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Executives

Timothy Paukovits - Director, IR

James H. Miller - Chairman, President and CEO

Paul A. Farr - EVP and CFO

William H. Spence - EVP and COO

Analysts

Daniele Seitz - Dahlman Rose & Co.

Paul Patterson - Glenrock Associates

Ashar Khan - SAC Capital

Greg Gordon - Citi

Edward Heyn - Catapult Capital Management

Paul Ridzon - KeyBanc

Judd Arnold - King Street Capital

Yiktak Fung - Zimmer Lucas Partners

Jeff Gildersleeve - Millennium Partners

Reza Hatefi - Polygon Investment

PPL Corporation (PPL) Q4 FY07 Earnings Call January 30, 2008 9:00 AM ET

Operator

Good day everyone and welcome to today's PPL Corporation Fourth Quarter Earnings Conference Call. Today's call is being recorded. At this time for opening remarks, I would like to turn the call over to Tim Paukovits. Please go ahead sir.

Timothy Paukovits - Director, Investor Relations

Thank you, good morning. Thank you for joining the PPL conference call on fourth quarter and 2007 results, and our general business outlook. We are providing slides with this presentation on our website at www.pplweb.com. Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the Appendix to this presentation and in the company's SEC filings.

At this time I would like to turn the call over to Jim Miller, PPL Chairman, President and CEO.

James H. Miller - Chairman, President and Chief Executive Officer

Thanks Tim, good morning everyone. Today we'll follow our normal format, cover some general business issues and updates, and than we'll turn the call over to Bill Spence and Paul Farr, our Chief Operating Officer and Chief Financial Officer for more detail and then we'll go to Q&A.

Today we are reporting strong fourth quarter earnings, $1.17 per share compared with our reported earnings of $0.46 per share in the fourth quarter a year ago. While a significant portion of our reported earnings increase in the fourth quarter is due to the sale of our Chilean operations. Ongoing earnings from our supply segment were 12% higher than a year ago. The supply segments fourth quarter… strong fourth quarter resulted from stronger wholesale market prices and higher output from our base load generating plants.

International business segment had a very strong quarter improving by 59% over a year ago. Fourth quarter earnings from our Pennsylvania delivery operation continued steady increasing by about $0.02 a share and overall ongoing earnings were up about 30% for the fourth quarter of 2007 compared to 2006. $0.56 per share of our fourth quarter reported earnings resulted from the sale of our Chilean delivery business in November. So, in total we realized about $851 million in proceeds from the 2007 sale of our entire Latin American portfolio. Clearly the marketplace did recognize the economic value that was created in these companies both through our really solid customer service improvements and enhanced operational efficiencies there.

We are very pleased with the results of the divestiture and that will certainly enable us to further sharpen our focus on growing our core businesses. As we have said previously, the majority of the sale proceeds were used to repurchase a portion of our common stock. Today we also reported 2007 earnings of $3.40 a share. While special items contributed about 24% of that record number, we also had an excellent year when we look at ongoing earnings growth as well. Overall per share ongoing earnings for 2007 increased by 16% over 2006. The supply business drove this increase as a result of higher wholesale margins, greater realized margins from our new load following deals and higher output from our generating plants.

For the year ongoing earnings from the supply business increased by 20% over 2006 and that's exactly the kind of growth that we expect from this dynamic part of our core business. Our international operations also had a very strong year improving ongoing earnings by about 13%. The combination of our non-regulated supply business in the US and our international delivery business accounted for 85% of our 2007 earnings from ongoing operations. Additionally, we forecast that more than 90% of our earnings will come from supply and international delivery businesses in 2010.

We also are very pleased that investors are continuing to respond positively to our story. During 2007 our common stock rose by more than $16 a share ending 45% higher for the year and that performance was among the best in the sector. Our 2007 results underscore the significant benefits of our expanded marketing and trading operations combined with improved performance at our power plants and a consistent performance of our delivery businesses.

Paul and Bill are going to provide some more detail on our financial and operational performance for 2007, but before we do that let's talk about 2008 and also 2010 forecasts. Today, we are reaffirming the 2008 forecast to 235 to 245 a share. While the mid-point of the forecast is lower than our earnings from ongoing operations in 2007, it is important to note that this forecast does reflect the loss of synfuel related earnings, earnings from our divested businesses and some tax benefits recorded in 2007 that won't repeat in 2008.

Importantly, we are also reaffirming our forecasted 2010 earnings of $4 to $4.60 per share. We are encouraged by the further strengthening in the wholesale energy market since the fall, when we established this 2010 forecast. There are some key assumptions included in this forecast. Continued strength in forward market prices through 2010, continued strong performance of our fleet and power upgrades at our nuclear facility, Susquehanna and strong 2010 capacity prices for PJM, specifically in Mack and the APS zone. And Paul is going to provide some additional information on the building blocks for the 2010 forecast.

While the 2010 forecast certainly is important, we certainly don't feel that is a stopping point for our growth. Quite to the contrary, we have the plans into achieve our numbers in 2010 and we are aggressively pursuing additional growth opportunities. The marketing organization is continuing to identify ways to enhance the value of our generating fleet and to maximize the value of our trading operation.

We significantly upgraded our in-house capabilities in a number of areas, especially in the pursuit and execution of bilateral contracts and in the sophistication of our trading operations. We estimate that our marketing and trading operation added about $150 million in margins in 2007, compared to what we made by simply selling the output from our plants. Operator?

Okay, we are sorry for the delay, we will continue on. Apparently, a couple of phone lines are having problems with people dialing in. But as I was saying, we have significantly upgraded our in-house capabilities in a number of areas in our marketing and trading operation. Particularly strong execution in establishing bilateral contracts and the sophistication of our operations. We estimate that our marketing and trading operation did add about $150 million in margins as I said earlier in 2007, compared to what we would have made simply by working on the output of our power plants. Additionally we've reentered the natural gas market and are also talking with potential customers in the retail, commercial and industrial electricity market in the East. Commercial industrial retail customers have been part of our operation in Montana since we have been operating there. We are also continuing to pursue possible acquisition and construction of new generating assets, and an important element in this asset expansion effort of course is our recent announcement to pursue a construction and operating license for a potential new nuclear unit adjacent to our Susquehanna plant in Northeast Pennsylvania.

In addition to the potential to build near Susquehanna, we are also exploring opportunities to jointly invest in other new nuclear facilities. Very much encouraged by the project that we are seeing on a number of fronts regarding nuclear expansion. The industry is making headway on nuclear loan guarantees, standardized designs are moving ahead, and we are getting positive signals regarding regulatory process. In addition to that, we are now seeing future price levels that would justify investments in new large scale generating facilities including nuclear. We'll also continue to work on issues related to Pennsylvania state energy policy. As you all know, a special session of the Pennsylvania legislature is ongoing and we've been very much involved in constructive discussions with legislatures, regulators, administration officials and other energy companies in the state. The details of some of the legislative packages still are being worked out. There are many areas of agreement regarding demand side management, energy efficiency, conservation and how a delivery company should acquire supply for customers who don't choose an alternate provider. Work also continues on possible approaches to moderate price increases when generation rate caps for Pennsylvania's major electronic utilities begin to expire at the end of 2009.

As I mentioned in our last call, we are proactively pursuing options for PPL electric utility customers to manage price increases when the caps come off. We've asked the Pennsylvania PUC to approve a five-year phase-in plan under which an average residential customer could limit annual price increases to approximately 7% for the first two years of the plan and 6% in 2010, 2011 and 2012. These numbers are preliminarily or preliminary of course and assume that the price is secured for 2010 supplies, and the two RFPs completed this year are the same for the remaining four RFPs. We believe that our phase in proposal appropriately addresses the most pressing concern regarding rate cap expiration, a large one-time increase in a customer's bill. We have asked the PUC to act on our proposal soon so that we can begin this program in July of this year. Legislature is also working on a plan, a phase-in plan that would occur after the rate caps expire, a concept that we generally support. While there is no shortage to challenge in today's sector, I am pretty confident that PPL has a solid strategy in place to make the most of the opportunities available to us and we are working hard to present as many options to our customers as possible to deal with the end of rate caps.

So, 2007 was a very strong and excellent year actually for PPL. We are optimistic about the future. We like the fundamentals; they appear to be working to help support continued growth of the corporation. And so I will turn it over now to Paul Farr, our Chief Financial Officer for more detailed financial overview. Paul?

Paul A. Farr – Executive Vice President and Chief Financial Officer

Thanks Jimmy. Good morning everyone. As outlined on slide six, you can see that we delivered strong fourth quarter growth and ongoing earnings in each of our business segments compared to a year ago. These results are driven by the same key factors that drove our full year 2007 results.

As we've indicated on the past several calls, 2007 earnings from ongoing operation include the operating results of the Latin American and natural gas delivery businesses, but exclude special items related to their divestiture. Given that we are close to obtaining binding bids for the sale of our natural gas delivery business, I'd like to mention the potential for an impact on 2007 reported earnings from the divestiture process. While any potential gain on the sale of this operation will impact future earnings, a loss could impact 2007 results, if an assessment is made that the sale value is below book value and this assessment is made before the filing of our 2007 form 10-K at the end of February. Under any scenario the gain or loss will be treated as a special item and will not impact earnings from ongoing operations in the period reported. We continue to expect that we will close on the sale of the gas business in the second half of 2008. Before reviewing our 2008 earnings forecast, I will review the key segment earnings drivers for 2007.

Turning to slide 7, let us start with our unregulated supply segment. The unregulated supply segment earned $1.42 per share in 2007, a 20% increase over the prior year. This increase was primarily driven by higher energy margins in both the East and the West. Higher energy margins in the East were a result of higher net wholesale prices compared to a year ago, higher unrealized... higher realized margins on new and existing full requirement supply contracts, higher base load generation and lower coal cost as well as higher unrealized gains on trading activities. Higher energy margins in the West were a net result of higher wholesale prices and higher base flow generation partially offset by higher fuel cost. The supply segment also reported higher Sential [ph] earnings of $0.06 per share primarily due to the gain on oil options purchased to hedge the Sential tax credits and lower income taxes. Partially offsetting these positive earnings drivers are higher O&M driven by higher outage cost at our Fossil Hydro nuclear power plant, higher nuclear fuel disposal cost and higher payroll cost as well as higher financing cost.

Turning to slide 8, our Pennsylvania delivery segment earned $0.40 per share in 2007, a 5% increase over 2006. This increase was driven by higher electric delivery revenues as a result of warmer weather in 2007 compared to 2006 and higher revenues in our gas delivery business as a result of a distribution rate increase that was effective early in the year. The revenue benefits were partially offset by higher O&M and higher depreciation. Turning to slide 9, our international delivery segment earned $0.78 per share in 2007, a 13% increase over 2006. The 2007 increase was a result of lower income taxes including the $0.08 tax benefit realized in the second quarter of '07. Higher UK delivery revenues due to a more favorable customer mix and the recovery of 2006 revenue under run, beneficial currency exchange rates and lower depreciation. These positive factors were partially offset by higher O&M by WPD and WPD's comparative results were also impacted by income realized in 2006 from the ongoing liquidation of certain non-strategic businesses in the UK.

On Slide 10, we summarized the major drivers of earnings from ongoing operations between '06 and '07. I'm not going to specifically discuss these drivers as I basically discovered them in my segment review, so let's move to Slide 11.

As Jim mentioned, we are reaffirming our 2008 earnings forecast of $2.35 to $2.45 per share. While the $2.40 per share mid point of the forecast range is lower than our 2007 earnings from ongoing operations, we expect to partially overcome the loss of some significant earnings drivers for '07 including $0.18 from Synfuel related items and $0.08 tax benefit that helped '07 and the net loss of $0.08 per share from the impacted divesting Latin America.

Let's move to Slide 12, which outlines the principal items that drive '08 earnings forecast versus our '07 actual results. Our 2008 earnings are expected to benefit from lower O&M at $0.06 per share primarily driven by lower pension expense of WPD, higher energy margins at $0.06 per share due to higher margin wholesale energy contracts and higher base load generation output.

Netted in this margin improvement is $0.04 of higher fuel cost in 2008 to replace the Synfuel we purchased from third-party producers, to be burnt in part of the Eastern Fleet.

Also, contributing our higher Pennsylvania delivery margins of $0.02 per share as a result of new electric distribution rates, which became effective January 1, 2008. The impact of PPL Electric $55 million approved revenue increase is netted down by an assumption of a return to normal weather in ‘08. These positive drivers will be more than offset by the $0.14 per share loss of Synfuel operational earnings, the decrease of $0.08 per share from the sale of our Latin American assets, the $0.08 per share tax benefit again recorded in Q2 of 2007 and higher depreciation expense primarily in the supply business segment due to some of the scrubbers online as well as additional plans in service.

We expect 56% of our 2008 earnings to come from the supply segment, 25% from the international delivery segment and 19% from the Pennsylvania delivery segment.

Turning to slide 13, we highlighted the primary earnings drivers between the $2.40 per share midpoint of our '08 forecast and the $4.30 per share mid point of the 2010 forecast. The forecast increase from 2008 to 2010 earnings is driven almost exclusively by our unregulated supply segment, which is expected to provide approximately 77% of our 2010 earnings. We expect the contribution of our international and Pennsylvania delivery segment to be 14% and 9% respectively. Clearly, the most significant driver of the forecast is the increase in energy margins and we continue to see strengthening in prices since we set this new 2010 forecast last fall. The increase in energy margins between 2008 and 2010 is driven primarily by higher energy prices, higher capacity revenue, additional margin growth from continued expansion of marketing and trading activities as well as higher nuclear generation output. These positive margin drivers are expected to be partially offset by higher fuel costs and higher environmental costs. In addition to the growth in energy margins, we expect higher O&M primarily in our supply segment as a result of the startup of the scrubbers, and other pollution control equipment at our Foster unit, additional planned outages as well as inflationary increases. Our Pennsylvania delivery and international delivery segments are also impacted by inflationary increases. Higher interest costs of $0.10 per share on higher debt levels for finance, our CapEx programs as well as the planned common stock buybacks also impact 2010 as well as higher depreciation primarily due to the scrubbers coming online and other plant additions.

Moving to slide 14. The strength in 2007 cash flow was driven by the sale of our Latin American portfolio and the sale of our domestic telecom business. The 2008 forecast does not yet include any after-tax sale proceed assumption from the sale of that business… from the sale of the gas business, excuse me. Additionally, the CapEx numbers have been updated to reflect the elimination of CapEx spend for the already divested businesses and includes additional CapEx for the electric utilities, PJM market transmission line projects. The CapEx spend also includes funding for preparation of the coal for a third nuclear unit. We continue to expect that we will find all planned capital projects with cash from operations and the issuance of long-term debt and hybrid securities.

Furthermore, our business plan includes $700 million of common stock repurchases, beginning in early 2009. These planned stock buybacks are a placeholder for other growth opportunities that would add future greater shareholder value.

Finally, dividend growth remains an important component of our total shareholder return for PPL. We'll be assessing the dividend level next month on our normal schedule and we expect to continue our recent trend of strong stock dividend increases. With that, I'd like to turn the call over to Bill Spence, our Executive Vice President and Chief Operating Officer. Bill?

William H. Spence – Executive Vice President and Chief Operating Officer

Thanks Paul and good morning everyone. First I'd like to give you an update on the major activities of our operating segments since the third quarter call. I'm happy to report that the Pennsylvania PUC approved the settlement agreement for PPL electric utilities distribution rate increase request that was filed in March of last year. This approval provides for a $55 million revenue increase that was effective, January 1 in 2008. Several key programs to address customer impacts resulting from the expiration of supply rate caps were also included in this filing and in the settlement. Next month, PPL electric utilities will begin its third solicitation to procure one-sixth of its expected default supply requirements for 2010. [inaudible] March 24 and PUC approval is expected March 27. After the completion of this third solicitation PPL Electric Utilities will have 50% of its expected default supply requirements for 2010, already under contract. On the supply front, we remain confident that the Scrubber projects at our large Eastern coal plants will be completed on time and on budget in 2008 and early 2009.

Turning to slide 16, we continue to execute on our plans to increase generating capacity in Pennsylvania and Montana by 328 megawatts through upgrades at existing generating stations. A few of the small high grown coal upgrades actually came on line in 2007 and yesterday we have received NRC approval for the power upgrade at our Susquehanna nuclear facility. We recently received the new steam dryer for the unit 1 reactor. This was our critical path item for beginning the 70-megawatt upgrade project for this unit. We plan to increase the power levels on Susquehanna unit 1 after the new dryer is installed and other modifications are made during our Spring 2008 outage. Unit 2's upgrade is scheduled for the 2009 outage, with the unit increasing power shortly thereafter. After completing an extensive review of various nuclear reactor technologies, we announced in December, then we contracted with UniStar Nuclear Energy to prepare the NRC application for the combined license to construct and operate a third nuclear unit adjacent to our Susquehanna plant. This unit would be based on the Areva's US Evolutionary Power Reactor design. Earlier this month, we also announced our filing an application with FERC to more than double the output of our Holtwood hydroelectric plant. We worked very closely with the Pennsylvania department of environmental protection on this proposal, in order to ensure that we not only address the state's renewable energy needs, but importantly, we also addressed important environmental and ecological considerations.

DEP secretary McGinty attended our press conference and spoke in support of the project. I think it is important to note that the planned new hydro facility at Holtwood and the potential third nuclear unit at Susquehanna would substantially enhance our non-carbon emitting footprint. Currently about 40% of our generation output is non-carbon emitting. Upon completion of these projects, that could rise to more than 50% of our generation production. Additionally, we are continuing our plans to invest $100 million or more in renewable energy projects over the next five years. Over the past few months for example, we announced the completion of solar energy project and we are developing several methane to electricity power generation facilities. To date, we have developed renewable energy projects that total more than 30 megawatts of generation and that's enough to cover 20,000 homes. As I said, we continue to expect the Scrubbers to be completed on time and on budget.

The photos on slide 17 show the progress that we have made on the Montour scrubber project over the past year. The construction at Montour is now about 93% complete and we're making great progress at Brunner Island, which is about 50% complete at this point. The Montour Unit 2 scrubber will actually come online this quarter and will time this scrubber going into scheduled outage in mid-March.

Turning to slide 18, the PJM RPM auction for the 2010-2011 planning year is underway and results are expected to be announced here very shortly. The zones for this auction have been revised since the last auction; the new zones are depicted on the map on slide 18. You would note that all PPL's Pennsylvania generation is in the new MAAC zone, which is essentially a combination of previous Eastern MAAC and the MAAC portion of the old MAAC plus APS zones.

While we don't expect results in this auction to be significantly different from the results of the previous auction, the combination of these two zones show that the constraint is moving west. As a reminder, our 2010 earnings forecast assumes that the auction results for the 10/11 planning year will clear at $191 per Megawatt day. I would like to next walk you through our expected margin change for the 2007 actual results to our 2008 forecast.

As you can see on slide 19, expected margin improvements are driven by a number of factors. First, improved power value, which includes power prices, spot spread changes across our entire fleet as well as the value-added from asset management by PPL EnergyPlus and the results from other marketing and trading activities. In addition, higher nuclear output is expected resulting from the first phase of the upgrade project I previously mentioned and the completion of the final rechanneling outages that we had in 2007.

Also, higher coal generation resulting primarily from fewer planned outages in 2008 and higher east and west hydro output. These increases are expected to be offset by higher fuel costs, primarily resulting from higher coal expenses due to increased prices for coal and coal transportation, including the higher costs of replacement coal due to the end of our synfuel program. We had been burning synfuel at some of our eastern coal facilities, and in 2008, we have to replace that synfuel with traditional coal sources. The synfuel replacement will negatively impact margins by about 25 million. Also contributing to higher fuel cost is an increase in price of nuclear fuel. And finally, margin growth will be impacted by a loss of generation from our Martins Creek coal units 1 and 2 which we shut down in September of last year.

Moving to slide 20, I'd like to provide you with an update on our open EBITDA position in 2010. In forecasting the date on this page, we use forward prices as of the end of December, which can be found on page A-1 of today's presentation. The unhedged gross margin for the supply segment in 2010 is expected to be about $3.7 billion with associated O&M of $814 million. This brings the value of our open EBITDA to $2.9 billion, an increase of almost $250 million from our forecast in October. While this negatively affects the mark-to-market of our hedges we have executed for 2010, to ensure... and that is to ensure a more predictable earnings in cash flow, it does clearly indicate strengthening value that could be realized as our hedge positions roll off. In total, we have hedged about 62% of our 2010 generation. While we've also hedged a portion of 2011 generation, it's at a much lower level than 2010. While this open EBITDA is based upon current forward prices and numerous assumptions on plants' availability and O&M costs, we are encouraged by the trend.

As we've indicated in the past, we are not planning to continuously update our 2010 earnings forecast. That said, we are providing you with the few key sensitivities on slide 21 that you can use to mark the earnings forecast of the market. Of course, our hedge positions and other factors are dynamic; so that should be carefully considered as well.

And now, I would like to turn the call back to Jim Miller for the Q&A.

James H. Miller - Chairman, President and Chief Executive Officer

Thanks Bill. Operator, just hold for a moment on the call and we have a number that can be used for others to call into.

Timothy Paukovits - Director, Investor Relations

This is Tim Paukovits, I want to apologize to the few people who haven't been able to dial in to listen on this phone line, but maybe are listening via webcast. There is another dial-in number we have for you if you like. If an analyst likes to ask a question during the Q&A session, the number is 877-419-6594; again that's 877-419-6594. We understand there were a couple of analysts that didn't get through on the queue on the dial-in line, you can use that number to ask your questions.

Now, we will go to the Q&A session. Operator?

Question and Answer

Operator

Thank you. [Operator Instructions]. We'll go first to Daniele Seitz with Dahlman Rose.

Daniele Seitz - Dahlman Rose & Co.

Hi. I just was wondering if a... upon the sale of your gas business, are the proceeds going to be used for the stock repurchase in 2009 or are there any other type of usage that you would like to use of that?

Paul A. Farr – Executive Vice President and Chief Financial Officer

Daniele, this is Paul. The amount of proceeds will be... because of the size of that business significantly less than the proceeds from the combined sale of... in the Latin American portfolio. We haven't chosen a spot for the use of that cash right now.

Daniele Seitz - Dahlman Rose & Co.

Okay. And in terms of the... do you have any other opportunities in hydro upgrades or is this pretty much what you can do at this time?

Paul A. Farr – Executive Vice President and Chief Financial Officer

No. In addition to the hydro... the Holtwood hydro facility, we are adding about 30 megawatts to the Montana portfolio as well through a new powerhouse out there and upgrade to that... for that fleet of assets.

Daniele Seitz - Dahlman Rose & Co.

Okay. Thank you.

Paul A. Farr – Executive Vice President and Chief Financial Officer

Sure.

Operator

And we will take our next question from Paul Patterson with Glenrock Associates.

Paul Patterson - Glenrock Associates

Good morning guys.

Paul A. Farr – Executive Vice President and Chief Financial Officer

Good morning.

Paul Patterson - Glenrock Associates

I wanted to ask you about the impact of the emission allowances. I'm looking at the cash flow statement, cash flow for investing activities and sort of what's driving that and the short-term investments in that sales purchases? They seem to have poked around and I just want to get sort of a little bit more clarity on that.

James H. Miller - Chairman, President and Chief Executive Officer

There is a larger plant sale assumption in 2009 for those Paul, but that's a combination of that as well as movements in our NDT assets and things that purchases and sales there and purchases and sales of other liquid securities that we have cash parked in that don't fit well into the other line items. That captures more than just emission allowances in asset sales.

Paul Patterson - Glenrock Associates

Okay. And then, what's the impact on earnings and debt, when we look at that… when you look at, there has been about $100 million swing '07 versus '06, and I guess what you are indicating is that number might go higher for the emission allowances with the… I guess the Scrubbers coming [inaudible]?

James H. Miller - Chairman, President and Chief Executive Officer

Yes, that's already assumed in the $101 million number in '09 that you are looking at there.

Paul Patterson - Glenrock Associates

Okay.

James H. Miller - Chairman, President and Chief Executive Officer

And that flat to negative 15, as I think about the business plan basically continues into 11 and 12. There are no significant assumptions about material items that would affect that other investing activities line item.

Paul Patterson - Glenrock Associates

And what are these short-term investments that you are selling?

James H. Miller - Chairman, President and Chief Executive Officer

Movements in the NDT assets.

Paul Patterson - Glenrock Associates

Oh, I got you. Okay. First of all I appreciate the detail, On slide 8, 9 you guys show sort of your expected reserve margin, which is helpful. Where do you see that sort of bottoming out or leveling off? I mean the trend looks like it's declining pretty substantially, I'm just wondering where do we get... where do you think it bottoms out or do you have any feel for that past 2010?

William H. Spence - Executive Vice President and Chief Operating Officer

Paul. This is Bill Spence. It is really hard to predict, but I think it is probably in the single digits might be the place where it bottoms out. We're still not seeing any substantial new generation being added, particularly in the Mid-Atlantic PJM. But there are folks obviously that have announced some plans for some new combined cycle units in the region, but the real question is probably what impact on demand will significant rise in electricity prices have and how might that be met going forward. So it's very difficult to predict though.

Paul Patterson - Glenrock Associates

Are there any reliability issues that we get into the mid-single digits?

William H. Spence - Executive Vice President and Chief Operating Officer

Well, I think it's highly dependent on weather and if you get the one and 20 negative weather event, you could have some voltage reductions and so forth. But that's why we have a forward planning process in place with PJM and so obviously our hope is that we maintain the reliability through plant increases and obviously we've reacted at existing plants with the upgrades that we had at the fossil as well as the nuclear plants.

Paul Patterson - Glenrock Associates

All right, okay. Thank you.

William H. Spence - Executive Vice President and Chief Operating Officer

Okay. Sure.

Operator

And we will take our next question from Ashar Khan with SAC.

Ashar Khan - SAC Capital

Good morning. Just going back to the update on the open EBITDA slide. If I am doing my math, I just want to make sure my math is correct. The previous slide had an open EBITDA minus market value of hedges of 2497; this was October when you did it and now it's 2644, which is an increase of about $150 million. So, assuming that this open EBITDA stands still, you hedge out the remaining portion of your portfolio and the prices remain the same. To me it's implying that 2010 earnings, if these prices remain as what is in this open EBITDA calculations have increased by $150 million pre-tax. Am I correct?

William H. Spence - Executive Vice President and Chief Operating Officer

That's how the math would work.

Ashar Khan - SAC Capital

Okay. And then if I can go Paul to the next slide where you show the sensitivity analysis of $19 million for 1 megawatt and you are using the ATC price, am I right, because the ATC price is more dependent on your POLR load, and your POLR load is around 40 or so. So, if the sensitivity now is only 19, that would imply that only 19 of the 40 POLR load is open, and hence you are hedged over 50% or so, on your POLR requirements.

Paul A. Farr – Executive Vice President and Chief Financial Officer

Well versus looking at in the terms of POLR requirements, the POLR load was what it was at the end of 2009, and the statistic that I think Bill used in his part of the presentation was... we are slightly in excess of 60% hedged on 2010 at this point in time.

Ashar Khan - SAC Capital

Okay, so then the hedging is somewhere else also in the portfolio, okay, okay.

Paul A. Farr – Executive Vice President and Chief Financial Officer

Correct.

Ashar Khan - SAC Capital

Okay. And then if I can just go to another line item, which is that the cash flow from operation from 2010 was 2390 in the October presentation, which has been updated to 2499 in this current presentation, which is an increase of about $100 million. Has that been driven by this higher open EBITDA or what is the basis of that provision?

Paul A. Farr – Executive Vice President and Chief Financial Officer

It is primarily working capital and other changes. That $100 million would adjust that figure effectively up after using the 150 after-tax. So, we haven't updated the cash or the earnings forecast to reflect improvements in forward prices.

Ashar Khan - SAC Capital

Okay, the improvement that is happening is only because of working capital changes right now, the $100 million improvement in tent?

Paul A. Farr – Executive Vice President and Chief Financial Officer

Primarily we have updated as well, as we got better information towards the end of our business planning cycle, some information on O&M cost and things like that and potential rate case outcomes across the portfolio but primarily working capital.

Ashar Khan - SAC Capital

And then if I can go to Jim on the nuclear. Jim, when do you expect… I guess we got the loan guarantees, I am expecting that your application and your assessment will include applying for that and getting that, but do you have some kind of plan as to when the application fulfillment is completed and when can the nuclear plant come on line from a PPL portfolio?

James H. Miller - Chairman, President and Chief Executive Officer

Well, I'm sure the... our current plan is to aggressively work on the construction operating license and submit that around October or prior slightly ahead of October of this year.

Ashar Khan - SAC Capital

Okay.

James H. Miller - Chairman, President and Chief Executive Officer

And such that we can obtain acceptance of that filed application by the NRC by December 31 of 2008 and then roughly speaking we would anticipate hopefully a two and a half year review period or less, if things go well at the NRC, it could be a little less. And so then it begs the question on.... questions like where we ultimately end up in the queue on forgings and forgings are really the critical path of the whole process. And I would say that our objective would be to strive for an online time of about 2016 or 2017, but as I said, there is a number of variables out there and that's what we're working through right now.

Ashar Khan - SAC Capital

And Jim, you said that the prices now support, I guess you're talking about capacity and energy prices support that economics. Does that mean that you are going to be looking now as price... capacity price has moved up and all that in towards? Is nuclear the only new build that you're going to do or could you be looking to buy more assets on the market as you look at these prices?

James H. Miller - Chairman, President and Chief Executive Officer

Yes, I think it's a little bit of everything Ashar. We're certainly looking and continue to look, and every deal of course is different and has different aspects to it. But we look at the gas assets and certainly we're out there looking for the right gas assets in the right areas. We continue to say and repeat we're not going to overpay beyond what we believe the fundamentals show where we'll deliver. But coal is a question, a big question of course and that's got its environmental overhang to it. Coal right now is probably the technology that we're looking at the least, but that could change as events unfold. So, I think really gas and nuclear we're focused on, and of course we're continuing to upgrade our hydro assets, but from a large-scale block of generation, we're certainly looking at gas assets and nuclear.

Ashar Khan - SAC Capital

Thank you very much sir.

James H. Miller - Chairman, President and Chief Executive Officer

Yes.

Operator

And we'll take our next question from Greg Gordon with Citi.

Greg Gordon - Citi

Thank you. Good morning.

James H. Miller - Chairman, President and Chief Executive Officer

Good morning Greg.

Greg Gordon - Citi

I'll ask Ashar's question slightly different way on the open EBITDA. If the assumptions you've laid out on page 21 represent the base... the base, the average ATC prices for PJM capacity of 191, you are right at 91%, those assumptions represent the assumptions that set the midpoint of your 2010 guidance, correct or incorrect?

James H. Miller - Chairman, President and Chief Executive Officer

Correct.

Greg Gordon - Citi

So, given where power prices and given what your open EBITDA has shifted by several months, assuming that you could in fact lock in those margins you'd be shifting more towards the higher end of the range at economic pricing?

James H. Miller - Chairman, President and Chief Executive Officer

Correct, and obviously subject to the outcome of the RPM auction upcoming.

Greg Gordon - Citi

All right and you have more hedge options for that to take place in, what happens to the pricing here whether it goes higher or lower?

James H. Miller - Chairman, President and Chief Executive Officer

Correct.

Greg Gordon - Citi

Let's talk about coal -- spot coal -- spot coal pricing is obviously through the roof. I have talked to my coal traders here at Citi. And to paraphrase what they said, they said that the guys in central and Northern half coal mines are so built up they can’t even get their horns out the door. What are you seeing in terms of how that spot coal price is affecting your ability to hedge out your open position in 9/10 and beyond? What type of pricing are you assuming in the forecast?

James H. Miller - Chairman, President and Chief Executive Officer

Well, first of all we are -- Bill you can speak for this, but we are moving away from… with the Scrubbers online. We hope to move significantly away from the central App coal and move towards Pennsylvania coal or either and even look in at Indiana or Illinois basin coal, but I think to the other point I would make is, remember that, yes, the spot prices are moving and yes they have taken a sharp uptick, but we don't buy a material amount of our coal on a spot coal basis and there are very long contracts and I don't know, Bill, are you seeing any percentage just to discuss now?

William H. Spence – Executive Vice President and Chief Operating Officer

No, if you look at our position for 2008, we are 94% hedged on coal in the -- 100% in the west. As Jim said, with the Scrubbers coming online, we had already previously contracted a pretty good chunk of coal that we had announced previously in the forward years, actually through 2012 and beyond, and so if you look at where we are hedged 60% to 70% beyond 2008, I think we are in fairly good shape, and I think there are some reasons why this is a pretty short term event with the issues that you have with flooding in Australia, China shutting down their exports. And I think if I look at US inventories of coal at the existing power stations, people are in pretty good shape, and I think with the spring outages coming up, that will ease up on some of the demands for coal. So, hard to predict, but our expectation is that you may see this volatility continue through the summer and then our expectation would ease off after that, but we are not seeing any material impact. I guess the bottom line is to our fleet at this point.

Greg Gordon - Citi

Final question. What is the time line for getting resolution of your basin plant proposal in Pennsylvania?

James H. Miller - Chairman, President and Chief Executive Officer

Well, I'll answer it this way. We are continuing to work with obviously work with PUC as necessary. As we've mentioned, we'd like to begin that phase-in plan in July of this year. So, we are dialoguing with all of the interested constituencies that normally get involved in these types of filings and those discussions are underway. I would say that I... to date we've had I think very positive comments associated with the plan, and so it's our objective to continue the dialogue with all those interested parties and see if we can work our way through and come to agreement on any of the details that need ironing out and then the PUC will then take that information, if you will, or that agreement by parties and I think move it on through their process. So, I can't give you today a date that the PUC will rule on this. But I think... we think of it in the steps that we have to get out of the way. We want to find out other issues with interested parties. Can we resolve those issue and I believe we can and then I think the PUC will take that information and our hope is that they will move quickly knowing that our plan... 54-month phase-in plan needs to get started in July. So, we are optimistic that they will recognize that and move forward.

Greg Gordon - Citi

Thanks gentlemen.

James H. Miller - Chairman, President and Chief Executive Officer

Thanks Greg.

Operator

We will take our next question from Edward Heyn with Catapult Capital Management.

Edward Heyn - Catapult Capital Management

Good morning.

James H. Miller - Chairman, President and Chief Executive Officer

Good morning.

Edward Heyn - Catapult Capital Management

Just to follow up on some of the questions Greg was asking on coal. First, could you give us any sort of sense of what percentage hedges you have for coal in 2011, 2012 time period?

James H. Miller - Chairman, President and Chief Executive Officer

Well, I don't want to get into real specific numbers. So, all I can say is that we have significant portions of our coal and fuel and across the board hedge, and we are very comfortable with where we sit right now.

Edward Heyn - Catapult Capital Management

Okay. But is it significantly below the 70% like… if you look at the East, is it significantly blow the 70% in 2010?

James H. Miller - Chairman, President and Chief Executive Officer

No. It's not. No.

Edward Heyn - Catapult Capital Management

It's not. So, it is about... around 50% or somewhere around that range?

James H. Miller - Chairman, President and Chief Executive Officer

Or higher. Yes. We are greater than 50% both years.

Edward Heyn - Catapult Capital Management

Okay. Than in the 2010 hedges that you do have that 70%, is there any... can you give us that on a dollar per ton basis where you are hedged?

James H. Miller - Chairman, President and Chief Executive Officer

We haven't provided those details in the past. We've spoken more about year-on-year absolute increases versus getting specific on a dollar per ton delivered basis.

Edward Heyn - Catapult Capital Management

Okay. What about from a sense of where you are relative to current marketing pricing, current markets forwards, is that significantly below market or above market?

James H. Miller - Chairman, President and Chief Executive Officer

Again with the way that we contract and they are typically under medium to long-term contracting arrangement. Stock market prices don't impact necessarily or directly the prices that we pay under those arrangements.

Paul A. Farr – Executive Vice President and Chief Financial Officer

I'd say that we are significantly under spot, the spot as you call it definitely.

James H. Miller - Chairman, President and Chief Executive Officer

Under spot, but the contract price is a little different.

Edward Heyn - Catapult Capital Management

You also mentioned the... how you do give a forecast of the increase in coal cost on a 4% to 5% basis over the next couple of years. That's actually come down, I think last time on the third quarter slides, you said 5% to 6%. Can you kind of walk through how... it would seem with a bullish coal market that would actually be going up. Is there a reason why that's come down?

James H. Miller - Chairman, President and Chief Executive Officer

I think in the last couple of years, we were 4 to 5 and closer to 5 than 4 and closer to 4 than 5 and 5 to 6. I think 5% is a good number to assume for purposes of the year you are forecasting.

Edward Heyn - Catapult Capital Management

Okay. So that hasn't changed too much?

James H. Miller - Chairman, President and Chief Executive Officer

No, no.

Edward Heyn - Catapult Capital Management

Okay. And then just finally, do you have any... you talked about the spot prices, do you have any indication of where you are seeing forward prices on a dollar per ton basis for the central App?

James H. Miller - Chairman, President and Chief Executive Officer

I haven't looked at it here this week, so I'd be hard pressed to give you a number.

Edward Heyn - Catapult Capital Management

Okay. Thank you very much.

James H. Miller - Chairman, President and Chief Executive Officer

Thanks.

Operator

We'll take our next question from Paul Ridzon with KeyBanc.

Paul Ridzon - KeyBanc

Good morning.

James H. Miller - Chairman, President and Chief Executive Officer

Good morning Paul.

Paul Ridzon - KeyBanc

From '07 to '08, we are losing $0.18 of synfuels, that's $0.14 of tax credits and then $0.04 of higher coal cost. Is that how that works?

James H. Miller - Chairman, President and Chief Executive Officer

That's correct.

Paul Ridzon - KeyBanc

And on the third quarter release, we talked about $0.11 of headwind, was that $0.07 of tax credit and $0.04 of higher coal?

James H. Miller - Chairman, President and Chief Executive Officer

That's correct.

Paul Ridzon - KeyBanc

So, in the fourth quarter we had... I assume $0.07 higher synfuels than you expected?

James H. Miller - Chairman, President and Chief Executive Officer

Yes. It wouldn't have been 7 and 4, it would have been 11 and 4. And your question about the prior view, we had typically talked... when we talked about hedging, we basically hedged the value of the synfuel operational earnings, not the benefit in fuel prices that affected margin. So the total would have been $0.15.

Paul Ridzon - KeyBanc

You picked up $0.03, virtually you are expecting in the third quarter.

James H. Miller - Chairman, President and Chief Executive Officer

That's correct. We had some stronger plant production, a little less phase-out than we had thought at that point in time and the value of the oil colors ended up benefiting us pretty significantly.

Paul Ridzon - KeyBanc

What was the synfuel benefit in the fourth quarter?

James H. Miller - Chairman, President and Chief Executive Officer

$0.03, I believe... one sec please....$0.03 in the quarter.

Paul Ridzon - KeyBanc

Thank you very much.

James H. Miller - Chairman, President and Chief Executive Officer

Thanks.

Operator

We will go next to Judd Arnold with King Street Capital.

Judd Arnold - King Street Capital

Hi guys. Could you go through on, I think it's slide 13, with the $0.10, the higher interest expenses in the 2010 bridge?

James H. Miller - Chairman, President and Chief Executive Officer

That's primarily the impact of Scrubbers coming online, additional plant and service beyond the Scrubbers and [inaudible] plus other as well as effectively use of cash for the stock buyback that is planned in '09 and '10.

Judd Arnold - King Street Capital

Okay, so it will just add like $400 million and that will just roll out.

James H. Miller - Chairman, President and Chief Executive Officer

Well, I mean you got prior discoveries coming on line that's being capitalized and now through depreciation and interest expense, it will roll through the bottom line, the financing cost for the scrubbers.

Judd Arnold - King Street Capital

Okay, I follow you, okay. And then on coal strip being... I mean it looks like north-western right now. How much of a read through into the value of year units and coal strip. Do you think you can get… I know that short-term coal strips are a little weird.

James H. Miller - Chairman, President and Chief Executive Officer

Well, not only is it a little weird, but it also has contracts that have to be factored into the evaluation. So, I wouldn't read... I wouldn't imply much to whatever the outcome is for north western on that vis-à-vis the value of our facilities and the whole portfolio on Montana.

Judd Arnold - King Street Capital

And then again we are sort of seeing just higher CapEx to Pennsylvania's delivery business. I guess how sustainable do you think this $500 million outer year CapEx number is?

James H. Miller - Chairman, President and Chief Executive Officer

Well, the big piece of that, in excess of $320 million is coming from the RCAP line which is FERC jurisdictional and not distribution or state jurisdictional. A lot of the rest is simply based upon reliability, growth, obsolescence, and spend in support of the programs that we think the state really wants us to be investing in relative to demand side management and improving the capabilities of the advanced meters that we already have deployed; so I think it's very sustainable from that perspective. I don't see that order of magnitude of transmission line projects in our service territory, post the 2012 targeted online date.

Judd Arnold - King Street Capital

Okay, I appreciate. Thanks very much guys.

James H. Miller - Chairman, President and Chief Executive Officer

Sure.

Operator

We will take our next question from [inaudible].

Unidentified Analyst

Good morning.

James H. Miller - Chairman, President and Chief Executive Officer

Good morning.

Unidentified Analyst

Most of my questions have been asked and answered, but I was wondering looks like you have a $0.06 foreign currency translation positive impact in '07. What are your assumptions for 2008?

James H. Miller - Chairman, President and Chief Executive Officer

$1.97-ish, $1.97, $1.98 on the sterling.

Unidentified Analyst

Okay. And one more question on the Colstrip Unit 4. Assuming your comments that you're not interested in acquiring the 222 megawatts at Northwestern is strategic options for.

James H. Miller - Chairman, President and Chief Executive Officer

I wouldn't read anything into that from that light.

Unidentified Analyst

Okay. Thank you.

James H. Miller - Chairman, President and Chief Executive Officer

Sure.

Operator

We go next to Yiktak Fung with Zimmer Lucas Partners.

Yiktak Fung - Zimmer Lucas Partners

Good morning.

James H. Miller - Chairman, President and Chief Executive Officer

Good morning.

Yiktak Fung - Zimmer Lucas Partners

The first question that I have pertains to the rate [inaudible] working through at the PUC. And obviously some legislators have been trying to design, lay some plans on their own, separate legislation. I'm just kind of wondering how that calculus works. For example if you get – if a plan is approved and it goes into effect in July for example and the legislators pass a law in September, September was a different phase in plan, I think what kind of happens, does your plan get grand fathered or do you have to modify it?

James H. Miller - Chairman, President and Chief Executive Officer

There are... the jury is still out on what gets approved and when. Obviously there's legislation being written. I'd characterize it this way that it's very much dependent on the aspect of each of the programs, whether they are in opt-in or an opt-out program. It's very possible that two programs could exist simultaneously and a customer could just have two choices of phase-in programs and make their own choice as to which one they would like to be in or the customer of course could decide to enter neither and take the rate hike as it turns out in 2010. So, I think we still have to say as it pertains to our rate phase-in plan, what form does it end up in? Does it end up in an opt-out as we filed it or will it need to move to an opt-in and I think that the legislation that has been put for, I think that legislation is based on an opt-in approach. So, we'll have to see how the final words are written, but I think to answer your question we believe that it's in the best interest of the ratepayer and to have as many choices as possible. And that's why that we have been basically supportive of a legislation that provides a second phase-in option for the customer.

Yiktak Fung - Zimmer Lucas Partners

Any of the parties that you have been talking to speaking more of kind of like a wait and see attitude to see what the legislator puts out first before…

James H. Miller - Chairman, President and Chief Executive Officer

No, I don't think so. I think we're working through the process with the interested parties from our phase-in plan standpoint. We're working with the interested parties and then we will await the PUC's decision on it.

Yiktak Fung - Zimmer Lucas Partners

My second question pertains to carbon and in particular to the RGIC [ph] routine, I was wondering if there has been any momentum for Pennsylvania to join RGIC? I understand that now I think as an observer, just wondering if there is any kind of chance that you will be part of RGIC in 2009 and 2010 and how that might affect your outlook on 2010 earnings?

James H. Miller - Chairman, President and Chief Executive Officer

Well, I can't speculate as to what people's views will be out there in 2009 or 2010, but at present, they are just... I'm not aware of a lot of detailed discussion ongoing about RGIC as it pertains to Pennsylvania. I think that the broader picture is that, with our generation mix, I think that we are well positioned obviously to try to comply with whatever federal legislation has passed and I think again we have a nice generation mix. So, what downside there would be to coal margins with our nuclear and our hydro assets that provide a nice offset and really some uplift.

Yiktak Fung - Zimmer Lucas Partners

My final question pertains to the international segment. Do you have some [inaudible] question, in your walk across for 2008 guidance, I think there is eight... 600,000 from O&M and I think you said that it’s coming mostly from a reduction in pension expense in international?

James H. Miller - Chairman, President and Chief Executive Officer

Correct, the WPD.

Yiktak Fung - Zimmer Lucas Partners

In WPD, I was wondering if those savings essentially I guess get.. when you are putting your next I guess five-year plan over there in the UK, do those... do the savings get factored into like the [inaudible] the benefit goes away for you guys or do you count just to keep that benefit going forward?

James H. Miller - Chairman, President and Chief Executive Officer

Yes... while the concepts are related, from a rate case perspective for DPCR 5, which will be effective April 1, 2010. The regulator looks much more at actuarial funding level and the amount of cash funding that's necessary to meet that future obligation versus the GAAP expense calculation that has different discount rate assumptions and salary increase assumptions and all of that baked into it. So, they're related, but I wouldn't look at that as a claw back.

Yiktak Fung - Zimmer Lucas Partners

And finally for... I think there was some sort of a US tax benefit that you've benefited in the fourth quarter this year. That's also embedded into international segment and I think in the guidance statement that you have put out, do you expect that to go away in '08? How much would that benefit?

James H. Miller - Chairman, President and Chief Executive Officer

We've recorded $0.08 benefit in the second quarter of this year and late in the year repatriation, we did experience a lower US income tax expense hit on that repatriation that we had planned, but it wasn't significant.

Yiktak Fung - Zimmer Lucas Partners

Thank you very much.

James H. Miller - Chairman, President and Chief Executive Officer

Sure.

Operator

We'll take our next question from Jeff Gildersleeve with Millennium Partners.

Jeff Gildersleeve - Millennium Partners

Yes. Thanks, thanks a lot. Just with all the coal questions, I thought it is interesting that you are obviously far along in the Scrubber program, which enables you to buy... burn the lower quality higher sulfur coal, which is a big price spread between that and the low-sulfur coal. I was just wondering if you could comment on that?

James H. Miller - Chairman, President and Chief Executive Officer

Hi Jeff. Is your question, what is the spread or just to confirm that there is a spread? I am not quite clear.

Jeff Gildersleeve - Millennium Partners

Well, there is a pretty big spread, but just that as you put on this on the Scrubber if you are able to switch from some of the higher-quality, higher price coal in the region to some of the higher sulfur coal?

James H. Miller - Chairman, President and Chief Executive Officer

Yes. We have been for some time planning for that in contracting the higher sulfur coal and hopefully taking advantage of whatever positive price benefits that provides to us some. So, that's already reflected in our forward prices and margins.

Jeff Gildersleeve - Millennium Partners

Right. I think just the prices that seems... we are seeing up to $12 spreads between certain northern App coals and the lower quality. Is that consistent with what you're seeing?

James H. Miller - Chairman, President and Chief Executive Officer

Yes. I think it's very locational specific and mine specific. So, it is hard to make a general characterization of what those are, but I guess when it comes to spot coal prices, we look at those and we follow those, but quite honestly these are short-term disruptions that don't have a lot to do it in my mind the fundamental supply and demand as it relates to coal. So, I don't expect that this is some emerging trend that certainly I am losing sleep over.

Jeff Gildersleeve - Millennium Partners

Right, but I think what... my only point is what people are looking at on the price quotes typically is compliance coal or higher quality coal. Those prices are priced quite a bit above what your... the coal that you are burning, right?

James H. Miller - Chairman, President and Chief Executive Officer

Yes, the low sulfur could have a good spread. You could have a $10 spread. But it is really hard to give you a good spread number, because it depends on the length of the term of the contract that we negotiate. It depends on the mine, the location, transportation cost, all of that is a different mix with every supplier, but you are correct, there is a... you know a hefty spread, and that went into our calculations on why we should build the scrubbers.

Jeff Gildersleeve - Millennium Partners

All right.

James H. Miller - Chairman, President and Chief Executive Officer

As well as allowance cost.

Jeff Gildersleeve - Millennium Partners

Sure. Thank you.

Operator

We will take our next question from Reza Hatefi with Polygon Investment.

Reza Hatefi – Polygon Investment

Thank you. Could you talk about when you are going to file your procurement plan for 2011 and onwards and is that plan going to resemble the methodology used for 2010 pricing?

James H. Miller - Chairman, President and Chief Executive Officer

To answer the question, we would be filing that plan, hope to file it here this year, the exact timing has not been established. But clearly, we are looking at what legislation is being proposed and we want to make sure that whatever we file is consistent with what the potential expectation may be coming out of the legislative session. So we are going to factor that in. But thus far, our plan absent any new legislation would follow the PUC’s guidance in the rule making that they came out with last year that pretty much describes the manner and the methods that one could use as an electric distribution company to file this procurement plans. And I think we are prepared to do that, and we will be doing that here sometime this year.

Reza Hatefi – Polygon Investment

Great. Thank you very much.

Operator

[Operator Instructions] We will take a follow up from Daniele Seitz with Dahlman Rose.

Daniele Seitz - Dahlman Rose & Co.

Hi. It has to do with the emission credit; I am assuming that you had already sold some of your emission credits ahead of time. Is there some of these benefits included in your 2010 margins, and so is it changing price of coal, I am assuming? All of that is already in your margins estimate, is it correct?

James H. Miller - Chairman, President and Chief Executive Officer

Yes Daniele.

Daniele Seitz - Dahlman Rose & Co.

Okay great thanks.

Operator

And there are no further questions at this time, I'd like to turn this conference back over to our speakers.

James H. Miller - Chairman, President and Chief Executive Officer

Okay, thank you operator and thank all of you for participating in the call and we are looking-forward to another good year in 2008, thanks of attending.

Operator

Thank you for everyone, that does concludes today's conference, you may now disconnect.

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