Southern Company Q3 2009 Earnings Call Transcript

| About: Southern Company (SO)

Southern Company (NYSE:SO)

Q3 2009 Earnings Call

October 28, 2009 1:00 pm ET

Executives

David Ratcliffe – President & CEO

Paul Bowers - CFO

Analysts

Dan Eggers – Credit Suisse

Greg Gordon – Morgan Stanley

Angie Storozynski - Macquarie Capital

Annie Tsao – AllianceBernstein

Steve Gambuzza - Longbow Capital

Phyllis Gray – Dwight Asset Management

Ashar Khan - Incremental Capital

Paul Patterson – Glenrock Associates

Dan Jenkins - State of Wisconsin

Presentation

Operator

Good afternoon. At this time I would like to welcome everyone to the Southern Company third quarter 2009 conference call. (Operator Instructions) I would now like to turn the conference over to Mr. David Ratcliffe; you may begin your conference.

David Ratcliffe

Good afternoon and thank all of you for joining us. I'm pleased to be with you today for our third quarter earnings call. Joining me today is Paul Bowers, our Chief Financial Officer.

Let me remind you that we will make forward-looking statements today in addition to providing historical information. There are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K and subsequent SEC filings.

In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning.

During the third quarter its clear that our financial performance has been impacted by this major recession we’re in an extremely mild weather, even the effects of a 500-year flood in parts of Georgia.

Despite the depth and breadth of these challenges our goal from the outset of the year was to provide as much transparency as possible. I am pleased to report that we performed well, managing through the challenges and executing our business plan.

Let me provide you with some specific examples, on August 27, the Georgia Public Service Commission approved Georgia Power’s request to amortize $324 million in a regulatory account as a reduction to expenses.

Under the terms of the order Georgia Power will amortize up to one-third of the regulatory liability or $108 million in 2009. In addition the company will be allowed to amortize up to two-thirds of the regulatory liability or $216 million in 2010.

As a result Georgia Power avoided the need to seek immediate rate relief and is now expected to remain on its normal rate case filing schedule for 2010. In this economy when our customers are struggling with their own finances, this constructive agreement is in the best interest of both customers and the company.

Turning now to another significant development, the Mississippi Public Service Commission has completed its first phase of hearings on Mississippi Power’s request to construct a 582 megawatt integrated gasification combined cycle, or IGCC, generation facility.

This phase had addressed the need for new capacity. We expect a decision on or before November 10. The next phase of hearings to determine the technology or particular resource to meet that need is scheduled to begin in February of 2010 with a final decision on the certificate to build the Kemper County facility set for May 2010.

If approved the plant will be built utilizing an indigenous supply of lignite coal. The plant is expected to go into commercial service in 2014 and will include technology to capture up to 65% of the carbon dioxide emissions.

As a result the plant will have the same CO2 emission footprint as an equivalent natural gas facility but without the exposure to volatile gas prices. In a related development, South Mississippi Electric Power Association has expressed interest and signed a non-binding letter of intent last month to explore ownership of up to 20% of this facility.

In addition you may have seen the announcement last month at the world’s first commercial coal gasification facility using the technology that was developed by Southern Company and its partners will be built in China.

A 120-megawatt facility will be built by the electric company that serves the Guangdong province and the People’s Republic of China. The transport gasifier technology will be added to an existing combined cycle facility which is currently fueled by [a hole].

The refire facility is expected to begin operation in 2011. This project will provide us valuable construction and operating experience for the Kemper County facility. Turning now from coal gasification to nuclear technology, I’m pleased to report that we are making significant progress on the Vogtle 3 and 4 units in Georgia. We received our early site permit from the Nuclear Regulatory Commission in August, as well as authority to initiate limited work at the site.

The construction site has been turned over to Shaw Westinghouse to proceed. Shaw and his contractors have excavated approximately 1.7 million cubic yards of earth to date, which equates to removing nearly 25 feet of soil on approximately 50 acres.

Construction is well under way including support buildings, water pipe installation, and the concrete batch plant. Once the combined construction operating license is received construction will begin on the reactor and safety related systems.

At this point I’ll turn the call over to Paul for a discussion of our financial highlights for the third quarter and our earnings guidance for the remainder of 2009.

Paul Bowers

Thank you David, as you mentioned we had a solid quarter of results despite unusually mild weather and a challenged economy. In the third quarter of 2009 we reported earnings of $0.99 per share, that’s a decrease of $0.02 per share over the third quarter of 2008.

Let’s turn to the major factors that drove our third quarter numbers compared to the third quarter of 2008. First the negative factors, lower usage and economic growth primarily in the commercial and industrial classes reduced our earnings $0.05 per share compared to the third quarter of 2008.

I will provide additional comments on how the economy is effecting our customers in a few minutes. Other revenues had a net negative $0.01 per share impact when compared to the same period last year. Increases in customer charges and increased recognition of environmental cause revenues had a positive impact of $0.09 per share.

This increase was offset by a decline of $0.10 per share in retail revenues from industrial and commercial market response rates. Weather reduced our earnings by $0.03 per share compared to the third quarter of 2008.

Weather in the third quarter of 2009 was $0.05 below normal while weather in the third quarter of 2008 was $0.02 below normal; clearly one of the coolest third quarters on record. Higher interest expense in the third quarter decreased earnings by $0.01 per share compared to the same period in 2008.

An increase in the number of shares outstanding reduced our earnings by $0.03 per share. So the total negative factors reduced our earnings by $0.13 per share compared to the third quarter of 2008.

Now let’s turn to the positive factors that drove our earnings in the third quarter, lower non-fuel O&M expenses added $0.06 per share to our earnings in the third quarter compared to the third quarter of 2008. As we have mentioned in our previous earnings calls, we are continuing to seek out efficiencies in our operating and maintenance activities to help offset the reduction in revenues due to the economic recession, while not jeopardizing our commitment to industry leading reliability, customer satisfaction, and safety.

Lower depreciation and amortization added $0.03 per share to our earnings in the third quarter of 2009 compared to the same period in 2008. This increase was driven mainly by reduction in amortization related to the Georgia Power accounting [order] that David mentioned in his opening remarks.

Other income and deductions mainly, AFUDC, contributed $0.01 per share compared to the third quarter of 2008. Southern Power added $0.01 per share to earnings in the third quarter when compared to the third quarter of 2008.

In conclusion we had $0.13 per share of negative earnings drivers and $0.11 per share of positive earnings drivers compared to the third quarter of 2008. Overall our third quarter came in at $0.99 per share compared to $1.01 per share in the third quarter of 2008, or a decrease of $0.02 per share.

Before I discuss our earnings estimates for the fourth quarter I’d like to take a moment to provide you with an update on the economy, Southern Power, and a review of our peak season operational performance.

Turning now to a discussion of the economy, we’ll begin with our customer data. Industrial sales were 9.6% lower in the third quarter of 2009 compared to the third quarter of 2008. The most significant reductions were in primary metals which were down to 28.5% from the same period last year.

The chemical sector was down 19.6% while stone, clay, and glass was down 14%. And textiles experienced a 15.2% reduction as compared to the third quarter of 2008. While industrial sales are still below 2008 levels, the economic stimulus created by the cash for clunkers program resulted in increased energy consumption for the primary metals, textiles, and transportation sectors for the quarter.

In addition the restocking of depleted inventories had a positive impact in the industrial segment for the quarter. To be specific, sales in this segment increased by 11% in the third quarter compared to the second quarter of 2009.

These increases in sales occurred across all major sectors with primary metals increasing by 25% and the transportation or auto sector increasing by 11%. Adjusting for weather, residential sales remained basically flat in relation to 2008 with a slight increase in sales of 0.4%.

Building permits remained positive in the third quarter indicating an annual number of 26,000 permits which represents 50% of the 2008 levels. As expected, sales in the commercial segment continued to weaken. Weather adjusted commercial sales fell by 2.1% compared to the third quarter of 2008 reflecting the lagging nature of the sales decline in this segment.

Most economists believe that the recession technically ended in August with three months of positive GDP growth. With that as a backdrop, the economy remains fragile with high unemployment and uncertainty over future consumer spending.

Our sales results on a year over year basis continue to highlight the fact that this recession will have an impact on our sales for some time. While we still believe the recovery will be somewhat anemic, we see some positive signs beginning to emerge.

A recovering global economy combined with a [south] strong transportation infrastructure and the lower value of the dollar could create new opportunities for manufacturers in our regions to export their product.

In addition economic development activity in the region continues to be very strong with more than 300 active projects underway within Southern Company’s footprint indicating that the Southeast is still an attractive location to start, expand, or relocate a business.

Last month Site Selection Magazine recognized Alabama Power and Georgia Power as two of the top utilities in the nation for their economic development activity. Turning now to Southern Power, since our last earnings call we have had several new developments occur at our Southern Power subsidiary.

These new activities show that as we said in January we would seek out opportunities both within the region and outside the Southeast if they were economically attractive, fit our business strategy, and risk profile.

First we have broken ground on the construction of the Cleveland County generation plant in North Carolina. As we discussed earlier this year the plant will consist of four gasifier combustion turbines and will generate approximately 720 megawatts of energy.

Southern Power has long-term contracts with North Carolina Electric Membership Corporation, and the North Carolina Municipal Power Agency for the majority of this capacity. Commercial operations of all four units is expected in early 2012.

Second we announced earlier this month that Southern Power is acquiring Nacogdoches Power LLC from American Renewables, the original developer of the project and we’ll move forward with construction of 100 megawatt biomass power plant in East Texas, near the Louisiana Texas border.

The output of this facility will be purchased by the city of Austin under a 20-year power purchase agreement, a contract structure that fits our business model. When completed the facility will be one of the largest biomass fuel generating facilities in the United States and will burn one million tons of wood waste per year.

Third Southern Power announced last week an agreement with LS Power to acquire the West Georgia generating company assets, a [inaudible] exchange for the DeSoto generation facility in Florida, and approximately $140 million in cash.

The West Georgia facility consists of four gasifier combustion turbines with an installed capacity of 600 megawatts. The output from two units is sold under power purchase agreement with the Municipal Electric Authority of Georgia and the Georgia Energy Cooperative.

The MEAG agreement began in 2009 and expires in 2029 while the GEC contract begins in 2010 and expires in 2030. These projects reflect our commitment to continue the growth and development of Southern Power while at the same time maintaining our business model by having the capacity under long-term contracts.

My final update concerns the peak season performance of our fossil and hydro generation group. The peak season of 2009 from May 1 to September 30 marks our third best equivalent forced outage rate or EFOR performance. EFOR is a measurement of the rate at which units are either forced offline or had to reduce their capacity due to unexpected equipment failures.

The overall EFOR performance of our fossil and hydro fleet during this peak season was 1.43%. To put this in perspective our 1.43% EFOR can be compared with the industry tough quartile performance of slightly more than 5% and the industry average of 6.9% for 2008.

Most importantly this focus on reliability saved customers approximately $150 million in fuel costs when compared to the industry average. This performance thoroughly indicates that even with our intense focus on costs our fossil and hydro fleet is performing well above industry norm and most importantly that our customers benefit from efficient and reliable fleet.

Turning now to our earnings guidance for the remainder of 2009, our third quarter results were $0.99 per share compared to our estimate of $0.93 to $0.99 per share. We expect our earnings to be $0.28 to $0.30 per share for the fourth quarter of 2009 which will contribute to a full year result of $2.30 to $2.32 per share.

The full year guidance of $2.30 to $2.32 per share excludes the Mirant litigation settlement charge that was taken in the second quarter. Including the Mirant litigation settlement we expect our earnings for the full year to be $2.05 to $2.07 per share.

At this point I’ll turn the call back over to David for his closing remarks.

David Ratcliffe

As you’ve heard this afternoon, we are managing our business well despite significant headwinds from the economy and unusually mild weather. Nine months ago I told you that this year would provide most challenges and opportunities and it certainly has.

Despite the challenges we remained steadfast and focused and we capitalized on the opportunities available to us. Moving forward with our capital program, a program that will help the environment, provide our customers a new generation of nuclear technology, deploy new coal gasification and carbon capture technologies, turn wood waste into electricity, and expand our fleet of natural gasifier units both in the retail business and at Southern Power.

And at the same time we’re delivering world class service and reliability at prices that remain below the national average. Last month marked Southern Company’s 60th year on the New York Stock Exchange. We’ve managed through numerous economic and financial challenges throughout those six decades, while continuing to be a major contributor in the long-term prosperity of the Southeast.

At this point Paul and I are ready to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Dan Eggers – Credit Suisse

Dan Eggers – Credit Suisse

I remember last quarter you talked about kind of a roundtable you had with your large industrial customers, have you convened such a meeting again since last quarter and the signs you are seeing of some restocking and restart in the third quarter, is that continuing on or was that a kind of a one time response to a tight inventory situation.

David Ratcliffe

Let me ask Paul to give you the latest update from that. We do, while I don’t know that we conducted a roundtable as such, we do have customer representatives that are assigned to each of our major accounts and the expectation is that we mine that data every single month just to make sure we’re doing the best job of gathering that intelligence. I’ll let Paul tell you sort of what we see and feel.

Paul Bowers

The roundtable that we had in July gave us some insight in terms of the weakness in that segment, industrial segment specifically, but when you look at this quarter we saw positive movements associated with the restocking of inventories and we also saw some positive movement associated with the exports.

When you look at our ports, primarily Mobile and Savannah, Savannah had a sequential quarter over quarter increase in exports by 10% so that is positive. However there are some indicators that says that they’ll go back to a normal level output for the remaining part of this year, not at a higher output that we saw in the third quarter.

Dan Eggers – Credit Suisse

And then on the O&M savings, the $0.06 in the quarter, in what sense of that do you see as being sustainable next year kind of assuming things get a little bit better, and how much of that is going to have to come back in employee wages and kind of things that were just avoided from a spending perspective this year.

Paul Bowers

When you look at the savings that we saw year to date, and O&M efficiencies, its really is a rate of growth that we have to look at for 2010. We think we’ll see the $100 million of reductions in our O&M costs going forward but still you’ll have some increase in O&M expenses as we go into 2010.

You mentioned one, the employee salary ranges start moving again or you start seeing an increase in cost around maintenance.

Dan Eggers – Credit Suisse

And I guess one last question with some of the NRC issues around the AP1000, how is that effecting kind of the, your planning perspective as far as the pre site development work, does that cause you any concern as far as looking at other alternatives and what is your option if you decided it wasn’t a viable technology to exit the contracts you have with Shaw and everybody else.

David Ratcliffe

Let’s be clear, we don’t have any concerns about that at this point in time. We’re moving forward with the construction as I indicated earlier. I think its important to recognize that what is happening with the NRC design certification process is exactly what its designed to do. It allows the NRC folks to raise concerns and it requires Westinghouse, Toshiba to deal those concerns and address them during the design phase.

Remember we’re still in a design phase. The work that we’re doing is actually pre reactor construction work. We won’t get into that level of construction for another probably year and a half or so until we get a combined construction and operating license.

I believe that we’re comfortable that Westinghouse and Toshiba have ample opportunity to cure the design concerns that NRC has raised.

Operator

Your next question comes from the line of Greg Gordon – Morgan Stanley

Greg Gordon – Morgan Stanley

I know its probably a tough question to give any specific answer to given how tough and just prognosticating is in the short run but are you prepared to give us any view on what a reasonable base line assumption is for overall sales for next year.

Paul Bowers

We really are not. We’ll be coming out in January with our guidance for the year and at that point we’ll give you a clearer indication of what we expect.

Greg Gordon – Morgan Stanley

As I think about the drivers for an economic recovery in sales at least as it pertains to industrial, there are two factors that I wonder about. One is overall improvements in capacity utilization and the other is offsetting improvements in efficiency. Can you talk at least about the second item, which is one that you probably have a lot more insight into which is what you’re seeing in terms of your industrial customers’ endeavors to become more efficient and less energy intensive.

Paul Bowers

When you look at that second question, what we’re seeing primarily as the investment for additional capacity additions in some of our leading industrial sectors, in our refinery sector they’re adding capacity which is making utilization at the facility more efficient but also more volume is coming out.

We are also seeing additional lines of investments going into our automotive sectors. And then when you look at electro technologies that are being deployed, it really becomes more electric intensive versus natural gas or steam intensive.

But we’ve seen some of that as well. And we’re tracking that on a real time basis to ensure that we have a good understanding on what’s going to occur in that industrial sector.

David Ratcliffe

I’ll just add to that that I think as Paul said, what we’re seeing is people invest capital to improve existing facilities and either expand them or add efficiency which in my judgment is a very strong indicator that when things do begin to stabilize and turn up that our region is going to be where they produce whatever they’re producing.

There are some cases where obviously people have gone out of business but for the folks that are surviving its clear that they’re investing in their facilities in preparation for growth in the future.

Operator

Your next question comes from the line of Angie Storozynski - Macquarie Capital

Angie Storozynski - Macquarie Capital

I wanted to ask you a question about expansion of your gasifier generation fleet both for Southern Power and for your retail businesses, would you consider buying maybe existing assets in the region or [inaudible] on your own. And secondly, from your Southern Power perspective are you seeing a lot of interest [co-ops and munis and signing long-term contracts for power from providers like your company].

David Ratcliffe

We have as we indicated in our remarks both purchased existing gas assets, that was part of the LS Power deal was a swap for existing gas assets. We’ll continue to look at those opportunities both in the retail business and in the Southern Power business.

At the same we’re continuing the construction of significant new capacity in the retail business [specifically] at McDonna to expand our own retail gasifier capacity.

Angie Storozynski - Macquarie Capital

And now about the second question about the demand for new [PPA from munis or co-ops] some growth strategies for your Southern Power.

Paul Bowers

As you look at Southern Power and our generation fleet and looking at the mix of PPAs that we have currently we’re 83% covered in our capacity through 2017. We’re constantly evaluating when those contracts come off contract and when we have to go into the market for remarketing.

Just like the contracts that will be coming in 2011 that capacity was actually remarketed in 2005. So we’ve been in the market trying to increase and update our contract while at the same time providing input to current RFPs that are out there.

David Ratcliffe

There is an active marketplace out there for capacity in the co-ops and municipal [ranks].

Operator

Your next question comes from the line of Annie Tsao – AllianceBernstein


Annie Tsao – AllianceBernstein


Two questions just to clarify one thing, going forward should I think about industrial sales as getting better but the commercial sales is kind of reversed, getting worse.

Paul Bowers

On a year over year basis remember the fourth quarter of 2008 was when we saw the precipitous drop in industrial sales so from a comparable standpoint there should be a better percentage improvement for the industrial segment.

But we also said this year that commercial is the segment that we’re going to be watching and this quarter showed the signs of its beginning to weaken in terms of our sales results.

Annie Tsao – AllianceBernstein


Second question has to do with your IGCC project with China, if that proves to be successful what’s your strategy for that.

David Ratcliffe

Not sure I understand your question, obviously what we’re trying to do is to encourage commercialization of the technology that we developed at our power systems development facility with Kellogg Brown Root. This would be the first commercial demonstration of that technology. We have discussions underway with other parties so we’ll continue to look for opportunities to encourage commercialization of that technology.

Operator

Your next question comes from the line of Steve Gambuzza - Longbow Capital

Steve Gambuzza - Longbow Capital

The RTP impact in the quarter, did you call that out as $0.09, is that correct.

Paul Bowers

So we said $0.10.

Steve Gambuzza - Longbow Capital

Okay, and is there in the $0.28 to $0.30 from, that you’ve got for Q4, is there an impact versus Q4 of last year.

Paul Bowers

Yes, approximately about $0.03 we’re anticipating from RTP.

Steve Gambuzza - Longbow Capital

If I do the math then, it seems like its probably for the full year adding the $0.03 to what you did for the first nine months, its more then $0.20 then, its like $0.21 or--

Paul Bowers

That’s right, if you recall we made the comment that in the second quarter call that we were projecting out a $0.20 number as compared to 2008. When you consider what we’ve seen in terms of the slowdown of the economy and we also had a $0.02 refund associated with RTP in the second quarter, that’s had that impact.

Steve Gambuzza - Longbow Capital

And then where was the balance sheet on a debt to cap basis at the end of the quarter.

Paul Bowers

Debt to cap, we’re around 59%.

Steve Gambuzza - Longbow Capital

And how much deferred fuel is on the balance sheet right now and what’s the plan for getting that back.

Paul Bowers

We’re right at $635 million of under recovery fuel balance. We have roughly $325 million of that in our rates. One other interesting point we’ve made a 40% improvement on our under recovered fuel balance which is about a $500 million benefit thus far this year.

Steve Gambuzza - Longbow Capital

So when you say like roughly half of it is covered in rates meaning that if without changes to your rates just the, if fuel were to be relatively stable that the passage of time would bring half of that balance back.

Paul Bowers

That’s exactly right.

Steve Gambuzza - Longbow Capital

What about, is there a plan for filing to recover the other half.

Paul Bowers

As you recall in our regulatory discussions on Georgia Power, we’ll be filing a fuel case in December with them.

Operator

Your next question comes from the line of Phyllis Gray – Dwight Asset Management

Phyllis Gray – Dwight Asset Management

I wanted to ask what the amount of the regulatory amortization from the Georgia Power order was for the quarter.

Paul Bowers

It was $0.04.

Phyllis Gray – Dwight Asset Management

And in dollars.

Paul Bowers

About $54 million.

Phyllis Gray – Dwight Asset Management

And could you share some balance sheet items for debt balance and equity balance for the end of the quarter.

Paul Bowers

End of the quarter our debt balance is roughly $18 billion, and our equity balance is roughly $14.4 billion.

Operator

Your next question comes from the line of Ashar Khan - Incremental Capital

Ashar Khan - Incremental Capital

What would be the ROE for this year at Georgia Power versus what was agreed in the stipulation, apples to apples.

Paul Bowers

The total company return also includes a wholesale component and that total company return will be, the total company return is uplifted by about 120 to 140 basis points from the wholesale piece of the business. And as you know, part of the stipulated agreement that we had with the Georgia Public Service Commission was that the retail return would not exceed 9.75 for the year.

Ashar Khan - Incremental Capital

So where do we come in this year based on your results that your $2.30 to $2.32, where would we come in this year, do you have an approximation.

Paul Bowers

Around 11%.

Ashar Khan - Incremental Capital

That’s with the wholesale and everything included.

Paul Bowers

That’s right.

Operator

Your next question comes from the line of Paul Patterson – Glenrock Associates

Paul Patterson – Glenrock Associates

Just back on the demand respond now you are expecting a $0.25 decrease from the year before, how should we think about this going into 2010.

Paul Bowers

When you look at RTP its really a function of what the load will be out of that segment and also the impact of roughly fuel costs that will be driven into the marginal fuel numbers but you have to really have a forecast of one industrial loads and then two what the marginal price will be.

Paul Patterson – Glenrock Associates

And I was hoping you would have something like that or some idea.

Paul Bowers

We’ll give you that in January.

Paul Patterson – Glenrock Associates

Do you think it looks better though, directionally.

David Ratcliffe

I think what we tried to say earlier was there’s more upside in the industrial sector then there is downside. That’s sort of what we feel.

Operator

Your next question comes from the line of Dan Jenkins - State of Wisconsin

Dan Jenkins - State of Wisconsin

First of all, I was wondering if you could give me the year to date as of 9/30 CapEx and cash from operations.

Paul Bowers

Cash from operations, roughly $2.36 billion, that shouldn’t be roughly, that is the number. Also from a CapEx standpoint we’re projecting roughly $3.2 billion year to date.

Dan Jenkins - State of Wisconsin

And then I was wondering, the rating agencies your on negative at Moody’s & Fitch, and you’ve always put a lot of emphasis on your mid A rating are important to you. Has that changed kind of your approach as far as equity issuance or how are you going to respond to that.

Paul Bowers

No I think as we stated before from a financial integrity standpoint A credit is very critical to us. We’ve made comments that we’ll do what we need to do to shore up the A credit and as you know the stress that we’re seeing within the market with an aggressive capital program and a downturn in the economy has put those metrics on a negative outlook.

But as we look to the future we’ll do what we need to do to maintain that A credit.

Dan Jenkins - State of Wisconsin

Then I had a question on page seven and page six, if you look at the operating revenues for the various subs for the quarter versus year to date, the operating revenues tend to be weaker then the year to date whereas if you look at the, on page six at the KWH sale, they tended to be a little stronger in the quarter then year to date. What’s kind of reconciles that difference is it fuel costs or what’s making the revenues weaker then the volume.

Paul Bowers

You said it, it’s the fuel cost that’s driving those numbers.

Dan Jenkins - State of Wisconsin

And then on page seven again on the Southern Power you had nearly a 50% drop in the quarter in revenues yet the earnings held up, is that due to capacity charges or what’s kind of driving that.

Paul Bowers

Again that’s the fuel number as well.

Dan Jenkins - State of Wisconsin

And then do you have any financing that still needs to be done in 2009.

Paul Bowers

Yes, there will be still some to go. Year to date we’ve had some debt issuance of $2.2 billion thus far. We project another $500 million before the end of the year.

Operator

Your next question is a follow-up from the line of Greg Gordon – Morgan Stanley

Greg Gordon – Morgan Stanley

Follow-up question for you, I saw that you were on the TV earlier on FOX News that you made a comment that you thought that the economy would be relatively flat next year versus this year, when you made that statement that you thought things would be flat were you commenting on the economic outlook or were you commenting on your earnings.

David Ratcliffe

Commenting on the economic outlook.

Operator

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

David Ratcliffe

Thanks all of you for joining us. We’ll look forward to seeing you at the first part of the year and wrap up the year. Thanks.

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