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Covanta Holding Corporation (NYSE:CVA)

Q2 FY08 Earnings Call

July 30, 2008, 8:30 AM ET

Executives

Marisa Jacobs - VP of IR and Corporate Communications

Anthony J. Orlando - President and CEO

Mark A. Pytosh - EVP and CF

Analysts

Michael Horwitz - Stanford Group

Elizabeth Parrella - Merrill Lynch

Scott Thomas - Neuburger

Danniel Mannes - Avondale Partners

JinMing Liu - Ardour Capital

Ron Oster - Broadpoint Capital

Robert Renck - R.L. Renck & Co.

Sam Taylor - Portland Health Group

Operator

Good day everyone and welcome to the Covanta Holding Corporation's Second Quarter 2008 Financial Results Conference Call and webcast. This call is being taped and a replay will be available to listen to until midnight Eastern Time on Thursday August 7th. The play back number is 888-203-1112 for callers in the US and 719-457-0820 from outside of the country. The pass code is 9091411. The webcast will also be archived on www.covantaholding.com.

At this time for opening remarks and introductions, I would like to turn the conference over to Marisa Jacobs, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Marisa Jacobs - Vice President of Investor Relations and Corporate Communications

Thank you and good morning everyone. Welcome to Covanta Holding Corporation's second quarter 2008, conference call. I know my name is new to some of you. I recently joined Covanta and I am working hard to get up to speed on the business. I am certainly looking forward to speaking with and getting to know each of you over the coming months.

Joining me on the call today will be our President and CEO, Tony Orlando; and the Mark Pytosh, Executive Vice President and CFO. We will provide an operational and business update, review our financial results and then take your questions.

The following discussion may contain forward-looking statements and our actual results may differ materially from those expectations. Information concerning factors that could cause such differences can be found in the company's reports and registration statement filed with the Securities and Exchange Commission.

The content of this conference call contains time sensitive information that is accurate only as of the date of the slide broadcast July 30th, 2008. We do not assume any obligation to update our forward-looking information unless required by law. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Covanta is prohibited.

The information presented includes non-GAAP financial measures. Reconciliation to the most directly comparable GAAP measure and management's reasons for presenting such information is set forth in the press release that was issued last night, because they were not calculated in accordance with generally accepted accounting principles.

These measures should not be considered in isolation from our financial statements prepared in accordance with GAAP. It should also be noted that our computation of adjusted EBITDA may differ from similarly titled computations used by other companies.

I'll now turn the call over to our President and CEO, Tony Orlando.

Anthony J. Orlando - President and Chief Executive Officer

Thanks Marisa, and thanks everyone for joining us today. Before getting started I'd like to welcome Marisa to Covanta. She joined us two months ago as Head of Corporate Communications and Investor Relations. Marisa has a vast experience that will greatly benefit Covanta and we're delighted to have her on board.

In terms of our recent performance, our team turned in another solid quarter. Production was strong and the energy market continued to move in our favor. With prices at historic levels and everyone looking for environmentally friend alternatives fossil fuel, it just makes sense to generate energy from waste. For us the benefit of higher energy prices is two fold; the value of our existing portfolio is increasing and we are seeing more interest in building new capacity.

Let me speak to our existing business first. We are in a fortunate position of being able to report that despite difficult economic environment our highly contracted base business continues to perform in a predictable fashion. While we had exposure to market pricing for recycled metal and small quantities of electricity generation we have experienced nice increases.

Facility production is slightly ahead of last year pace and scheduled maintenance is progressing as planed. We anticipate delivering strong full year results near the high end of our published guidance ranges, which we reaffirmed today.

Looking ahead to the 2009 let me give you some updates on contracts that will soon roll off. Just a few days ago we signed a long-term waste disposal contract with the City of Indianapolis. The new contract which will take affect in December has a 10 year term with two 5 year renewal options.

Indicative of our long standing partnership this agreement is mutually beneficial. The city will lower its waste disposal cost and simplify its contractual obligations by moving to a typical tip fee arrangement. Indianapolis will deliver about half of the facilities waste disposal capacity and Covanta will be responsible for arranging the balance of waste deliveries.

We will receive 100% of the steam revenue which will be sold under a new contract with pricing linked to the purchasers alternative fuel cost. Effectively that means our steam revenue will flow with the market enabling us to capture the upside of increased production or higher prices. We like being in that position and hope to see a slight improvement to adjusted EBITDA from this facility.

I wish I could give you a similar degree of certainty regarding the Detroit facility, but unfortunately I can't. Our operating contract ends June 30, 2009. We also have a lease agreement that gives us certain rights to continue running the plant. Between waste supply energy off take, ownership and operations there are a number of parties involved, which complicates the situation and creates some uncertainty.

Despite this circumstance our employees are doing a fabulous job operating the facility. We are very proud of their work and we are committed to doing everything we reasonably can to operate the facility for many more years an outcome that we believe is likely. From a financial perspective the important take away is that even in the worst case scenario, where we no longer operate the facility, we have very limited downslide. Hopefully that won't happen and we should know where we stand soon.

The Hempstead facility contract also ends in 2009. This is a big facility that we own so it's important. We previously entered into a 25 year extension with the town of Hempstead for their waste, which leaves less than half the facilities waste disposal capacity available. We are in the process of making arrangements for the remaining waste delivery and we are very comfortable with our ability to fill the capacity at prices similar to historic levels.

When our electricity sales contract at Hempstead expires next year, we intend to sell the power on the short-term arrangements, probably no more than a year. Not long ago, I told you our existing contract was above market and we were expecting download pressure when it rolled off. Since then, electricity prices have moved up considerably. This puts the Hempstead contract pretty close to market, so we would, probably won't see much change when it ends during the 2000, but during the fourth quarter next year.

We have three additional facilities with electricity sales contracts that will end soon. Two will roll over at the end of this year and one in July of next year. The pricing on these three contracts is about $70 per megawatt hour. When these contracts reset to market, we expect to see a nice increase. In addition to energy prices, we've been enjoying the benefit of higher metal prices, substantially higher. While this does tend to increase our maintenance cost, the net effect is positive, because our facilities, we cover about 1,000 tones of metal everyday for recycling.

Historically, metal prices have been somewhat volatile, but in the last few years they have been consistently moving in one direction; up. And that is definitely helping this year's results and hopefully the strong pricing will continue. These energy and metal markets are becoming more important because next year marks the beginning of a transition period for us as our 20-year contracts begin to roll off. Fortunately, energy and metal prices are higher and we think the long-term dynamics will continue to be favorable.

In addition, I'm pleased with how we are managing the transition by working closely with our municipal clients. We secure the future by locking up more than half the waste disposal capacity at both the Indianapolis and Hempstead. With our anchor tenants now in place, we look to find additional long-term waste disposal contracts. Still, we expect that our exposure to waste markets will be increasing somewhat and we're comfortable with that.

More importantly, our exposure to energy markets will increase fairly significantly over the next year and a half. This will introduce more volatility than we are accustomed to. But with debt-free facilities, they get paid for fuel and energy prices trending higher, we think that is good for business. Overall, it's fair to say I'm optimistic and excited about next year.

And that brings me to our growth opportunities. We are making good progress on our pipeline of activities and I'm confident about our future, because energy and environmental trends are prompting more and more interest in new energy from waste capacity as an alternative to fossil fuel. Let me review our progress in each of our three regions.

In the Americas, we completed two small acquisitions during the quarter. In May, we purchased an ash landfill in Peabody, Massachusetts. We're already shipping out to this facility and ownership will reduce our cost and provide us with a strategic asset. In June, we acquired an energy-from-waste facility in Tulsa, Oklahoma, that we had previously operated on behalf of the owner. Waste disposal pricing in this region is very low and the prior owner had decided to shut the facility down, which enabled us to buy the facility for a nominal price.

We are now working on waste supply and energy off-take agreements, and expect to have the facility operational before the end of the year. This is a small investment, so it will be a small contributor. But nonetheless, it's right in our sweet spot for creating value. So we're excited to be in Tulsa, and we expect to generate very acceptable returns on our investments.

Turning to development prospects. We have several expansion opportunities in various stages, including two where we have started [permitting] efforts. Plus, we are working on several Greenfield energy-from-waste opportunities, some of which are being bid and a couple that we're developing. And we continue to look for strategic acquisitions. So our level of activity has been ramping up and is now higher than we've seen in quite some time. Please keep in mind, other than the acquisitions, these are long lead-time opportunities. At the earliest, we might expect to begin construction on one or possibly two projects next year.

Turning abroad, let's begin with Asia. On our last call, we reported that in China, our joint venture with Chongqing Iron & Steel had our first win on a competitive bid for a new waste-to-energy project in the City of Chengdu. Since then, we executed a 25-year concession contract with the city for a 1,800 ton per day plant and we've already funded our equity.

This facility will produce close to 40 megawatts of clean energy and we anticipate beginning construction late this year or early next year, which is noteworthy, because that will be less than a year after bid to metal, much, much faster than it's typically the case in the other markets we are pursuing.

We hope the Chengdu project is just to start. We're pursuing several greenfield opportunities, some small acquisitions and potential regional joint ventures to compliment our existing partnerships. Plus we are adding staff and moving our Asia-Pacific regional headquarters to Shanghai reflecting our commitment to grow in China.

Turning to Europe, the Dublin facility planning process continues to move along nicely and we still hope to break ground before the end of the year. There is still a lot to do but the pacing item will be receipt of the Environment Of Protection Agency' waste license, which is expected in the third quarter.

We are very excited about the prospect of getting this underway, so we can build the showcase facility to serve the Dublin area of citizens with clean renewable energy and sustainable waste disposal that simultaneously reduces greenhouse gas emissions. In the UK, we are also making good progress, advancing a number of competitive energy from waste bid opportunities. Just recently, we submitted two very comprehensive bids known as detailed solutions. On our third project, energy side, we made it in the short list with three other companies, and each of us has been asked to submit a detailed solution on that project as well.

As is the case in Asia, we will continue to add to our existing European staff, where appropriate to support the significant level of growth opportunity that we're encountering in that market. Overall we feel good about our level of activity and our progress on growth initiatives. It's a real testament to the strong team we have on board.

Before I turn it over to Mark, let me offer a few thoughts regarding climate change and energy policy initiatives, which hold the potential to foster even more growth. It remains difficult to predict what policies the US might adopt, but I can share with you some recent events which give me the sense that producing energy-from-waste is gaining momentum as part of the solution.

Most of you probably know that the one Warner-Lieberman climate change bill was brought to the floor for debate, but did not move forward. And now, any movement of legislation is almost certainly stalled until next year. However, you probably didn't know that during the Warner-Lieberman debate, several important amendments were filed that are highly supportive of energy-from-waste as a renewable resource and carbon reducer.

In May, the House of Representatives approved an extension to 2011 of tax credits for producing energy from municipal solid waste. It's now up to the Senate to improve the extension, something that might actually happen this year. Two weeks ago, the institute for 21st Century energy delivered to Congress and the presidential candidates, its blueprint for a comprehensive federal energy plan.

I'm pleased to note that the institutions' blueprint strongly endorses renewable energy and specifically mentions energy from waste. In Florida, Governor Crist has signed a new legislation, setting aggressive state-wide recycling targets and calling for land for disposal to be scaled back 75% by 2020.

The new law defines energy-from-waste as a renewable energy source and importantly specifies that the production of energy from waste counts towards the State's recycling goals. This approach is similar to European policies and if it were to be adopted more widely in the US, it would be a boon for our business. We've also seen specific support from elected officials on both sides of the Isle speaking out in favor of energy from waste as they grapple with the issues such as climate change and energy and security.

In the past few months Senator Klobuchar and Coleman from Minnesota, Congressman Mack from Florida, Senator Sessions from Alabama, Pennsylvania Congressman Pitts have all taken public position supporting the industry. Several of these policy makers visited the Covanta facility to see the benefits of energy from waste first hand. We often say that our best marketing tactic is hosting facility tours and that proved to be the case once again. Seeing is believing, making energy from waste to make sense.

Now, let me turn the call over to Mark for a review of our financial results.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Thanks Tony. Good morning everyone. Total operating revenues for the second quarter of 2008 grew 19.1% to $423 million. Net income was $44.9 million or $0.29 per diluted share. Cash flow from operations was $110.9 million and adjusted EBIDTA was $161.9 million. Now, I will discuss our segment results for the second quarter compared to the previous year.

In the domestic business, total revenues for Q2 increased by $50.1 million or 16.7%, of this $50.1 million increase, $29.1 million came from the existing business and $21 million came from the contribution of new businesses acquired last year.

Domestic waste and service revenues increased by $24.7 million or 11.4% to a total of $241.7 million, which breaks down as follows: Revenues from service fee plan increased by $1.2 million net, due mainly to contractual escalations, offset by lower debt service passed through revenues of $1.4 million.

Revenues from tip fee facilities increased by $12 million, about $10 million of the increase relate to the Energy Answers facilities and Transfer Stations, we acquired last year. Existing facilities were up approximately $2 million. This is primarily driven by increased production at several facilities including the SEMASS facility which had lower the normal production last year due to the fire, partially offset by slightly lower prices.

Recycled metal revenues increased by $11.5 million, primarily due to higher pricing for scrap metal and increased volumes recovered. Electricity and steam revenues increased by $19.8 million or 26.1% due to higher energy rates in the existing business including a greater contribution from our SEMASS facility. Energy revenue from existing business has increased $9.5 million or 12.5% in the second quarter, driven primarily by higher energy rates. As Tony mentioned the electricity markets have been strong.

Domestic plant operating expenses increased by $22.9 million, the new business was accounted for $20.2 million of the increase and the existing business accounted for $2.7 million, which included a net benefit of $5.2 million from the business interruption insurance recovery.

Therefore the increase in revenue for contract escalation the metals recovery more than covered our increases in plant operating expenses. In total our business is well hedged against any inflationary cost pressures we might experience.

Now turning to the international business, total international revenues increased by $17.1 million, driven by the increase in revenue due to two facilities in India due to higher electricity generation partially offset by the sale of Linan coal facility in China during the third quarter of 2007.

International plant operating expenses increased by $16.1 million, primarily due to higher generation of the two facilities in India partially offset by the sale of the Linan facility. At the consolidated Covanta Holding level, general administrative expenses for the company increased $3.1 million to 23.1 million in the second quarter of 2008 from 20 million in 2007 driven primarily by higher cost related to our growth initiatives and normal escalation.

Total debt service decreased by 2.05 million to 24.3 million in the second quarter of 2008 primarily due to lower interest rates on outstanding borrowings and lower project debt balances outstanding. Diluted earnings per share were $0.29 in 2008 this compares to $0.24 in 2007 if you exclude the impact of the SEMASS fire in both periods, we would have resulted an EPS of $0.27 in 2008 versus $0.21 in 2007.

Our guidance for 2008 had assumed business interruption recoveries this year. Our effective tax rate for the quarter was 39.9%, which is approximately where we expect it to be for all of 2008. However, will likely remain volatile due to movements in the NOL unassociated valuation allowance. Our net cash taxes are expected to be approximately $30 million in 2008. We have unrestricted cash of $143.7 million at June 30. Total corporate debt including the convertible debentures was $1.02 billion, project debt balances declined by $20 million during the quarter to $1.21 billion. Net of restricted fund set aside for project debt principle repayment of $234.8 million as well as unrestricted cash total net debt for the company was $1.85 billion.

Now turning to our operating cash flow, cash flow from operations for the second quarter was $110.9 million up $21.8 million from 2007. The Company's investment of cash included maintenance CapEx of $11.2 million. $0.9 million of CapEx related to fire damage at SEMASS and $2.6 million of upfront refurbishment capital related to the certain acquisitions.

Our maintenance CapEx spending this quarter was in-line with our expectations and we still expect to spend approximately $60 million for 2008. On the acquisition side as Tony mentioned we invested $20.1 million to acquire the Tulsa facility and Peabody ash landfill Massachusetts.

On the development side we invested approximately $17 million for the equity investment for the Guangdong project in China and approximately $1.5 million to fund our initial investment in the joint venture with Guangzhou Development. The company made $10 million of scheduled project debt repayments in the quarter. Now I'd like to reiterate our 2008 guidance which is unchanged.

Adjusted EBITDA in the range of $550 to $575 million, diluted earnings per share in the range of $0.90 to $1 and cash flow from operations in the range of $380 million to $420 million. As Tony noted, we currently anticipate full year results would be near the high end of these ranges.

And with that we look forward to taking your questions. Operator you can open up the phone lines now.

QUESTION AND ANSWER

Operator

Thank you. (Operator Instructions) Michael Horwitz, Stanford Group

Michael Horwitz - Stanford Group

Hi, everyone.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Good morning Michael.

Anthony J. Orlando - President and Chief Executive Officer

Good morning Michael.

Michael Horwitz - Stanford Group

So congratulations on a great quarter. Two questions and fairly different. But first can we start with your expected maintenance CapEx for the year and how that might play out in terms of seasonality this it seems to be a more normal year. And also with some of the new assets you brought last year you make some comments in the 10-Q of throwing them into this maintenance cycle already so does that imply that the second half of the year for the new assets also is going to be lighter on maintenance and so therefore better margin?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Well, we did revert back to what we would consider kind of a more normal maintenance cycle this year and what I would tell you is the capital and the expense kind of fall one another and so when we are spending more capital we also is we talked about before, we expense a lot of our maintenance activity and through the first half, I think we've spend around $42 million in maintenance capital and so we obviously were heavier in the first half and we expect that to lighten up, we still have a lot of maintenance to do in the second half but it's not as heavy as the first so the expense should follow that as well.

Michael Horwitz - Stanford Group

So, the maintenance for the year is still around the $60 million number?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Maintenance CapEx 60 million yes.

Michael Horwitz - Stanford Group

Okay, and so you do a nice job in your queue [ph] of breaking out. How plant operating expenses are working for your existing business and your new businesses and so I just want to be clear it looks to imply that you've spend a lot money on the new businesses as you alerted us to when you brought especially the AES assets and so now it would seem that a lot of that spending should bear fruit in the second half and beyond?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Yeah if you look at the biggest capital number was on the AES assets, we are done with that with the big project there and we started to see the benefit of that in the second quarter and you'll see that in the second half in terms of that business performance and so we are pretty much done with the big capital but one item that's going to start to pick-up on the capital front in terms of new business is on Harrisburg, we have committed ultimately to spend around $25 million to upgrade that facility so that will pick-up in the second half and into next year.

Michael Horwitz - Stanford Group

And in the Q it looks like you have always spent about 1.5 million of that so far.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Something, yeah on that order of magnitude, but it's going to start to grow and we are obviously, that's embedded in the arrangement with the community. So we will ultimately achieve a return on that investment.

Michael Horwitz - Stanford Group

Okay. And moving along, I know we've discussed this in the past, but you mentioned it again today. As these contracts roll over and these assets become debt free, a lot of investors want to understand what that implies in terms of... you have a debt free asset. What does that mean to the future of Covanta? What are you going to do with that capability now? Does that signal that you are going to move more aggressively on the acquisition front, because your balance sheet has a lot of room or we discussed a lot on the last call, but just to reiterate how you view that going forward, please.

Anthony J. Orlando - President and Chief Executive Officer

Yeah, this is Tony, let me take that one Michael. I think that a couple of things that are important as I described in the script is we are moving through a transition period here. Really with Indianapolis being the first facility that we owned moving off of its 20 year contract.

A couple of things are going to happen, as you look across the course of the next 18 months, we've got several energy contracts that do roll-off and as a result we are going to have more exposure to the energy markets and that's a position that we'd like to be in, because we see generally favorable long-term trends on energy prices.

We are looking at... over the course of the next, say by the time you get into 2010. We are going to have near 50% of our domestic energy revenue exposed to market and once in which they perform. It maybe under contract as I described in Indianapolis, but it's subject to a fuel price adjustment.

So effectively it's going to flow with market. We will have other contracts such as Hampstead that we are likely to sign up, short-term one year contracts possibly even sell directly into the spot market. At this point we don't necessarily foresee selling under a longer term contract.

So although we may choose to do that for a variety of reasons depending on how the market plays out, but our current thinking is that, we are going to look to enjoy the benefit of the market fundamentals where we see energy prices rising.

We'll also have a little bit more exposure on the waste side, but generally speaking, our goal there will be to work with communities to enter into long-term arrangements. So that will be our objective there, but nonetheless just as we convert for Indianapolis to tipping fee arrangement, we are likely to have a little bit more market exposure there. And again we are comfortable with that position.

So it is the beginning of a transition, we like being in that position having debt free facilities that are located close to where the waste is generated. And in a position where of course we are getting paid for our fuel and the trends are generally for rising fuel costs and rising electricity prices.

What is that translated to terms of our acquisitions I mean our strategic plan continues to be to pursue aggressively growth opportunities within our strategic plan. We're focused on making energy from waste, we are looking at other renewable technologies that we think can utilize our operating expertise and we are doing that in all the markets where we see good growth opportunities. And so we are going to continue to do that.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Let me and Michael let me just add to what Tony said about the balance sheet and I'll use Indianapolis as an example. And as Tony talks about transition the balance sheet is going through a transition as well. When Indianapolis comes to conclusion at the end of November, that project... all the project debt that will be paid. It will be a debt free asset and the capacity that we payoff there will create additional capacity for the holding company. And so gradually we are going to be paying down the project debt portfolio and creating capacity at the parent level and that capacity is more flexible to parent.

So it gives us more financial strength. As we pay this project debt off and the assets become unencumbered the balance sheet gets stronger and we have more capacity. So we are in a very strong financial position strong as we've been and we're going to continue to get stronger as we pay down the project debt portfolio.

Michael Horwitz - Stanford Group

Great. That's very helpful. Congratulations.

Anthony J. Orlando - President and Chief Executive Officer

Thank you.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Thanks Michael.

Operator

Elizabeth Parrella of Merrill Lynch.

Elizabeth Parrella - Merrill Lynch

Thank you. Tony I think you mentioned that you have three projects with energy contracts that would be expiring over the next 18 months, towards the end of this year and then one next summer. Which projects are those and are the waste contracts also expiring is it just on the energy side?

Anthony J. Orlando - President and Chief Executive Officer

We've got a couple contracts of facilities where we've been entering short-term contracts now for the last couple of years. It's two in New Jersey, Union County and Essex and our Niagara facility. Two of those are tip fee arrangements, one for service fee. So those, we had entered into one year contracts on two of those Essex and Union, about this time last year and those are one year contracts that will end at the end of this year and the Niagara contract ends at the end of... I think it's in the end of July next year. Plus of course the Essex contract which is... I am sorry the Hempstead contract, which is in the fourth quarter next year.

So, there is four contracts in total. There is not necessary, there is not really a linkage there between the energy contracts and the waste contracts, in fact at Essex, yeah, there is still quite a numbers of years on the service contract. We do have at both Union and Niagara some long-term waste disposal contracts and we also have some local spot contracts.

Elizabeth Parrella - Merrill Lynch

Okay, and then just moving to your acquisition of Tulsa waste energy facility. Presumably that will be structured as a tip fee facility, can you just give us some hand on what both waste and power pricing is like in the region?

Anthony J. Orlando - President and Chief Executive Officer

Sure. The Tulsa facility has both electricity generating capacity as well as steam. It's the potential steam buyer. So hopefully we're going to workout arrangements to sell steam, we think that that will be the most lucrative. And the steam pricing is really driven of with natural gas and the markets there would be similar to other parts of the country.

The waste market is challenging in Tulsa for sure. It's probably the lowest priced waste market that we will be in, it's in the maybe $15 range, somewhere in that neighborhood. So it's very... its very low cost waste disposal in Tulsa, and as we said that enabled us to buy the facility for a nominal price.

We think that we'll then be able to use our expertise in running the plant as well as implementing things like our Special Waste program that we think can add some value to that plant. And we do think, we'll get a nice return on it, so it will be a small contributor and hopefully it will grow overtime.

Elizabeth Parrella - Merrill Lynch

And one last question just following up on, on Tulsa you mentioned that it's currently mothballed you are going to bring the plant is back into service. How much should we be assuming of CapEx that you need to put into this and what's the timing of that?

Anthony J. Orlando - President and Chief Executive Officer

There's probably going to be a few million of CapEx and I think the timing is probably some this year and some next year. So, but its not, it's a couple million it's not significant.

Elizabeth Parrella - Merrill Lynch

Okay. Thank you.

Operator

Next we hear from Scott Thomas of Neuburger.

Scott Thomas - Neuburger

Well, can you hear me?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Yes.

Anthony J. Orlando - President and Chief Executive Officer

Yes Scott.

Scott Thomas - Neuburger

Hi, Tony. I just wanted to review through the comments you had in your opening remarks to make sure I heard them correctly. The first one is about some language in Congress about extending the PTCs [ph] to the waste energy side. That's I guess an House version of the bill is that right?

Anthony J. Orlando - President and Chief Executive Officer

Yeah, we're, the production tax credits of course applies to renewable technologies across the board and that includes our energy from waste technology and those tax credits are said to expire at the end of this year and there is a fairly unanimous support for extending them and the challenge of course is how to pay for that. The House recently did pass a bill to extend them through... all the production tax credits, which again includes energy from waste through 2011.

It does seem as though that maybe one of the few things that gets done before the presidential election if that gets extended. So, we will see, I think it's fair to say that even if it doesn't pass this year it's fairly likely that there will be action on it next year.

Where that benefits us, is for either expanding facilities or building new capacities that we own. It provides a tax credit of about 110 per kilowatt. So, it's not that meaningful economically where we see greater meaning is just it's a fact that there is this continued support for renewables and the fact that as a Federal law energy from waste is now defined as a renewable.

Scott Thomas - Neuburger

Gotcha. Thank you but that's helpful. Just one another, one on China you made a note that, you thought you might get construction going in the Chengdu project sort of New Year end or over the next year some thing along those lines, which was earlier than you had anticipated given the recent you have bid. Is it your perception that the market there is sort of accelerating or going faster than you aspired or is this related to sort of a greening mine site and sign. Can you give any flavor for how things are going over there generally?

Anthony J. Orlando - President and Chief Executive Officer

Yes. Generally speaking this is actually the pace that we anticipated but we note that by contracts to either the US or the UK it's much, much faster. This process from start of bid to start of contraction in the UK is probably three to four years. Where as in China it's a year. So it's just much faster and as you can imagine the permitting process there is a little bit more expedited than we would see it here.

There is a significant push to build energy from waste facilities and other environmentally beneficial facilities for a couple of reasons. One it's to generate more electricity they have got an insatiable demand for electricity for sure. But they also have a challenge with dealing with their solid waste disposal in a way that doesn't utilize land capacity, because it's just with the population they have there the land capacity is pretty precious.

So, you've got municipalities that are moving very quickly on this. And we do expect that the cycle from bid to sort of construction will be approximately one year in China. And we have a number of greenfield opportunities that we are pursuing now and so as we said we hope that the Chengdu facility is really kind of just a start for us.

Scott Thomas - Neuburger

And construction that you guys are expecting three or six months is that fair or is it a little longer?

Anthony J. Orlando - President and Chief Executive Officer

The construction is a couple of years still. Its a little bit faster it might be, we would probably say it's roughly three years if we were building something in the US or the UK it might be six months faster there, might be two to two and half years there. And again remember the important thing about the China facilities it does take a lot of facilities to have the same economic value as one facility here in the US because of three factors; first, we are only typically a 40 or 49% owner. Second, because the construction cost is quite a bit lower and in fact probably on the order half what it would in the US. And third because the waste feeding value of the fuel is of the trash there is about half of what it is in the US. So that means that a 1,000 ton per day facility in China is really comparable to roughly a 500 ton per day facility in the US. Okay.

Scott Thomas - Neuburger

Gotcha. Thanks, it's helpful.

Anthony J. Orlando - President and Chief Executive Officer

Thanks Scott.

Operator

Dan Mannes of Avondale Partners.

Danniel Mannes - Avondale Partners

Hi, good morning everybody.

Anthony J. Orlando - President and Chief Executive Officer

Good morning Dan.

Danniel Mannes - Avondale Partners

Couple of follow-up questions. First a clarification, you noted that maybe 50% or so of your energy generation would be open in the 2010 timeframe. Can you explain on that. Is that because of existing contracts rolling over, is that because of switches from service fee arrangements where you are currently getting a lower amount of energy revenues. I thought you had a larger number of facility that I guess were a little bit later on. Can you just explain where that's coming from?

Anthony J. Orlando - President and Chief Executive Officer

Yes. And it certainly is an important point I think, because it does give us leverage to prices increasing. The couple of things we have; the Union, Essex and Niagara that I already mentioned have really basically been short-term. We have a couple of contracts that exist today and our tip fee facilities that's similar that we're under contract, but the price moves with the purchasers avoided cost. There are alternative fuel costs. Alexandria is an example of that. One of our two contracts at SEMASS works that way. So we have a number of contracts that do move with higher fuel costs and we saw the benefit of that in the second quarter this year.

But as we look forward Indianapolis is going to be added to that mix next year. Tulsa is going to be added to that mix next year. PEMSA [ph] is going to be added to that mix next year and those three both Indianapolis that's over 2,000 ton a day facility that's 2,200 ton a day facility. Hempstead is handling near a million tones a year. I mean, those are two big facilities that are rolling off into that mix.

Then we sort of have a couple of smaller contracts further down the line. Its fairly stable for 2010-11, its only relatively small contracts that roll-off and then I think its around 2011 we are going to start to see more of these energy contracts, roll-off again.

Danniel Mannes - Avondale Partners

Okay, and actually it's a follow-up there and I know this is a smaller piece of the business but the domestic IPPs I know lot of them were based in California with that sort of following to that 2011 out group and if I remember right if these were the old S04 contracts they are probably priced probably in the mid sixties. They could be a good 20 to 30 plus dollars per megawatt hour under market now which could come up... which could be re-upped in 2012 at a pretty nice price?

Anthony J. Orlando - President and Chief Executive Officer

Well, we have, all of our S04 contracts have already rolled off their initial tenure, so and for those of you who are not familiar with the terminology that's a standard offer number four contract in California. But the, we do have, I think it's... if I am remembering correct its roughly half of our maybe its one third of our capacity at the biomass facilities on the market and two thirds today is at fixed price.

Generally speaking, the fixed price contracts that we do have in California are below market today. And for that matter, given where the market has moved, particularly when you look beyond Hampstead, our contracts, maybe with a couple of exceptions are now below market. Our existing power... let me just repeat that. Our existing power purchasing agreements today are generally below market and that's different than what we said before. The market price have moved up and when you look at our average portfolio without Hampstead in the mix, our contract price moves down a little bit.

Danniel Mannes - Avondale Partners

Okay, great. That's really good color. Two other quick issues, first on the capital side with power price going up, this gives you more headroom, but we see some pretty dramatic increase in the raw material costs. Is there any impact as you look forward to new plant construction, do you still see returns in the same ranges. As everywhere you saw 6-12 months ago.

Anthony J. Orlando - President and Chief Executive Officer

Yes, Dan. I think, we continue... we have said in the last six months we've seen construction cost escalate and we have embedded that in when we've been bidding on projects and that's globally. That's not just here, it's everywhere. But the returns... we've seen the returns hold in there at very acceptable levels and not withstanding the increase in the cost side, because the market, the market is whether that's electricity, the metals recovery tip fee, I mean the market is sort of factoring that in.

Danniel Mannes - Avondale Partners

I guess the only question I'd ever follow up is how much risk is embedded given, for example the Maryland bid. You have to bid basically at fixed price before permitting begins. So you are basically locking in the price at what you are constructing the plant. Probably a year and a half before you would even theoretically break ground and probably as much as three to four years before it's actually completed. How do you sort of price that in given the volatility that you have seen in the input cost side?

Anthony J. Orlando - President and Chief Executive Officer

That is something that we do take into account in our bid and something that we are, accustomed to dealing with and depending on what the market conditions are. We may or may not agree to fix a price over that time period. Given how volatile movement has been of late, we are not really likely to fix that pricing and take that exposure.

And as Mark said we recently have seen increases in the capital cost required to build the new facility. I mean there is no question about it. But we've also seen a commensurate rise in energy prices, which allows us to still be very competitive on the tip fee.

Danniel Mannes - Avondale Partners

Understood.

Anthony J. Orlando - President and Chief Executive Officer

And on the spot they get an acceptable return. So we are conscious of that and we look to each project to be as competitive as we can and to try to find the best way that we win without taking undue risks.

Danniel Mannes - Avondale Partners

Understood, and then just one final question. In your prepared comments you talked about some expansion activity in the US. And it's kind of the beginning permitting of permitting arrangements. Can you give a little color there? I don't know if you can identify facilities, but have you already submitted permits or are you developing them in-house or you are engaging local government, which I have seen you have been doing for a while. Can you just give me a little update on what's going on there?

Anthony J. Orlando - President and Chief Executive Officer

Sure, we are... and I think we talked about on the last call. One of our, the project in Hawaii at the request of the client community we have started the permitting process. I'm not sure we have actually submitted the permit at this point, but if we either have already submitted it or will be doing so very soon. And we are in discussions with that client about working through contractual arrangements with respect to the expansion. But they are eager to get the facility expanded and therefore want to start the permit processes that will be the pacing item. And so we're working with them to do that. And then we have also submitted some permit applications, one of the facilities that we own in Northeast.

Danniel Mannes - Avondale Partners

Okay. Great, I'll look into that. Thank you very much for the color.

Anthony J. Orlando - President and Chief Executive Officer

Thanks Dan.

Operator

JinMing Liu of Ardour Capital.

JinMing Liu - Ardour Capital

Good morning.

Anthony J. Orlando - President and Chief Executive Officer

Good morning.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Good morning.

JinMing Liu - Ardour Capital

I have got a question about, can you give me a little bit of color of kind of incremental revenue changes we should expect for the tipping fee change in the Indianapolis facility?

Anthony J. Orlando - President and Chief Executive Officer

I will give you general and then I think Mark can fill in a little bit of that... with more specificity. But, generally speaking our revenue will increase, because we're going to have a 100% of the energy revenue, we're going to have a 100% payment on the tip fees as well as all the other revenues we'll have a 100% of those, whereas previously we were sharing those with the client community.

We were also sharing costs with the client community before. There were a number of costs that the client community absorbed that didn't show up on our books either because they paid for it directly or because it was a pass-through.

So what we try to focus on for you is not so much the revenue and expense, but to look at how it's going to effect our EBITDA, because that kind of boils down all the puts and takes. And what we said is that that we expect to and hope to have a slight increase in our EBITDA from that facility.

JinMing Liu - Ardour Capital

Okay, all right. My next question is about, I know Covanta is working on to convert trash into diesel, have you made any progress on that?

Anthony J. Orlando - President and Chief Executive Officer

Well, we are looking at a number of different technologies to complement our existing business and one of those technologies that we are looking at is a waste to diesel technology. It does show promise. We are excited enough about it that we're going to invest a few million dollars to build the pilot plant and see if can make this work on a commercial scale. Thus far it's really only been tested on a very, very small scale. So we're going to look to see if we can scale that up a little bit. We're probably at least I think a year away before we know how that will play out, but we are progressing and again, going to invest a few million dollars to see if we can make this technology work on a commercial scale.

JinMing Liu - Ardour Capital

Okay. My last question is about the international market. How many bidding process are you in, specifically in China?

Anthony J. Orlando - President and Chief Executive Officer

Quite a few, there is lot in China. We have two different partnerships there both of which we're the minority partner. One is Sanfeng Covanta joint venture and our partner there is Chongqing Iron & Steel. That's a company that the joint venture that won the Chengdu bid. We have some additional bids. With that joint venture we have some bids with our Guangzhou joint venture. And then we're looking at some other opportunities with potentially some other regional partners as well.

JinMing Liu - Ardour Capital

Okay. Alright, thanks.

Anthony J. Orlando - President and Chief Executive Officer

Okay.

Operator

Ron Oster, Broadpoint Capital.

Ron Oster - Broadpoint Capital

Good morning. Had a few quick questions on some of your domestic development opportunities. You commented on a few, but I was wondering if you could just provide an update with regards to your opportunities in Maryland as well as Vancouver. And in the last call you mentioned some recent developments in New Jersey that might be positive for your business. Just wondering if you could provide some updates with regards to those potential facilities?

Anthony J. Orlando - President and Chief Executive Officer

Sure, let me take Maryland first. Those are two municipally sponsored facilities where communities have requested bids for publicly owned facilities. The bids are for design, build and long-term operation agreements. One of those facilities is moving ahead a little bit more rapidly than the other is in Hartford County, Maryland. Where the community has asked the two final bidders, which also one of our competitors to submit best and final bids later this quarter and it's likely that that will then some [ph] decided I would say probably some time next year. To decided who the winning bid is and then that would then kick of the permit process.

So, still quite a way's off. But again we are exited about the fact that we have municipalities bidding new Greenfield projects. The other is in Fredrick County, Maryland and that one is still moving forward, but there has been no timetable set for best and final bid there.

The project that certainly we're exited about is one outside of Vancouver that we were first with Gold River. There is... we are working with a developer there that's already put a number of pieces of the project in the place. We have a facility sight, a very supportive host community and fairly advanced process on a lot of the elements necessary for that project.

The big challenge that lies ahead there is securing waste supply for the project, we are working on that and we will see how that goes. But we are-- we are hopeful about this project and exited about it. It would be a project that we would own... a tip fee type project. And it has the potential if everything falls our way to start construction maybe late next year.

Ron Oster - Broadpoint Capital

Great, and then any development so you can comment on with regards to New Jersey?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Yeah, I think what we said on the last call is that that there has been some favorable statements about the energy from waste side from some of the regulators here. And we're hopeful that with that kind of support ultimately that we'll be able to potentially have some new capacity here in New Jersey over the course of time there is nothing...

Anthony J. Orlando - President and Chief Executive Officer

Nothing eminent there or project specific, but general speaking we are seeing opportunities in the Northeast again for expansion opportunities probably more likely than greenfield opportunities, just because the ability to site a facility is challenging and we think it makes a lot of sense to add capacity at existing site locations.

Ron Oster - Broadpoint Capital

Okay, and one other on the development side with regards to your comment about the biding process the one in the UK you are narrowed down to the short list. Any idea of timing when that might be determined?

Anthony J. Orlando - President and Chief Executive Officer

Well we're as I mentioned we have got two facilities that we had already been on the short list. And submitted what's called... what's referred to as a detailed solution. We have now been invited to submit a third detailed solution. So each of those three opportunities were almost a year into the process and that lease is probably about a year to ago. The next step on each of those is best and final offer and then a selection of the wining bid under the best and final offer.

We would hope possibly by the end of this year to know, but maybe more likely sometime in the first half of the next year to start to know if we've made all the way to the final selected bidder on those projects. And then that really gets... kicks off the permit process.

So, we really like the market there, it's an attractive market. The big challenge is it takes some staying power in the process. So again just to kind of wrap that up we got three projects that were in the advanced stages and maybe sometime next year we'll find out if we have been successful all the way. There is one more cut and that will probably take place sometime this year... late this year.

Ron Oster - Broadpoint Capital

Great, that's helpful. And then lastly on the ash disposal acquisition, you mentioned some potential cost savings. Is there any can you quantify anything, with regards to what kind of savings you're looking at?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

We are going to see some cost savings, it's not that large an acquisition that it's going to meaningfully change our financials. I mean, we really like the asset its well with our structure we have plants in both the Massachusetts and Connecticut. So, but again I wouldn't be able to quantify the outcome there. It was under... we paid $7 million for the site.

Ron Oster - Broadpoint Capital

All right, okay. Thank you.

Anthony J. Orlando - President and Chief Executive Officer

Thanks.

Operator

Bob Renck of R.L. Renck.

Robert Renck - R.L. Renck & Co.

Yes. Thank you. Congratulations on the quarter. There are two items that I may have missed it and you may have answered in which case I'll read it. Tony, I think you talked, new Greenfield contracts in the US over the next several years. What were you... to what were you referring?

Anthony J. Orlando - President and Chief Executive Officer

The, what I talked about was that we were bidding a couple of opportunities, which is Maryland.

Robert Renck - R.L. Renck & Co.

Right.

Anthony J. Orlando - President and Chief Executive Officer

And that we're pursuing the development of a couple of opportunities on our own. One of those is the Gold River project up in... outside of Vancouver and then we are... we are looking at some other development greenfield opportunities that are still in the preliminary stages.

Robert Renck - R.L. Renck & Co.

Okay. One thing that I don't think you did mentioned, what's the... what kind of update can you give us on the New York City plan?

Anthony J. Orlando - President and Chief Executive Officer

That was a question we haven't had for a while.

Robert Renck - R.L. Renck & Co.

Right. But I do understand that they seem to have made some political progress at a transfer station, but who know if this…?

Anthony J. Orlando - President and Chief Executive Officer

Yeah, now it's been going on for so long... its I suppose to some degree hard to get too excited about it, but having said that they do appear to once again to be active. We are one of the final bidders, so we will have to see were it goes. This has been a bit of a start and stop process now for a while, but all indications are that the city is serious about trying to move forward with this process.

Robert Renck - R.L. Renck & Co.

Follow-up on that, I think as... I think we may have chatted a couple of years ago, but I think as if about three years ago. The number of potential sites within the city area for Greenfield plants, is that being a wild dream, had gone from about 16 down to 3. Are there any potential sites available New York City, that is the five burrows [ph] for building of a Greenfield plant?

Anthony J. Orlando - President and Chief Executive Officer

I think your characterization of that is probably a Ferro [ph] . I couldn't tell you what number of sites might be there, but I think there... we don't see any near term prospects of a Greenfield facility New York City.

Robert Renck - R.L. Renck & Co.

I didn't think so but its okay. But surprises, surprises happen. Now with respect to the Warner-Lieberman Bill, we've been following it and was preceded pretty soundly. I think somebody raised the issue on the House side, they had credits in. Can you just describe what kind of credits they were talking about?

Anthony J. Orlando - President and Chief Executive Officer

Well. you said the bill was repeated [ph] pretty soundly, but I do think…

Robert Renck - R.L. Renck & Co.

I can go to Thomas and find out.

Anthony J. Orlando - President and Chief Executive Officer

Yeah, I do think there is a fair amount of support for some type of legislation to deal with climate change, certainly both Presidential candidates. Ultimately, how this plays out again I think is there is a high degree of uncertainty for us. We think that the range of how this can play out could be, could be fairly wide with kind of the worst case scenario for us being that we are... looked at in isolation and we looked at our carbon emissions that we will of course have a combustion facility. We do our CO2 emissions. When we look at those, we think we compare favorably, certainly very favorably to coal and even favorably to natural gas.

So, I don't know if our worst case scenario is neutral, as we look at it. And there is upside depending on how are we treated for example under Reg-G we have no cap. In Europe energy from waste has no cap. And of course that puts it on a competitive... we put it on a competitive advantage with any fossil fuel power generation. And then the big win for us would be if we can actually get and trade credits, looking at the lifecycle of waste and the benefits that we have by avoiding landfill disposal. I mean if we get that, it's a very nice upside. We've estimated in the past that it's about one ton of CO2 equivalent for every ton of waste we process, and that would be a great benefit. And certainly as per more waste energy growth in this country, if that's the way it's plays out. I think it's just too early to try to predict where in that spectrum we're going to land. But generally, we see this as an area of focus because it has substantial to really spur more growth for us.

Robert Renck - R.L. Renck & Co.

Okay. I was kind of thinking it from a different perspective and I'll give you just a quick one, but it reminds me the rest of your question, the answer too, if you're a lawyer. But… what I was thinking of is, if you take a look at the progress of Senate 326 the 8 [ph] which is the Speculation bill and the masters testimony going back to May 24th, and all the committee hearings, everybody is worried about the basic issue of supplying demand on energy. And the Democrats are looking at, we'd like to have conservation and we want to eliminate speculation in the commodity market since there seems to be an issue of indexing. The Republicans would like to have more drilling, both side seem to have gone up to the senate [ph] either ways, have started to come together.

And the reflection that I had and you can correct me if I'm wrong but, it seems to me that in the last time we have the energy crisis, the Congress came up and said we're going to solve two problems at the same time. One was, we've got a disposal issue which we were running at a landfill 20 years ago, and maybe that was all we stated. And they gave you with 10% of IPC [ph] to build their plants and you wound up with a five year write-off on a tax basis.

Upon reflection, looking at things like the ethanol build, it seems to me just sitting from a distance and I want to see if you agree that, one of the only energy subsidization builds that has ever worked successfully on a longer term basis has been that build which is the encouragement of waste to energy plant building, really in the early to mid 80s. 80 [ph] agree with that and did you see any move outside of the issue, the narrow issue of department caps. Do you see any move in the Congress or with your lobbyists that maybe that's coming back?

Anthony J. Orlando - President and Chief Executive Officer

Well, we're certainly the legislation in the 80s did benefit the industry and was the impetuous where a lot of the growth had took place in the 80s and 90s. Look, energy is a huge issue that we need to deal with nationally. The carbon side of it is one piece of the equation. As you said, the supply and demand fundamentals generally speaking, are putting pressure on pricing. And I think that legislatively, then the policy makers are going to want to deal with that.

We think we provide a great solution, as you said, we deal with two problems that once we're working to abdicate. For that we have seen certainly some growing support, but yet, the issue is unclear on how that's going to play out, we're optimistic and we're just going to have to wait and see. And I think its going to pretty quite now until next year. I mean, I just… with the possible exception of the production tax credits, we don't really foresee anything that's going to affect us directly this year. And I suspect there will be a substantial debate next year before anything is settled.

Robert Renck - R.L. Renck & Co.

Capacity additions are existing, you've done some capacity additions, we're in the processing doing them at plans for your managing growth. What are the prospects for capacity additions at any of your existing, either your tip fee plans or your merchant plans over this year?

Anthony J. Orlando - President and Chief Executive Officer

We are moving ahead with the expansion permitting process for one of our facilities that we owned in Northeast, and are looking at a couple of others.

Robert Renck - R.L. Renck & Co.

Can you share with us which one that is?

Anthony J. Orlando - President and Chief Executive Officer

It's a little bit premature but we are advancing the process.

Robert Renck - R.L. Renck & Co.

Okay. And I think early in the call and you may have answered it, I believe that a great deal of your capacities starts rolling over in the US, i.e. your contracts are rolling over, I think around between 2011 and 2015. I think by my calculations, its about 50% of your contracted capacity rolls over. A, is that accurate and B, if you've addressed it and I think that peripherally what's your thoughts on the likelihood of getting decent contracts? And what's the lead time before you start? I think most of the lead time is generally a year when people have got to make commitments.

Anthony J. Orlando - President and Chief Executive Officer

Bob maybe we can… some of that we can probably take offline and…

Robert Renck - R.L. Renck & Co.

Absolutely.

Anthony J. Orlando - President and Chief Executive Officer

Kindly of go through the guts of that. But I would tell you is that, what we've been saying about the energy portfolio is, we're going to roll to a shorter contract. Historically, we have 20 year PPA's, we're going to go to a one to five-year program. But the market has really become… I would say it's completely efficient, but it's pretty easy to transact on a real-time basis. And so we're not going to… from an energy perspective, we have the flexibility to either look forward for a year or two ahead or we can transact real-time, we haven't… we're not making decisions yet on some of that capacity but we're definitely going to shorten our thought process on the energy contracts. But I can take you through some of the guts of some of the other issues there.

Operator

And our final question for today will come from Sam Talyor, Portland Health Group.

Sam Taylor - Portland Health Group

Hi, just another question on that 50% exposure to your existing market you expect by 2010. It won't assume that the market price for electricity is the same in 2010 today in the various appropriate regions. Can you give us an idea of what EBITDA uplift you again from being 50% expiry that's compared to your position today?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Well, we haven't gone and quantified all the capacity and where the pricing is, it's not like that. I think what Tony said was, we would… if be mark-that-to-market today, you would see a lift in the EBITDA, but we haven't gone through the quantification of what that is. I think… again, it is a rough order magnitude about half of the electricity will either move with under contract with the fuel cost or it just be straight out on the market. And that's of our domestic capacity.

Sam Taylor - Portland Health Group

Right. I mean, you can't even give us any kind of ballpark numbers to what that mean in dollars in EBITDA?

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

Yeah, I mean rough number are domestic energy revenue is roughly $400 million, a year, right?

Sam Taylor - Portland Health Group

All right.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

So, if we had a 10% move up or down in market prices that would be $20 million.

Sam Taylor - Portland Health Group

Right.

Mark A. Pytosh - Executive Vice President and Chief Financial Officer

On half of that [ph], because we have $400 million, half of it exposed to $200 million, 10% up or down is $20 million. But I think I'm just giving rough, kind of back of the envelope number.

Sam Taylor - Portland Health Group

And the pricing that's in your contract for the moment there is considerably below the market, it… it's having on average, how far below the market?

Anthony J. Orlando - President and Chief Executive Officer

What I was just describing let me make sure we're clear here, is that the… once you get passed 10%, so we're looking in 2010, because 10% contract doesn't roll-off till the fourth quarter of '09. So when you start to look at 2010, that's when we start to be at this point where we expect roughly half to be on the market. And as the market moves up or down, say 10%, that's going to move roughly $20 million. Then we have the other half that's generally speaking under fixed price contracts, which had some inflationary components. And those tended still be pretty long contracts. And it's all scheduled out in our filings but they tend to be so fairly long contracts. And those contracts are averaging around $70 per megawatt hour today. We see it's a little bit below the market.

Sam Taylor - Portland Health Group

Okay.

Anthony J. Orlando - President and Chief Executive Officer

Okay.

Sam Taylor - Portland Health Group

Okay, I hope. Thank you.

Anthony J. Orlando - President and Chief Executive Officer

Okay, I think was that the last question?

Operator

Yes, Sir.

Anthony J. Orlando - President and Chief Executive Officer

Okay, great. Well, thanks everybody for joining us. Enjoy the rest of summer and look forward to speaking to you after the third quarter. Bye.

Operator

That does conclude today's teleconference. Thank you all for your participation. You may now disconnect.

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Source: Covanta Holding Corp. Q2 2008 Earnings Call
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