Great Plains Energy Inc. Q3 208 Earnings Call Transcript

Great Plains Energy Inc. (GXP)

Q3 208 Earnings Call

November 6, 2008 9:00 am ET

Executives

Michael Cline - VP, IR and Treasurer

Mike Chesser - Chairman and CEO, Great Plains Energy and KCP&L

Bill Downey - President and COO, Great Plains Energy and KCP&L

Terry Bassham - EVP, Finance and Strategic Development and CFO, Great Plains Energy and KCP&L

Analysts

Michael Lapides - Goldman Sachs

Paul Ridzon - KeyBanc

Steve Gambuzza - Longbow Capital

Jonathan Arnold - Merrill Lynch

Hassan Doza - Luminous Management

Leon Dubov - Catapult Capital Management

Scott Engstrom - Blenheim Capital Management

Chris Shelton - Millennium Partners

Presentation

Operator

Welcome to the Great Plains Energy third quarter 2008 Earnings Call. (Operator Instructions). This conference is being recorded today Thursday, November 6th, 2008.

I would now like to turn the conference over to Michael Cline, Vice President of Investors Relations and Treasurer. Please go ahead, sir.

Michael Cline

Thank you, operator, and good morning. Welcome to the Great Plains Energy's third quarter 2008 earnings conference call.

Joining me on the call today are Mike Chesser, Chairman and CEO of Great Plains Energy, who will provide a strategic overview; Bill Downey, President and COO of Great Plains Energy and Kansas City Power & Light, who will discuss KCP&L operations; and Terry Bassham, Executive Vice President and CFO of Great Plains Energy, who will provide details on Great Plains Energy's third quarter and year-to-date financial results and provide comments on 2009 guidance, as well as key assumptions on drivers for 2010 and 2011.

Also joining us on the call today is John Marshall, Executive Vice President, Utility Operations, who will be available for questions.

Since some of our remarks will be forward-looking, I must remind of the uncertainties inherent in such comments. The second slide included in this webcast as well as the disclosure in our SEC filings, contain a list of some of the factors that could cause future results to differ materially from our expectations.

Before handing the call to Mike, I want to cover one housekeeping item. As most of you know, we closed the Aquila acquisition on July 14th. Our third quarter and year-to-date results therefore reflect almost the full quarter of Aquila operations.

On October 17th, Aquila's name was officially changed to Kansas City Power & Light Greater Missouri Operations. For brevity, throughout this morning's presentation, we'll refer to the former Aquila as GMO.

I'd now like to introduce Mike Chesser, Chairman and CEO of Great Plains Energy.

Mike Chesser

Thanks, Michael, and good morning, everyone. Thank you for joining us today. By now, many of you have read yesterday's press release with our results of the third quarter and the year-to-date. It is clearly a solid quarter, and we're pleased.

We had a strong contribution from GMO in its first quarter as part of Great Plains Energy. We also had record performance from KCP&L's generation fleet, which enabled us to compensate very difficult retail environment, doing prudent wholesale sales and deliver a better comparative year-on-year bottomline.

That said, I'm going to leave the detailed discussion of the quarter to Bill and Terry and would like to focus my comments on how we see the environment in the near to medium term and how we're effectively positioned to handle the challenges that lie ahead.

You'll be hearing much more from Terry in a few minutes about not only our 2009 guidance, but also the key assumptions that impact 2010 and 2011.

Suffice it to say that we're not immune to the economic forces of their challenging companies in all industries, in all our regions across the country. As a result, we're expecting retail demand in our service territory over the next few years to be below what we've seen historically.

Also, the global financial markets have been in a state of unrest for over a year and have significantly worsened in the past two months. We expect that markets will eventually recover, but the timing of when that will happen is impossible to predict. This presents a concern and a risk for any company that may need to raise capital in the next 12 to 18 months.

So, there is no question these are tough times, but we're facing the difficulties head-on. As you will hear from Terry, we have strong liquidity which is a particular valuable resource in these turbulent times. That liquidity and our cash flow from operations provide the funding we need to run our business effectively, including the payment of the dividend. On that topic, I want to take a moment to reinforce our strong commitment to the dividend.

We understand the value that it provides to our shareholders, particularly during this period when we are completing our Comprehensive Energy Plan and making strategic investments at GMO. Through those investments, we believe we are building a company that will be able to demonstrate attractive earnings growth and ultimately dividend growth.

Another way we're dealing with difficult economy is through an evaluation of capital expenditures. As Terry will discuss, our senior management team has thoughtfully and thoroughly reviewed each item in our projected five-year capital budget.

In doing so, we kept a sharp focus on reducing our financing requirements in 2009 and 2010, while at the same time ensuring we deliver on the strategic commitments that we've made to our shareholders over the past few years and making the right ongoing maintenance investments to ensure solid generation fleet performance and T&D system reliability.

Through this effort, we've reduced the combined 2009 capital budget for KCP&L and GMO by about $200 million compared to the CapEx projections in our second quarter 10-Q. The new 2010 CapEx budget is about $70 million lower.

Taking a hard disciplined look at capital is absolutely the right thing to do in this environment. By extending certain projects a year or two, we've significantly reduced our need to access the capital markets in 2009 and 2010, while still prudently growing rate base in a manner that will deliver long-term earnings growth.

In addition to our liquidity and a capital budget that works in the current environment and satisfies our long-term objectives, there are a number of other key strengths that we plan to leverage in working through the difficult conditions that confront us.

First, our focus on reducing operating expenses charged Tier I levels across our company; second, our commitment to maintain our successful track record of building and maintaining strong regulatory relationships; and finally, an experienced, tested senior management team that is focused on execution and delivering the results that we've promised to our shareholders and to our customers. I will talk more about this particularly important strength in just a minute.

The last line of this slide succinctly sums it up. We are decisively responding to current developments, while keeping our strategic priorities intact.

As I mentioned, the experience and talent of our management team both at the senior executive level and throughout the organization is the key to our success, particularly given the current economic -- challenging economic climate.

As this chart indicates, our officer group has extensive experience with an average of 23 years in the industry. I also wanted to mention an organizational change that we made in the third quarter. John Marshall, who had previously been Senior Vice President, in charge of our Delivery organization, was named to the new role of the Executive Vice President, Utility Operations.

In this position, he reports to Bill Downey and is a senior executive with primary day-to-day responsibly for running the regulated utility. In particular, John will be charged with delivering on the operating synergies that are and will be a key benefit of the GMO acquisition. I should also mention that John was involved in planning for the integration between the two companies over the last two years. Actually he was responsible for that.

John's focus on Utility operations will enable Bill to focus more of his attention on our major construction projects as well as our political and regulatory relationships. Obviously, these are all complex, closely intertwined and critical to our success.

We've used this chart in the past few quarterly calls as well as number of other presentations. We describe the compelling drivers of our growth story as we look to the future. Let me briefly touch on each.

Following the acquisition on GMO in July, we moved quickly to begin delivering on synergies. Early successes are from lower interest expense resulting from GMO's attainment of investment grade credit rating, headcount reduction, service center consolidation and elimination of redundant spending in the supply chain operation.

In September, we filed rate cases in Missouri and Kansas for a total request of $257.5 million. We've discussed on our last few earnings calls and in investor presentations our need to file rate cases in both Missouri and Kansas to recover the cost associated with our Comprehensive Energy Plan, as well as environmental investments by GMO and continued rising cost.

From a capital perspective, these cases cover the air quality control system at Iatan 1 unit, environmental upgrade to GMO Sibley unit, the Jeffrey Energy Center in which GMO has an interest, and inclusion of GMO's Crossroads peaking unit in the rate base.

We are on track to deliver our commitments with respect to Iatan 1 and Iatan 2. We obviously completed the tying-in of the air quality control system to Iatan 1 got underway in mid-October and is scheduled for completion in early 2009. Construction on Iatan 2 is progressing at the expected rate and in-service remains the summer of 2010.

Our intent to address environmental concerns remains firm. However the compliant states afford us flexibility with respect to the timing of a number of projects. In light of the difficult market conditions, our capital expenditure plans take advantage of that flexibility by extending a certain significant investments until later in our five-year planning horizon.

With regard to wind generation, we have a commitment that's subject to approval by regulators. We will continue to evaluate opportunities to develop an additional 100 megawatts of wind by 2010 and another 300 megawatts by 2012. Our current plan does not include or assume capital for wind in the 2009-2010 timeframe. Instead, we're continuing to assess opportunities for wind project in that period through our PPA or other means.

This slide represents our long-term objective to increase the dividend. That remains a strategic priority for us just like the capital projects mentioned here.

So, in summary, this is a challenging time to be in the utility business. However, we believe we have the tools to effectively weather the short to medium-term storm, while very importantly keeping a focused eye on our long-term goals.

Now, I'd like to ask Bill to provide more detail on third quarter operations.

Bill Downey

Thank you, Mike, and good morning, everyone.

As has been typical in our recent discussions with you, there has been a great deal happening at our utilities and there is much to talk about. That said, however, I'm going to keep my comments relatively brief, so that we can move on to the quarterly and year-to-date financial highlights and the outlook for 2009 and beyond, which we know you've been eager to hear about for some time.

Currently, if you have questions regarding utility operations, John Marshall and I are available at the end of this call to address them. We both also will be at the EEI Financial Conference in Phoenix next week.

In terms of operations for the quarter, I'd like to point out a few noteworthy areas. We've effectively managed the integration process to deliver immediate synergy benefits, some examples of which Mike mentioned earlier.

In our September rate case filings in Missouri, we showed a net $23 million of operating synergies that will begin accruing for customers when new rates are effective in the third quarter of next year. This amount will be finalized in the first quarter 2009 true-up to our Missouri case.

We're also already seeing the impact of extending KCP&L's operational and reliability best practices to the operations of GMO. Preliminary results from KCP&L's third quarter J.D. Power's residential customer satisfaction survey showed a significant improvement in the GMO territory.

Also, the system-wide SAIDI statistics, which measure customer service outage duration, were also very good for the third. We anticipate the combined utilities will continue to be tapped here for the full year.

We are strong proponents of the significant potential of energy efficiency and demand response programs. The pilot programs included in KCP&L's Comprehensive Energy Plan are progressing on target, and we are in the process of extending the reach of those programs into the GMO territories.

As part of our sustainable resource strategy, we're developing an approach to ensure that the needed legislative and regulatory frameworks are in place to support the economic viability of these offerings in the years ahead.

We were extremely pleased with our generation fleet's performance this quarter. Not only did GMO coal units performed well, but KCP&L's coal units set a monthly record in August as well as a quarterly generation record. I'll discuss that more on the next slide.

As this chart shows, performance for both KCP&L's coal units and the Wolf Creek plant during the third quarter were excellent and much improved from earlier in the year, with Wolf Creek running at essentially 100% power, and the availability and capacity factors for the coal fleet were 92% and 88% respectively. Going forward, we will be working to give you a combined look at the overall fleet performance including the GMO plants.

For the period from July 14th to September 30, GMO's units had outstanding availability at 94% and a capacity factor of 76%. In the third quarter, our strong plant availability enabled us to take advantage of the opportunities in the wholesale market, thereby offsetting weaker retail demand that we saw last summer as a result of mild weather and lower usage per customer.

Compared to 2007, KCP&L's wholesale revenue grew $13.1 million or 22% in the quarter, while retail revenue fell $5.7 million or 1.6%.

As I discussed on last quarter's call, we still believe that KCP&L's fossil feed availability and capacity factors for the full year of 2008 will be in the same ballpark as 2007 at around 80% and 76% respectively. Keep in mind that the scheduled Iatan 1 outage to tie in the air quality control system and conduct normal maintenance began on October 18 and will last through the end of the year.

Briefly, I'll cover progress on each of our big construction projects. As Mike mentioned, the outage to complete the tie-in of the air quality control system at Iatan 1 got underway in mid-October and is scheduled to be completed in early January 2009. The provisional acceptance and in-service dates of the AQCS system is expected in February 2009, well in advance of the true-up dates in our rate cases.

Between KCP&L and GMO, we have a combined 88% interest in the Iatan 1 project. Iatan 2 is progressing, and we are working toward an online date in the summer of 2010. KCP&L and GMO have a combined interest of about 73% in this project.

We've indicated earlier in the year when we announced the results of our last cost assessment that we would complete another assessment for Iatan 2 when we reached a threshold of 90% engineered. Having now attained that, we will be working to complete the update over the next few months. At this point, we see nothing that would cause adjustment to the total cost range we disclosed in May.

With the addition of GMO, we have another significant construction project to discuss, which in addition -- is the addition of an SCR at the Sibley coal plant. It is progressing on schedule, and we anticipate that it will be completed in the fourth quarter as with the Iatan 1 AQCS. This will be well and advance also of the rate case true-up dates.

With respect to environmental projects that we've seen, we have extended significant expenditures until 2011 and beyond in response to pressures in the financial markets.

Finally on wind, Mike mentioned that our current plans do not include capital for wind in the 2009 and 2010 period. We are continuing to assess opportunities for 100 megawatt wind project in that timeframe using a PPA or other arrangement.

As Mike mentioned, one of our key accomplishments in this quarter was the September filing of rate cases in Missouri and Kansas for a total request of $257.5 million. This chart summarizes our various requests by jurisdiction. These increases vary for each service area, but all include various combinations of costs that need to be recovered, including necessary air quality investments, new supply to meet our region's growth and other costs associated with KCP&L's Comprehensive Energy Plan, as well as increases in operating expenses.

You may recall that KCP&L does not have a fuel clause in Missouri. So, the rate request in that jurisdiction includes fuel cost recovery. KCP&L has a fuel clause in Kansas, and GMO has a fuel clause for its retail rate jurisdictions. So the remaining fuel cost increases will be addressed in separate proceedings.

As you can see, we will be very busy over the next 12 months. Historically, both KCP&L and GMO have received fair treatment from the regulators in all of our jurisdictions. Our increase is significant, and we expect that it will be the largest of the four rate cases associated with KCP&L's Comprehensive Energy Plan.

We feel we have a compelling case. We're looking forward to working collaboratively with the commission staffs in both states to work through these filings, and we'll be keeping you apprised of our progress.

With that, I would like to introduce Terry who will take you through the financials.

Terry Bassham

Thanks, Bill, and good morning everybody. I've got a lot to talk to you about this morning. So, I'll start with the liquidity overview and then move on to talk about results for the third quarter and year-to-date and then complete my comments with the discussion of the 2009 guidance that we've given and our assumptions and drivers around 2010, 2011.

I'm going to kick off my discussion this morning with a brief overview of liquidity. This slide gives you a sense of where Great Plains Energy and Kansas City Power & Light and GMO stood with respect to access to short-term credit as of the end of the quarter. The combined availability on September 30, as you can see, was over 1.1 billion. Their combined availability remains in that same range.

Kansas City Power & Light is the only Great Plains Energy entity that issues commercial paper. That uninterrupted access to the commercial paper market brought recent pressure in that market and the money and capital market generally. In general, available tenders have been shorter and rates have been higher than we typically see as a Tier II issuer. But the access has been there.

As we indicated in the press release, we're confident that we have the liquidity we need to effectively run our business, including funding the current dividend for an extended period of time.

As Mike mentioned earlier and as I'll discuss more later, we've significantly reduced our budgeted capital expenditures for 2009, 2010. Our debt refinancing requirements are virtually nonexistent over the next 24 months, with only $68 million in late 2009. After that, we have nothing until early 2011.

Our revolving credit facilities at KCP&L and GPE aren't up for renewal until May of 2011. A new facility we just put in place for GMO in September at a very attractive term expires in September 2011. Our revolver banks through a strong group overall, and we believe reliance will be there if and when they are needed.

All in all, we think you'll agree that there is a positive of liquidity profile.

Turning next to results, I'm going to focus my comments on core earnings. We believe core earnings to be a more representative measure of our performance. However, since core earnings are non-GAAP measure, I wanted to start by providing you with the breakdown by segment of both our reported and core earnings per share as shown on this slide.

In the appendix to our press release and this webcast, we have a reconciliation of GAAP earnings to non-GAAP core earnings. I would note that with the sale of Strategic Energy earlier this year, we would expect that the sort of adjustments we've historically made to GAAP earnings never to drive core earnings, for example, mark-to-market on derivative contracts would no longer be frequent or significant. As a result, we expect to discontinue reporting core earnings in 2009.

Moving on to results for the third quarter, Great Plains Energy had core earnings of $100.2 million or $0.88 a share. For the same period in 2007, core earnings were $69.8 million or $0.82 per share. I'll cover the specific operational drivers of the quarter and year-to-date numbers on the next few slides, but let me point out a couple of key items.

GMO was acquired on July 14th and contributed earnings of $17.4 million or $0.15 per share during the quarter. Also, in connection with the GMO acquisition, Great Plains Energy issued 32.2 million shares which resulted in $0.29 per share of core dilution in the quarter.

For the first nine months, Great Plains Energy core earnings were $129.2 million or $36 per share, including income from GMO of $17.4 million or $0.18 per share. Core dilution for the first nine months for the newly issued shares was $0.16 per share.

Now, let me turn first to revenue for the quarter for our new electric utility segment, which includes both Kansas City Power & Light and GMO. We've constructed the chart on the left in a way that makes it straightforward to compare Kansas City Power & Light's current quarter results against the 2007 quarter and then shown GMO's contribution to the current quarter separately and then shown the total segment results for the current quarter.

Obviously, over time, we'll be able to do year-on-year period comparisons for the whole segment, but that’s not meaningful at this point. So, for now, we at least want to give what you need to compare KCP&L's results.

Total revenue for the electricity utility segment for the quarter was approximately $594 million, and drivers of revenue include a contribution by GMO of approximately $170 million, an increase in KCP&L's year-on-year revenue of about $8 million to 1.9% or $124 million.

Retail revenue was actually down by about $6 million compared to the 2007. The wholesale revenue increased by about $13 million. On the retail side of KCP&L, we had positive impact of new rates that went into effect in January 2008 that was more than offset by weather effects and lower customer usage.

As the chart shows, we had a mild summer in our service territory, with 30% fewer cooling degree days compared with last year third quarter and 16% fewer than normal. Overall, we estimate that weather reduced KCP&L's retail revenue by about $28 million compared to the third quarter of last year.

Retail demand also continues to demonstrate the sluggish economy. KCP&L's gigawatt-hour sales, which reflects both customer growth and usage per customer, were down 0.9% for the quarter, adjusted for weather.

As Bill mentioned, our plans went well during the quarter, which enabled us to increase KCP&L wholesale sales over a year ago. Volume increased 13%. We were able to sell that volume in an average market price that was 13% above the comparative 2007 period, primarily due to higher gas prices.

Third quarter core earnings for the electric utility segment, $102.5 million or $0.90 per share, of this GMO contributed $18.6 million or $0.16 per share.

KCP&L's earnings increased about 10% over the 2007 quarter, in addition to the key revenue drives that are covered on the previous slide, other items that impacted KCP&L's quarterly earnings compared to last year included an increase of $6.5 million and AFUDC. The decline in purchase power of $10 million in 2008, primarily to the 40% decrease in megawatt-hour purchases, as a result of mild weather, reducing retail load needs decreases partially offset by 69% increase. The average price per megawatt-hour, as a result of higher natural gas prices and increases in fuel costs and operating maintenance in general. Earnings per share for the segment in the quarter were impacted by $0.29 per share of dilution caused by the shares issued in connection with the GMO transaction.

Turning now to the year-to-date to September. This chart shows revenue for the electric utility segment. Total segment revenue was just over $1.2 billion which includes $170 million contributed by GMO. KCP&L revenue increased by about $66 million compared to the same period in 2007. Retail revenue, primarily due to new rates that took effect in January of 2008, counted for about 70% of the increase. Balance was attributable to wholesale revenue which increased $18.2 million over 2007, driven again primarily by higher prices. However, the adverse effect of weather on KCP&L's third quarter, as I noted before, negatively impacted the year-to-date as well. Weather was actually slightly positive for the revenue in the first half for the year but the third quarter pushed the cumulative impact to approximately $27 million, unfavorable compared to 2007. KCP&L weather-normalized demand was slightly down compared to the first nine months of 2007 growing continues to be a trend for our service territory as it is for the country overall.

Year-to-date core earnings for the segment were $147.1 million or $1.54, GMO was $18.6 million in contribution for a partial quarter translates to $0.20 per share on a year-to-date basis. We've talked about most of the drivers already but an additional contributor to the plus side for KCP&L year-to-date was allowance for funds used during construction of AFUDC which increased by almost $14 million compared to last year. As construction continues on Iatan 2, the balance of 2008 and next year, this will be a growing piece of the earnings story at KCP&L and GMO.

On the negative side, KCP&L's purchase power expense was about $20 million higher than 2007. This was attributable to both higher volumes, as a result of plant outages in the first half of the year, as well as average process that were again 49% higher than 2007. Year-to-date, the core earnings dilution from additional shares issued in July, was $0.16 per share.

Our other segment mainly includes un-allocated corporate charges and labor associated with the GMO transaction. Core results for the third quarter of 2008 were a loss of $2.3 million or $0.02 per share compared to a loss of $4.3 million or $0.05 in the third quarter of 2007.

Reduced core loss for the third quarter of 2008 is primarily attributable to a $3.6 million reversal of an after-tax interest expense related to unrecognized tax benefits. Positive impact was partially offset by recognition of 2008 of a four quarter of interest expense Great Plains Energy's issuance of a $100 million of long-term debt in September 2007. This impact was about $1.1 million in the quarter. Another partial offset was labor related costs associated with GMO transaction that will, if otherwise, would have been reflected in the electric utility segment. This amount was $2.4 million for the quarter.

This slide depicts core results for the other segment for the first nine months of 2008 compared last year where it was $3.6 million higher than 2007, by the positive impact of a tax related interest expense reversal. I mentioned it was more than offset by higher interest expense and the higher labor associated with the GMO acquisition.

With that, I'll move next to our discussion of our 2009 guidance, the key drivers for 2010 and 2011. As we've announced in our press release, our earnings per share guidance for 2009 is in the range of $1.30 to $1.60 per share. Our range is fairly wide, however we anticipate nearing the range as we move through 2009 and gain additional clarity on the number of items including customer growth and the usage trends, marker conditions, rate case outcomes.

Now, I'll highlight the key assumptions that not only support our 2009 guidance but also will be helpful in thinking about our path towards 2010 and 2011. From a revenue perspective, we aren’t looking for much in a way of weather-normalized retail demand improvement next year. Economy in our service territory is sluggish. We're looking for KCP&L demands to stay about flat, the GMO growing at about the same rate as it did this year.

As you put it combined, weather-normalized retail sales growth, at around 0.5% for the full year. As we look to 2010 and 2011 we do see a better demand improvement at KCP&L, still below the 2% growth rates we've seen historically. We expect GMO's growth to be significantly below the 2003, 2007 average of 2.5% to 3.3% as well. On a consolidated basis, in 2010 and 2011, we see retail sales would grow at around 1% or so. In terms of wholesale, things will continue to work as they have. The KCP&L Kansas and GMO that we captured in the fuel clauses. KCP&L Missouri will have a new margin threshold built into the base rates that will go in effect in 2009. Anything above that, Mike would provide a short-term cash benefit, he booked his regulatory liability and return to customers in the next case. On a regulatory front, we've talked extensively about our cases and process but I also want to mention our project timing for the next case. which is the one that will bring Iatan 2 in the rate base.

Our plans are to file for new rates which would be effective KCP&L Kansas in July 2010, and GMO in October 2010, and for KCP&L Missouri in January 2011. The lag for the KCP&L Missouri contemplates our request to include in that case a significant increase in coal transportation cost, related to the exploration of a long-term contract with the BNSF, that takes effect January 1, 2011. It's important to avoid regulatory lag, given the size of the increase, but it would have help to do that we believe.

For next year, we are expecting our plans to run about as they have on average, this year and last year. That is equipment availability at around 80%, capacity at around 77%. In 2010 and 2011, we expect to see the beneficial impact of initiatives like our board to value reduction program, increased operator training in the view of reflected and improved availability metrics.

As we have mentioned with all the uncertainty in the financial markets, we have taken a very detailed and thorough look at our expected capital expenditures in the coming years. Particularly, 2009, '10 and '11. Results of that process are shown in the later slide.

If you compare that chart though to the disclosures in our second quarter 10-Q, you'll see the CapEx for 2009, 2010 for KCP&L, GMO combined as about $270 million lower, about, $75 million of that is due to the extending the timing of La Cygne environmental projects. As mentioned early, we are now planning for an in-service date of those projects in January 2014, to meet our expected timeline for BART that would move the bulk of the spending until after 2010.

As Mike and Bill have already mentioned, the capital budgets does not include any expenditures for wind generation in 2009, 2010 timeframe. Doesn't mean we won't be pursuing wind during that period, but it does mean that our plans contemplate of valuing the use of alternative structures and to minimize the need for additional capital.

Our final comment with respect to capital is that we've flexibility to make additional adjustments if need be. For now we think the actions we've taken have created a right balance in reducing near-term capital market risks for maintaining investment needed to achieve additional operational and strategic goals. Obviously, we'll be carefully evaluating market developments and plans that we currently have as we go forward.

For fuel, as we've indicated here, about 67% of our total cost is covered under fuel clauses for GMO and KCP&L and Kansas, as well as through the wholesale market mechanism in KCP&L in Missouri for wholesale related fuel. We have almost all of KCP&L's 2009 coal requirements hedged, and material portion of 2010 needs, which include requirements for Iatan 2.

Especially with the current states the markets are in, our assumptions relating to financing are very important to outlook as well. The $2.4 billion in capital expenditures projected over the 2009 or '11 period we expect to issue both equity and debt over the next three years. Our 2009 guidance though assumes the issuance of 200 million in common stock. Our objective is to get $200 million of equity credit from the rating agencies by some means next year. There are number of ways we can do that.

We ultimately deem that issuing equity is indeed the best alternative, like we look at our safe program with Bank of New York Mellon which we put in place in August as a preferred means of actually executing it.

Beyond 2009, we are targeting another $400 million of equity or equity credit in the 2010 or 2011 period. How and when we complete that will be, of course, subject to market conditions, what are the needs, rate case timing and number of other considerations.

We've also be looking at new debt of $850 million or $950 million over the 2009, 2011 period. Difficult to be very precise in terms of how that will be spilt between short and long-term. Obviously, the corporate debt market is extremely difficult right now and we don't have any immediate plans to issue anything long-term.

We get questions periodically about whether we plan to refinance any of the GMO debt. (inaudible) provisions on net debt are on us, and it's hard to envision a scenario where refinancing would be economically attractive. If that were to change, we may consider it, probably not on a large scale, given other internal demands for capital.

Also I wanted to call your attention to the reduction of roughly $32 million in annual pre-tax interest expense that will result from amortizing the write-up two of GMO's high coupon debt issuances, market value at the closing. This will affect earnings, but it has no impact on cash.

You can see here that we are assuming that marginal composite tax rate stays fairly constant at around 39%, NOLs we've acquired in the GMO transaction will provide cash benefit of about a $100 million annually, but will not affect annually.

That concludes my summary on key assumptions. This next slide shows projected capital expenditures for the rest of the year, and the next three year. We've already discussed the key points, so we won't add anything further.

Particularly, as we near completion of Iatan 2, we're going to see significant growth in the construction working process balance, which has a direct impact on AFUDC, as I discussed earlier. As you heard in my comments earlier AFUDC is becoming a significant factor in our earnings, forward look at AFUDC and the CWIP that drives it are depicted in this chart, likewise it would be important to earnings story in 2009, '10 and '11.

We've also shown here the AFUDC equity rate that applies for KCP&L's share about Iatan 2, the new rates go into effect next year. As you may recall KCP&L's, as I've mentioned the energy plan, regulatory bank call for the AFUDC equity rate on Iatan 2 to be 250 basis points below the allowed ROE. Since there is no allowed ROE in the 2007 case, since we've reached the settlement, as such the AFUDC equity rate was stipulated 8.3%.

I have covered quite a bit of ground and I appreciate your time and attention. With that I'll hand the call back over to Mike.

Mike Chesser

Thanks Terry. As we go into the Q&A, I would like to leave you with a few thoughts. KCP&L and GMO have deliberately and thoughtfully made investments in regeneration, environmental upgrades, energy efficiency and renewable energy over the past three years to ensure plain affordable energy for our region. Despite the turmoil in the marketplace, we remain well positioned to stay the course on our growth pattern. While we have prudently reduced CapEx in the short-run, as we've shown today, we have the liquidity and the financial flexibility to continue to execute our long-run rate base growth story.

This updated version of a chart we first used late last year, tells a great story. One that we do not believe is reflected in our current stock price. The earnings growth that was a result from the rate base expansion you see here, combined with our dividend, translates into what we believe as a very attractive total return proposition for our shareholders.

With that I like to take any questions that you might have.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Michael Lapides with Goldman Sachs. Please go ahead.

Michael Lapides - Goldman Sachs

Hi, guys. Question looking at page 23 of the presentation, the projected CapEx, I wanted to just make sure I understand, first of all, of the base utility construction expenditures, how much of that is KCP&L versus GMO?

Terry Bassham

On page 23.

Michael Lapides - Goldman Sachs

Ballpark.

Terry Bassham

Ballpark is probably 60, 65 we can get that specific number for you.

Michael Lapides - Goldman Sachs

Got it.

Terry Bassham

Actually that's ongoing operation as opposed to CEP.

Michael Lapides - Goldman Sachs

That's right. I am just looking at the kind of the base level. Why such an uptick in '11?

Terry Bassham

We got some additional expense starting potentially from some wind projects that would happen later in '12-'13 time period, which again would be subject to regulatory approval and ultimate conclusion that we had the ability to get that done.

Michael Lapides - Goldman Sachs

Okay. So it looks like the bulk of it is in the generating facility. So that incremental kind of $120 million uptick from 2010 is tied to the wind that hasn't been approved yet by the regulator.

Terry Bassham

That's right.

Michael Lapides - Goldman Sachs

Okay, cool. Thank you, guys.

Operator

Thank you. Our next comes from the line of Paul Ridzon with KeyBanc. Please go ahead.

Paul Ridzon - KeyBanc

Good morning, guys. How are you?

Mike Chesser

Great, Paul.

Paul Ridzon - KeyBanc

Congratulations on kind a finding a lot of flexibility in demand and preserve the dividend. The second questions, are these AFUDC numbers you give pre-tax or is that net income?

Terry Bassham

That's pretax.

Paul Ridzon - KeyBanc

Okay, and can you review the requirements of what you need to do with regards to lowering alternative energy under your CEP?

Bill Downey

Sure, in terms of our specific CEP requirements, there is several pieces. The first, of course, was wind, which we did the first 100. The second requirement was to evaluate '08, which we did and determine not to be the time to do that.

We then have energy efficiency, which we have a power project in place, and we continue now to expand that into the GMO territory on that same basis. Now, that meets that requirement. We then have obviously more we would like to do. We're working on ability to get that done.

We then have some additional system upgrades or what we would call smart metering and smart system, our work that we are in the middle and we're on track with doing it. Then just talking about renewables and green as opposed to these (inaudible). Then on top of that, I would say, Paul, that -- hello.

Paul Ridzon - KeyBanc

Hello.

Bill Downey

There you are, Paul? Sorry, I lost you. The other piece I would say is that although those are the basic pieces beside from our environmental spend and capital spend for the plants themselves, we also, of course, are working through the Sierra Club agreement, which looks at additional wind we talked about the possibility of additional energy efficiency. But again, that's technically outside the CEP.

Mike Chesser

Paul, this is Mike Chesser. During this regional election, we had a Proposition C pass in Missouri, which also calls for utilities to add up to achieve about 15% of our total retail sales through renewable sources by 2020. Everything that it does, it puts a cap on how much rate increase is caused by those investments, but it does provide for us to be able to do things that don't meet the absolute lowest cost test.

We think that's going to give us lot of altitude. We're looking forward to beginning to explore some solar installations. We're also looking at coal-firing biomass in some of our power plants. So, I think this will provide some additional growth opportunities for us in the coming years.

Paul Ridzon - KeyBanc

How much of the equivalent debt not currently in rates got written-off?

Bill Downey

Well, basically all of it is not rates.

Paul Ridzon - KeyBanc

All of that got written-off bookings.

Bill Downey

Yes.

Paul Ridzon - KeyBanc

Then, if we have just economic Armageddon, how much further flexibility do you have to move things around?

Bill Downey

It depends on the timeframe you're talking about. I mean we certainly have additional flexibility. As we kind of in our prepared comments said, we took what we thought was a balanced approach given everything going on. Again, I think our liquidity available gives us some more flexibility in that regard.

If we had continued our worst Armageddon, as you put it, and extend it for a period of time, we certainly have the ability to think deeper into our capital budgets and do something that you would want to do and need to do in that situation. Obviously, you don't want to do that till you had to, because we'd like to come out to back into this financial process with as much growth and strength as possible.

Mike Chesser

That really is the key. We're always trying to balance the capital investment, which is going to drive the future earnings growth with liquidity needs. But I do agree. I think we have some additional flexibility.

Just think about it, if in that scenario you're talking about, a lot of a development that is occurring in downtown Kansas City where we're having to do some major T&D reinforcements would slow. We've had a potential to delay some of those reinforcements. So, I think we do have the flexibility. But right now, I think we struck the right balance.

Paul Ridzon - KeyBanc

Then the decision to kind of tranche out the equity as opposed to coming all at once, obviously it's got a negative earnings impact as you won't have that reflected in rates. But what's your (inaudible). Is just that state of the markets? Obviously, we saw Petco had some trouble last night placing equity?

Bill Downey

Exactly. I mean I think our assumption is that we continue to see issues in that regard. So, we're preparing not to do that. Certainly, if things change, then I have the ability to do something different. But at this point, we're preparing for basically no change in '09.

Mike Chesser

Unfortunately, the amount of equity has been reduced significantly. I think that mitigates the impact.

Paul Ridzon - KeyBanc

Definitely agree. Thank you very much and will see you.

Michael Cline

Thanks, Paul

Operator

Thank you. Our next question comes from the line of Steve Gambuzza with Longbow Capital. Please go ahead.

Steve Gambuzza - Longbow Capital

Good morning.

Bill Downey

Good morning, Steve.

Steve Gambuzza - Longbow Capital

Can you talk about the coal cost that you mentioned that they were affecting the timing of the future rate cases of KCP&L. Can you just review exactly what's changed there in that 2011 timeframe?

Bill Downey

Yes, and again, we are trying to give maybe even more clarity around the filing of those cases, given the impact it has. So, again, what really is driving the delay a bit on the Kansas City Power & Light Missouri piece, is that fact that we have talked before about a very favorable transportation contract on our coal to the majority of our plans to the BNA.

That long-term contract runs out at the end of 2010. New rates effective 2011, we obviously don't have that specific rate, but our expectation and what the railroads have doing with all the utilities, I believe, from those part is taking them to a tariff rate. So, if you look at what we expect the tariff rate to be, it would be significant one.

Steve Gambuzza - Longbow Capital

So the contract expires at the end of 2010?

Bill Downey

Right. So, we don't want to run the risk that we actually true-up and finish the rate case in the third quarter of 2010 and immediately have regulatory lag effect on it again in 2011.

Steve Gambuzza - Longbow Capital

Sure. When will you know what the new transportation rate is going to be?

Bill Downey

You really probably don't know that actual rate till 2010.

Steve Gambuzza - Longbow Capital

It will be beginning at 2010?

Bill Downey

Well, no, probably mid-2010.

Steve Gambuzza - Longbow Capital

Mid-2010?

Bill Downey

It's what's happened to fuel, what's happened to the construction, those kinds of things.

Steve Gambuzza - Longbow Capital

Okay, and then as you think about the CapEx changes, is it right that you basically said you've adjusted the forecast by about $200 million down in 2009 and I think $70 million in 2010?

Bill Downey

Correct.

Steve Gambuzza - Longbow Capital

Okay. If -- as you think about -- and there was a comment in the document saying that you expect to maintain the current dividend between 2009 and 2011. Does that imply you expected -- you might really grow dividend beyond that?

Mike Chesser

Yes, this is Mike. That's the goal. If you take a look at that chart that I showed, it shows the growth in rate base, and convert that to earnings growth. I think in the out years, you'll see we would be generating earnings that we've always said we've targeted a pay out ratio at 70%. At that pay out ratio, we would be generating earnings to potentially grow the dividend.

Steve Gambuzza - Longbow Capital

Okay, and I guess, the concern, I think, a lot of people have are in the interim, 2009, 2010 specifically that the cash flow is obviously depressed in 2009 because you have an under-earning situation embedded in guidance and you are not getting your depreciation on Iatan 2 that, hopefully the clear path to resolving that into 2010 and '11 but I understand the pay out argument. How do you think about it from a just a cash flow? When you look at cash flow operations versus your projected CapEx, I guess I am surprised to not see the CapEx in 2010 and '11 come down more than what you've got because just looking at the cash flow from operations to 2010, 2011 versus your CapEx it still implies you're going to be issuing substantial amounts of debt to fund the dividend.

Michael Cline

Well, keep in mind that this time our ongoing CapEx scenario we're completing the major co-plan at Iatan. So that's a lot that will come off at the end of 2010.

Steve Gambuzza - Longbow Capital

Okay. Do you feel like the agencies are onboard with this plan?

Michael Cline

Absolutely, yes. We have gone through the whole plan with them and they we've even had them provide some input choices where we're developing the plan.

Mike Chesser

Steve, I would say too. Again, this is our expectation, this is our plan. Again, as somebody asked earlier, there is chunk of wind that starts on that backend. There is additional work that's been done on environmental. There's things that are happening out there that time and again, could be affected because of different things. So I think what we're continuing to do here is show that we're keeping our commitments, we still believe we're going rate base, in a way that's consistent with our CEP but we'll maintain the flexibility to deal with things that come up along the way.

Steve Gambuzza - Longbow Capital

Is it fair to say that as conditions change, your bias will lead you to adjust spending to preserve little bit liquidity in the dividend?

Michael Cline

Exactly, couldn't have said it better.

Steve Gambuzza - Longbow Capital

Okay.

Michael Cline

That's fair to say. Well, the other thing I just want to point out, with our Comprehensive Energy Plan, not only have we had the support of the credit rating agencies, we've also, as you know, had a pretty broad based community support, the stipulation that we signed with all the stakeholders, testing, getting approving of those investments. So it is somewhat of a unique window of time where we have higher expenditures but a high probability of having them included in rate base.

Steve Gambuzza - Longbow Capital

Okay. Thank you very much.

Michael Cline

Okay.

Mike Chesser

Thanks, Steve.

Operator

Your next question comes from the line of Jonathan Arnold with Merrill Lynch. Please go ahead.

Jonathan Arnold - Merrill Lynch

Good morning, guys.

Mike Chesser

Good morning.

Jonathan Arnold - Merrill Lynch

I have a quick question on the synergy assumption that's embedded in this guidance. Can you just reminds us how the timing works regarding to your earning of synergies and then throwing them up on rate cases and then how you worked that into your 2009 outlook and how that then plays into '10?

Michael Cline

Sure. The assumption is basically consistent with what we filed on our rate case. We explained in the merger filing that we've filed an expectation around $23 million, which has been achieved by the true update. In the way that mechanism works again, as anything we generate up to the true update we obviously keep, but then at that point those go into rates and then anything we generate the next day forward to the next true up, which would be laid in 2010, we keep again. I would say that what we've shown in the rate cases we believe we are on track. We are on track to meet our targets and goal and I would say, we're even on the track to achieve those goals in the timeframe we talk about. So, we display that timing expectations, but obviously after that 23, there is a large chuck that begins to be regenerated between then and the fall of 2010 as well which, again, we'll keep during that period.

Mike Chesser

I will say that right of the back, from 2008 to 2009, we can seen the benefits of the integration as we look at our overall cost per customer. They run the business and we believe that as we continue to harvest these synergies between the two companies that's going to be our path would truly Tier 1 in cost and all aspects of our business.

Jonathan Arnold - Merrill Lynch

If I may, just a follow-up. The range you've laid out, the 130 to 160, I think you've said that you're assuming that you get what you've asked for in the two rate cases. If you got exactly what you asked for, is that what pushes you to the high end of the range and what else or what are the big factors that move you around within the range, given how plan looks today?

Michael Cline

Well, there are obviously a number of variables. One, I would say that the biggest variable in that range is the economy, meaning, if we were to begin in the second half of next year to return to a more normal growth rate that could certainly drive us towards the upper end of that range. We also have some uncertainty around. We're hoping that our coal fleet could perform better than the 80% in its area and that could drive us of the upper end to the range but at this point, standing here in November, we think there's enough uncertainty that we should have a range a little broader than we normally would.

Jonathan Arnold - Merrill Lynch

Okay. Thanks a lot guys.

Michael Cline

Sure.

Mike Chesser

Thanks, Jonathan.

Operator

Thank you. Our next question comes from the line of Hassan Doza with Luminous Management. Please go ahead.

Hassan Doza - Luminous Management

Good morning guys. How are you?

Mike Chesser

Good morning.

Hassan Doza - Luminous Management

Listen, I wanted to get your thoughts on your view toward 2009. When I look at my numbers, if you just simply take a look at a rate base, your equity layer, your ROE, and you incorporate the benefits of AFUDC, then you look at the synergies from the transaction, and also the amortization of the equivalent debt. I'm getting to a much higher EPS for 2009, even before accounting for the lower equity issuance for '09, even at today's prices. So can you kind of walk me through mathematically, your thought process for 2009?

Michael Cline

I'm not going to probably be able to arithmetically connect the dots there from what you're getting, but what I can tell you is that probably it is affecting '09 more than what people thought would be. Number one, we've got regulatory lag. Remember that the rate impact or the rate request doesn't go into effect till July and August. So there is lag there related to a typical regulatory lag issues, increased cost that have continued.

But the other thing, I think, people probably have underestimated is just the sheer impact of going from average 2% growth to flat. We're talking between, including GMO, you could be talking $0.20 to $0.25 plus of share impact from that loss of growth and get that back into our range we have given here.

I think we look probably a lot like people had probably anticipated before. So both the economy and the regulatory lag, some increased cost interest expense things that everybody's experiencing, impacts that as well. So I think those are probably the drivers that might make the difference in what you had previously expected and what you're hearing from us today.

Hassan Doza - Luminous Management

Got you. If you look at the longer term moving into 2010, '11, I mean, one AFUDC helps you with some of regulatory lag. Right?

Mike Chesser

Well it helps with regulatory lag around the construction process, but obviously, we've got other regulatory lag in a form of increasing cost that's been affecting folks. So we've got things that happened post last rate case, that did not yet got included in the rates in this rate case. So it's not just the construction, it's also just increased cost on materials, fuel and things like that.

Hassan Doza - Luminous Management

Which should be helpful, as you kind of true-up the rates in second half of next year in your rate case?

Mike Chesser

Absolutely, that's exactly. In fact in a continual market, were cost are going up, whether it be labor, fuel for vehicles, fuel for power plant, whatever it might be, regulatory lag hurts you pretty dramatically. As things stabilize and you're able to true-up those costs and new rates are in affect, than the regulatory lag in and of itself doesn't hurt you as much if you're not suffering from increased expenses. So that true-up certainly will help us to catch up, and it's also a driver again for the timing of that Iatan 2 case for that very reason.

Bill Downey

I think it's important to emphasize that, that's one of the real benefits for the regulatory deal we have as far as the Comprehensive Energy Plan. We are going to be able to true-up in April. As you know, typically and there is at least a year of regulatory lag in the process if you continually (inaudible).

Hassan Doza - Luminous Management

Got it. As you kind a put the Iatan 2 into rate base, looking at 2010, '011 your rate base figures, as the assets go into rate base you alleviate lot of the movements you have in '09 for example?

Mike Chesser

Absolutely, we're in the largest chunk of construction period of the entire CEP we're trying to finish Iatan 1and we're trying to keep on track with 2, while they're been happened as we get that 2011 time period and we now got both 1 and 2 in rates, absolutely.

Hassan Doza - Luminous Management

Got you. Thank you very much.

Mike Chesser

Thanks you.

Operator

Thank you. Our next question comes from the line of Leon Dubov with Catapult Capital Management. Please go ahead.

Leon Dubov - Catapult Capital Management

Hi. Good morning.

Mike Chesser

Good morning.

Leon Dubov - Catapult Capital Management

You guys said that the wind CapEx was excluded from your base utility construction. How much more could we see on top of the levels that you guys outlined if you do choose to go ahead with it?

Terry Bassham

Well, I think what we've got in front of us or what's probably typical, we've talked about another $200 million project, again what we've talked about is how we would structure that what we would do. Ultimately for us, the issue around, especially 2009, is credit. We want to maintain a credit metrics. So, the project would be current pricing in that ballpark.

Leon Dubov - Catapult Capital Management

That's for the 100 megawatt project that you talk about?

Terry Bassham

Yes. That's kind of '09, '10 timeframe.

Leon Dubov - Catapult Capital Management

Okay, and just the bigger picture. When you guys kind of think of the funding for this stuff, you mentioned the need for $200 million of equity this year and possibly another $400 million more, how do you weigh that against possibly getting equity from reducing to dividend temporarily, if that's even ever an option?

Mike Chesser

Short answer is we don't. We think the dividend is a core part of our value proposition. We actually believe that, as we start to deliver this earnings growth and paying the dividend at the rate we do is going to be our path two or higher stock price.

Leon Dubov - Catapult Capital Management

Okay. Fair enough. Thank you.

Mike Chesser

Welcome.

Operator

Our next question comes from the line of Scott Engstrom with Blenheim Capital Management. Please go ahead.

Scott Engstrom - Blenheim Capital Management

Good morning.

Mike Chesser

Good morning.

Scott Engstrom - Blenheim Capital Management

Just a couple of quick questions to try and help with the modeling, do you know what the fourth quarter '07 comparable GMO earnings would have been, as we think about fourth quarter '08?

Terry Bassham

No we struggle with that, you really can't remember that there wasn't a GMO, Aquila had both the gas properties and other stuff. We tried to do that. It's very difficult to pull out what would be a comparable GMO number for the fourth quarter.

Scott Engstrom - Blenheim Capital Management

Okay. How about for '09? Can you give us a sense of the split between your guidance of KCP&L and GMO, even if you don't want to get down of the dollar may be even directionally for KCP&L relative to '07 and GMO?

Terry Bassham

Not really. I mean not relative to '07 for sure.

Scott Engstrom - Blenheim Capital Management

Versus '08 I'm sorry.

Terry Bassham

Well again, I think, as we head into '09, we might be able to talk about some of that, but other than given you the size of the company, we really don't have ability to do that very well. We'll continue to show you, as we go what piece of the revenue, for example, hopefully makes up the GMO piece and that way you'll be able to get some sense of that connection or balance.

Mike Chesser

I'm sure, as you know, that one of the real advantages of this merger is that we are truly integrating both companies operationally, so there are all the cost centre, all the collection streams, they are all seen as one contiguous stream. We don't treat them as two different companies.

Scott Engstrom - Blenheim Capital Management

I appreciate that, because some of the information is not available, trying to get a sense of feeling comfortable around the modeling and feeling like, my numbers match up with your numbers, and some of those things would be helpful.

Terry Bassham

We will have a FERC Form-1 on GMO, if you will. We will have a segment in our 10-Q and our SEC documents that has KCP&L only. So, basically that leaves out other and GMO, and I think, that will help you pretty much getting the ballpark.

Scott Engstrom - Blenheim Capital Management

Got it. Okay.

Terry Bassham

If you look at that, and if you have difficulty, we'll continue to be able to talk about that after that's filed. We expect to file our 10-Q tomorrow.

Scott Engstrom - Blenheim Capital Management

Very good. Then did you say, the '09 assumptions is the $23 million of synergies, or you're saying, that's what you're allowed, or how should I think about that number?

Terry Bassham

The $23 million is assumed to be achieved by the true-up date of late April, assuming that we would keep those, as they are earned through that time period. You assume that that thing goes into rates, as of that date, and then the next layer of synergies we generate from May 1, through the fall of 2010, we would keep. Those would be a part of our earnings stream. We'd laid out in the merger case the expected timing around earning those synergies, to kind of demonstrate, we expect to keep about half of the total 305 through that five-year period. I would say again, I think we're on track for that path.

Scott Engstrom - Blenheim Capital Management

Last question, on the finance assumptions, you mentioned the no refinancing of GMO debt prior to maturity. Is that a reflection of current credit markets? Is it a function of the fact that you wrote it up, so there's no real accounting benefit to refinancing it? Would that assumption change if the credit markets were suddenly reserved? Just some thoughts on that.

Terry Bassham

That's not -- it's not really a factor on the economy. We've been talking about this issue for several quarters. The real bottomline is it's not economics to actually take that out, based upon vis-à-vis penalty to do that. So, it's just a function of the economics of the debt itself and not our current economic forecast or economic world we live in.

Scott Engstrom - Blenheim Capital Management

Very good. Okay. Thank you so much.

Michael Cline

Thank you.

Operator

Thank you. Our next question comes from the line Jeff Gildersleeve with Millennium Partners. Please go ahead.

Chris Shelton - Millennium Partners

Good morning, guys. Can you here me? It's Chris Shelton

Mike Chesser

Yes, sure.

Chris Shelton - Millennium Partners

A couple of quick questions to clarify. I got distracted when you were answering Jonathan's question on what you're assuming in the '09 guidance for the approval of rate request. Is that the full request or otherwise?

Mike Chesser

Well, we don't gets specific of that what assumptions we're including on rate relief. Basically what we do is we provide a range that we realize across that range. There is a potential for variability.

Chris Shelton - Millennium Partners

Okay. The range has some varying return, I guess.

Terry Bassham

That is certainly one of the drivers of what could push us to the top end or the bottom end of the range.

Chris Shelton - Millennium Partners

Okay. Understood. Then I calculated also the balance sheet you guys had at 50% debt-to-cap. Are the utilities higher than that? Are they still up at 54 as of the end of third quarter?

Terry Bassham

From an inventory perspective, they will be higher, but it is certainly above 50. From a regulatory perspective, it's closure to 53% or 54% based on our [ask].

Chris Shelton - Millennium Partners

Okay. As of third quarter?

Terry Bassham

Well, no, the 53% or 54% is based upon ask, which was anticipated to be the true-up in April.

Chris Shelton - Millennium Partners

Right. But I guess, are you still kind of at that level as of currently going into the '09 to '011 period you guys outlined?

Terry Bassham

On a balance sheet basis, it actually would be lower at this point. It's above 50, but it'd probably be more in the 51-ish range.

Chris Shelton - Millennium Partners

Okay, and does the financing plan that you guys laid out this morning kind of get you back up to the 54% level?

Terry Bassham

On a regulatory basis, yes.

Chris Shelton - Millennium Partners

Okay. So you don't need any extra financing at the end of '08 to kind of bring you back to the 54% starting line, I guess.

Terry Bassham

Now, that's kind of the point of the discussion is that we talked about '08 and '09. Now, we're saying is between now and '10, it's pretty straightforward on what we discussed.

Chris Shelton - Millennium Partners

Got you. Then just one final question. Is there a diluted share count assumed in the '09 guidance that you can share with us?

Terry Bassham

A diluted share --.

Chris Shelton - Millennium Partners

Well, a share count that you're assuming the $1.30 to $1.60 on?

Terry Bassham

Well, it's basically penny shares that we think we issue now. We'll typically do that. I mean ultimately it depends on what stock price is and how much we need to do from that perspective. So, I couldn't tell you that I haven't implied diluted share count for '09 that I could give you.

Chris Shelton - Millennium Partners

Got you.

Terry Bassham

Talking about 200 million that we again built into the plan is probably best way to go with it.

Chris Shelton - Millennium Partners

Okay. Thanks, guys.

Terry Bassham

Thank you.

Michael Cline

Sure.

Operator

Thank you. Our final question comes from the line of Michael Lapides with Goldman Sachs. It's a follow-up question.

Michael Lapides - Goldman Sachs

Hey, guys. Just wanted to ask; it's both related to environmental CapEx. First, the other environmental CapEx line on your capital expenditure slide, is that the movement of La Cygne or what's kind of in that bucket and how does that bucket look beyond '11?

Michael Cline

It's the beginning of dollars for a possible environmental on the other units that are not in the CEP. So, again, I don't want to use the word placeholder but we obviously need to plan for additional environmental assuming environmental regulations. It's the pieces that are beyond the CEP, but obviously there is still work need to be done there yet to determine what exactly we'll do and how much we'll do at the starting of that process.

Michael Lapides - Goldman Sachs

Okay, and the movement of La Cygne related to environmental CapEx past beyond the next 18 months or so. I thought La Cygne was part of the CEP, I may be mistaken and if so, do you have regulatory approval and confirmation yet that you can actually move that CapEx?

Michael Cline

Yes. A couple of things that the La Cygne, one is in the CEP. Remember that we have already gone to SCR.

Michael Lapides - Goldman Sachs

Yes.

Michael Cline

We had delayed the remaining backend past 2010 but that's still in the CEP. But what is not in the CEP is La Cygne too and we're looking at the fact, given the timing, whether or not doing those in some joint manner is the most efficient way to do that. But when it's all set and done even though it's outside the CEP, it is within the EPA regulations or the BART regulations because its in Kansas under the BART regulations. What's happened is that with the care, issues that have occurred it had an indirect timing impact on the completion of BART regulations, and as a result we believe we've got a other gear before we have to begin doing that but it's obviously something we would do to meet the BART requirements by that 2014, 2015 time period.

Michael Lapides - Goldman Sachs

Understood, okay. I just wanted to make sure if there are pieces of the CEP that were getting pushed out whether you have to go to the regulator and get kind of a waiver for that or whether you've already done so?

Michael Cline

We've been talking to the regulators all along. It's been, I don't know, probably a year-and-a-half or more since we first talked to them about the fact that based on cost and based upon scheduling and if it was not going to be possible to get the second half of La Cygne done before 2010. So we've already had that discussion. This timing would be basically similar to that. We're looking at the market conditions for the engineering and equipment, as well as the financial markets to time that so that we're meeting all our EPA standards and meeting our commitments that we made on the CEP.

Mike Chesser

Yes, Michael, the key there was the equipment was available for everybody with retro-fitting during the same time period. So the equipment was available for the original schedule. Then it's pretty clear, we're going to do both of them; it's more economical, and given the tight footprint, it's more practical to do at the same time.

Michael Lapides - Goldman Sachs

Got it, okay, thank you guys. Much appreciated. Now I'll follow-up with you offline.

Michael Cline

Sure. Thank you.

Operator

Thank you. And at this time, I would like to turn the call back over to Mike Chesser for any closing remarks.

Mike Chesser

Okay. Well, thank you again, that was a very extensive call. I hope you come away with the appreciation that even though we're going through some difficult times here, we are in a position where we have strong liquidity. We are looking forward, as the economy recovers and the investments in the comprehensive energy plan go on the rate base to a strong future earnings path that will generate good shareholder value and potentially allow us to grow the dividend over the next five years. I look forward to joining many of you in Phoenix and go through this in more detail. Again, thank you very much for joining us today.

Operator

Ladies and gentlemen, this concludes the Great Plains Energy third quarter 2008 earnings conference call. If you'd like to listen to a replay of today's conference please dial 303-590-3000 or 800-405-2236, with the access code of 11120747#. Thank you for your participation. You may now disconnect.

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