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Duke Energy Corp. (NYSE:DUK)

The Wall Street Analyst Forum

August 16, 2007 11:10 am ET

Executives

Gerry Scott - President of Wall Street Analyst Forum

Keith Trent - Group Executive and Chief Strategy, Policy and Regulatory Officer

Presentation

Gerry Scott

Good morning, ladies and gentlemen. In our ongoing attempt to adhere to the published schedule, I would like to introduce the next company in today's program. The conference, yesterday and today had a heavy emphasis on alternative energy and clean technology. I guess in the old days, which wasn't too long ago, we used to write to utility and power companies on a separate day, in separate industry groups, and with a separate focus entirely.

What’s interesting in the last three years, in the last two years in particular, in the last one year it's all accelerated, is the convergence that we’ve seen, that Wall Street’s seen – if I have seen it, you have seen it – of even the companies in the oil and gas industry converging with a number of industries that used to be really unrelated to one another, whether it's solar companies and utility companies now having strategic agreements with each other, like NSTAR – I just used an example up in Massachusetts – just signed a strategic agreement with one of the larger solar companies traded on NASDAQ, Evergreen, I think it is, up in Massachusetts. It distributes solar products to NSTAR customers via a third-party distributor. And lighting companies are hooking up with solar companies, and oil and gas companies. So there’s convergence that’s been taking place.

And so we decided to first rename our Utility and Power companies – we write them for our conference Utilities, Power and Alternative Energy as they get more and more involved in solar and wind, and we haven't yet named the gravitation, but in truth we are in Vermont and Green Mountain Power is doing all kinds of stuff with cow manure power which is going from being a trivial piece of the pie to an increasingly large piece of the pie for all utilities depending on who they are and where they are or what they’re doing across the board.

In any case, we invited Duke and some other utilities to present in what was really dominantly an alternative energy and clean tech because of the increasing exposure that utilities are undertaking. In fact, probably the most telling trend is if you go to the web sites 18 months ago of Utility and Power companies and compare those to the web sites, the home pages, of the Utility and Power companies today, and of course 18 months ago look at how many of them use green font. It's very telling honestly, it's amazing. Yes, they were red and blue and had all kinds of stuff that their web designers thought was cool and look at them now, how green they are and it's really, it's interesting.

So anyhow, Duke Energy is one of the largest electric power companies in the United States. Duke supplies and delivers energy to approximately 4 million U.S. customers. The company has nearly 37,000 megawatts of electric generating capacity in the Midwest and the Carolinas, and Natural Gas Distribution Services in Ohio and Kentucky. In addition, Duke Energy has more than 4,000 megawatts of electric generation in Latin America. And in a joint venture – and is a joint venture partner in the U.S. real estate company, headquartered in Charlotte, North Carolina, Duke Energy is a Fortune 500 company traded on the New York Stock Exchange under the symbol "DUK". Now I would like to introduce Keith Trent, Chief Strategy, Policy and Regulatory Officer of the company.

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Keith Trent

Thanks Gerry, as you were talking, I think we may have missed the boat with our PowerPoint, we didn't include enough green on there. So, maybe as you are looking at our PowerPoint presentation just wherever you see blue, think green and we'll be in line there. We certainly are very active in the movement toward renewable and alternative energy, but we are also still very active in the sort of nuts and bolts of our business. So, I'll try to cover a little bit of both of those.

Before, I go any further, let me satisfy the lawyers and the SEC by informing you that the presentation that I am going to give today does contain forward-looking information. You should refer to our 2006 Form 10-K and our subsequent SEC filings to read about factors that could cause actual results to differ from the forward-looking information you will hear today.

Also my presentation contains non-GAAP financial measures, a reconciliation of these measures to the most directly comparable GAAP measures is available on our website at www.duke-energy.com.

With that taken care of, let me talk a bit about Duke Energy. Our story and our focus are much more straightforward than just one year ago. We have significantly lowered our risk with the sale of non-core businesses and the spin of our gas transmission and processing businesses, which was spun as Spectra Energy at the beginning of this year.

Now, we are focused on what we do best, investing in the future while earning consistently solid and low-risk returns. Our strategy to increase earnings and dividends is long-term and simple. We maintain steady sales growth, we continue our focus on cost reduction, and we earn solid returns on significant capital investments that are necessary to meet the growing demand and to modernize our coal fleet.

Having a regulatory framework in place that provides for the recovery and return on investments is clearly one of our key objectives. And as Duke Energy's Chief Strategy, Policy and Regulatory officer, I have responsibilities for developing and implementing our regulatory and policy agenda.

I might add that I do get some help in that arena, especially on the federal side from my boss, who is the CEO and Chairman, Jim Rogers and I am sure you have seen him active on the hill talking about climate change.

The majority of the regulatory and policy work is carried out in our two largest business segments, which is the U.S. Franchised Electric & Gas and Commercial Power. Those two businesses are expected to generate approximately 85% of our 2007 ongoing total segment aim at EBIT and that is generated from regulated customers and revenues that we have received from those customers.

Today, I want to start out the presentation by talking with you and giving an update to you regarding two of our very important regulatory initiatives that are ongoing. Our rate case in North Carolina and our strategy for addressing the exploration of our rate stabilization plan in Ohio. After that I will take some time to review our strategy concerning renewable energy and environmental issues.

You may recall that with the merger of Duke and Cinergy, the North Carolina Utility Commission requested a rate review as part of its approval of that merger. This is the first general rate review or rate case in North Carolina in 16 years. Our base rates haven't changed since the last case, so it's not too surprising that our current prices are more than 20% below the national average and are the lowest in North Carolina.

In June, we filed with North Carolina Utilities Commission to increase electric rates by 3.6% or $140 million and that rate change would be effective January 1, 2008. The new rates we have proposed in our filing will still be lower than they were 16 years ago when you adjust those rates for inflation.

There are a number of components to this filing, but let me quickly summarize four of the key issues that we are focused on in North Carolina. With respect to return and capital structure, we are requesting that the commission retain our current return on equity of 12.5% and we are proposing a 53% equity ratio.

On clean air cost recovery, we are proposing that we continue to recover the cost of the clean air expenditures through amortization up to the original cost estimate, which was $1.5 billion.

Expenditures beyond that amount, which we are expecting to be in the range of $400 million, would be included in rate base upon our proposed filing.

The third issue that we are focusing on is rate parity. We want to continue to improve rate parity between North Carolina industrial customers and other classes in North Carolina. And we also want to improve the parity between North Carolina industrial customers and South Carolina industrial customers.

To ensure that the cost of service is shared equitably between our customers, we are proposing a price increase to residential prices of 6.8% and an increase of 2% or less for general service and industrial classes.

This proposal will help industries to remain competitive and make it easier for the region to attract and retain new jobs. We do have a continued focus on economic development and that is vital, we believe, to North Carolina and all of its citizens.

The last issue I will highlight is bulk power marketing. On that front, we are proposing that the commission retain the current 50/50 sharing mechanism. So that framework fairly balances the needs of our customers and our shareholders. We think that the right approach there is to simply keep that sharing mechanism in place as it is now.

Let me quickly address the timing and procedural issues in the rate case. Public staff and intervener testimony is due September 24. We have been working with and will continue to work with all stake owners, including the Public Staff, to reach a settlement on the case, but we don't believe that we will be in a position to make a lot of progress on the settlement front until after September 24 when the filings from the interveners are made. And while we are pursuing settlement discussions, we will certainly be prepared to proceed to a full hearing, if that becomes necessary.

We believe that the increase we've requested is reasonable and appropriate, and helps us ensure that we can provide safe and reliable service at the lowest prices in the state. At this time we are expecting a ruling from the commission in late 2007, with the rate changes going into effect on January 1, 2008.

Let me turn to Ohio. We are currently working on a dual strategy, both legislative and regulatory strategy, for a long-term solution to be effective when our rate stabilization plan expires at the end of 2008. We are taking a flexible approach as we look at our alternatives there. One key consideration is that we need an additional 1,500 megawatts of generation immediately in Ohio and another 900 megawatts of generation by 2013. So, any future plan, either on the legislative or regulatory side, must include provisions to address this pressing need.

Our preferred course of action is to achieve a long-term legislative solution and given a very short capacity in Ohio and the fully competitive market crisis awaiting in 2009, we are pursuing legislation this year that will give us regulated transmission and distribution of – it will give regulated transmission and distribution operations the authority to buy and build generation to meet our projective capacity short fall. That legislation would also maintain a market based generation pricing option, and it would maintain predictable prices for our customers. We believe the legislation also needs to push new technology including alternative energy and energy efficiency. We will know more about what this looks like when Governor Strickland releases details on his energy proposal, and we are hoping that release will come in the next two weeks. With an active election year in 2008 we recognize the need for an expeditious legislative solution that achieves all of these goals.

As we pursue a legislative solution, I mentioned that we are also pursing a regulatory solution and in that front we have three options. First we can work to extend our current RSP, last year we filed to amend the RSP to extend it for a period of two years, and working with parties through that process we discovered that there was a desire to have a longer term extension, longer than the two years that we have requested, and so we are now pursuing a ten year settlement option which would extend the RSP for ten years.

The second option that we have is a go-to-market option where we would solicit supply bids for 2009 when the extended market development period expires. Our generation and our commercial business of course would participate in that market process if that option comes to fruition.

The third option, and from my perspective the least desirable option, is to simply extend our existing RSP for a shorter period, six months to a year, until we can finalize a longer term plan. With our low cost competitive generation we believe we are well positioned to prosper in any of the market structures and if any of the options come to fruition.

Switching now to alternative energy and environmental strategy, let me outline what that strategy is for us and how we see renewables and energy efficiency playing into our growth strategy.

Providing energy our customers need, while protecting the environment, are two of the most important priorities we have in Duke Energy. We are committed to developing more efficient generation with fewer emissions, including greenhouse gases, that contribute to global warming.

We have identified four emerging industry trends. First, we believe that the future is likely to be carbon-constrained. And while federal legislation probably won't pass this year and it won't pass, we think until after the presidential election occurs, we do believe that legislation will occur in one form or another and is likely to occur within five years.

Second, we see investments in energy efficiency as gaining importance, as both the concerns about climate change and the cost to build a new generation continue to rise.

Third, in addition to energy efficiency initiatives and climate change concerns, we see renewable generation as being an increasingly important part of our generation mix. Almost half of the states in the United States already have a renewable portfolio standard and more are coming. And congress is also currently debating a Federal RPS standard.

Finally, new methods and technologies will emerge to produce cleaner electricity, while enabling more efficient management of our grid. As these trends unfold, the underlying premise for us is to remain flexible and preserve our options. At the same time, we have to be forward-looking and we must shape our vision of the future with a defined understandable strategic plan.

Our carbon policy and the response to a carbon-constrained future is to be proactive in shaping carbon legislation and to begin the de-carbonization of our generation portfolio.

Duke Energy was a founding member of United States Climate Action Partnership, which is referred to now as USCAP; this is a diverse coalition of businesses and environmental groups that includes the likes of Alcoa, DuPont, Caterpillar, GE.

And within the Utility industry FPL Group, PG & E Corp and PNM Resources. Together that group and that coalition have proposed recommendations which include mandatory cap-and-trade for Greenhouse Gas Emissions.

The formation of this coalition has been described as a water shed event; and we see that as a real tool and vehicle that is pushing the timing forward for real action on climate change.

We do believe that there are some key design features for successful climate change legislation. First, the overarching goal must be to reduce CO2 emissions over time without damaging the economy. The best way to do that is through a cap-and-trade mechanism to capture all emissions through an economy-wide approach. Because we will be starting a new market we do need, we believe, protection against extreme volatility and high CO2 prices, so we believe that a safety valve is important and that valve could escalate over time to provide the protection against price shocks and volatility.

We also believe that it is important to apply this legislation, so that it does not unfairly burden parts of our country and segments of our economy that currently depend on coal. This will be especially important as millions of customers in 25 states depend on coal for the majority of their electricity needs.

The acid rain legislation, we believe, provides a very good model for us. That legislation, generally allocated allocations and allowances to power companies based on the historic amount of their emissions. This allowed those companies to run their plants which they needed to meet their load while at the same time being able to invest in scrubbers that were able to remove the SO2. That program has been extremely successful. We have spent $3.5 billion to-date and we will spend $5 billion to add scrubbers to our coal fleet and we've been very successful in reducing the amount of SO2, that's been burned. While at the same time we've been successful in the regulatory arena, recovering those investments.

The legislation, the acid rain legislation, was further looked upon as being the right model by the EPA, as they used a very similar model when they dealt with NOX and mercury and the regulations that they have established there.

Successful climate change legislation will need to provide funding and incentives for developing clean coal technology and carbon capture and sequestration.

I think there are some in the community that seem to believe that that technology is available to be implemented now and that's simply not the case. It's going to take a lot of money and a lot of focus for that to happen and we believe that legislation needs to help spur that on.

We've been very active in the ongoing discussions in Washington. Jim Rogers recently testified on Capitol Hill and spoke in the support of the Bingaman-Specter bill. It's not a perfect bill and we don't agree with all aspects of it, but we do believe it provides a good starting point for us for building sound legislation.

Now, let me talk about energy efficiency and what we are doing on that front. At Duke, we look at energy efficiency as the "Fifth Fuel" joining coal, nuclear, gas and renewables as the supply source for meeting future energy demand. We are committed to increasing the role of energy efficiency and meeting our customers' future energy needs.

Last year, we created a department that is solely focused on that effort and they are charged with understanding the factors that affect energy usage and creating energy efficiency programs and services that benefit all stakeholders.

Our commitment to energy efficiency was also demonstrated in May, when we filed our "Save-a-Watt" energy efficiency proposal with the North Carolina Commission. That proposal recognizes the energy efficiency as a viable fuel source, just as other traditional fuel sources.

Our "Save-a-Watt" proposal makes energy efficiency available to all customer groups, and it compensates Duke Energy for verified, only verified reductions in energy use. Our filing asks for return of and on 90% of the avoided cost based on the megawatts saved from energy efficiency, and we view this program as a triple win.

Our customers benefit as the saved megawatt that offset the need for more expensive building of generation, and we actually locked this in for them because the generation would be at 100% of avoided cost whereas the option we are proposing is that we would recover of and on 90% of the avoided cost.

We benefit by turning energy efficiency into a viable business rather than a compliant action. Our energy efficiency model will generate enough revenue to recover all program costs and would produce earnings comparable to building new generation.

We have been presenting this plan to key stakeholders in both North Carolina and South Carolina, as well as other jurisdictions, and we are receiving encouraging responses, but we do recognize that we are changing the regulatory world a bit in the approach that we are taking. Our goal is ultimately to roll this program out in all five states where we operate at this time.

Let me turn now to renewables; renewable energy is going to play a greater role in meeting our nation's existing and future demand for electricity. And that will be especially true if Federal Legislation caps carbon emission.

In response, we are looking at possible renewable mandates and evaluating the economics of renewable options. Earlier we have announced an agreement in Ohio with Orion to purchase 100 megawatts of wind energy for our Indiana system.

In April of this year Duke Energy Carolina issued its first RSP for renewable energy. The RSP requested bidders to submit bids that would provide renewable energy to us by 2012. We have received over 90 bids from 26 companies for more than 2000 megawatts of solar, bio-diesel, biomass, biogas, landfill, wind and hydro power. We are currently evaluating those bids and we expect to make decisions with respect to renewable sources by the end of this year. Our renewable portfolio strategy is driven by our belief that standards should be state-focused and not federally mandated.

Renewable standards work best when they are tailored to the individual needs of a state’s consumers and its economy and its energy resources. A one size fits all approach simply does not work. In our view, a renewable portfolio standard should include energy efficiency as counting towards the percentage. It should also ensure that the cost associated with meeting that standard can be recovered separately and it should protect customers by including a cost cap on renewable costs for our customers.

We're seeing more and more requirements for renewable energy and state energy policies. The North Carolina general assembly recently passed and sent to the governor a comprehensive energy bill, and in that bill, which we believe the governor will sign, North Carolina will become the first state in the southeast and the 24th state in the U.S. to have a renewable portfolio standard. That standard establishes a 12.5% requirement for renewable energy by 2021. It starts at a target of 3% of retail sales by 2012 and then escalates. Importantly the standard allows 5% of energy efficiency to count toward the 12.5% target which we think is the right approach. The bill also confirms the authority of the North Carolina Utilities Commission to approve our “save a watt” energy efficiency model by expressly informing the commission that they can establish a tracker to allow recovery of our energy efficiency spend.

The legislation includes the key provisions that I have identified earlier, including assurance that costs associated with meeting the RPS will be recovered separately, and it also includes the cost cap for our customers, such that if the cost of renewable becomes too high then the percentage is capped. We think those are two very, very important provisions.

The bill also includes an annual fuel clause amendment which allows us to recover, through a tracker, the cost of environmental reagents and chemicals that we need to run our chemical, run our scrubbers. Previously, recovery of these costs would not have incurred until a full rate base and now we are able recover those in a more timely fashion.

And finally, the bill gives the North Carolina Utilities Commission enhanced authority to grant recovery of financing cost for our new base load plants during construction. Previously the commission could only allow such recovery, if we showed that we were in a financially distressed position. This provision of legislation does not require us to show that anymore in order to get that recovery, but it does require us to show that our new plants, our coal and nuclear plants, are more cost effective than renewable generation and energy efficiency.

We believe this package provides an important step forward in meeting North Carolina's future energy needs and it compliments our efforts to meet the steadily growing customer demand that we are seeing.

Let me talk specifically about wind now. Wind energy is very much a part of our strategy. We believe that the growing U.S. wind market presents an attractive opportunity for us. That market is projected to grow from approximately 12 gigawatts to approximately 50 gigawatts by 2015 as it continues to receive significant support from federal and state regulatory bodies.

Our wind strategy is straightforward. We plan to develop a standalone portfolio within one of our commercial businesses, Duke Energy generation services, acquiring a foothold in developing expertise there. As they execute our strategy, our focus will be on projects with favorable and steady cash flows.

We took a major step in this regard in executing this strategy in late May, when we acquired the wind development assets of Tierra Energy, which was a leading wind power development company located in Austin, Texas. Three of the development projects, which totalled approximately 240 megawatts are located in Texas and Wyoming and are anticipated to be on-line in late 2008 or early 2009.

We expect to spend approximately $400 million in CapEx through 2009 to complete these projects. The projects will be underpinned by long-term contracts and favorable tax benefits. As a result, we expect to begin seeing earnings from these wind assets in 2009.

Also included in the purchase is the option to develop approximately 1000 megawatts of additional wind projects that are in various stages of development in the western and south-western United States. We will continue to review additional late-stage projects as part of our strategy for this growing business.

With respect to new technologies, one of the keys is going to be clean coal. Because coal is our country's most abundant fuel and customers in 25 states depend on it for most of their power, clean coal technology has to play an important role in meeting customer demand while reducing greenhouse gas emissions.

In North Carolina, we are pursuing building an 800 megawatt power plant using supercritical coal technology at our Cliffside station in North Carolina. This technology is far more environmentally advanced and efficient than units built in previous decades. As a result this unit qualified for an estimated $62.5 million clean coal tax credit that was allocated to us by the Department of Energy.

In Indiana, we continue to seek approvals to build our proposed integrated gasification combined cycle plant in Edwardsport. This plant would add 630 megawatts of needed generation to the system in Indiana.

The IGCC project has also qualified for $460 million in federal, state and local tax incentives, including a $133.5 million tax credit in the Federal Advanced Clean Coal Technology Program.

Duke Energy also is involved in three of seven Department of Energy regional carbon sequestration partnerships, and our East Bend Station located in Kentucky has been chosen as a Phase II geologic sequestration project for the Midwest Regional Carbon Sequestration partnership. The purpose of the project is to investigate the safety and effectiveness of underground carbon capture and sequestration.

We believe nuclear power must also play a key role in a carbon-constrained future, and as one of the nation's pre-eminent nuclear operators, we are in a position to play a leadership role in building and operating a new generation of nuclear plant. We are pursuing the option to build a nuclear plant in South Carolina. We are on track to file an application with the Nuclear Regulatory Commission this fall for a combined construction and operating license for that plant which will be called the Lee Nuclear Station.

In closing, we believe that our renewable and energy efficiency programs, the legislative and regulatory cost recovery initiatives that we associated with this program, nicely complement our growth strategy.

As such, we believe we have a strong value proposition. We have a 2007 employee incentive target of $1.15 per share on an ongoing diluted basis, on which we expect to grow ongoing earnings by 4% to 6% through 2009.

As Jim Rogers mentioned on our August 7 earnings call with normal weather for the rest of the year and our continuing focus on operations and cost management, we currently expect that we will exceed that $1.15 target this year. We have a dividend yield of approximately 4.5%, with the payout ratio target of 70% to 75%. We believe the work we are doing today will position us for continued growth beyond the current forecast period, which is through the end of 2009.

With that, I will be happy to take any questions you may have.

Question-and-Answer Session

Unidentified Audience Member

[I just wanted a clarification on a couple of things. The Cap back recovered on the North Carolina plant, so you want to recover 1.5 billion in environmental costs, and then an additional 400 of that…(inaudible)]

Keith Trent

That's correct. The original cost estimate was $1.5 billion and we were required to amortize at least $1.05 billion of that, which we have now done. Our proposal would be that we would amortize the additional $450 million over a four-year period or two-year period I should say, and then in the rate case for seeking, to include in rate base, the remaining $500 million.

Unidentified Audience Member

Okay great. And then just on the stable watch, can you just explain again how the 90% of what it costs (inaudible)?

Keith Trent

Sure, actually avoiding cost is a concept that the commissions are very, very familiar with and we have a proceeding each year that establishes the avoided cost. In the past what has been used for is for generators that we have to buy energy from and we buy it based on an avoided cost and that was under a PERPA. So the avoided cost concept is established.

What we are proposing here is that we would initiate energy efficiency programs. The amount of megawatts that those programs would save, we would then recover. And let’s say we have 500 megawatts that we've saved, we would equate that to a 500 megawatt generation facility and we would establish the avoided cost based on this used system that we've had in place, and we would recover of and on 90% of that cost.

So that’s how we get the savings from the customer. Had a generation facility simply been built, they would have paid 100%. They're only going to pay 90%, but at the same time, because we think we can efficiently roll out these programs, we believe that we can earn a stream—an earnings stream—that's equivalent to building that generation facility. So it's a win on both sides.

Unidentified Audience Member

Okay, last one and then I will shut up, I promise. The Ohio demolition timeline—you waited for the governor to come out with his plan (inaudible) at the end of the year?

Keith Trent

End of August is our hope. And we'd initially hoped that he might be able to come out with that in early August, but it looks like now that it will be towards the end of August. We also are working with the other utilities in the state and have created a proposed set of legislative provisions that we have circulated, so we are working on that. But I think that progress on that front will really step up when we see the Governor's proposal and we know that energy is a very high priority for him and so we are very hopeful that we will be able to stick to that schedule.

Unidentified Audience Member

But next year will be your (inaudible)?

Keith Trent

Yes. Our hope is that we get it resolved this year, because I think with the election next year we run a risk of not getting it. So we are focused on getting it this year. We have been working very closely with the governor and his staff, as well as legislators, and I think they all understand the pressing need for getting this resolved.

Unidentified Audience Member

Thank you very much.

Unidentified Audience Member

There are so many issues that you've covered very well in such a short time, so I guess, in my mind, one thing that stands out about (inaudible) capability and then, are you in any way trying to capitalize on that by (inaudible) nuclear power that you revealed to us? Ideally, (inaudible).

Keith Trent

Yes, and I really apologize for not repeating the questions earlier, but the question was with Duke's expertise that’s been demonstrated in nuclear power, are we contemplating building additional nuclear power, new nuclear power for sale to others?

The answer to that is, yes, absolutely. We do have that expertise, we are one of the leaders in nuclear power and we do, as I have stated, have plans to file—request for an operating license – with the Nuclear Regulatory Commission and that the plan is to have that filed by the end of this year, fourth quarter of this year.

That process is a very long process. The approval process and then the construction process is equally long. And so it takes time to do it, but my view point, if you are really serious about carbon, then you got to be really serious about nuclear. You are not going to achieve the goal that we have for carbon unless you pursue nuclear. So that's something we are focused on and we think that nuclear has to play a huge role in the future.

Unidentified Audience Member

(Inaudible) Are you suggesting that all nuclear power developments are local and that you couldn't create such a business beyond your own turf. And I've heard—and I'd like to know how much of your returns generation with nuclear, and what is your plan to assure that proportion?

Keith Trent

Sure. The question was could we expand nuclear beyond simply providing that power for our customers in our jurisdictions?

And the answer to that question, I think is complicated. One is that nuclear facilities are expensive and require tremendous amount of CapEx. And so, it is easier to build a nuclear power plant, in my view, in a regulated jurisdiction where you have more certainty with respect to recovery. And that's not to suggest that there is complete certainty, but that for example, in South Carolina we got legislation there that allows us to recover quip or financing costs as we go. And so that helps us be able to build nuclear generation.

Certainly the Federal Government has talked about loan guarantees. There's been a gap in the provision allowing the loan guarantees and funding the guarantees. Until that gets solved it becomes very, very difficult to build nuclear in a merchant sense, where you are going out without a bit of a safety net.

So, I would tell you that we certainly would consider and we will be opportunistic in maximizing the value of our nuclear expertise. I don't see us pursuing a significant nuclear merchant play or really building nuclear power plants in a large way outside of our jurisdictions.

Unidentified Audience Member

[Question Inaudible]

Keith Trent

Yeah. Well, the question is, could you use your expertise as sort of as a service or a consulting kind of basis to help develop the power in a joint venture?

Certainly possible, and something to explore. Again it’s easier to do within your own jurisdiction, but we keep our eyes open on that front. I wouldn't say that that's going to be a major focus for us at least in the three to five year timeframe but we will watch out how things develop. And one of things I think will be important for my view is to get good clarity on nuclear in legislation with respect to carbon. And so, if we can get some clarity on the future of nuclear on things like waste and loan guarantees and those sorts of things, that will open up potentially some doors and some opportunities for us.

Unidentified Audience Member

[Question Inaudible]

Keith Trent

From an energy basis it's in the range of 50%. 98% of our energy is produced from coal and nuclear on an energy basis, not a capacity basis, and on that basis it's right around 50%. Any other questions? Alright, thank you very much.

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