electricity prices.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Well the other thing and Tony mentioned in his comments, if oil prices stay down and gas prices stay down where they are or even go lower, we're going to reduce our cost structure in conjunction with that. So, the net effect on us from a cash flow perspective will be pretty muted. I mean we'll feel something but it won't be dramatic

Unidentified Analyst

So, I guess what I'm trying to understand is, if 50% of your electricity revenue basically is un-contracted two years out, and we go into a very severe recession. What do you guys think the maximum impacts could be on adjusted EBITDA given where you think prices might go for power and then also cost offsets that you could put in place if you had to react to the situation?

Anthony J. Orlando - President and Chief Executive Officer

It's difficult to say. I think the market price over the last several years, in terms of the bandwidth within which it's operated. It certainly has been below $0.07, not that long ago, $0.07 a kilowatt. But there's been a lot of fundamental shifts since that's happened and how much it's going to move down based on the economy or how much its going to move up based on the long term trend is awfully hard to forecast.

We do again feel as we're looking at it, the key is really for the next 15 months for this quarter, this year, and through the end of next year. We are in great shape and we feel good about the long term trends that they are going to push things upwards in 2010 and beyond.

But it's not going to be... we're not in the position to quantify it. But it's not going to be a dramatic down shift in the cash flow of the company. I mean the offsets will take a lot big bite out of any decrease in the revenue base.

Unidentified Analyst

Okay, makes sense. And then the second question that I had is, if I look at the guidance you give now for the year, which is the same guidance that you had before, and I subtract what you've done so far and adjusted EBITDA for the year, you would imply a slight decrease in adjusted EBITDA in the fourth quarter of this year but based on what I would think is going on, I would think that adjusted EBITDA should actually rise a little bit in the fourth quarter of the year. So is there something I'm missing in terms of a plant closure or some type of special item in the fourth quarter that you're expecting that would be causing this to happen?

Anthony J. Orlando - President and Chief Executive Officer

Well, the two driving factors year-over-year are, we do have... there's been a pretty decent uptake in the SG&A level and that will be in the year-over-year for fourth quarter and our international, some of the international... as we have talked about some of the international cash flow will be down in the fourth quarter.

We won't see a dramatic shift in the domestic business. Well obviously we're going see a little bit of metals in the fourth quarter.

Unidentified Analyst

Okay. Thank you, I appreciate it, nice job.

Operator

And we'll take our next question from Mike Trudell [ph] from Eaton Vance.

Unidentified Analyst

Thanks. You guys answered actually most of my questions. The one I did have was the repayment for the California facility?

Anthony J. Orlando - President and Chief Executive Officer

Yes.

Unidentified Analyst

How did that arise? And is there anything else like that sort of on the horizon that you see will going forward?

Anthony J. Orlando - President and Chief Executive Officer

That arose because the... that was, it was tied to the variable rate security situation and being frozen. The cost of capital for the community went up. They had excess capital. And they just decided that it was cheaper to repay than to leave it out there.

Unidentified Analyst

Got you.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Yes.

Anthony J. Orlando - President and Chief Executive Officer

And I wouldn't say that there is that we don't have that much exposure in the community. I mean there is not that's the only one, that's kind of the one.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Yes. It is very unusual. Almost all of the communities and the facilities that we operate for communities and the ones that we own, the project that is fixed rate, this particular one was a variable rate and the community has decided they had the cash on hand it was better to pay it off then continue to fight the uphill battle at the comparable rate municipal buying market.

Unidentified Analyst

Okay. Thanks very much.

Operator

And will take our next question from Charlie Parx from Sinley Parx [ph].

Unidentified Analyst

Yes, good morning. Just in the adjusted EBITDA guidance of 550 to 575, how much of that 25 million spread is due to metal recycling? Is it a big part or a small part? I wasn't quiet sure?

Anthony J. Orlando - President and Chief Executive Officer

Well that's a guidance range that we came out at the beginning of this year. And I think it's really, given the size of business, a relatively tight range and is indicative of the fact that we've got a lot of stability and predictability and so we've been within that range all year long. And we have guided to... indicated that we believe we're going to be at the upper of that end of that range as we've gotten out three quarters under our belts.

But I think that's kind of gives you a sense of how stable and predictable we are of the business.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

But Charlie in Tony's comments you said that if you combine electricity and metals on a net, net, net basis, we thought we got maybe $20 million of benefit this year.

Unidentified Analyst

Okay. Thanks, all right.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Okay.

Anthony J. Orlando - President and Chief Executive Officer

Anybody else?

Operator

And we'll go next to Vidula Marty from Dub Capital Advisers [ph].

Unidentified Analyst

Good morning.

Anthony J. Orlando - President and Chief Executive Officer

Good morning.

Unidentified Analyst

I apologize if you've addressed this earlier, but can you talk a little bit about what are the opportunities given, on many of the renewable portfolio standards that various states are promoting at this point? And secondarily can you also discuss any possibilities going forward for... under federal tax policies for raw potential tax incentives and other types of benefits associated with future greenhouse gas legislation?

Anthony J. Orlando - President and Chief Executive Officer

Well that's pretty broad one to end it on. But, the four energy from waste, the drivers that we do see and they do take as we've talked about on a number of occasions; it takes time because there is a lot of planning that goes into this.

Municipalities, we'll work in partnership with them or perhaps they'll just decide to go out to for bid for projects as we've seen two communities do in Maryland. We are seeing more and more communities put together bit packages given those overall dynamics in diminishing landfill space, the need for renewable energy, and the climate change concerns, and desires to reduce carbon emissions.

So we're seeing more and more communities. But it does take time. It's not kind of a change on a dime because one of these policies that, gets to put in place here at the state or federal level.

But the long-terms, we think are very good. We would like to see the state's renewable policies continue to get put in place. And we're optimistic that under any new administration that we're going to see, both... a federal renewable portfolio standard for electricity and as well likely some climate change legislation.

And we're hopeful that that's going to really spur some growth long-term in the U.S. It's a big opportunity that still 250 million tons of trash buried in this country, and we think that it makes a lot more sense to make electricity out of that and we're hopeful that that's the way the trends will go.

But I just again, would say this is going to take some time.

Unidentified Analyst

Thank you very much.

Anthony J. Orlando - President and Chief Executive Officer

Kelly [ph]. Operator we...

Operator

I'm sorry at this time we have no further questions in the queue. I'd like to turn the call back over to Mr. Orlando for any closing remarks.

Anthony J. Orlando - President and Chief Executive Officer

Hey, well, thanks again everybody for joining us. I think I'm not alone and hoping that the volatility and uncertainty in the financial market is materially diminished over the next few months. But I think we're well positioned to handle the circumstances that the market's throwing at us and look forward to talking to you on the year-end result.

Thank you. Bye-bye.

Operator

This includes today's conference. We thank you for your participation. You may now disconnect. .

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Source: Covanta Holding Corp. Q3 2008 Earnings Conference Call Transcript
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