The Empire District Electric Company Q3 2008 Earnings Call Transcript

Oct.31.08 | About: Empire District (EDE)

The Empire District Electric Company (NYSE:EDE)

Q3 2008 Earnings Call

October 24, 2008 1:00 pm ET

Executives

Jan Watson – Secretary & Treasurer

William L. Gipson – President, Chief Executive Officer & Director

Gregory A. Knapp – Chief Financial Officer & Vice President Finance

Analysts

[Anthony Crawdell] – Jefferies & Company

Phyllis Gray - Dwight Asset Management

Nancy Doyle - MetLife

Selman Akyol - Stifel Nicolaus & Company, Inc.

[Billy Hagstrom] – Catapult Capital

Operator

Welcome to the Empire District Electric third quarter earnings conference call. During today’s presentation, all parties will be in a listen only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today Friday, October 24, 2008. I would now like to turn the conference over to Jan Watson.

Jan Watson

Welcome to the Empire District Electric Company’s third quarter 2008 earnings conference call. A live webcast of this call is also available on the Empire website at www.EmpireDistrict.com. Giving our presentation this afternoon are Bill Gipson, President and CEO of Empire District and Greg Knapp, Vice President and CFO.

A Q&A session will follow the presentation. Our press release announcing third quarter earnings was issued yesterday evening. The press release may be accessed on our website our a copy can be emailed or faxed to you by calling 417-625-6142. A telephonic replay of the call will be available for two weeks by dialing 800-405-2236 and entering passcode 11121116#. The webcast will also be available for replay on our website.

As always, certain matters discussed in this call are forward-looking statements intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such statements address future plans, objectives, expectations and events or conditions concerning various matters. Actual results can differ materially from those currently anticipated by reasons of factors noted in our filings with the SEC including our most recent Form 10K and Form 10Q.

The earnings per share impact of revenue and expense items are all discussed on an after tax basis and compare the period referred to with the same period of the prior year. The estimated earnings per share impact of individual items is a non-GAAP presentation however, we believe this information is useful in understanding the change in the company’s earnings between periods.

I’d now like to introduce Bill Gibson, President and CEO of the Empire District Electric Company.

William L. Gipson

Today we’ll discuss the financial results for the third quarter and 12 months ended September 30 and then we’ll also update you on a few other recent events. At yesterday’s meeting our board of directors declared a quarterly dividend of $0.32 per share payable December 15th for shareholders of record as of December 1. This represents about a 6.9% yield at yesterday’s closing price of $18.52.

We reported consolidated third quarter 2008 earnings of $20.2 million or about $0.60 per share compared to the same period in 20079 when earnings were $23.3 million or $0.76 per share. Mild weather or to a lesser degree modest customer growth were the major drivers for this decline in earnings. For the 12 months ended September 30, earnings were $31.6 million or $0.95 per share and that compares to September 30, 2007 12 months ended earnings of $41.8 or $1.38 per share.

I’m going to turn it now over to Greg to give you the details on that.

Gregory A. Knapp

As Bill stated we reported 2008 third quarter earnings of $20.2 million or basic earnings per share of $0.60 and diluted earnings per share of $0.59 compared to 2007 earnings of $23.3 million or basic and diluted earnings per share of $0.76. I’ll get in to the details in a moment but as customary for us I’d like to first begin by providing a non-GAAP basis earnings per share reconciliation for the third quarter on a consolidated basis.

For those of you who have read our press release or have it in front of you, that will be the earnings per share reconciliation I’ll follow. I’d remind you again that these earnings per share figures throughout the call are provided on an after tax estimated basis. Earnings per share at September 30, 2007 for the quarter were $0.76.

Now, adding and subtracting from that number to get to the current quarter earnings per share would be first electric segment revenues that would subtract from that by $0.10, gas segment and other segment revenues that would add by $0.01, expenses, electric fuel and purchase power expenses that would be an addition of $0.01, the cost of natural gas sold and transported would be -$0.02 and then operating expenses on the electric side and operating expenses on the gas side each would be a subtraction of $0.01 each and our maintenance and repairs cost would be a subtraction of $0.01.

The next change of significance would be interest charges that would be a subtraction of $0.02 while AFUDC increased this quarter over last by $0.03 per share and lastly in this reconciliation would be the diluted effect of additional shares that would be a negative $0.06. So all the positives and minuses there move you from the $0.76 the third quarter in 2007 to this quarter.

Now, I’ll review the results by category in more detail starting with electric revenues. As we noted in yesterday’s press release our electric revenues were lower in the third quarter as a result of much cooler weather compared to last year. In fact, part of the way we estimate the impact of weather is determining the number of cooling degree days and that comparison we had almost 22% fewer cooling degree days in the 2008 third quarter compared to 2007.

The cooling degree days were also below the 30 year average this past quarter by about 9%. As difficult as it is to estimate the impact of weather we believe it decreased our quarterly revenues by about $8.7 million. Other revenue impacts include an increase from rate changes at $2.8 million and customer growth of about .5% contributed an additional $1.3 million. Our ops system sales were lower by $.4 million but miscellaneous and other electric revenues were higher by about that same amount.

Overall, our electric segment revenues were down about $4.6 million which is a 3.4% decline and lowered quarterly earnings by about $0.10 per share. Quarterly fuel and purchase power costs for the electric segment were lower by $.9 million which increased earnings per share on a comparative basis by approximately $0.02. The decline in cooling degree days meant that we ran gas fired units less and that lowered our natural gas cost significantly.

In total natural gas costs were down $9.4 million. [Inaudible] were higher by $2 million and purchase power costs were also higher by $4.6 million. The increase in purchase power is primarily the result in an increase in prices which we’ve experienced each quarter so far this year when comparing the cost to the previous year’s period.

In addition to these actual costs we recorded $1.8 million this quarter of additional fuel expenses as a result of our Missouri and Kansas fuel adjustment mechanisms most of which is from the fuel adjustment clause implemented on September 1st in our Missouri jurisdiction. Specifically, our jurisdictional fuel cost for Missouri were lower than the amount prescribed in base rates which caused us to increase the recorded fuel cost and also record a regulatory liability.

As a reminder, when expenses would be above the base level for fuel and purchase power the customer is responsible for 95% and the company 5%. Conversely if expenses are below the base then customers would receive 95% of the benefit and the company 5%. Op system sales margins will flow through the fuel adjustment mechanism. So, we will accumulate the cost for a six month period and submit the information to the PSC for review. After the PSC’s initial review the over or under recovery of the fuel cost for that six month period will then be recovered from our refunded to the customers over a subsequent six month period.

We’ll also be subject to the PSC’s prudency reviews of our fuel costs every 18 months. Moving on to our other electric operating expenses, our operating expense increased about $1 million but were offset by a credit recorded of about $.4 million for a net increase of $.6 million which lowers earnings per share by $0.01. The credit we recorded was generation planning costs that were originally expenses but ultimately determine in the recent Missouri case to be a part of our Iatan 2 costs. Other operating costs showing increases were customer accounts which increased $.3 million and our accrual for injuries and damages claims was up $.3 million as well.

The remainder of the increase in operating costs is spread throughout several categories. Our maintenance expenses increased $.6 million during the third quarter of 2008 compared to 2007 which reduced earnings per share by about $0.01 as well. $.4 million of the increase is related to amortization of major ice storm costs. If you recall, a portion of the expenses we incurred from the two ice storms that we experienced in 2007 were deferred for regulatory treatment which was consistent with the treatment granted historically by most of the jurisdictions we serve.

Missouri Public Service Committee approved that treatment in the recent case and we began to amortize those costs accordingly. Depreciation and amortization was flat between the quarterly comparison. Increased plant and service increased the depreciation component but that was offset by a reduction to regulatory amortization being recorded for our Missouri jurisdiction. We have been recording more than $10 million of regulatory amortization annual but in the recently completed Missouri case the approved regulatory amortization has lowered to an annual amount of about $4.5 million.

In summary, on an earnings per share basis, the electric segment contributed about $0.62 per share during the quarter compared to $0.79 per share for the 2007 third quarter. Now, I’ll briefly go over the gas segment revenues and expenses. Third quarter of 2008 gas revenues increased by $.4 million compared to 2007 which increased earnings per share by about $0.01. The additional revenues were offset by an increase in the cost of natural gas sold and transported of $.8 million.

The cost of gas reduced earnings per share by about $0.02. The gas segment operating cost were $.4 million and it was attributable to increased customer accounts expense. This increase was somewhat offset by a decrease of $.2 million in maintenance costs. Overall, the operating and maintenance costs had a minimal effect on earnings per share. On an earnings per share basis the gas segment loss about $0.04 per share for the 2008 third quarter compared to a $0.03 loss in the 2007 quarter.

From a consolidated perspective total interest charges for the quarter increased $.4 million compared to 2007 lowering earnings per share by about $0.01. Long term debt interest increased $1.5 million when comparing the quarters due to the issuance of $90 million 6.38% series first mortgage bonds in May of this year. This increase was offset with short term interest of $.6 million and an increase in debt AFUDC of $.6 million which further reduced our overall interest costs.

Other income and deductions increased for the quarter by about $1.1 million which added $0.025 to earnings per share. Our consolidated income taxes were lower by approximately $1.5 million for the quarter as a reflection of lower earnings. Moving to the 12 month ended information, as Bill mentioned we are reporting $31.6 million of income or $0.95 per share for the 2008 period compared to the 2007 12 months ended earnings of $41.8 million or $1.38 per share.

The electric segment contributed $29 million to the 2008 12 month period or approximately $0.88 per share compared with the 2007 12 month ended period of $41.2 million or $1.36 per share. The electric segment 12 month ended revenues for 2008 increased over the 2007 period by about $18.5 million which adds approximately $0.41 per share. Rate increases from our various jurisdictions increased $11.6 million to the increase. Op systems sales and miscellaneous electric revenues add $9.9 million and customer growth increased approximately $4.5 million.

Our estimate of the impact of weather was our only negative impact to revenues of approximately $7.5 million. When comparing the two 12 month periods we’ve estimated that the number of cooling degree days dropped by more than 20% which is mostly attributable to the cooler recent summer months. Total electric fuel and purchase power costs increased $33.2 million for the 12 month ended period reducing earnings per share by an estimated $0.73.

For the month the 12 month period significant fuel impacts still relate to the Asbury outage we experienced last winter as well as an increase in off system sales. These events shifted our usage volumes more towards natural gas and purchase power compared to the 2007 12 month period. The overall cost comparison by fuel sources indicates that natural gas cost were up approximately $16.5 million, coal was down about $2.6 million and purchase power was up about $18.3 million.

Fuel adjustments in our various jurisdictions along with other fuels increased fuel expense reported by about $1 million. Other operating expenses in our electric segment increased about $2.3 million and negative impact earnings per share of about $0.05. Some of the larger changes include increases of $.5 million for customer accounts in the systems expense, $.6 million for operation of our transmission facilities and $.9 million for distribution pipe operations.

Several other operating categories experienced small increases totaling $1.4 million for a 2008 12 month period compared to 2007. A couple of items partially offset the overall increase, our healthcare costs were lower by $.6 million and outside consulting services were down by about $1.1 million in part due to the adjustment I mentioned in the quarterly information.

Electric maintenance cost decreased overall by about $2 million in the 2008 12 month period compared to 2007 which increased earnings per share by an estimated $0.04. The ice storms we experienced last calendar year impact this comparison as two storms are separate by the 12 month periods being compared. As a result distribution maintenance is lower by $3.1 million and this is partially offset by increases to maintenance costs and production and transmissionaries of about $1.1 million.

Depreciation and amortization increased $4.9 million negatively affecting earnings per share by approximately $0.11 which is primarily due to the Missouri regulatory amortization which began January 1, 2007. If you recall how the Missouri regulatory amortization works, this really has no affect on earnings because the regulatory amortization is built in to our Missouri rate structure as well so the revenues and the depreciation being recorded essentially offset each other and have no impact to our bottom line.

Also, franchise, property and other local taxes have increased approximately $.8 million further reducing earnings per share of about $0.02. We also have two other items that affect the year-to-year comparison. The [Unitrain] sale from last November resulted in a gain of $1.2 million for that transaction during the 2008 12 month period and secondly 2007 results include a $.8 million loss related to a plant disallowance required by rate order. Together these items add approximately $0.045 per share to the bottom line for the 2008 period.

Switching over to the gas operations again, revenues totaled almost $60.7 million for the 2008 12 month period which is an increase of $.4 million adding about $0.01 to earnings per share. The cost of natural gas sold and transported was $38 million, a decrease of $.4 million which increased earnings per share by $0.01. Other operating costs were relatively flat during the 2008 12 month period but maintenance costs were lower by $.8 million which added an estimated $0.02 to the earnings per share.

Depreciation and other taxes were flat for comparative periods as well. The gas segment net income for the 12 month period was $1.5 million for the 2008 period compared with $.5 million for 2007 which overall contributed an estimated $0.05 per share for 2008 earnings versus $0.02 per share for 2007. On a consolidated basis our total interest costs have increased for the 2008 12 month period by about $2 million reducing earnings per share by $0.04.

The components of the interest include long term debt interest expense increased about $4.6 million but is partially offset by a decrease in short term interest expense of $.9 million and an increase in debit AFUDC of $1.8 million. Also, our other income and expense category added approximately $1.44 million to earnings or $0.04 per share when comparing the two 12 month periods and that is almost entirely related to the equity component of AFUDC.

That concludes the earnings information I want to provide you but I’d like to update you on a few things including our current hedge position as of October 17th. 100% of our anticipated volume of natural gas usage for the electric operation for the remainder of 2008 is hedged at an average price of $6.99 per dekatherm. For the year 2009 we have 73% or 6.2 million dekatherms hedged at an average price of $6.62. 2010 we’re hedged 45% or 4.2 million dekatherms at $6.43, 2011 is 34% or 3.2 million at $5.56 per dekatherm and 2012 and 13 each period is 13% hedged at 1.2 million dekatherms at an average price of $7.30.

For our gas operations we target to have 95% of our storage capacity full and 85% of our expected fuel supply need price protected by November 1 for the upcoming winter heating season. As of September 30th, we had 84% of the expected need price protected including 1.7 million dekatherms in storage on the three pipelines that serve our customers. The amount in storage represents 84% of our capacity.

I’ll now turn the presentation back to Bill.

William L. Gipson

I believe most of you participated on our July 31 call where we reviewed the recent Missouri case but I wanted to briefly review the case again in case some of you weren’t able to join us. The Commission approved new rates for our Missouri electric customers in the case we filed on October 1, 2007. The order resulted in a net increase in annual revenue of approximately $22 million or 6.7% and is based on a 10.8% return on equity.

The order provides an addition to base rates which the Commission reported as approximately $27.7 million. The second is an amortization that provides us additional cash through the current construction cycle. This construction of course, as most of you know is a part of our long range plan to ensure reliability and include facilities at Riverton, the Iatan 2 power plant as well as the environmental improvements at the Asbury power plant and Iatan 1.

The component related to this regulatory amortization was adjusted downward by about $5.7 million and so now the resulting amortization is about $4.5 million annually. With this case the commission also approved the stipulation and agreement to provide for the recovery of the deferred expenses that Greg mentioned a few minutes ago related to the 2007 calendar year ice storms and the continuation of pension and other post retirement employee benefit trackers.

It incorporates the staffs base fuel and purchase power of about $32.50 per megawatt hour and it establishes a two way tracker mechanism for the cost of compliance with the Commission’s new vegetation management and infrastructure reliability rules. The new rates will allow us to recover the capital additions for the 150 megawatt unit at Riverton, the selected catalytic reduction system that we installed at Asbury and the 2007 ice storms.

These rates went in to effect on August 23 and the fuel adjustment as Greg said began on September 1. With this fuel adjustment in Missouri we now have a fuel mechanism in place in all our jurisdictions. We’ve been watching couple of initiative petitions in Missouri with great interest. The first dealt with eminent domain and it would have required us to get governmental approval prior to any condemnation action. I’m pleased to report that the issue did not meet the necessary signature thresholds and will not be on the November ballot.

The second which will be on the November ballot calls for renewable energy standards for the state investor owned utilities. The proposed standard contains solar requirements we believe will be very costly for our customers if they were attainable. In anticipation for the passage of this initiative the Missouri legislature passed and the governor executed a new law which we believe exempts Empire from any new solar requirements. With the solar exemption and our long term contracts with Elk River Wind Farm and the Cloud County Wind Farm which is commonly known as Meridian Way we should have no problem meeting this future standard should it pass.

We remain neutral on the issue but have stated that we believe that if this is good for Missouri’s own investor utilities it should be good for municipalities and properties as well. Now, speaking of Meridian Way, we’ll purchase all of the output from the 105 megawatt phase of the project through a 20 year purchase power agreement. We anticipate our phase to generate about 350,000 megawatt hours annually in an amount equal to the usage of about 25,000 homes.

We had a dedication ceremony recently in Concordia on site and we expect Meridian Way to began generating test power in November and anticipate the unit to be fully operational in January ’09. Due to high oil prices this past year or so it has become economical in our region to recovery heavy oil from what is known as the Upper Warner Sand Formation. In March, a company named MegaWest Energy begin operation of the Marmaton River project just west of Nevada Missouri.

The project has 42 production wells and 13 injection wells. It utilizes a 15 million btu per hour steam generator fueled by our natural gas segment to produce steam which is injected to heat the heavy oil and make it easier to pump up from the formation. The gas usage is about 500 to 600 million cubic feet per day. On October 14th the Missouri Supreme Court issued an opinion directly the Public Service Commission to comply completely with the court’s previous mandate and opinion.

This directed the commission to vacate its December 29, 2006 order approving our tariff and allowing the public counsel a reasonable time to prepare and file an application for rehearing. Parties have until October 29 to seek a rehearing in the court’s opinion consistent with the prior mandate and opinion the court took no position on the effect of its decision on any tariffs approved by the commission.

Finally, we’re continuing with programs to assist our customers with energy efficient measures. This month we kicked off another season of very popular change a life, change the world program. This is a program that allows our customers to purchase up to six compact fluorescent lamps at a reduced price and it’s just one of the suite of our initiatives to assist our customers with energy efficient improvements.

We’ll now turn it over to the operator to facilitate your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from [Anthony Crawdell] – Jefferies & Company.

[Anthony Crawdell] – Jefferies & Company

Just two quick questions, one is I’m looking past the 2010 time frame on cap ex spending, what does the company estimate for approximate total cap ex spending even when you include the gas operation and some non-regulated cap ex? And second, and you may have covered it and I just may have missed it, I guess the mandates in the Missouri Supreme Court it seemed like a rate adjustment that went in, in January 2007 is getting pushed back to the Commission.

I’m just not sure what the Commission is now suppose to do with this. Is the intent that the Commission give 30 days of hearings to the interveners or consumer council? I’m just not sure what the Commission is expected to do with this mandate?

William L. Gipson

I’ll try handling the second question first and that is just a little history. The Commission did last year after the court issued its opinion that the Commission needed to vacate the December 29th tariff order from the 2006 case, the Commission did that. They also reaffirmed in that order the rates that we had been charging were the rates that needed to be charged.

The court in this opinion said the Commission went further than what it was suppose to and it just simply needed to vacate the December 29, 2006 order and give the public council 10 days upon which to file an application for rehearing. So, what the Commission does with this remains to be seen but Anthony we have maintained all along that the rates that we charged were the only rates that we could charge and that continues to be our position.

We filed and received and order and we were given the authority to rely upon that order and believe that the rates that we charged our customers under those tariffs were the only rates that we could charge our customers.

[Anthony Crawdell] – Jefferies & Company

Is it wrong for me to look at it as the worst case scenario for Empire in this situation would be a refund of rates for 10 days? If it’s like 10 days the consumer council needs, is that wrong to assume that the worst case one-time expense of 10 days of rate refund or 10 days of using the old rates?

William L. Gipson

I don’t think that’s the worst case scenario. I think the worst case scenario is those tariffs when we filed them had a 30 day fuse. They would have gone in to effect by themselves after 30 days if the Commission had taken no action. So, I think the worst case scenario is 27 days not 10. But, that’s not what we believe. We believe that those tariffs were filed – if you read there was a report on this in what’s called The St. Louis Record and I think that’s a periodical that’s principally read by a lot of attorneys.

But, you can read in that, that the Commission’s general counsel says that the case law, and this is what our counsel has told us, in Missouri is even if tariffs are implemented wrong, they’re still the only tariffs that you can file. You have the right to rely upon the monies that you collected under that. We don’t think we have any exposure but if you wanted to look at a worst case, I think that’s probably the worst case.

Gregory A. Knapp

On the first part of the question you asked about our construction expenditures once we get past the generation additions that we’re going through right now.

I don’t have detailed information in front of me but basically you can look back at our history a couple of years ago before we got into this category of large construction expenditures and you’d have seen a level of what we might call maintenance construction expenditures that at that time would have probably been in the $50 million to $60 million range per year. And when we get in the post 2010 period we’re going to be back at that same level although it’s going to be impacted by inflation and more customers as a result of the customer growth we experienced, so you have to run that up some for those factors.

But absent generation additions or other major special projects, we’d look to be back doing the same kinds of things after 2010 until it’s time for the cycle to begin again as we did a few years ago when we were between the last construction cycle and this one.

Operator

Our next question comes from Phyllis Gray - Dwight Asset Management.

Phyllis Gray - Dwight Asset Management

Could you give us an update on your liquidity; cash on hand, bank lines, draws on lines and any outstanding commercial paper please?

Gregory A. Knapp

We ended September with short-term debt of $55.4 million. We’re currently sitting at about $58 million in what we categorize as short-term debt historically we’ve tried to place that through commercial paper as you know, and we have experienced some difficulty as have most everybody else in placing commercial paper over the last month or so. But we do have some that’s out there.

We have a part of that $58 million that is commercial paper but when we’re not able to access the commercial paper market or more appropriately when we decide that the interest rate is higher than we want to pay for that commercial paper, then we just access the loans under the bank line that we have and that’s working just exactly the way it’s supposed to work and provided the funding that we need.

One question that I have been asked before and I could just offer up, when you look and you know what our construction program is from a cash need standpoint, the other item a lot of people are interested in is looking out at when our next debt maturities might be. We don’t have a debt maturity until November of 2009.

I’m not sure what else you might want to go with this but that’s what I can say right now.

Phyllis Gray - Dwight Asset Management

Most companies have been providing information on their call about their cash on hand, the amount of their credit facilities and the amount drawn.

Gregory A. Knapp

We’re still under the line of credit we’ve been in for a couple of years that doesn’t expire until mid-2010 and that’s a $150 million line of credit. We’ve got at this point $58 million tied up under that $150 million line of credit. Then we do have an additional layer on top of that line of credit that pertains to our obligations at Plumb Point if for some reason we needed to access that. I don’t know today what that amount is but I think it’s probably around $40 million or so remaining on that line.

As far as cash on hand, we have a minimal cash balance. We’ve not changed our operations from that standpoint. We’re not hording cash as some people are. We’ve not gone out and tried to tap that line of credit to get an extra amount of cash. We’ve had discussions with our bankers and our lead bank, and we’re comfortable with our operations that way.

Phyllis Gray - Dwight Asset Management

So the cash currently or at the end of September was how much?

Gregory A. Knapp

About $9.5 million at the end of September, and I truly don’t know what it would be this morning.

Phyllis Gray - Dwight Asset Management

Can you tell me what your depreciation expense for the quarter was?

Gregory A. Knapp

For the quarter the depreciation expense, and this includes the regulatory amortization in Missouri; I don’t really have a split out for that in front of me; but it was $13.4 million as our quarterly depreciation expense for depreciation and regulatory amortization.

Phyllis Gray - Dwight Asset Management

Could you give me a quick update on your balance sheet total debt and equity at the end of the quarter please?

Gregory A. Knapp

Stockholders’ equity at the end of the quarter was $540 million. Long-term debt stood at $582 million plus in trust preferred of $50 million on top of that.

Phyllis Gray - Dwight Asset Management

Does that include your securitized debt?

Gregory A. Knapp

Yes. That debt number is the first mortgage and the unsecured.

Phyllis Gray - Dwight Asset Management

Your cap ex for the quarter?

Gregory A. Knapp

For the quarter we just completed?

Phyllis Gray - Dwight Asset Management

Yes please.

Gregory A. Knapp

I’m not sure that we have that handy. I’ll have someone else in the room compare some numbers for me. $49 million for the quarter.

Phyllis Gray - Dwight Asset Management

Are you not planning to come to the debt market prior to your maturity later next year?

Gregory A. Knapp

What we’ve said is our position and our actions over the last several years since we started this program was to try to maintain as much as we could that 1 to 1 debt-to-equity relationship and certainly that rocks back and forth a few percentage points either side of that, but we sold debt in May. The markets are certainly topsy turvy right now but the next time we need to do some financing I think probably most people would expect us to go to the equity markets versus the debt markets.

Having said that, given who knows what the future’s going to hold here, we’re obviously monitoring everything that’s going on very closely and keeping very aware of things. Decisions will be made in light of what’s going on at the time. But that’s the best background I think I can give you. I just can’t pin myself down because I’m not 100% sure what we’ll see down the road.

But right now, do I see changing what our plans have been and what we’ve telegraphed to our debt holders and equity holders? And the answer is no. I don’t really have a view on changing that overall plan.

Operator

Our next question comes from Nancy Doyle - MetLife.

Nancy Doyle - MetLife

Could you give an update on Iatan as far as the timing and also cost?

Gregory A. Knapp

We released in our last quarter’s Q the range of anticipated costs that we have on both Iatan I and Iatan II projects. Iatan I came off line on October 18 for the outage related to the SCR scrubber and [bag house] and is projected by Kansas City Power & Light to be back on by the end of the year. With respect to the schedule on Iatan II, what Kansas City Power & Light continues to report to us is the summer of 2010. It’s not changed since the first quarter Q. Iatan I environmental upgrades range is -

William L. Gipson

We did update that number in the second quarter Q disclosure and there are no changes since then.

Nancy Doyle - MetLife

If it’s in the Q, I’ll just look at that.

William L. Gipson

It is and there have been no changes to that.

Nancy Doyle - MetLife

So when we see your 3Q, you’re not expecting to change that?

Gregory A. Knapp

That is correct.

Operator

Our next question comes from Selman Akyol - Stifel Nicolaus & Company, Inc.

Selman Akyol - Stifel Nicolaus & Company, Inc.

I just had a question regarding pension expense as well as pension funding on a go-forward basis given the decline in the equity markets as you start looking out into 2009. Can you give us an update on where you are in terms of all that and what you might expect on a go-forward basis?

Gregory A. Knapp

I don’t have any kind of hard answers at this point but the market decline has obviously negatively impacted the performance of our pension assets. That’s something that we are monitoring. We’re getting that information. We are talking to our actuaries. The movements of the discount rate can tend to dampen the difference between liabilities and pension assets. Where this is going to end at the end of the year and if that’s going to require a contribution by us in 2009 is just something I don’t know yet. The potential’s there.

In December 2006 we made a contribution to our pension plan of a little over $11 million right at the end of the year to meet some funding targets that we’d established for ourselves. I don’t know where things are going to go in the market between now and the end of the year, but worst case scenario could we be in ranges like that again? The answer is yes probably so.

But I also understand that any contribution we’d have to make related to that sort of a situation, the deadline for making that contribution is pretty far into 2009. Searching back into the pension protection act literature, I think it’s September 15, 2009. It’s something we’re watching very carefully. Our intention is to do what is prudent for us in the management of that pension plan and we’ll be monitoring it. But I can’t give you a more definite answer than that right now.

Operator

Our next question comes from [Billy Hagstrom] – Catapult Capital.

[Billy Hagstrom] – Catapult Capital

I just wanted to recap the balance sheet info that you just provided. You said that there was $540 million of equity and roughly $580 of debt and $50 of trust preferreds.

William L. Gipson

That is correct.

[Billy Hagstrom] – Catapult Capital

So if you wanted to maintain your one-to-one equity you’d need about $100 million of equity, does that sound right?

William L. Gipson

That’s ballpark.

[Billy Hagstrom] – Catapult Capital

Can you just kind of give me an expected timing for when you guys think this might be good time to issue it?

William L. Gipson

I really can’t pin in down a great deal but what we can say is we mentioned in response to an earlier question that [inaudible] a capital expenditure that we had in the third quarter. When you look at what we expended to date through the second quarter so that is pretty easy to see where we are at year-to-date and we’ve already disclosed what our expected is going to be for the year so when you look at that and you look at the amount of capacity under our line that we still have still available to us that’s says that we’re still going to be in okay shape through the end of the year so that puts us in to sometime early next year. Those are awfully broad brushes.

Gregory A. Knapp

If I could just jump on that, depending on market conditions and whatever, it may not be all at once. Maybe more than one tranche.

Operator

We have no further audio questions at this time. I would now like to turn the conference back over to Mr. Gibson for any closing statements.

William L. Gipson

Thank you. As Always we continue to focus on increasing shareholder value and providing reliable affordable service to our customers and we wish you a great afternoon.

Operator

Ladies and gentlemen this concludes the Empire District Electric Company third quarter earnings call presentation. You may disconnect your lines at this time.

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