Westar Energy, Inc., Q4 2007 Earnings Call Transcript

Feb.29.08 | About: Westar Energy, (WR)

Westar Energy, Inc. (NYSE:WR)

Q4 2007 Earnings Call

February 29, 2008, 10:00 am ET

Executives

William B. Moore – President, Chief Executive Officer

Mark A. Ruelle – Executive Vice President, Chief Financial Officer

Doug Sterbenz – Executive Vice President, Chief Operating Officer

Greg A. Greenwood – Vice President, Generation Construction

Kelly B. Harrison – Vice President, Transmission Operations and Environmental Services

Tony Somma - Treasurer

Analysts

Greg Gordon – City Investment Research

Michael Lapides – Goldman Sachs

Rajeev Lalwani – J. P. Morgan

Neil Kalton – Wachovia Capital Markets

Hassan Doza – Loomis Sayles

Scott Ingstrom – Bellingham Capital Management

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 Westar Energy’s earnings conference call. My name is Lacie (sp) and I’ll be your coordinator for today’s call. At this time all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions).

I would now like to turn the presentation over to the host for today’s call, Mr. Tony Somma, Treasurer. Please proceed.

Tony Somma

Good morning. I’m Tony Somma, Treasurer of Westar Energy. Welcome to our fourth quarter and year end 2007 earnings conference call. Since some of our remarks will be forward-looking I remind you of uncertainties inherent in our comments during the call or may be contained in our earnings release and materials as supplements are released.

This morning we posted the earnings release and accompanying supplementary reporting materials on our website at www.westarenergy.com. The supplemental material includes information intended to assist investors in their analysis of our financial release. They can be found on our investor presentations within the investor relations section of our website. The applicable safe-harbour disclosures are presented at the end of the release. We filed our 2007 annual report on Form 10K this morning.

With that I’ll introduce Mark Ruelle, our executive vice president and chief financial officer.

Mark A. Ruelle

Good morning and thank you for joining us. On the call with me today in addition to Tony are Bill Moore, our president and chief executive officer, Doug Sterbenz, our chief operating officer, and other members of our senior management team.

In addition to commenting on fourth quarter and year-end results I’ll provide updates on regulatory matters and comment on 2008 earnings guidance. Then Bill will provide an update on our major construction projects and planning initiatives. After that we’ll be happy to take your questions.

Today we reported fourth quarter 2007 earnings of $0.15 per share, unchanged from the fourth quarter of 2006. For the full year of 2007 we reported earnings of $167.4 million or $1.85 per share compared with $164.3 million or $1.88 per share for 2006. The lower earnings per share reflect a greater number of shares outstanding in 2007.

Tony will go into more detail later in the call, but the major positives for the quarter were higher retail and wholesale sales, lower selling general and administrative expense, and lower interest expense. Almost completely offsetting those positives were the following items that served to reduce earnings: increased O&M expense, higher depreciation expense, and higher income taxes.

For the full year 2007 the major positives were higher retail and wholesale sales. Wholesale revenues were higher as a result of a new long-term sales agreement matched with our acquisition of another 8% of Jeffrey Energy Center early last year and higher market-based sales due to our being able to run our coal fired stations without restrictions for coal conservation and our Wolf Creek nuclear station being available at virtually 100% output for the entire year. Recall that Wolf Creek operates on an 18-month refuel and maintenance schedule, with the next scheduled refuelling to occur this spring.

Things serving to reduce earnings for the full year include higher operating expenses, lower corporate-owned life insurance proceeds, higher interest expense, and higher income taxes. Full-year earnings per share also reflect the additional shares outstanding as we have been funding our growth plan with both new debt and new equity issuances.

Now let me turn to regulatory matters. We recently made several filings that deferred (sic). In December we filed a request to revise our transmission formula rate. The significant changes improve how the formula operates.

First, with respect to capital additions, we’ve requested a change to use a forward-looking approach. The change is designed to reduce regulatory lag.

The second change is a requested 50-basis-point improvement to our allowed return on equity taking it from the present 10.8% to a requested 11.3% in recognition of our membership in a FERK-approved RTO.

In a companion filing we requested rate incentives under order 679 for three transmission projects. The first project is the nearly 100-mile Wichita to Salina 345 kV transmission line already under construction. The second is an approximately 50-mile 345 kV transmission line from Wichita south to the Oklahoma border for which we expect citing authority by late April. We were pleased to have received earlier this week the KCC staff’s favourable recommendation on our request for that project.

The final project of the three is a high-voltage transformer we installed in December.

The 6-7-9 incentives we requested are a 100-basis-point adder to the overall transmission return on equity or 12.3% and accelerated book depreciation of 15 years. We estimate the capital outlays for these three incentive projects at about $225 million. We’ve requested an effective date of June 1st, 2008, for both of those FERK applications.

Just this past December we experienced one of the worst ice storms in the company’s history and the most costly. We estimate the total cost of the storm to be about $73 million with about $15 million identified as capital improvements and the balance recorded as maintenance.

We have received KCC authority to defer for future recovery the state jurisdictional portion and have filed for similar authority at the FERK. We estimate the state portion of deferrals at $47 million and the FERK portion of the deferrals at $7 million.

Kansas statute permits an electric utility that recovers its transmission costs through rates set by the FERK to recover the retail portion of those rates through a separate transmission delivery charge or TDC rider. As part of Westar’s last rate case we were granted the right to implement a TDC rider.

The parties challenged the method by which the KCC authorized us to implement. While those details were being sorted out by the court and the KCC, we implemented a transmission service charge, which although serving a similar purpose does not adjust automatically along with changes in the FERK-approved rates. With the court last month having ruled on the propriety of the KCC’s authority with regard to the TDC rider, we recently filed with the KCC to replace the current interim non-adjusting transmission service charge with the TDC rider. This won’t immediately affect rates, but is a necessary step to allow for subsequent adjustments to correspond to FERK rate changes. We anticipate the changes to the TDC rider will occur about once a year when we adjust our FERK formula rate.

We plan to file a retail rate case this spring because Kansas has a 240-day calendar for rate cases we should have a decision by year end. The case will be straightforward with just a few key drivers. Included in the case should be recognition of our acquisition of the Spring Creek peaking plant in late 2006 for $53 million; Emporia Energy Center phase one to be recognized as plant in service; most of Emporia Energy Center phase two to be recognized as construction work in progress; recovery of a significant portion of our wind investment because we have in our predetermination order authority to include in this rate case the amount of investment that we make through about August; amortization of the December storm costs; and higher operating expenses since our last case that used the 2004 test year.

Importantly, in our 2008 rate case we will not be asking for any new rate-making mechanisms or asking the commission to reconsider any of its prior decisions.

Now let me turn to 2008 earnings guidance. Today we are issuing 2008 earnings guidance in the range of $1.50 per share to $1.65 per share. Major drivers for earnings guidance include lower market-based sales as a result of a refuelling outage at Wolf Creek and longer planned outages at Jeffrey Energy Center to install our first two scrubbers, higher O&M, about $10 million for actuarially assumed corporate-owned life insurance proceeds, higher equity AFBC resulting from some of our longer term capital projects, and higher funding costs in terms of interest expense and shares outstanding as a result of funding our growth plan.

Our ability to achieve earnings in accordance with guidance has depended on a number of variables, including weather, operation of our generating plants, prices in the fuel and wholesale power market, conditions in the capital markets, and funding our capital plans, among other factors. Our 2008 guidance excludes any potential effect of pending out-of-period tax settlements outlined in our 10K.

Now I’ll let Tony discuss in greater detail our fourth quarter results and our financing play.

Tony Somma

Thanks, Mark. Assuming everyone has access to our release and earnings packet, let me just touch on a few highlights rather than recite what is in the printed materials.

Retail revenues increased by $25.7 million due primarily to a lower provision for refunds in 2007 compared with 2006.

Tariff-based wholesale sales increased $6.8 million primarily resulting from the long-term wholesale agreement we entered into just last spring. Market-based wholesale sales increased $12.2 million primarily due to greater availability of base-load generating facility.

Fourth quarter 2007 operating expense increased $50.1 million. Excluding fuel and purchase power expense, operating expense increased $16.3 million. The most significant single increase was for depreciation expense largely reflecting the fourth quarter 2006 reduction of $18.8 million as ordered by the KCC following a court-ordered remand back to the commission.

The cost of fuel and purchase power increased $33.8 million reflecting higher sales and higher per-unit cost. Recall we have a retail fuel adjustment clause which allows us to adjust our rates monthly in response to these changes.

Interest expense decreased $5.3 million compared with 2006, primarily the result of a $9.3 million decrease attributable to the reversal of previously accrued interest expense on unrecognized tax benefits as a result of a tax settlement. The decrease was offset by a $1.8 million increase for interest on a capital lease we assumed as a result of our new leasehold interest in the Jeffrey Energy Center acquired last spring, a $2 million increase for interest expense, and higher long-term debt outstanding.

Finally, income tax expense for the quarter was $4.5 million higher due primarily to higher taxable income.

The amounts for all these items are delineated on page five of the supplemental earnings packet located within the investor presentations on our website.

As we have shared with investors our construction program for 2008 and the foreseeable future is largely relative to our size. Our three-year forecast for capital expenditures for 2008 through 2010 has our total spend at roughly $2.5 billion. This means we’ll be accessing the capital markets periodically for both debt and equity. As we do so we will continue to focus our long-term target capitalization of about 50% debt and 50% equity. At year end our equity ratio excluding short-term debt was 49%.

In November we entered into an agreement to sell 8.2 million shares of common stock on a forward sale. The benefit of this agreement is that we were able to price the shares last November, but not issue them until we need the money. In December we pulled down $75 million by issuing 3.1 million shares and in February we issued another 2.1 million shares for $50 million leaving about $75 million or 3 million shares yet to be issued from that forward sale.

Apart from the November transaction, we still have registered $178 million of common stock that we can price and issue pursuant to an existing dribble (sic) plan. Whether issued from this program or through traditional means, the total amount of our equity I just outlined if issued this year would get us close to our target capitalization. Of course, if we don’t like the price that the market is offering, we don’t have to issue additional equity although that would mean that our rate case would reflect equity levels lower than our target capitalization.

Many of you are familiar with the conditions of the financial markets as they relate to auction rate securities. Westar has about $272 million of auction rate tax exempt debt wrapped (sic) by on insure MBIA. Recent market conditions have increased our buying clause from these auctions, although fortunately we have much more favourable reset rates than many. For example, our reset rates from failed auctions have been no more than 5.5%. We are reviewing our options with respect to these securities, including the possibility of remarketing all or a portion of them as fixed-rate tax-exempt models to reduce our rate exposure.

Now let me introduce Bill Moore, our president and CEO.

William B. Moore

Thanks, Tony, and thank you for joining us today. Before we go to your questions let me update you on several of our major construction projects and refresh for you our approach to planning.

We are making good progress on our scrubber project at Jeffrey Energy Center, our three-unit principle coal station. All significant contracts have been executed and the first unit’s equipment will be installed this spring. The project is about three weeks behind schedule, but with no significant increases in cost. We still estimate the entire project will cost about $360 million, unchanged from what we told you on our third quarter call. The second unit system shall follow this fall, and the third and final unit at Jeffrey next spring.

We are also pleased with the progress at Emporia Energy Center, our new 610 megawatt gas-fired peaking plant. All major equipment for the first phase, some five turbine generators totalling 310 megawatts, is in place and expected to go commercial in May. The project remains on budget at $318 million. Again, unchanged from what we shared with you on the third quarter call. The remaining 300 megawatts in phase two is scheduled for commercial operation May 2009.

Our three wind projects totalling about 300 megawatts are expected to be in commercial operation by year end. Construction is expected to begin this spring with turbine deliveries slated for summer and early fall. Recall that we will own one half of this capacity at a capital cost of about $284 million. Virtually all of this is under fixed price contracts.

With respect to key transmission projects, construction is under way on the first leg of our new 345 kV transmission line from near Wichita north to Salina on the west end of our system. The projected in-service date for the first leg, from Wichita to Hutchison, is late this year. We have begun the right of way acquisition process for the second leg, from Hutchison north to Salina, and expect to energize that phase late next year. We estimate the cost of the entire 100-mile line to be about $150 million. Again, unchanged from what we shared on our third quarter call.

With regard to our second large 345 kV project, a 50-mile line from Wichita south to Oklahoma, Mark mentioned earlier that we filed for siding authority in late December with the rule calling for the KCC’s decision by April 25th. Because we don’t yet have final routing or engineering we have only a preliminary cost estimate of about $70 million. In addition to these projects and other rebuilds and upgrades to our transmission system we continue to evaluate other large transmission project opportunities in the region, particularly in light of the keen interest in wind generation in Kansas.

As Tony mentioned, presently we expect invest almost $2.5 billion over the next three years. Last week we published a comprehensive plan to share with our regulators, investors, and others that provides the context for this investment strategy and shares our view of the business for the foreseeable future. We encourage you to check out the plan either from the 8K or our website and invite any feedback you may have for us after you have reviewed it.

We view the next few years for our industry as particularly interesting and unsettled with respect to energy and environmental policy and emerging technology. Accordingly, this document describes our approach to investing across many different plant types, straightforward methods for recognizing these investments and rates, and keeping prices as low as possible for our customers consistent with the safe, reliable service to which they are accustomed. Particularly we hope you appreciate the flexibility our plan affords us in such uncertain times.

Nothing in this document will be a surprise to any who have been following Westar. We strive to maintain transparency and consistency in all of our communications and this is just another step toward that goal. We do, however, hope that you will see that it provides more contexts for what we have been saying and doing. Our hope is that it also allows us to continue the collaborative and cooperative approach to establishing and maintaining a sound energy policy environment in Kansas.

Lastly, let me address our dividend. As most of you are aware, our board last week increased our common dividend by about 7.5% to a quarterly rate of $0.29 per share or an indicated annual rate of $1.16 per share. Based on the earnings guidance just given and excluding the effects of settling tax audits, this implies a payout ratio of 70% to 77%, which falls within or slightly above the upper level of our long-term payout target of 60% to 75%.

In the last few years, given our sizable construction program, we have endeavoured to stay near the lower end of our payout target range. We believe this potential skirting of the upper end of the range to be transitional and temporal. Largely the result of our having invested in assets not yet fully reflected in our rates. We are still very comfortable with our long-standing statements about dividend policy and continue to embrace it.

We also continue to believe that dividends are an important part of Westar’s value proposition and that our board’s action last week balances the present needs of reinvesting in our business with the dividend yield our investors expect.

We are now ready for questions from the financial community. Members of the media, we invite you to contact Karla Olsen at 888-613-0003 if you have questions.

Operator, would you please open the lines for these questions?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question will come from the line of Bill Apasellie (sp) with City Investment Research. Please proceed.

Greg Gordon – City Investment Research

Good morning. Hi. It’s actually Greg Gordon. How are you? One technical question. Can you state the amount of the auction-based debt? And then tell us what the delta was on the underlying rate versus the default rate?

Mark A. Ruelle

We have about $272 million of that debt, Greg, and I think before any of the issues it was trading, in what range, guys? Yeah, kind of 3.5% and our worst penalty rate’s been 5.5%.

Tony Somma

It’s a multiple of the index when the auction sales.

Greg Gordon – City Investment Research

Now, if you were to term that out, that would get into the rate case as an underlying change in your profit capital? Is that the right way to think about it?

Mark A. Ruelle

That’s certainly how we’re thinking about it.

Greg Gordon – City Investment Research

Okay. Second, on the equity, obviously the stock’s traded down (inaudible) performance slightly better than the rest of the utility. Would you change course and consider shelving and issuing on convert instead of straight common in order to get some equity treatment and lower your cost of equity before the case? And then as a follow-on question, if you were going to just try to hold back and wait for better market conditions, how long after the filing of a case that you file would you issue and you can expect to get a pro forma adjustment in to the rate case?

Mark A. Ruelle

It’s kind of parsed fairly slim. Or fairly detailed. Let me take a stab at it Greg. One is, you know our target capital equity capitalization is roughly 50-50 and ideally that’s where you get when you set rates. That’s the target and that’s the way we want to finance. We of course don’t have to issue any equity because we’re already fairly close to the target (inaudible) as we continue to invest if we don’t supplement it with additional equity we’ll get further away from our targets. So opportunistic in the approach, which is if the markets are there for us we intend to stay pretty close to that 50-50. If the markets trade away from us and we just don’t perceive adequate value there we don’t have to issue additional.

With regard to how late you can update the case, it really varies. Customarily you have a number of months after you file a case to provide updates to your capital structure. Those are very easily auditable and they’re known and measurable things. In the past, if we filed a case in March, or in May, rather, as probably where we’ll file this one, it would be pretty typical for us to update the capital structure through some time in the summer. I don’t think you should expect us to update the capital structure through, say, November if we expect an order in December.

With regard to convert, our structure, which is a flat structure with no holding company in the traditional sense that people thing about holding companies, really doesn’t make us probably a suitable candidate for convert. And so right now our plans have been to play it right down the fairway with mortgage bonds and equity. That can certainly change, but right now those aren’t our plans.

Greg Gordon – City Investment Research

Thank you, guys.

Operator

And our next question will come from the line of Michael Lapides with Goldman Sachs. Please proceed.

Michael Lapides – Goldman Sachs

Hey, guys. Congratulations on a great quarter. Question for you about the environmentals and things. When you look at the environmental capex that’s in your energy supply plan and that’s in your 10K, but there’s a delta between what’s in your three-year plan and about the $1.2 billion of total spend on environmental projects over a longer period. Can you explain what specifically makes up that difference? I think your three-year plan is for $650 million to $670 million of environmental capex. I’m just trying to understand what’s in the 1.2 number that’s different from what’s in the 650 to 670.

Doug Sterbenz

Yes, Michael. This is Doug Sterbenz. The biggest difference, in fact the only real difference there, is the expenditure projection for capital improvements and environmental improvements at Lesine (sp). They have a plan in place that has significantly changed recently that involves commitment of additional equipment plus additional price increases of existing equipment or new equipment that was already planned.

Michael Lapides – Goldman Sachs

Got it. Okay. I appreciate that. When will you have clarity or when will you make the go/no-go decision about that Lesine environmental control?

Mark A. Ruelle

Michael, it’s an ongoing analysis. Obviously we’re visiting with our co-owners and the operator of the plant to firm up those plans. At this point we’re sure to do the best we have.

Michael Lapides – Goldman Sachs

Okay. Thank you.

Operator

(Operator Instructions). And our next question will come from the line of Rajeev Lalwani with J. P. Morgan. Please proceed.

Rajeev Lalwani – J. P. Morgan

Just a question on the rate case. I was hoping to just get a preview of what it’s going to look like. Can you just give us sort of your requested ROE, the amount of the rate increase, and the amount which you’re expecting to do on the wholesale side? I know previously you had a credit there.

The other thing I was just hoping to get an update on the second phase of your wind projects and whether or not there was any response from the regulators of the governor and as far as that delaying spending there for the projects.

Mark A. Ruelle

I’ll take a stab at the first part and I’ll let Bill Moore talk about the second phase of the wind and our thinking on that and the reasons for it being suspended, etcetera.

With regards to the rate case, obviously it’s not put together yet, so it would be too preliminary for me to guess about exactly all of the components that will be in it. As I’ve indicated, we’ve said we’ll file it this spring. As a general rule that probably means that we’ll file it in May. And with the statutory calendar in Kansas that would mean that we would have an order by December and then new rates in effect by January of ’09.

In terms of a specific ROE, we haven’t put that testimony together and haven’t done that analysis, so we can’t guess as to what we might request on that. But the history in the industry, that usually isn’t a great mystery as to how much value is tied up in that issue. We make no bones about it, we were not happy with the ROE we were granted in the last case. We think that was too low and we’ll be reiterating that position as we file this case.

With regard to the overall amount, we haven’t guessed exactly what that will be, but we’ve been pretty candid about the key items that are in it and they add up pretty quickly. We’ve been investing a lot of capital to make sure that our customers have reliable energy and clean energy. So in the case will be, for example, the peaking plant that we acquired in ’06, that’s $53 million that is not yet reflected in rates.

Pursuant to the predetermination order on the Emporia Energy Center, we’ll include the phase one costs which, well, probably phase one is in the neighbourhood of 60% of the $320 million, $318 million project. That we expect to file as plant in service in the rate case. Then also pursuant to the predetermination order we will include phase two Emporia costs as construction work in progress. Because of how far the project went along I would guess that most of phase two costs will be included as construction work in progress in the case.

Also, with regard to the predetermination order on the wind projects, recall we’re going to own half of those megawatts and do power purchase agreements for the other half. With regard to our portion of that investment, which I think Bill said is about $284 million, our predetermination order allows us to include the plant in service that we’ve got in place through the year. So a good portion of that investment will also be in the rate case.

Aside from that, I talked about the amortization storm costs that will be in there and then there’s just the usual items that reflect an update of the test year, both the growth which serves to keep prices down, as well as the pressure on O&M which causes them to go up. As we put that case together obviously we’ll have more information for you, Rajeev and others, as to how big the case will be and more of the details in it.

With that, I’ll turn it over to Bill to talk about the second part of your question.

William B. Moore

Regarding the 200 megawatts that we said we were not moving forward with when, remember we did the 300, committed that the 300 would be done by the end of the year and then we deferred and pretty much said we were not going forward with the 200 megawatts into the future. We did ask for clarification and reconsideration on that order to give us some more comfort there. It came back in two years we will, as consistent with the order, revisit with the commission the issue regarding the 500 megawatts, or in this case the 300 that will be put in service, and then at that time we’ll just see where we are. But right now there’s been no change in our thought process on the additional 200 megawatts.

Rajeev Lalwani – J. P. Morgan

All right. Thanks.

Operator

And our next question will come from the line of Neil Kalton with Wachovia. Please proceed.

Neil Kalton – Wachovia Capital Markets

Good morning. Question on transmission. You mentioned in your remarks that you’re exploring some additional opportunities longer term with regard to the wind that’s being built out in the state. I guess, specifically what other projects might you be looking at right now and when might we have some additional information on these projects?

Kelly B. Harrison

This is Kelly Harrison, responsible for transmission and environmental. With respect to other projects you might imagine that we’d be looking at transmission to the west of one of the wind farms that we are co-owning is one near Medicine Lodge and that’s a wind farm that will need additional transmission for us to get it back to our load in a firm basis. In addition, one of the other wind farms that is farther west in Wichita County, I believe, and I believe that wind farm as well will need additional transmission. As far as down the road, I would think to the west.

Neil Kalton – Wachovia Capital Markets

Okay. What’s the timing on those types of projects?

Kelly B. Harrison

Well, there’s probably pretty good lead times for any transmission out that direction. It takes several months to do routing studies, some time for the commission to evaluate an application, and then of course engineering design and construction. So it will be several years.

Neil Kalton – Wachovia Capital Markets

Okay. And then just to be clear, were those projects included in that recent, like, the capex plan over the next five to six years that you recently posted?

Kelly B. Harrison

No.

Neil Kalton – Wachovia Capital Markets

Okay.

Mark A. Ruelle

Just the same, Neil. This is Mark. Let me clarify something. I might have misspoken on something with regard to an element of the rate case. We expect to be included in the rate case is the wind investment that we make through about August. The predetermination order said that we could include the wind, basically the amount of wind that we’ve invested by the time the staff can finish up its audit work. And if we file a case in May that would be about through August. One of my colleagues said I might have misspoken on that point, so I just wanted to make it clear.

Neil Kalton – Wachovia Capital Markets

Okay. Thank you.

Operator

And our next question will come from the line of Hassan Doza (sp) with Loomis. Please proceed.

Hassan Doza – Loomis Sayles

Good morning, guys. In light of your construction program and the cost escalation you were seeing in the industry, can you give us a sense as to what percentage of your total costs are under firm orders and what percentage of the costs are open?

Mark A. Ruelle

Sure. I’m not specifically what you’re referring to, Hassan, when you talk about escalation. I mean, as a general rule, of course, it’s happening in the industry. But, as Bill indicated as he went through our projects, we haven’t changed any of the estimated costs on our major projects from what we shared with you on the third quarter call. So obviously that means that we’ve got most of that stuff locked up under contract.

Hassan Doza – Loomis Sayles

Okay.

Mark A. Ruelle

Greg, do you have anything more to add on that?

Greg A. Greenwood

No, I don’t. I think for wind at Emporia and major environmental projects at Jeffrey, you know, we have either fixed-price contracts or adequate general construction contingencies to maintain those estimates with confidence.

William B. Moore

Obviously project management is a pretty important part of our business and that’s why we shared that information with you. We’re staying pretty close to (inaudible) and very happy with where all of our major projects are at this point.

Hassan Doza – Loomis Sayles

Gotcha. Appreciate that. Thanks.

Operator

(Operator Instructions). And our next question will come from the line of Scott Ingstrom with Bellingham Capital Management. Please proceed.

Scott Ingstrom – Bellingham Capital Management

Good morning. Just a couple of quick housekeeping questions. What was the 2007 contribution from coal-E (sic) and then 2007 weather versus normal contribution?

Tony Somma

In 2007 we only collected $700,000 from coal-E whereas in ’06 it was $16.4 million. So there was a big delta between those two. What was the other question?

Scott Ingstrom – Bellingham Capital Management

Just weather versus normal for the year.

Tony Somma

We were a little bit cooler in ’07 on the winter months. I don’t know that we’ve –

Mark A. Ruelle

I don’t think there’s much of a story on here. We were trying to sort that out and I don’t think that explains much one way or the other.

Scott Ingstrom – Bellingham Capital Management

Okay. Pretty close to normal.

Mark A. Ruelle

When you look at the year as a whole, I think that’s the case. And Tony, just as clarification, what did we actuarially assume for coal-E last year versus the $700,000 we received?

Tony Somma

About $10 million.

Mark A. Ruelle

Okay. And this year we’re assuming?

Tony Somma

Around $10 million.

Mark A. Ruelle

Around $10 million as well.

Scott Ingstrom – Bellingham Capital Management

Okay. Thanks, guys.

Operator

And at this time we have no questions in cue. I would now like to turn the presentation back over to Mr. Bill Moore, President and CEO, for closing remarks.

William B. Moore

Well, thank you for joining us this morning. If you have follow up questions please contact Bruce Burns, our director of investor relations, at 785-575-8227. We appreciate you being on the call and thank you for joining us. Good bye.

Operator

Thank you for your participation in today’s conference, this concludes your presentation. You may now disconnect. Good day.

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