DPL, Inc. Q1 2008 Earnings Call Transcript

| About: DPL Inc. (DPL)

DPL, Inc. (NYSE:DPL)

Q1 FY08 Earnings Call

April 24, 2008, 08:30 AM ET

Executives

John J. Gillen - Sr. VP, CFO and Treasurer

Paul M. Barbas - President and CEO

Analysts

Paul T. Ridzon - KeyBanc Capital Markets

Paul Patterson - Glenrock Associates

Steve Fleishman - Catapult Capital Management

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2008 DPL, Inc. Earnings Conference Call. My name is Erica and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We'll be facilitating a question-and-answer session toward the end of this conference. [Operator Instructions]. As you reminder, this conference is being recorded for replay purposes. I'd now like to turn the presentation over to your host for today's call, Mr. John Gillen, Senior Vice President and CFO. You may proceed, sir.

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

Thank you and good morning. Welcome to DPL's first quarter earnings conference call. I am John Gillen, Senior Vice President and Chief Financial Officer. Before we begin today, I'd like to remind everyone that all references to earnings per share are diluted unless otherwise noted, and that this is... this call may contain certain forward-looking statements regarding plans and expectations for the future. Investors are cautioned that actual outcomes or results may very materially from those projected due to various factors beyond DPL's control. Such matters are described in our 2007 Annual Report on Form 10-K and Form 10-Q for the first quarter of 2008.

With me today is Paul Barbas, DPL President and Chief Executive Officer. Paul will provide an overview of DPL's performance during the quarter and an update on various important operating matters. I'll review the quarterly financial results and then open it up for questions.

Now I'll turn the presentation over to Paul.

Paul M. Barbas - President and Chief Executive Officer

Thank you, John. Good morning and thank you for joining us today. To start the year, we had a solid first quarter, both operationally and financially. And as you can see from our release, earnings were up significantly, due in large part to emission allowance sales, the majority of which were annual NOx allowances. But even without those sales, our quarterly results have us on target for the year.

As I reviewed on our last conference call in February, DPL has a favorable position with regard to both SO1 and NOx allowances. As remaining scrubbers come online, we anticipate earning additional SO2 allowances over and above what will be needed for operations.

In addition, with the operation of our selective catalytic reduction equipment, we anticipate earning annual NOx allowances in excess of our requirements. We also have the ability to earn early reduction credits in 2008, which could provide approximately 3000 annual NOx allowances. Our approach to the sale of allowances is to remain completely hedged for our own needs, while maintaining flexibility regarding the timing of sales based on market conditions.

As you can see from our financial results, we've held the timing and market prices where appropriate to effect the significant emission allowance sales during the first quarter. We will continue to monitor market conditions, environmental equipment performance and emission allowance inventories to determine the timing and extent of future emission allowance sales.

Now I would like to move on to an update of our scrubber construction program. I am pleased to report that the project is nearly complete. The scrubber at Killen was brought online last June. The construction at the four unit Stuart Station is more than 90% complete. Two of the four scrubbers were brought online earlier this year, and remaining two units at Stuart will be up and running in the coming weeks, as planned. All needed materials are on site and all vendor contracts are in place. To-date, the performance of the scrubbers has been excellent and we have operated the units without any forced outages due to scrubber operations.

On a system-wide basis, the final scrubber under construction is at our partner-operated Conesville plant and we expect that unit to be online, as planned next spring.

As I have stated in previous calls, DPL's early decision to adopt an innovative scrubber technology developed by Chiyoda Corporation will result in capital costs that will be well below industry averages. On a DPL share basis, we have spent approximately $360 million through March 31st 2008 on the scrubber projects at Killen and Stuart. Upon completion, we estimate the cost to be $382 million or $279/KW. In addition, the simple design of the process is expected to have a favorable impact on scrubber operating and maintainence expenses going forward.

With major construction elements of the scrubber construction program now behind us, I would like to extend my congratulation to our scrubber management team. They have done a great job managing a tremendously complex project. We are very excited to be moving forward with state-of-the-art environmental equipment in place. This is good for our customers, our shareholders, the environment and the company.

With three scrubbers online, we have made steady progress in determining the types of coal and varying sulfur content that can be effectively burned in the boilers without causing excess lagging.

In Killen we have completed the main testing phase. Prior to the scrubber coming online, Killen burned approximately 1.2 pounds sulfur compliance coal. We have successfully burned 100% 4 pound Northern Appalachian coals and continue to blend the higher ash content Illinois Basin coals.

During a scheduled outage at our Killen plant this fall, we will be changing out the low NOx burners which will allow us to fine-tune our blending process even more and determine additional opportunities to push the sulfur and ash contents higher.

At Stuart Station, the fuel blending process for unit four begun in March. For the subsequent three units, we expect to gain efficiencies in the time required for the blending as we apply our learnings from unit four. We have historically burned an average of 1.6 pounds sulfur coal at Stuart. Post-scrubber, we are projecting Stuart sulfur content to be in the 2 to 4 pound range. We expect testing of a variety of blends to continue throughout 2008.

We continue to feel very good about the progress we have made strengthening our hedged fuel position through 2010 for our committed burn given the recent increase in the spot price of coal and the fact that our retail rates are set to 2010. The committed burn is the amount of coal required to generate electricity for our full requirement or retail load in any forward power sales.

On a committed burn basis, we are 100% hedged for 2008 and 2009. For 2010, we continue to make progress in contract negotiations and remain approximately 73% hedged. These numbers can change as we execute additional purchase contracts or increase our output in response to attractive energy prices. If there are favorable market opportunities for spot energy sales, we will make spot purchases of coal. Spot energy sales typically consume 10% to 15% of the company's total coal consumption.

In addition, with the increasing price volatility and spreads between Northern App and Illinois Basin coals, we feel very good about our improved fuel flexibility as we work through the blending process. Post-scrubbers, the ability to burn varying coal mixtures will bode well for our competitive position in a volatile fuel market.

Given our current hedge position and the current market prices for coal, we estimate our system average coal price to be approximately $47.50 per ton in 2008 and $49.75 per ton in 2009.

Turning to power plant performance, capacity factor... capacity factors at the DPL operated Killen and Stuart stations was 80% for the quarter, down somewhat compared to 2007, as expected. Unit one at Stuart was offline during March for the scrubber tie-in and Killen had a planned outage during the quarter for routine maintenance and inspections. For the year, we anticipate DPL operated capacity factor to be approximately 82% with our planned averages for scrubber tie-ins.

On a partner operated basis, capacity factor for baseload coal was up from last year to 82% while the equivalent forced outage rate showed improvement as well, down to 7.2%.

In terms of our distribution operations, we saw some fairly tumultuous weather this past quarter and our customer operations team did an outstanding job delivering reliable service during some very difficult conditions. In early March, we were hit particularly hard with freezing rain and some parts of our service areas seeing up to one inch of ice. Employees from all functions of the company worked around the clock to restore service to 60,000 customers in a 72-hour timeframe.

Financially, we also the managed restoration effort well as we do not expect these storms to have any material adverse effect on either O&M costs or capital expenditures.

On the financial front, I would first like to note that we successfully refinanced approximately $90 million of variable rate debt this pat quarter using our revolving line of credit. Given the significant turmoil in the auction rate securities market, we felt that this was a prudent step to take. These variable rate demand notes will be held in trust while we continue to evaluate market conditions and explore suitable long-term financing alternatives.

Secondly, as we wind down our environmental construction program, we project positive free cash flow beginning this year and continuing through 2010. Before making a final determination regarding the use of this free cash flow, though, we need to first fully evaluate the implications of the new energy legislation once it is finalized and the regulatory requirements going forward. In the meantime, alternatives we're currently considering include investments in the core business, increase in the cash dividends, and continuation of our balance sheet restructuring.

I am sure you aware that the Ohio House and Senate had passed Substitute Senate Bill 221, The Ohio Electric Energy Bill. The Bill has been sent to the Governor who is expected to sign it into law. In its current form, the Bill requires all Ohio distribution utilities to file either an electric security plan or a market rate option to be in effect January 1, 2009.

If the utility files to pursue the market rate option, they must also still file an electric security plan. Under the electric security plan option, the Public Utilities Commission of Ohio will establish rules for filing an electric security plan, which may allow for adjustment to the standard offer for costs associated with environmental compliance, fuel and purchase power, construction of new investment in generating facilities, standby and default service, operations and maintenance, or other costs excluding... including taxes.

As part of its electric security plan, the utility is also permitted to file an infrastructure improvement plan that will specify the initiatives the utility would take to rebuild, upgrade or replace its electric distribution system, including cost recovery mechanisms.

The legislation contains annual targets relating advanced energy portfolio standards, renewable energy, and energy efficiency standards.

As the bill relates specifically to DPL, we will file our electric security plan by the January 1, 2009 due date. The bill includes provisions that unable us to incorporate the terms and conditions of our current rate stabilization plan into the required filing of the electric security plan. In other words, under no case will rates under our current RSP change except for what we may ask for. Also, the bill allows us to request the incremental recovery or the deferral of any costs that are not being recovered under the current RSP, including cost to comply with renewable energy and energy efficiency requirements.

The bill provides for the deferral of the application of any earnings test until after the expiration of our rate plan. So, for DPL not until 2011. And post-2010, consideration to the capital requirements of future committed investment in the state will be given when negotiating through the earnings test.

As you would expect, legislative language came fast and furious towards the end of the process. Considering the Ohio Senate concurred just yesterday, we are still reviewing and analyzing the bill. However, we believe our RSP combined with the language included in the bill provides us some time and flexibility to resolve the unresolved issues, the adoption of rules and the development of required plans and filings.

Now I will turn it over to John for an overview of the quarter's financial results.

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

Thanks, Paul. DLP's first quarter earnings from continuing operations were $0.66 per share compared to $0.43 per share for the same period in 2007. The primary driven behind the increased earnings was the gain on the sale of emission allowances of $26.5 million or $0.14 per share.

Additional key drivers behind the earnings were as follows: Revenues increased 10% or $36.4 million, due mainly to the recovery of environmental investment through retail rates and a weather driven increase in retail sales. Total degree days were up 5% for the quarter. We also recorded $13.2 million in additional capacity revenues associated with the PJM new regional pricing model. It should be noted, however, that these capacity revenues were offset by $12.1 million of capacity expenses, which are reflected in purchase power.

Fuel, which includes coal, natural gas, oil, and emissions allowances, decreased 31% or $28.4 million over 2007. Again, this was due primarily to the net gains of $26.5 million realized from sales of emission allowances. For the quarter, our remaining fuel expenses were relatively flat with a slight decrease in coal costs of $3.7 million due to lower volume.

Purchase power costs increased $30.8 million over 2007, primarily due to the higher average market rates, partially offset by lower volume. As I sad earlier, also included in purchase power was $12.1 million increase due to PJM capacity charges, which were offset by $13.2 million in PJM capacity revenue. An impact of revenues, fuel purchase power was $34 million or a 14% increase in gross margin.

Moving to other income statement items of note, operations and maintenance expenses decreased $6.9 million or 10%, due mainly to a decrease in legal and deferred compensation costs associated with the 2007 resolution of litigation. This was partially offset by an increase in power production operating and maintenance expense as we continue to invest in the operations of our generating plants.

And interest expense decreased $2.1 million or 9% due to the redemption of $225 million of debt in 2007, partially offset by an additional interest expense associated with $90 million in variable rate bonds. As Paul said earlier, these bonds have been refinanced using our revolving line of credit.

Turning to liquidity and cash flow, DPL's cash and cash equivalents increased $62.3 million to $197.2 million on March 31, 2008. The increase was attributable to cash generated from operating activities of $149.7 million and $6.6 million restricted funds drawn to fund pollution control capital expenditures, partially offset by $65.3 million in capital expenditures and $29.9 million in common dividends.

First quarter construction additions were $46.4 million as compared to $78.9 million for the same period in 2007, and are expected to approximate $225 million in 2008. Over the next three years, DPL is projecting to spend an estimated $510 million on capital projects. This is an increase of $20 million over our previous forecast due to the increase in scrubber-related costs at Stuart Station, as that project enters its final stages.

Construction additions in 2008 are expected to be financed by a combination of cash on hand, short-term financing, tax-exempt debt, and cash flow from operations. And lastly, we are increasing our 2008 earnings estimate range by $0.10 per share to $2 to $2.20 per share based on an estimated 118 million shares outstanding. This increase is due primarily to the timing of emissions allowance sales. Also note that the increased emissions allowance sales recorded in 2008 do not represent an accelerated liquidation of allowances previously forecasted to occur in 2009. Therefore we are reaffirming our 2009 earnings estimate range of $2.10 to $2.40 per share based on an estimated 120 million shares outstanding.

With that, operator, we will open it up... this call to questions.

Question And Answer

Operator

[Operator Instructions]. Your first question comes from the line of Paul Ridzon from KeyBanc. You may proceed

Paul T. Ridzon - KeyBanc Capital Markets

Good morning. Congratulations on a solid quarter. I missed your '09 blended coal costs, and then could you just kind of talk about any remaining exposure to environmental spend cost escalation?

Paul M. Barbas - President and Chief Executive Officer

I believe our '09, Paul, was $49.75. That was our blended coal costs. And we are fairly convinced that we are... we will have no additional escalation in our environmental costs. The project is going to be complete in the next few weeks and we've got... we have acquired all the material we need to acquire. We have contracts in place and are in the final throes of bringing the last two scrubbers up.

Paul T. Ridzon - KeyBanc Capital Markets

And at Conesville, any exposure there?

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

We get our estimates from AEP who is the operator of the Conesville plant. What we have built into CapEx program is that plant should be... the scrubbers are supposed to be completed, I think, late '09 and may be early '10, but that's built into these projections. So our expectation is that they come in on time. That's the spend we will have.

Paul T. Ridzon - KeyBanc Capital Markets

My understanding of Ohio legislation is, it's upside for you, you can potentially reopen some cost escalators that have gone above and beyond what you have in your RSP. But there is no grab-back capability from the commission. Is that an accurate read?

Paul M. Barbas - President and Chief Executive Officer

The tough provisions, as we see them, they are fairly broad with this legislation going forward, but at this point we can file for a recovery of additional environmental and fuel costs if we so desire in our ESP to be filed later this year.

Paul T. Ridzon - KeyBanc Capital Markets

But your existing RSP has no downside risk other than the potential earnings test in '11?

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

We believe that's right now again fairly broad, yet to be tested, and so we don't... we believe that we will be able to meet the earning tests when it is applied in 2011. You are correct, there is no downside risk before then.

Paul T. Ridzon - KeyBanc Capital Markets

Okay. Thank you very much.

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

Okay.

Operator

Your next question comes from the line of Paul Patterson from Glenrock Associates. You may proceed.

Paul Patterson - Glenrock Associates

Hi guys, can you hear me?

Paul M. Barbas - President and Chief Executive Officer

Yes, Paul.

Paul Patterson - Glenrock Associates

Just on the emissions allowance sale and the timing, you say it's not going to impact 2009 and your guidance remains the same there. Where does it come from, I guess? Could you just elaborate a little more the timing? Where are you getting it from? Where is it getting accelerated from, I guess?

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

On the NOx side, some of it's from early reduction credits. On the SOx side, it's really the scrubber performance and bringing the scrubbers on initially earlier than scheduled, than we had initially scheduled. And on their performance, they are performing a bit better than what was warrantied by Black & Veatch.

Paul Patterson - Glenrock Associates

So it isn't coming from a future period?

Paul M. Barbas - President and Chief Executive Officer

Paul, we actually... as we discussed before, we have bank... we had a bank that had built it up, but we... just to be very, very clear here, we're not selling allowances that we believe we need to operate our plants. Okay? So, whether it's from a past period or future period, they would be allowances that clearly have freed up because our operations are effective, the scrubbers are working, and we'll not need them in operations. So basically where they are coming from is just a bank that's out there that's either accumulated from past years, but primarily from future years for which we just will not need them in our operations.

Paul Patterson - Glenrock Associates

Okay. So, I guess the term timing, it sounds like it really is more of a performance issue than you actually taking... than you actually realizing these sooner than perhaps previously thought. Does that make sense?

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

Yeah. Well, again, we took a very careful approach. We... once we made a decision to make this kind of investment in an environmental equipment, if... when we made a decision a number of years ago, we could have said then provided that the equipment works as specified, we will not need the allowances and we could have started selling them then. What we did was we waited to make sure that the equipment got built, we waited till it was operating effectively and we made it until we're sure we would not even need them in operations. At that point, we started to sell and the timing at this point is not so much... we're very comfortable with the operating ability of the plants and the equipment. It's really the timing of the market with respect to the value of them.

Paul Patterson - Glenrock Associates

Okay. The second thing I wanted to sort of touch basis on the legislation was the... it sounds like you'd be likely to go through the ESP route, if I understood your terms... your comment correctly as opposed to the MRO route. Is that a fair statement?

Paul M. Barbas - President and Chief Executive Officer

I would say at this point, yes, that's a fair statement although we have not fully determined that, but, yes, that's probably a fair statement.

Paul Patterson - Glenrock Associates

Okay and you would be subject to the earnings test if you did go for the MRO statement, sorry, the MRO process as well?

Paul M. Barbas - President and Chief Executive Officer

Either way, yes.

Paul Patterson - Glenrock Associates

Either way. So, in terms of being able to go to market, I mean, I just want to clarify this, your understanding from reading legislation that, that you would be subject to an earnings test, so the impact of going to market wouldn't necessarily be... you wouldn't be free and clear, I guess?

Paul M. Barbas - President and Chief Executive Officer

I guess, three of the four utilities, that's correct.

Paul Patterson - Glenrock Associates

Okay. Thank you very much.

Paul M. Barbas - President and Chief Executive Officer

Which were one of the three.

Paul Patterson - Glenrock Associates

I hear you. I just wanted to clarify that. Thank very much.

Paul M. Barbas - President and Chief Executive Officer

You are welcome.

Operator

Your next question comes from the line of Steve Fleishman - Catapult Capital Management.

Steve Fleishman - Catapult Capital Management

Yeah, hi Paul.

Paul M. Barbas - President and Chief Executive Officer

Hi Steve, how are you?

Steve Fleishman - Catapult Capital Management

Good, how are you? Couple of questions. First on the coal assumptions that you guys have, how much have you now reflected where particularly, I guess, Killen is likely to actually be burning, let's say, next year, as you have more success because it seems like you are getting to the kind of wider end of the coal that you might have been able to burn?

Paul M. Barbas - President and Chief Executive Officer

We are continuing to try to fine-tune that. The boiler at Killen has actually performed very well. We haven't really seen much sliding in the boiler. Where we have see seen sliding with the higher sulfur and ash content coals is in the burners. And we have had a plan in place to replace the low-NOx burners this fall. So, we think there is going to be some opportunities to push the envelope a little further there.

Steve Fleishman - Catapult Capital Management

Okay.

Paul M. Barbas - President and Chief Executive Officer

So we are still optimistic that we can continue to improve.

Steve Fleishman - Catapult Capital Management

So, just to clarify, your assumption for coal cost in '09 and you guidance, let's say, in '09 still assumes a more conservative blend of the coal at Killen. So, if you can actually get to the end of using the cheaper dirtiest coal that would be a benefit?

Paul M. Barbas - President and Chief Executive Officer

Yes, it would.

Steve Fleishman - Catapult Capital Management

Okay. And then secondly on the question on the emission allowances. Where... I think you said that you have been in excess going forward as far you, I guess, can see. Where does your bank stand now?

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

We had... going into the first quarter, we had about 25,000 banks SO2 t allowances and that's around 19,000 now for SO2.

Steve Fleishman - Catapult Capital Management

And how about the NOx?

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

And the NOx, I believe we still have about 4,000 of the annual NOx, with the ability to possibly earn some more.

Steve Fleishman - Catapult Capital Management

Okay. Those are the $3,000 per ton NOx credits?

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

Market moves on those up and down, but yes, that's 3,000 to 3,500.

Steve Fleishman - Catapult Capital Management

Okay. So that's where you are now and you will be generating additional every year... you will be at least even on that going forward, so these are just excess?

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

Right. The plan is... these will be excess. The plan would be to always keep and never... and not sell anything that we need for operations.

Steve Fleishman - Catapult Capital Management

Okay.

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

It's important for us to distinguish that because there might be others out there who are looking at the value of the allowance as they go along and if they feel the prices are going to go down in the future, they will sell and then buy back. We don't... we are not doing that. We are not speculating on price other than the timing that we choose in order to sell what we know is excess.

Steve Fleishman - Catapult Capital Management

Okay, okay, thank you.

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

You are welcome, Steve.

Paul M. Barbas - President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line John Ali [ph] from DLP. You may proceed.

Unidentified Analyst

Good morning guys. I joined a little late. There's kind of a lot of the things going on this morning. Just a couple of quick questions. You are going to file before 1/1/09 and you are going to try to recover fuel ahead of your... the expiration of your current RSP?

Paul M. Barbas - President and Chief Executive Officer

No, we are going to file... we have to file by 1/1/09. We haven't determined yet what additional or if there are additional expenses or investments we are going to ask for recovery or deferral.

Unidentified Analyst

Okay, okay. And then you showed earlier that you could use future CapEx to count against that. Does that mean you are making additional commitments?

Paul M. Barbas - President and Chief Executive Officer

The bill allows for consideration of future capital requirements that are committed to investments within the state of Ohio. So, it's again very broad language and we will be watching very carefully how --

Unidentified Analyst

That would be like [indiscernible] ex if you were, your ROE was too high, you could say, okay, we will spend x hundred million in the next few years and that will count against it?

Paul M. Barbas - President and Chief Executive Officer

I guess what we will have the opportunity to do, John, here is see how the process works out for the other utilities. And I think that's one of the beauties of our current RSP, is having that... this 3-year window to see many of these terms are defined and just witness the negotiation process that occur with the other utilities.

Unidentified Analyst

All right. And one other question regarding allowances. I know you aren't telling what you don't need, but...

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

Actually that's what we are selling, what we don't --

Unidentified Analyst

That's right. I apologize, what you don't need. But doesn't legislation call those back if you are asking for fuel, or is my reading incorrect?

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

I don't know about... we are not... we will not suggest there is any call back, we are still looking at the legislation, but we didn't say anything in there about something being called back in that regard.

Paul M. Barbas - President and Chief Executive Officer

I am assuming if we... obviously if we file an ESP and include in that a request for fuel, we will consider that. But as I said earlier, we haven't determined that that's the path we are going to take.

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

I would expect that what they would consider is the cost of allowances for the fuel that we're burning at that time.

Unidentified Analyst

Okay. And I guess are there any future plans or current plans for any type of DSM thing that would, I guess, tail off the... keep the O&M out of your business?

Paul M. Barbas - President and Chief Executive Officer

There are requirements in the bill for both efficiency and the renewable energy. We have been developing plants and will be certainly including in those thoughts as we put together our ESP for later this year.

Unidentified Analyst

Okay, great, thank you guys.

Paul M. Barbas - President and Chief Executive Officer

You are welcome.

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

You are welcome.

Operator

Your next question comes from the line of Jeff Gildersleeve [ph] from Millennium Partners. You may proceed.

Unidentified Analyst

Hi, Jeff Gildersleeve [ph] at Millennium. Good morning.

Paul M. Barbas - President and Chief Executive Officer

Hi, Jeff.

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

Hi, Jeff.

Unidentified Analyst

I just wanted to ask, I guess, now that that we have legislation, it looks like it's going to be in place with more clarity and what the rules will be that you will play in. When do you think you will be sort of coming forward with a plan, capital investment plan, capital allocation to be able to define that a little more, is that sort of in the summer, second quarter earnings or when should we expect that?

Paul M. Barbas - President and Chief Executive Officer

Jeff, I think that we have... we have an unique position here and that we can... we have the opportunity to see how the commission works with the other utilities over the next, I would say, a year, a year and a half, as they work through their negotiations. And I think it's probably premature for us to put out a definitive plan until we understand how this process will roll out in the States.

Unidentified Analyst

Okay. So, in regards to free cash flow that starts accelerating quite significantly, post-'08, that might be something you don't necessarily address use of until later this year?

Paul M. Barbas - President and Chief Executive Officer

Yes, we want to understand the impacts of the legislation before we put together a definitive plan that we bring out to the market.

Unidentified Analyst

Makes sense, great. Thank you.

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

Thanks, Jeff.

Operator

[Operator Instructions]. We have no further questions at this time.

John J. Gillen - Senior Vice President, Chief Financial Officer and Treasurer

Okay. Well, thank you very much for calling us, and I appreciate your questions and we will look forward to talking to you again next time.

Paul M. Barbas - President and Chief Executive Officer

Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a wonderful day.

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