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Executives

Steve Himes – Manager of Investor Relations

Ed Muller – Chairman and Chief Executive Officer

Jim Iaco – Chief Financial Officer

Bill Holden – Treasurer

John O'Neal – Chief Commercial Officer

Paul Gillespie – Senior Vice President of Tax

Analysts

Christopher Taylor - Evergreen Investments

Angie Storozynski - Macquarie Research Equities

Robert Howard – Prospector Partners

Neel Mitra – Simmons & Company

Lasan Johong - RBC Capital Markets

Jeffrey Coviello - Duquesne Capital

Gregg Orrill - Barclays Capital

[Brian Tadao] - Broadpoint Capital

Oliver King - Zimmer Lucas

[Way Remaldo - Stone Harbor]

Raymond Leung - Goldman Sachs

Peter Quinn - Bank of America

Mirant Corporation (MIR) Q4 2008 Earnings Call February 27, 2009 9:00 AM ET

Operator

Good day, everyone, and welcome to Mirant Corporation's year end 2008 earnings call. Today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to Steve Himes, Director of Investor Relations at Mirant. Please go ahead.

Steve Himes

Thank you, [Jaime]. Good morning, everyone, and thank you for joining us today for Mirant's fourth quarter and year end 2008 earnings call.

If you do not already have a copy, the press release, financial statements, and year end filing with the SEC are available on our website at www.Mirant.com. A slide presentation is also available on our website and a replay of our call will be available approximately two hours after we finish.

Speaking today will be Ed Muller, Mirant's Chairman and Chief Executive Officer, and Jim Iaco, Mirant's Chief Financial Officer. Also in the room and available to answer questions are Bob Edgell, Chief Operating Officer, Bill Holden, Mirant's Treasurer, John O'Neal, Chief Commercial Officer, and Paul Gillespie, Senior Vice President of Tax.

Moving to Slide 1, the safe harbor, during the call we will make forward-looking statements which are subject to certain risks and uncertainties. Factors that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations are discussed in the company's SEC filings. We encourage you to read them.

Our slide presentation and discussion on this call may include certain non-GAAP financial measures. For such measures, reconciliation to the most direct comparable GAAP measure is available on our website or at the end of our slide presentation.

And with that, I'll turn the call over to Ed.

Ed Muller

Thanks, Steve, and good morning, everyone. I'll try and remember to tell you what page I'm on as I go forward and I'll ask the folks here in the room with me in Atlanta to remind me if I forget to do so. Let's start on Page 3 with an overview for 2008, the year just completed.

First, we've had an approach to running the business of hedging forward when we can do so efficiently, and this past year and looking forward is a great example of why hedging provides significant value for the business, particularly in a period of falling commodity prices. By hedging we miss some peaks, but we avoid some troughs and we get a much greater degree of stability in managing the business and managing our balance sheet.

Speaking of the balance sheet, we have a strong balance sheet with adequate liquidity for the business as we come into 2009 and we have no concerns in that regard.

During the year we returned $2.74 billion of excess cash from asset sales through open market share repurchases. Included in that is $200 million that we announced in November we would return and, as promised, we have completed that. Along with that $2.74 billion, we have now returned since November 2007 $4.056 billion.

Turning to Slide 4, here are the results as we reported them this morning for both the quarter and the year. Each, as you can see, are down some compared to the comparable periods in 2007.

Looking at the year, Jim Iaco will go through in detail the changes, but broadly speaking we've had lower energy gross margins in the Mid-Atlantic region primarily because of compressed dark spreads, we've realized lower realized gross margins from our fuel oil management and proprietary trading activities, and we've had lower realized value of hedges. These have been offset some by higher capacity revenues.

Turning to Page 5 and guidance, we are updating our guidance for 2009, dropping it some, and we are, consistent with past practice, initiating guidance for 2010.

For 2009 you can see we are reducing it from $981 million to $897 million. This is for a variety of factors - again, Jim Iaco will go through them - but the principle one is lower commodity prices.

And for 2010, where we are initiating guidance at $667 million, this reflects current hedges we are very pleased to have in place for the reasons I stated earlier and current market prices.

Turning to Page 2006, and let me repeat, this speaks to why we hedge. We are in an environment which provides a very strong reminder that we are in a commodity business and deal with the variabilities and volatility that come with commodities. I'm on Page 6, by the way, if I forgot.

Our hedging program mitigates those effects and it is why we have it and why we will continue it. We've been in a period, I think everyone knows, where commodity prices have declined, in some instances quite sharply, principally because of lower demand as a result of the economic downturn that we have been experiencing.

For 2009 and 2010 compared to November 2008, when we last reported earnings and gave guidance, natural gas prices have declined by more than $2 a million BTUs and are approaching the lowest levels we've seen since 2002. For the outer years of 2011 to 2013, they've declined less and are currently trading in a range of about $6.70 to $7.00 a million.

Power prices have declined as well, but not as much as natural gas. Appalachian coal prices  significant for us; this is the primary source of the coal that we burn - [inaudible] following the industry, you know we had a real run up in coal prices in the early part of 2008 and they have been coming down just since November. Appalachian coal prices for this year have come down from about $98 a ton to less than $62 a ton, and for the outer years - 2010 to 2013 - they've declined from about $95 a ton down to less than $70 a ton. Dark spreads have contracted for this year and 2010 and are relatively flat thereafter for '11 through '13.

Turning to Page 7, I've spoken about hedging, and this is the same format we have been providing for some time. And you can see we continue to hedge. We are very substantially hedged for 2009 and pleased to be in that position. We are likewise fairly well hedged going into 2010 and then you can see how it declines.

To remind you of how this chart works, the somewhat fuzzy or hatched or thatched pieces reflect hedges that we have added since we last gave guidance and the open bars are where we have less hedging. That can come about for two reasons. One is when we, compared to our last time, expect that we will now generate more. So for the same amount of hedge we have a lower percentage hedge because they're going to be running more and that's based on our forecast of the market. And also, particularly in the instance of coal, we did have one mine, the Alpha Mine, which reneged on its commitments to us, so that reduced some of our coal position. But we have covered some of it and we are taking legal action against Alpha for reneging.

Turning to Page 8, this is the same format we have provided for some time forecasting reserve margins. This is basic supply and demand, how the market works and why it remains a good investment thesis to be an incumbent in the electricity business. The change from the past here is that things have moved right. Demand for electricity follows economic activity. With the decline in economic activity forecasted, problems in reserve margins have moved right. They are still forecasted to occur, just further out, which, of course, makes their certainty of occurring less likely. You have more certainty about what's going to happen in the next 12 months than you do in the next 36 months. But the trend remains the same, and we don't see anything meaningful being built that will change that.

Assuming, as I think everyone does that we will see an economic recovery at some point in some nature, this all makes sense, that we will continue down a path where the trend is towards declining reserve margins and, as you can see particularly in PJM East, down to levels that are in terms of system stability dangerous.

Turning to Page 9, updates on the particulars of our operations, first we're pleased with how our Mid-Atlantic coal facilities operated. Potomac River we had been working on, which I'll speak to in a minute, about getting into a position where we now are that we can operate all five units largely unconstrained, but our Mid-Atlantic coal units, apart from Potomac River, had an 8% equivalent forced outage rate in 2008. In 2007 it was 10%. We're very pleased with this and this reflects the focus that we have had in how we run our plants.

I spoke of Potomac River. For those who've followed the company for awhile, you know that we have had a number of issues there that centered on a concept called downwash, which was a concern that there was a risk that what was legally and properly being admitted up the stacks of the plant could gather down at ground level and be dangerous to people. And this resulted from the fact that the Potomac River station, which is very near Reagan National Airport, has very short stacks because it's in the flight path.

We have worked hard and diligently with the City of Alexandria, where we are located, and with the Commonwealth of Virginia and have reached an arrangement with which I think all parties are satisfied and have merged the stacks. We have five units there; we now have effectively two stacks. That gives us better confidence - that gives everyone better confidence - that what is legally coming out within the permits will not gather down at ground level and endanger people.

So that process of merging the stacks has been completed, as we had said it would be, and we are now able to run all five units unconstrained.

We have a large environmental CapEx program under way under the Maryland Healthy Air Act under which we are putting in significant controls that will control the emissions of sulphur dioxide, nitrogen oxide, and mercury. It is a large program. We have completed the portion dealing with nitrogen oxide and are now moving forward to complete the portion dealing with sulphur dioxide by installing scrubbers. We are well along in this. We remain on budget, which is $1.674 billion. We have expended in cash through the end of January last month $1.042 billion of that, and we are on schedule to have this completed by the end of the year as required by the statute.

And finally we had closed down the Lovett station in 2008 and have been demolishing it and that is well along the way. For those of you who look at things like YouTube, you can find a variety of nice videos of the stack coming down in a picture perfect dropping of the stack.

And with that we'll turn to Page 10 and let Jim Iaco walk you through the numbers.

Jim Iaco

Thank you, Ed, and good morning, everyone.

As shown on Slide 10, adjusted EBITDA for the fourth quarter of 2008 was $150 million as compared to $214 million for the fourth quarter of 2007 and $782 million for the year ended December 31, 2008 as compared to $988 million for 2007.

The $64 million decrease in adjusted EBITDA for the fourth quarter of 2008 was principally the result of a decrease in realized gross margin. The $206 million decrease in adjusted EBITDA for the full year 2008 as compared to 2007 was principally due to a decrease in realized gross margin, partially offset by a $16 million increase in gains on sales of excess emission credits and a $13 million reduction in operating and maintenance expenses. I will cover the changes in realized gross margin on the next slide.

Deducting interest, taxes, depreciation and amortization from adjusted EBITDA derives adjusted net income, which was $77 million for the fourth quarter of 2008 as compared to $191 million for the comparable period of 2007 and $517 million for the year ended December 31, 2008 compared to $805 million for 2007. The increase in interest, taxes, depreciation and amortization for the 2008 periods is principally due to a decrease in interest income, the result of lower overall cash balances due to our share repurchases, partially offset by a decrease in interest expense due to lower outstanding debt from term loan repayments at Mirant North America and purchase of Mirant America's Generation senior notes due in 2011.

Significant items that bridge net income to income from continuing operations are, first, unrealized gain or losses on derivatives, which principally reflect a marked-to-market net gain on our hedging activities increased $721 million and $1.322 billion in the fourth quarter of 2008 and for the full year 2008, respectively. These net gains were primarily due to decreases in forward power and natural gas prices.

Moving down the table, in the second quarter of 2007 we recognized an impairment loss of $175 million on the Lovett facility. Next, in 2007 we have other income of $362 million related to the Pepco settlement. Next we have non-recurring costs incurred in 2008 related to the shutdown of the [inaudible] facility. And finally in the fourth quarter of 2008 we recognized a $54 million lower of cost or market adjustment related to our fuel oil inventory.

Our average share count is lower in the 2008 periods as compared to the 2007 periods principally due to share repurchases. And finally, our earnings per share based on adjusted net income was $0.51 for the fourth quarter of 2008 as compared to $0.72 for the fourth quarter of 2007 and $2.60 for the year ended December 31, 2008 as compared to $2.91 for 2007.

Now turning to Slide 11, this slide presents the components of the company's realized gross margin for the fourth quarter and year-to-date periods of 2008 and 2007. Energy, shown as the light blue bar, represents gross margin from the generation of electricity at market prices, fuel sales and purchases at market prices, fuel handling, steam sales, and our proprietary trading and fuel oil management activities. In addition, results for 2008 also include the fourth quarter $54 million lower of cost or market fuel oil inventory adjustment that I previously mentioned.

The decrease of $174 million for the fourth quarter of 2008 as compared to the fourth quarter of 2007 was primarily attributable to a $101 million decrease in lower realized gross margins from our Mid-Atlantic operations, primarily the result of compressed dark spreads and a decrease in generation volumes, a $54 million decrease due to the lower of cost or market fuel oil inventory adjustment, and a $21 million decrease in realized gross margins from our Northeast operations principally due to the shutdown of Lovett in April of 2008.

The decrease of $361 million for the year ended December 31, 2008 was primarily attributable to the following:

First, a $156 million decrease in realized gross margins from our Mid-Atlantic operations, primarily as a result of compressed dark spreads and a decrease in generation volumes, partially offset by a decrease in the cost of emissions allowances.

Next, an $89 million decrease in the results from our fuel oil management and proprietary trading activities comprised of an $83 million decrease from fuel oil management activities and a $6 million decrease from proprietary trading activities.

The significant decrease in the contribution from fuel oil management activities primarily relates to lower prices and the timing of the settlement of contracts used to hedge the fair value of fuel oil inventory compared to the timing of the use or sale of that fuel oil.

Next, a $54 million decrease due to the lower of cost or market fuel oil inventory adjustment.

And finally, a $55 million decrease in realized gross margins from our Northeast operations principally due to the shutdown of Lovett.

Contracted and capacity, the dark blue bar, represents gross margin received from capacity sold in ISO and RTO administered capacity markets through RMR contracts through tolling agreements and from ancillary services. The $121 million increase for the year ended December 31, 2008 was principally the result of an increase in capacity revenues from the PJM RPM capacity market. 2008 results reflect the full year of those capacity revenues, whereas 2007 results reflect revenues from the commencement of that market in June of 2007.

And finally, the realized value of hedges - the yellow bar - reflects the actual margin on the settlement of our power and fuel hedging contracts and the difference between market prices and contract costs for our coal supply contracts. Power hedging contracts include sales of both power and natural gas used to hedge power prices, as well as hedges to capture the incremental value related to the geographic location of our physical assets.

Turning to Slide 12, this slide presents cash flow information for the fourth quarter and yeartodate periods of 2008 and 2007. The $26 million decrease in adjusted net cash provided by operating activities for the fourth quarter of 2008 as compared to the fourth quarter of 2007 was principally due to the previously discussed decrease in realized gross margins, excluding the noncash charge for the lower of cost or market adjustments for fuel oil.

The $109 million decrease in cash provided by operating activities for the full year of 2008 as compared to the full year of 2007 was principally due to the previously discussed decrease in realized gross margins, partially offset by a $137 million increase in working capital.

Reducing adjusted net cash provided by operating activities for the total cash capital expenditures results in an adjusted free cash flow deficit of $153 million for the fourth quarter of 2008 and zero cash flow for the full year of 2008.

Our Maryland Healthy Air Act capital expenditures, which are non-recurring in nature, have been and will be funded by existing cash, therefore a more meaningful presentation of free cash flow is to use free cash flow adjusted for these expenditures. Accordingly, adding back actual expenditures incurred under that program results in adjusted free cash flow of $47 million or $0.31 per share for the fourth quarter of 2008 and $497 million or $2.50 per share for the full year of 2008.

Turning now to Slide 13, this slide presents our debt and liquidity as of December 31, 2008. Consolidated debt, which is $2.676 billion at December 31, 2008 is $419 million lower than consolidated debt at the preceding year end principally due to $140 million of repayments of the Mirant North America term loan and $276 million of purchases of Mirant Americas Generation senior notes due in 2011.

Our available cash and cash equivalents, including amounts available under the Mirant North America revolver and synthetic letter of credit facility, amounted to $2.412 billion at December 31, 2008.

Cash balances of $354 million at Mirant North America and its subsidiaries at December 31, 2008 are currently unavailable to Mirant Corporation because of the free cash flow requirements under the restricted payment test of Mirant North America's senior credit facility. The primary factor lowering the free cash flow calculation in the restricted payment test is the significant capital expenditure program of Mirant Mid-Atlantic related to the Maryland Healthy Air Act.

Nevertheless, we think we have sufficient liquidity for our future operations, capital expenditures and debt service obligations from existing cash on hand, expected cash flows and from our operations and the ability to issue letters of credit or make borrowings under the Mirant North America senior credit facilities.

Furthermore, we are in compliance with all of the financial ratio covenants and based upon our guidance for 2009 and 2010, we will remain in compliance.

Turning to Slide 14, as Ed previously mentioned, we are reducing our guidance for 2009 from $981 million to $897 million and initiating guidance for 2010 at $667 million, all based on forward market prices as of February 10, 2009.

Deducting projected net interest expenditures and income taxes and factoring in projected changes in working capital, adjusted net cash flow provided by operations is projected to be $649 million and $471 million for 2009 and 2010, respectively.

Reducing adjusted net cash flow provided by operations by projected cash capital expenditures of $754 million and $422 million for 2009 and 2010 respectively derives an adjusted free cash flow deficit of $105 million for 2009 and adjusted free cash flow of $49 million for 2010.

Adding back in the Maryland Healthy Air Act capital expenditures for 2009 and 2010, which, as I stated earlier, are non-recurring in nature and will be funded by existing cash, results in adjusted free cash flow without the Maryland Healthy Air Act CapEx of $385 million for 2009 and $236 million for 2010 or a yield of 20.6% and 12.6% respectively based on our closing stock price and diluted share count as of February 24, 2009.

Our hedged realized gross margin for 2009 is $1.32 billion or 85% of our projected realized gross margin. For 2010, our hedged realized gross margin is $960 million or 69% of our projected realized gross margin. Hedged realized gross margin is defined as hedged merchant generation and other contracted capacity which would include reliability [inaudible] agreements and capacity sold in ISO and RTO administered capacity markets.

And finally, hedged adjusted EBITDA, which is defined as hedged realized gross margin reduced by our projected operating and other expenses for a full calendar year, is $663 million or 74% of our projected adjusted EBITDA for 2009 and $237 million or 36% of our projected adjusted EBITDA for 2010.

Turning to Slide 15, this slide presents the components of realized gross margin, included in our guidance for 2009 and 2010. Realized gross margin is projected to decrease from $1.554 billion in 2009 to $1.39 billion in 2010. The $164 million decrease is principally the result of a $309 million decrease in realized value of hedges and a $17 million decrease in contracted and capacity revenues, partially offset by a $191 million increase in energy realized gross margins. When we get to Slide 17 I'll discuss this in more detail.

Turning to Slide 16, this slide presents a bridge from our guidance for 2009 given on November 7th to the update being provided today. adjusted EBITDA is projected to decrease by $84 million. This change is comprised of the following:

First, a $54 million decrease in the realized value of hedges as a result of changes in commodity prices and because we were less hedged on power than fuel.

Next, a $38 million decrease in energy gross margins, principally due to an $18 million decrease in expected results from fuel oil management activities, an $11 million decrease due to changes in market prices, and a $9 million reduction in expected results from proprietary trading activities.

Next we have a $6 million increase in contract and capacity revenues, and finally a $2 million decrease in operating and other expenses.

Turning to Slide 17, this slide presents a bridge from our 2008 actual results to our 2009 guidance and further from our 2009 guidance to our 2010 guidance.

Our 2009 guidance is $115 million higher than our 2008 actual results. This increase is comprised of the following:

First, a $223 million increase in the realized value of hedges due to lower commodity prices.

Next, an $85 million decrease in energy gross margins principally due to five factors, first, a $133 million decrease due to changes in market prices; second, a $58 million decrease due to carbon credit costs in 2009, and these two negative factors are partially offset by a $25 million increase in our commercial availability, which reflects an overall improvement in commercial availability across the fleet, the largest single component being Potomac River; a $37 million increase in realized gross margins from our proprietary trading activities, and a $44 million increase in realized gross margin from our fuel oil management activities due to the realization of hedges in 2009. Next, we have a $19 million increase in contracted and capacity gross margins, and finally, a $42 million decrease due to an increase in operating and other expenses.

Our 2010 guidance is $230 million lower than our 2009 guidance. This decrease is comprised of the following:

First, a [$309] million decrease in the realized value of hedges due principally to the fact that 2010 power hedges were put on at lower prices than 2009 power hedges, partially offset by the fact that 2010 power hedge volumes are lower than 2009 power hedge volumes.

Next, a $162 million increase in energy gross margins principally due to four factors, first, a $178 million increase due to changes in market prices; second, a $7 million increase in commercial availability - and these two positive factors are partially offset by a $4 million decrease in realized gross margins from our proprietary trading activity and a $19 million decrease in realized gross margins from our fuel oil management activities which reflects reduced results from this activity as a result of lower burns in our own plants and overall reduced demand in the U.S. Atlantic Coast oil market.

Next we have a $17 million decrease in contracted and capacity gross margins.

And finally, a $66 million decrease due to an increase in operating and other expenses.

Turning to Slide 18, this slide addresses some of the key sensitivities regarding the guidance for 2009 and 2010 that we are providing today. NYMEX gas prices utilized in our guidance are as of February 10th and are $5.11 per MMBTU for the balance of 2009 and $6.53 for MMBTU for 2010.

Based upon our unhedged adjusted EBITDA for 2009 and 2010, a $1 price move in natural gas will result in a change in adjusted EBITDA of approximately $8 million for the balance of 2009 and $44 million for all of 2010.

Energy price changes due to heat rate movements of 500 BTUs per kilowatt hour will result in a change in adjusted EBITDA of approximately $11 million for the balance of 2009 and $50 million for all of 2010. The heat rates shown are 7 by 24 Pepco forward implied market heat rates as of February 10th.

And finally, a $1 price move of carbon credits will result in a change in adjusted EBITDA of approximately $8 million for both 2009 and 2010. This sensitivity is based on our hedge position and our view that power prices will increase as the cost of complying with Reggie increases.

Turning to Slide 19, this slide presents a breakdown of our projected capital expenditures for 2009 and 2010. Our normalized maintenance CapEx approximates $100 million per year, but as shown in the table as projected to be to be higher in 2009 and 2010 due to upgrades that will be timed in conjunction with the Maryland Healthy Air Act environmental retrofits. The total estimated cost for compliance with the Maryland Healthy Air Act remains at $1.674 billion. We have expended $997 million through December 31, 2008.

Other environmental expenditures include $34 million deposited into escrow in the third quarter of 2008 pursuant to the Potomac River settlement. This amount will be spent between 2009 and 2011 for control of small dust particles at the Potomac River plant. The table on this slide excludes funds related to any potential brownfield or greenfield projects.

Turning now to Slide 20, I'd like to take a couple of minutes and provide an update on our federal net operating loss. As of December 31, 2008, Mirant had an estimated NOL of $3.1 billion.

An ownership change requires Mirant to reset the limitation that determines how much taxable income may be offset by its NOLs in future years. Within the meaning of the Internal Revenue Code, an ownership change occurs if there is an increase of more than 50 percentage points in the ownership of Mirant stock held by large Mirant shareholders from the date of a previous ownership change. The new limitation is a function of stock value on the ownership change date.

As a result of the company's repurchases of shares of its common stock since July 11, 2006 and the exercise of a significant number of warrants for Mirant common stock during 2008, in the third quarter of 2008 the company experienced an ownership change. We expect that the ability to offset future taxable income with existing NOLs under the redetermined annual limitation will be similar to our ability to do so under the annual limitation prior to the ownership change that occurred in the third quarter of 2008.

Turning to Slide 21, however, if Mirant experiences an additional ownership change after December 31, 2008 at or near the current stock price, the redetermined annual use limitation could be significantly lower and could result in the payment of additional cash taxes above the amount currently forecasted for 2009 as shown on Slide 14. The additional cash taxes could range from zero to $150 million depending on the timing of the additional ownership change, if any.

Even if Mirant were to experience such an additional ownership change after December 31, 2008, we do not expect to have an additional cash tax cost in 2010 because additional tax planning strategies, including the election of five-year amortization of the cost of our Maryland Pollution Control facilities would be available in that year. As of today Mirant believes that it has accumulated at least 35 percentage points toward a post third quarter 2008 ownership change.

And with that, I will turn it back to Ed, who will wrap up and open the call for your questions.

Ed?

Ed Muller

Thanks very much, Jim. I'm on Page 22.

To reiterate, we are in a commodity business. Our hedging strategy is mitigating and has mitigated the effects of volatile commodity prices, in this instance, all of which have been heading down.

The supply and demand trends continue as they have to show a trend toward supply and demand imbalance, that is, where the supply will be inadequate for demand, though the timing of that, given economic conditions, has moved further out by several years.

We remain on target to comply with the Maryland Healthy Air Act by the legally required date, which is January 1, 2010, and we are pleased to have a strong balance sheet with adequate liquidity for our business under all the conditions that we can foresee.

And with that, Steve will turn it to you for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Christopher Taylor - Evergreen Investments.

Christopher Taylor - Evergreen Investments

I wanted to ask about your cash position, the $1.8 billion that you have. That includes the $200 million that you bought back, is that correct?

Bill Holden

As we said, the share repurchases were completed - the $200 million were completed during the fourth quarter, so the cash balance at December 31 is after the completion of those repurchases.

Christopher Taylor - Evergreen Investments

Can you give us some insight on how you plan to use that cash? Do you have any plans for debt reduction or, given the availability, to buyback more equity or, long term, what's your strategy there? I'm not looking for a [inaudible] or anything.

Ed Muller

Well, as we have said previously, we determine whether we have excess cash by looking at the outlook for the business, our intent to preserve our credit profile, maintaining adequate liquidity, including for CapEx, and maintaining sufficient working capital. And based on that assessment we don't have at this time any plans to be repurchasing further shares or [returning] cash. I think that probably suffices.

Christopher Taylor - Evergreen Investments

Well, $1.8 billion on the balance sheet, on a long-term basis that's an inefficient use of cash. You either invest this or you buyback equity or you buyback debt. I mean, it's not going to sit on your balance sheet for the next five years.

Ed Muller

Well, as to the next five years, I agree with you. We're looking at a nearer term right now, including taking into account the economic conditions that we are in and the commodity prices we are seeing, and our obligation to prudently manage the business and the balance sheet.

Bill Holden

The only thing I would add - and I think I've said this on prior calls - certainly the amount of cash that we retain on the balance sheet today, while we still have a significant amount of the Maryland Healthy Air Act compliance expenditures in front of us, is higher than I think we would see as we move through time and those obligations are behind us.

Christopher Taylor - Evergreen Investments

Let me ask it in a different way, then. Roughly for the next couple of years you're free cash flow breakeven, give or take a little. How do you define adequate liquidity or a good credit profile? What's your definition there?

Bill Holden

I think there's a couple of things that we look at. One is ensuring that we have adequate liquidity to meet all of the obligations of the business based on a downsize scenario, and those obligations would include the capital expenditures that we have to complete the Maryland Healthy Air Act compliance, though we'd also look at debt maturities within our planning horizon. And so we look through all of the obligations of the business and then we look at that in the case of a downsize scenario.

Now, we also look at what happens if commodity prices spike and we're required to post collateral to support all the hedge positions that we have, the ones that require collateral, and we ensure that we've maintained adequate liquidity at the Mirant North America level to be able to meet those types of obligations as well. So we really stress the commodity price environment, both up and down, in looking at what our liquidity requirements are.

Christopher Taylor - Evergreen Investments

So what's the minimum cash balance? Is it $500 million? Is it a billion? What level are you comfortable going down to?

Bill Holden

I don't think I can answer that question and about the best guidance I can give is that it would be somewhat higher today while we have the capital expenditures in front of us than it would be once we've gotten those obligations behind us.

Christopher Taylor - Evergreen Investments

Just one quick question - I'm sorry - in terms of your volumes generated, can we assume that for 2009 and 2010 you'll go back to the levels that you had in 2007 or should we assume that the 2008, the present levels, will sustain for quite some time?

John O'Neal

Without looking at the specific numbers I would generally say that in 2008 we did see some reduced generation because of very high coal prices we saw during the year. Obviously coal prices have come off quite considerably as we look into 2009 and beyond, so I would expect that our coal plants would, on a forecasted basis, run more. Obviously, a lot of different things could change between now and then as it relates to the market, but we forecast that we would expect our generation will go up slightly in 2009 versus what we experienced in 2008.

Christopher Taylor - Evergreen Investments

But not back up to the 2007 level?

John O'Neal

I don't have those numbers in front of me so I can comment as to exactly whether or not we'd get back to '07 levels.

Operator

Your next question comes from Angie Storozynski - Macquarie Research Equities.

Angie Storozynski - Macquarie Research Equities

With 2010 earnings expectations should we assume that through 2009 you will be adding to your hedge position given where the forward natural gas curve is or should we assume that you're going to be waiting for some recovery in gas prices?

Ed Muller

We don't lay out exactly when we're going to hedge and so on. Our general approach is we hedge forward and we do so as we look at the market and what we see is occurring there. But our practice here is to hedge forward and we will continue that practice.

Angie Storozynski - Macquarie Research Equities

We read some stories about your oil-fired fleet in the Northeast and potential repowering, switching them to gas-fired plants. Any comments on this issue?

Ed Muller

No. I assume what you are referring to is the Canal station, which is dual fuel gas and oil and there are, depending on market conditions, including the price of oil, where it falls in the merit order, can shift. We are, as always at all of our sites, exploring ways that we could do brownfield development there, but we will only do so when it makes financial sense.

Angie Storozynski - Macquarie Research Equities

I remember during the third quarter you mentioned - the third or second, I forget - that you were hoping to participate in some gas CapEx in California and that's why you were basically accumulating cash on your balance sheet in case you actually win a tender. I think it was PG&E or one of the California utilities. Any update on this issue?

Ed Muller

No. We are limited by confidentiality agreements on what we're able to say, so we have no update.

Angie Storozynski - Macquarie Research Equities

And the last one, anything that you could tell us about what's happening in Maryland and how it may impact your business?

Ed Muller

Well, it's a broad question. I think, you know, there's always, as we would expect, lots of concerns about - and appropriate concerns about whether the supply of electricity is adequate, and notwithstanding the economic downturn that remains a profound concern. And there is always a concern about what electricity costs, and understandably - there's a concern, I think, about what everything costs.

But while there is a lot of discussion and worthy discussion, I think it's very hard to know beyond that how things will evolve.

Angie Storozynski - Macquarie Research Equities

Looking how sharp your expected EBITDA drops between especially '09 and '10 and that you are such a large user of coal in the U.S. and that power market prices are not recovering yet at least, is there any chance that you can go back to your coal providers and renegotiate your contracts down given how market conditions have changed?

Ed Muller

I think by and large in all aspects of our business we believe a contract is a contract. We honor our contracts and we expect our suppliers and our customers to honor our contracts, and we expect that's how the business moves forward. We think that is how all businesses should move forward.

Operator

Your next question comes from Robert Howard – Prospector Partners.

Robert Howard – Prospector Partners

With the NOLs, I know you can kind of get - some funny accounting-type stuff happens with them  but at the end of '07 I think you guys said your NOL balance was $3.3 billion and now at the end of '08 I think you have a $3.1 billion and we're looking at over $1 billion of net income here for the year and it seems like the balance didn't go down quite as much as I might have expected and I was just wondering if there was anything you could say about that.

Paul Gillespie

We did have a modest amount of taxable income in '08 which represents the difference between the $3.3 billion and the $3.1 billion.

The other thing that I will share, which I think most folks already know, there is a mismatch usually between the marked-to-market gains that you show for book accounting and the time that we take those gains into account for tax purposes. Usually the gains or losses lag for tax purposes by a year.

Robert Howard - Prospector Partners

So basically the income statement that you're filing with the IRS has a lower number than $1.2 billion?

Paul Gillespie

Yes. And the income statement that we would deal with for 2009 would probably have a higher number because of the year lag between the book accounting and the tax accounting.

Operator

Your next question comes from Neel Mitra – Simmons & Company.

Neel Mitra – Simmons & Company

I had a quick question on Slide 31. Why was the net capacity factor so low for the Northeast baseload in Q4, which I'm assuming is your Kendall [inaudible] facility? It looks like your intermediate facilities ran more in that region that the baseload. I'm reading 2.7 net capacity factor. Am I reading that properly?

Ed Muller

John, can you take this?

John O'Neal

I don't know if I have an answer for that one, Ed. I have not focused on that number.

The unit Kendall ran as we would have expected in the fourth quarter of 2008 and there were no surprises there, so I'll have to go back and look at that because I can't explain the 2.7%.

Neel Mitra - Simmons & Company

In your opinion, did it run at normal levels - 30% to 40%?

John O'Neal

Yes. There was nothing unusual in the quarter as it relates to Kendall. It did have a little more maintenance between the periods.

Neel Mitra - Simmons & Company

And then just a question regarding coal to gas switching. Have you see any decreased run time so far, expect to see some utilization creep since gas prices have come down so much relative to coal?

John O'Neal

I'd answer it two ways. Anecdotally we've heard that that has been going on and I think in certain parts of the country more of that has gone on than perhaps what we've experienced in our market area.

We have seen a little bit of it with our own fleet. We have seen - this winter we've had some periods of very warm weather and in those environments we've seen some of our coal units not ramp up as much as we would have expected in prior periods, so presumably that's perhaps from gasfired generation displacing the coal units.

But not a lot of it, by and large.

Neel Mitra - Simmons & Company

Is it mostly during off-peak hours or on-peak hours?

John O'Neal

I think at this point it's too hard to say that there's a trend as to whether it's on-peak or offpeak. We've seen a little bit of it in all hours.

Operator

Your next question comes from Lasan Johong - RBC Capital Markets.

Lasan Johong - RBC Capital Markets

Ed, any chance that you might want to convert some of your plants into PRB coal-burning plants?

Ed Muller

Let me explain why the answer is largely now.

PRB - Powder River Basin - coal comes from Wyoming. It has a much lower heat content and a much higher moisture content than the Appalachian coal that we burn. We do burn coal also from Colombia. The boilers for coal plants are custom built for a type of coal and changing that is not cost free. In this case it would extremely expensive. We have explored doing some blending, but only a small quantity. And given the distance and transportation and the CapEx that would be required on our boilers, it does not make financial sense.

Lasan Johong - RBC Capital Markets

It looks like President Obama's going to try to push for a $20 carbon tax per ton. I'm assuming this is net overall not highly impactful to you. Is that right?

Ed Muller

Well, I think on any carbon tax - and I think you stated it well, whether you call it cap and trade or call it a carbon tax, it is a tax; fundamentally the only difference with cap and trade is you don't quite know what the tax rate will be - so will it have an impact? Yes, it would have an impact, but only to the extent that we were not on the margin or coal was not on the margin and we couldn't pass it through.

When coal was on the margin, certainly off-peak, pass it all through. It will end up in the electricity bills of the consumers and we would bid it in as a cost just as we bid in the cost of our coal and our emissions credits and so on.

When gas is on the margin, some portion of it, given the different greenhouse effects of gas, would be absorbed by us, but I don't see this as a monumental impact.

Lasan Johong - RBC Capital Markets

Jim, in 2010 there seems to be a pretty large jump in OPEX expense expected. What's driving that?

Jim Iaco

There's two things going on, Lasan. First of all, our plant operating expenses increase as a result of installing these scrubbers on the Maryland assets. And secondly, we record in other expenses excess emission credit sales, and we are projecting lower revenues from those both due to price and quantity.

Operator

Your next question comes from Jeffrey Coviello - Duquesne Capital.

Jeffrey Coviello - Duquesne Capital

I was going to ask about the cash balance. You used it in the past rather than buying back shares to buyback debt in the 2011 vintage. With where your debt is, is it possible or, given the tax law change in the stimulus bill to allow the deferral of buying back debt as a discount, as one possible use of the cash to invest in reducing your debt load at a discount?

Bill Holden

I think going forward I wouldn't want to comment on what we plan to do going forward. I would just mentioned that we have in the past seen opportunities to reacquire some of the 2011 bonds at

prices that we thought were favorable and so we've done that.

Going forward I'd rather not comment on what we might or might not do.

Jeffrey Coviello - Duquesne Capital

And as far as the California assets, I think someone asked about the PG&E plan. If you won that RFP I guess that you'd evaluate that investment like you would any other, comparing it to, like I mentioned, the debt there or buying back your stock?

Ed Muller

Of course.

Operator

Your next question comes from Gregg Orrill - Barclays Capital.

Gregg Orrill - Barclays Capital

I was wondering if you could comment on Slide 18. You gave market heat rates of 9,800 for the balance of '09 and 8,900 for the balance of '10. I guess what I'm looking for is a comment on what you think that's telling you about the market. I would have thought the economy was at least going to improve in 2010.

John O'Neal

These are the market prices that we observed as of February 10th and from that we calculate the implied market heat rate. So for purposes of guidance we don't reflect a view here; what we do reflect is what the market has in it. And clearly, with gas prices coming off you've seen heat rates in the front of the curve rise up quite dramatically. We've not seen that same movement up in the back of the curve. Back of the curve heat rates are lower and at best kind of flattish over the next several years.

So we would expect over time that economic activity would pick up and that would drive heat rates up, but for purposes of guidance we use market curves as of February 10th.

Gregg Orrill - Barclays Capital

Does that mean that if gas rallied power would underperform the rally?

John O'Neal

It's hard to estimate what might happen. Obviously, that would depend on a variety of factors including electricity demand in its own right. That's why we give it sensitivity to tell you what the impact of the heat rate change is, but to tell you whether or not it's going to happen or not, it depends on just a variety of factors.

Operator

Your next question comes from [Brian Tadao] - Broadpoint Capital.

Brian Tadao - Broadpoint Capital

With regard to your pension this year, could you give us an idea of how much you plan to make in terms of cash contributions and if that's already taken into your guidance numbers?

Jim Iaco

It's in our K. Give me two seconds just to get to it. We plan to contribute approximately $23 million for the 2009 plan year. Now let me clarify what that means. Of this amount, approximately $8 million is expected on a cash basis to be contributed in 2009, with the remainder to be contributed in 2010. That's the way it works on a plan year basis.

Brian Tadao - Broadpoint Capital

With regards to the expenses, you mentioned 2010, the increase, a lot of it had to do with emissions and scrubbers. The $40 million increase for '09 versus '08, is it also emissions or is there something else?

Jim Iaco

It's partially that. We did have lower emission credit sales. That's about $11 million of that. And in 2008 we had a number of corporate expense reversals. We had a bad debt reserve on a major collection amount become good and we reversed a reserve.

So the best way to look at it is in a capsule form is lower emission credit sales and the fact that corporate expenses for 2008 were lower than normal due to these expense reversals.

Operator

Your next question comes from Oliver King - Zimmer Lucas.

Oliver King - Zimmer Lucas

Slide 7, can you talk a little bit more about what's causing the hedge percentages to decrease? And also it seems like the coal decreased but the power increased, and I was just wondering did power also decrease by around 10% but then you just put on hedges of, call it, 20% for a net loss of 10%?

Ed Muller

Well, John, you can chime in. I'll give some flavor and then John can add to it if he'd like.

First, on 2009 - I don't know which year - you said 17, so I don't know if you're referring to the 

Oliver King - Zimmer Lucas

I'm sorry, Slide 7.

Ed Muller

Oh, seven. I'm sorry.

John O'Neal

Yes, the hedge percentages. Yes, you've got it right. I mean, as Ed described it earlier, these charges are on a percentage basis. So as our expected generation goes up our hedge percentage change. So as coal prices drop, our expected generation goes up, thus our expected coal burn goes up. As a result, we are less hedged in years where we have not purchased any additional coal.

On the power side the same dynamic occurs in general, that when our expected generation goes up, absent any other activity our hedge percentages would go down. What you're seeing is the net of those changes plus incremental hedging activity.

So in the case of 2010 you can see that while we might have picked up some expected generation on the power side, we hedged; that more than offset those changes.

Oliver King - Zimmer Lucas

And can you talk a little bit more about what's driving the expected generation to go up? It seems like every quarter the hedge percentage sort of decreases as you increase the expected generation?

John O'Neal

Obviously, our business is a very dynamic one that is highly dependent on the prices of electricity as well as the fuel inputs as well as emission inputs and a variety of other factors. And so for purposes of this chart we take into account the changing dynamics of the commodity market and so, by and large, what we've seen over the last six months is a fairly significant drop in coal prices.

And as it relates to our Mid-Atlantic coal plant, as coal prices drop you would expect that our units would dispatch more. And that's by and large what's driving the biggest change.

In a period of very stable coal prices and stable emission prices and power prices, you would not see many changes, but we've obviously been in a very volatile commodity market over the last several months.

Oliver King - Zimmer Lucas

And then on the NOLs, can you talk a little bit more about this ownership change and about what's going to be the driver that's going to make you have to pay the zero to $150 million in taxes? I just don't understand the dynamic there.

Paul Gillespie

Well, when you have an ownership change you have to recompute the annual limit on your NOLs. That is a function basically of the stock price.

For the ownership change that we experienced in the third quarter of 2008, our stock price was substantially higher than it would be if we had an ownership change today. As a consequence, if we were to have an additional ownership change today, the annual limitation would go down substantially.

That would impact our ability to shelter our taxable income in 2009 depending on two things  A) the stock price on the date of the change, and B) when that change happened.

Operator

Your next question comes from [Way Remaldo - Stone Harbor].

Way Remaldo - Stone Harbor

On the changes in guidance, you know, where you had the 2009 guidance as of November 2008 and then the Page 16, when you showed the bridges, the differences to arrive at the new guidance, I just want to understand the realized value of hedges of 54. Does that mean between November 7th and February 27th you actually changed the hedges so that you have a negative change? I'm not sure I understand how does the negative come about?

Jim Iaco

Let me try to clarify for you. What we estimated in our guidance on November 7th as the realized value of hedges for 2009, that number - and I don't recall what that number was  is now lower by $54 million and that is due to changes in commodity prices.

Basically what happened is our prices when down and so our power hedges - the hedges against power were more in the money. Also, fuel costs went down. Because we're more hedged on fuel than we are on power, our fuel hedges more than offset the benefit we got on our power hedges. So it's just a change between what we estimated on November 7th and what we're estimating on February 27th.

Another way to look at it, if you look at Slide 15 - this may help you a little bit - we show for 2009 that we're going to have realized value of hedges $430 million. That number was, without looking back at the prior number, should be about $484 million as of November 7th. Maybe that helps a little bit.

Way Remaldo - Stone Harbor

Just on that same slide, the $554 contribution from energy, what segment of that is hedged then?

Jim Iaco

I'm not sure which slide you're referring to.

Way Remaldo - Stone Harbor

Page 15. I guess I'm a little confused with the presentation. The realized value of hedges is actually just comparing the benefit of the hedges versus the market price, correct?

Jim Iaco

That will settle during 2009 or 2010, depending upon what year you're looking at. That's correct.

Way Remaldo - Stone Harbor

So as market conditions decline, the realized value should go up while at the same time the energy revenue - gross margin - should go down such that the net effect should be zero assuming you haven't changed your hedging profile.

Jim Iaco

That is true if you're 100% hedged and you're only speaking to power.

Remember, the realized value of our hedges also includes the difference between the market price of coal and the contract price of that coal as we burn it.

So there's a number of things going on, including the fact that we're not 100% hedged.

Way Remaldo - Stone Harbor

With the president's proposal of cap and trade for CO2, how would that blend into, say, Reggie, which is being implemented soon? How do you think it will be worked out? How do you integrate those two? Should there be some type of federal framework?

Ed Muller

Well, I can tell you how I think it should be done. How it will be done, I think we are far from knowing. Remember, this is a proposal. Any proposal coming out of the executive branch over as long as I've been alive has to then go forward through the legislative process and some of them never come out the other end and some do come out the other end and they look different. So we're a long way, I think, from knowing what this will look like. I realize that the stories in the newspaper this morning make it sound as if the budget is the law, but it is not.

That said, I think right answer is that a federal program should preempt any state or regional program. We should have one national program. Frankly, we should be - given the fact that greenhouse gases, whatever effects they're having, are global - we should not even have just a national program, we should have an international program because there is the legitimate concern if we add costs in the United States then various entities that are able to do so are going to go offshore if they can so without incurring those costs.

So the ideal solution is this should be part of an international program so there is equality across the globe. This is a global issue. As a fallback to that, it should be a national program, at the very least, so we don't have what we have now, which is the Reggie states - the Regional Greenhouse Gas Initiative states, some of which we operate in - border states that do not have this cost. So you have a higher cost in a Reggie state than you do next door to is, and that doesn't seem consistent with how a national economy should run.

Way Remaldo - Stone Harbor

So at least for mental exercise purpose, under the current proposed federal framework it seems to me the impact on Mirant would be a lot bigger, not only just on the $20 versus, I think the auction was $10 or $8, but also in terms of the amount of credit that you're going to have to buy. Is my impression correct that the impact under the federal framework will be a lot bigger for Mirant?

Ed Muller

I don't know that that's right. First, let me reiterate. As you said, this is a mental exercise. We have our head of tax here and it's always entertaining to see what tax legislation is proposed and what, if anything comes out, so it's way too soon to know for sure.

But the bottom line remains whatever the cost would be of a national program, when our, for example, coal is the marginal unit producing electricity, all of the cost gets priced in, 100% of it. So whether we have a cost per unit of $5, $10, $20 or $1,000 to take a hyperbolic example, we're going to bid it in and it's going to get passed through to the consumer.

And that is, I think, why I think it's particularly important as all this is discussed to understand this is a tax and the incidents of taxation in largest part - overwhelmingly in largest part - whatever the tax rate will be is going to be on the consumer. And I think as a nation and ultimately as a world we're going to have to come to grips with that and decide if we wish to bear it, how we wish to bear it, and how much we wish to bear.

But there's an old line from Russell Long, the late senator from Louisiana who headed the Senate Finance Committee, which was that of all tax issues, the basic approach was don't tax you, don't tax me, tax the man around the tree, that is the one you can't see. But the proposal - and all the proposals on this - bottom line aren't going to tax just the person behind the tree. They're going to tax you and me and they're going to tax every citizen of the nation. And if it's global it's going to tax every citizen of the globe.

That may be the right policy, but we can't pretend it is otherwise. And this taxation is not going to end with the power producers. It's going to end with the consumers one way or the other, and that is true wherever you price it.

And I reiterate, when I spoke to Lasan of RBC Capital, that he was correct - whether you call it cap and trade or whether you call it a carbon tax or the phrase that was used early in the administration of President Clinton, a BTU tax, whatever you call it, it's a tax. Now the question is how much?

Operator

Your next question comes from Raymond Leung - Goldman Sachs.

Raymond Leung - Goldman Sachs

I guess in the past you guys talked about leverage of about four times. Can you talk about, given the lower guidance, how you guys should be thinking about that and maybe if you could tie up how much lease that is outstanding there I could true-up relative to your balance sheet?

Bill Holden

I still think four times debt to EBITDAR is a good target for leverage for this business.

And just to answer your question about how much to impute for the leases, the imputed debt for the operating leases at MIRMA would be roughly $1 billion and the rent for those leases would be roughly $100 million.

Raymond Leung - Goldman Sachs

Given that you don't have much outstanding on the bank loans, is there any letters of credit outstanding and could you talk about what the key financial covenants there are? I think the leverage test is like six times and interest coverage of two times at North America. Is that correct?

Bill Holden

The letters of credit, we've got about -

Raymond Leung - Goldman Sachs

Is that in the K? I can always pull it out later. Okay.

Bill Holden

Just keep in mind when you're looking at the letters of credit, there's letters of credit issued against the revolving credit facility. We give you that amount in the K. Then we also have the synthetic LC facility; it has letters of credit issued against it as well. And I think we actually give you disclosure on what they're issued for.

Raymond Leung - Goldman Sachs

And the financial covenants under the bank line?

Bill Holden

I'll give it to you by instrument. For the revolving credit facility and the term loan, the financial ratios are an interest coverage ratio and the maintenance requirement on that is two times interest coverage and the requirement for distributions is three times.

There's also in the credit facility a leverage ratio requirement which is essentially a net debt to EBITDA ratio and the maintenance requirement there is less than six times and the incurrence test for additional indebtedness would be less than four times.

Operator

Your last question comes from Peter Quinn - Bank of America.

Peter Quinn - Bank of America

Can you tell us what the company's top three objectives are in 2009?

And number two, for Slide 32, if I look at the baseload capacity factors over the last couple of years they seem well below industry peers, and it just seems that there's a lot of potential value that could be created by boosting those fairly meaningfully. Can you tell us what the company's plans are to do that or what the current constraints are that inhibit the company from boosting those capacity factors?

Ed Muller

John, I'll let you take the second; I'll take the first.

Our objectives for the year are to achieve our goals on adjusted EBITDA and all of the operational things that you do when you run a business like this. I know it is common on calls like this and appropriate to talk about the financials and broad metrics, numbers, but we actually run power plants and that is an important and complex task.

And we are building very large environmental controls and getting those done properly, on time, on schedule, is among the things we have to do. Running our plants safely in terms of our employees and the contractors on them is massively important to us. This is, even though we have huge capital assets, billions of dollars in assets. They are run by people and we value those people and never take them for granted. They are ultimately our and my greatest responsibility.

So all of the things that we have to do operationally in this fleet are high on our focus every day.

With that, I'll turn to John.

John O'Neal

Peter, there are obviously a number of things that affect capacity factors. The first thing is planned outages, the second would be forced outages, and the third thing would be the economics of the units themselves.

And I would say that over the last several years, as we've articulated, we've spent money improving the performance of these plants quite dramatically. That's reflected in the equivalent forced outage rate that we showed you earlier in the presentation, that our coal units in Maryland had an E4 of 8% in 2008, which we're very proud of.

So after you take into account the planned outages and we have had planned outages over the last several years to put on things like the FCRs that control nitrous oxide and this year we'll have planned outages that put on and tie in the scrubber tie-ins that Ed mentioned earlier, after accounting for those things your capacity factor's driven purely by the economics of the units.

And so we focus on economics; we don't focus on capacity factor. I can assure you that our plants are running when it's economic to do so. But we don't measure our performance by whether or not we have a high capacity factor; we measure our performance by whether or not our units are running when it's economic to do so. That continues to be our focus.

Obviously, what we focus on is making sure the plants are available as much as possible; that's captured in our commercial availability. And then from there we make sure the units run when it's economic to do so.

Peter Quinn - Bank of America

So as we go from 2009 to 2010 and we've got lower EBITDA because of decline in commodity prices and less on the hedge portfolio, what can be done to get that EBITDA in 2010 beyond back up again or are we simply just going to take whatever power and coal prices are and feed it through and the objective becomes that's what the numbers tell us we need to achieve and that's what we're going to target and that's what we're going to do?

Ed Muller

Well, the reality is, as I said at the very beginning, we are in a commodity business and we can't pretend otherwise, nor should we pretend otherwise. So we seek to hedge efficiently, but we are very much affected, particularly as we go out in out years, by those commodities.

There was a discussion earlier about heat rates in 2010 being lower and that is what the market tells us. We're not a lot smarter than the market and we don't think we're smarter than the market and we don't pretend that we're smarter than the market.

So in a commodity business, whether it's the electricity business or any other commodity business, we will - apart from the hedges, which we will continue to put on - we will move with the commodity cycle.

Operator

That does conclude today's question-and-answer session. At this time, Mr. Himes, I will turn the conference back over to you for any additional or closing remarks.

Steve Himes

Thanks, Jaime. We just want to thank everyone for joining us today and, if you have additional questions, we will be available shortly.

Operator

That does conclude today's conference. We thank you for your participation. You may disconnect at any time.

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Source: Mirant Corporation Q4 2008 Earnings Call Transcript
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