愛迪生國際 (EIX) 2007 Q3 法說會逐字稿

Good morning, and welcome to the Edison International conference call. At this time, I would like to introduce your host, Scott Cunningham, Vice President of Investor Relations at Edison International. Thank you, and have a great conference. Go ahead, Mr. Cunningham.

Thanks, Lisa, and good morning, everyone. Welcome to our call. Our principal speakers this morning will be: John Bryson, our Chairman, CEO and President, and Tom McDaniel, our Chief Financial Officer. We also have several of the senior management team here available to answer your questions, including Ted Craver, CEO of Edison Mission Group. The presentation that accompanies Tom's financial review, together with the earnings press release, and our third quarter 10Q filings are available on our website at www.edisoninvestor.com.

During this call, we will be making forward-looking statements about the financial outlook for Edison International and its subsidiaries and about other future events. Additional forward-looking information, as well as reconciliation of any nonGAAP measures discussed in this call to the nearest GAAP measure is contained in the presentation and can be found under the link to this webcast on our website. We believe this information to be reasonable and well founded, however, actual results could differ materially from current expectations. Important factors that could cause differ results are set forth in our SEC filings. We encourage you to read those filings carefully. With that, I will turn the call over to John Bryson.

Thank you, Scott. Good morning to all of you on the phone. As always, we appreciate your being with us. I understand we are at the end of a long run of utility company investor calls this morning. So double thanks for being with us. You will see, most of you, in our release earlier today. We are continuing to have a good year. At Edison International core earnings were up 7% this quarter. They were up 25% year-to-date. Based on the performance to date, you will have seen this morning, we reaffirmed our earnings guidance at the high end of the range. Tom McDaniel will go through the details with you in a few minutes. I want to comment on just a very few things here at the outset.

First, the succession plan, very significant for us, significant for the company. Following last Thursday's board meeting, announcing my plans to retire next July 31st, the board announced that Ted Craver would succeed me as Chairman, CEO and President of Edison International. I think most of you on the phone know Ted. In his 11 years with our company, he has performed extremely well, outstanding leader, business and financial, you know he's served as Chief Financial Officer at Edison International and then more recently as CEO of the Edison Mission Group. The additional deeply gratifying fact is that our entire senior leadership committed to me and to Ted that they are ready to remove -- to move forward. So this is strong leadership, strong team, moving ahead, and certainly we all, and Ted, working together and beyond the time that I'm with the company, to deliver on the commitments we have made to all of you as shareholders, investors, potential investors and to our customers. A few other things, brief comments on our execution of our growth strategies, as they have been carried forth over the last three months, as execution is the key. As you know, we set out these plans. We heard about them for a long period of time. They continue to march forward nicely.

In Southern California Edison, our five-year capital spending program remains substantially on track. We expect to be able to continue to provide the projected 12% compound growth rate in earnings base through 2011. Significantly, this may sound a little, shall I say, at the process details level, but they make a big difference. On September 19th, so a little over a month ago, our general rate case notice of intent, was formally accepted by the PUC. We've underscored for you again and again just how important that general rate case is to continue our critically important and very valuable large investment in the infrastructure of Southern California Edison. By filing -- by the acceptance on September 9th -- 19th, we are now confident we can formally file the case on November 19th. That is substantially earlier in advance of the test year than at any time that I can recall -- any time in recent decades. The significance of that is that it increases significantly the likelihood that the case is absolutely done and a final decision reached by the end of next year. So that it would be effective, as it should be, on January 29th.

We would like to avoid going through the process that we've had the last couple of times out in which the commission, because of the schedule for the process reached the decision later than the beginning of the test year. So that's excellent. I think you know, we talked with you a lot about it, that the rate case filing is simply a step up in the general -- in the huge campaign we have underway to provide the most reliable state-of-the-art, soundest, electric system for our customers we possibly can. We are using the best technology. We are moving it forward well. It's a huge execution tax -- task and it's on track. Since it is entirely consistent with the California commission's expressed objectives, and further is consistent with the patterns and affirmations reached in the rate cases, both for us and PG&E, we are optimistic that the proposed investment plan will be substantially supported by the PUC in that decision.

Then one other major regulatory action, again, those of you who follow us will know, that the commission adopted its pioneering decision, really important decision on establishing an energy efficiency savings mechanism. So Southern California Edison has, as you know, much the largest energy efficiency management program in the country among utilities and DOE calculates these things. We have done that for a long period of time, but we believe we can do more. The commission program will allow us to share savings with our customers. We set out ambitious goals for savings of $1.2 billion in net customer savings over the first period of this program which runs through 2006 to 2008. Under the commission's decision, if we meet that goal, that is the $1.2 billion in net customer savings, 12% of the value of those savings would be shared with investors, that would be about $146 million pretax over the next three years, or over the three years of the period, so 2006 to 2008 period. The cash flow generated in this savings program would be recorded from 2009 to 2011. And maybe I should underscore, because there have been questions about this, this is for us an earnings opportunity rate energy efficiency program, new mechanism, earnings opportunity above and beyond our previously projected earnings on the compounded growth rate and our utility earnings base. So additional earnings opportunity. We are still working through the final accounting treatment on this. Expect some clarifications to be made on the mechanics by the California commission. With those clarifications, and timely submittal and review of savings documentation, we expect to record the first phase of the three phased benefits payments in the fourth quarter of 2008.

All right. Then I want to comment on the wildfires here in Southern California. I would like to commend our Southern California Edison employees for their dedication, our customers for their patience during the October wildfires, which have certainly been difficult, San Diego more intense than ours, but ours were particularly challenging across the South California Edison system. Almost 600,000 customers lost power on our system, fortunately, most of that was for very short periods. Customers who could receive power were restored by this past Monday. We still have work to do, for example, in the Lake Arrowhead area northeast of Los Angeles. That is rugged terrain, challenging work for our Edison crews. We hope to get service to the last 869, as of this morning, remaining customers without power. Those are in several San Bernardino mountain communities. A brief comment on that. Under the regulatory mechanisms, in California for the cost of these major emergencies, there's a rate recovery mechanism, so we do not expect any significant financial impact resulting from the emergency response.

Then turning to the Edison Mission Group, you have -- most of you will have followed capacity markets. We are encouraged about the tone reflected in those markets where most of our unregulated, our competitive power generation is located. Tom McDaniel will go through those details. I would simply comment that the capacity markets reflect and I think will continue to reflect what we believe is a favorable outlook generally for incumbent generation capacity in those regions.

At the same time, I want to go on to -- to address our environmental track record and plans with respect particularly to our coal-fired fleet in those areas. We are committed to sound environmental operations. Our track record, we think, is a good one, both in terms of what we did initially when we purchased the units in Pennsylvania, quite a ways back, and looking on a forward basis and what we committed to in December a year ago, by the way of forward commitments in Illinois as part of an agreement reached with the state of Illinois. If you'll recall that is a multi-billion dollar spending program over the next decade. In late July, we received a notice of violation from EPA regarding those same Illinois plants where we have the long-term commitments in place. We are now beginning to work with the federal officials to understand what issues or concerns they might have and how we can address them relative to the approved compliance program in Illinois. So that remains to be seen.

And then another item on the environmental front, just this week, the state of Illinois started a long-term process to assess the water quality rules in the Chicago area. This will no doubt be a controversial topic with broad economic and public policy implications. It will be, as we understand it, a multi-year evaluation process. It could impact cooling water discharged from four of our plants. We also remain very active on the national front on environmental matters, particularly on federal climate change legislation and regulation. We are among those advocating a sound, federal legislative approach. Our carbon footprint at Southern California Edison is well below that from a comparably-sized natural gas powered generation portfolio that's based on very, very strong and long-standing energy efficiency program and strong base in nuclear, hydro-electric, geothermal, wind and biomass sources of power generation for power available to our customers.

And then, finally, I want to touch on the continued progress we're making with our Edison Mission Group wind development program. As you know, we have set a target of having 2,000 megawatts of wind capacity installed by the end of 2009. That goal assumes that we achieve a number of important milestones for each project, including securing permits, customer contracts and meeting construction schedules. In the past quarter, we continued to make good progress towards that goal. We placed an additional 230 megawatts of projects in construction. That gives us a total of slightly less than 500 megawatts in service. An additional 500 plus specific -- the specific number is 523 megawatts under construction. The total is slightly less than 1,000 megawatts. That's about halfway, obviously to the 2,000 megawatt goal. As part of our strategy we continue to build a strong development pipeline. I think you will recall our definition of pipeline means projects that we own or those on which we have exclusive negotiation rights, so that pipeline now stands at almost 3,000 megawatts, and we have secured almost 1,200 megawatts of wind turbines.

So in short, execution is critical and we continue to execute well on the strength of what we're doing and the extraordinary team we have figuring all of this out we believe that we can continue to provide investors above average growth at Edison International and in the future. And with that, Tom, I will turn the call over to you.

Okay. Thank you, John. Good morning, everybody. Today I will review the 2007 third quarter and year-to-date performance, update you on our operations and hedging programs at Midwest Generation in Homer City, and as John said, wrap up with the discussion of our 2007 earnings guidance. Throughout this presentation, I'm going to be referring to the chart package that accompanies our earnings release. And so if you will turn to page two of the presentation, I will start with third quarter earnings and in specific, on core earnings. So core earnings which exclude discontinued operations and all noncore items, increased 7% to $465 million for the quarter or $1.41 per share. The core earnings growth was led by higher net revenues at SCE and higher energy margin and lower net interest expense at the Edison Mission Group or EMG.

Now, focusing on GAAP earnings and as reported third quarter consolidated or GAAP earnings were $461 million or $1.40 per share, up 1% compared to the prior period last year. Now, our GAAP results were impacted for -- in the third quarter of 2006, which included a $0.07 per share noncore gain from SCE generator settlement and both quarters had a $0.01 loss from discontinued operations. So if we go to page three, I will focus on the earnings drivers, business by business and we'll start with SCE. SCE's core earnings were $0.80 per share, compared to $0.74 a share last year. This $0.06 increase is largely due to higher net revenue, authorized as part of our 2006 general rate case. Now, as we pointed out several times, the way we received the revenues under our rate making process, varies from quarter to quarter, and we are particularly impacted in the third quarter or through the summer months. And so due to higher kilowatt hour sales associated with the warm summer -- warmer weather in the summer months and the company's rate design, our electric utility revenues during the third quarter of each year is generally higher than other quarters. EMG's core earnings were $0.64 per share, up 3% from last year, as higher energy margin and lower net interest expense were partially offset by higher wind development and other corporate costs.

Now, before reviewing individual components within EMG, keep in mind that the variance on the slide related to Midwest Generation is impacted by the $2.7 billion second quarter debt refinancing that has performed quite well for us. Now, this transaction eliminated Midwest Generation and MEHC holding company debt and consolidated all debt at the Edison Mission Energy level. So eliminating the Midwest Generation debt led to a $0.06 per share interest expense benefit for the quarter. Now as relates to the other EMG corporate debt, EMG interest expense was about the same in the third quarter, as elimination of the MEHC holding company debt and increased debt at EME were largely offsetting in terms of interest expense.

Looking now at the individual core earnings variances, Midwest Generation's $0.09 per share contribution largely related to interest savings expense that I mentioned earlier of $0.06 into higher realized energy margins of $0.05. Now the latter in terms of energy margin was partially offset by $0.02 per share FAS 133 adjustment related to Midwest Generation hedges. We also recorded a $0.01 per share cost for the first $7.5 million pretax payment of our $25 million settlement as part of the Illinois rate relief program. The balance of this settlement is payable at about $750,000 per month, beginning in January of 2008. Homer City's earnings were flat for the quarter, relative to last year as higher energy margins of $0.03 per share were offset by $0.03 associated with FAS 133 adjustments relative to our hedging program. Income from other projects was higher by $0.03 per share largely from our growing wind business, EMMT is included here and had a good quarter, recording pretax trading income of $41 million, though lower than the $54 million recorded in the third quarter of last year. It's a very fine result for them.

Higher corporate and other expenses reduced earnings by $0.07 per share, this includes support for the significant ramp up in our wind development program that John had mentioned earlier. Edison capital earned $0.04 per share, down $0.03 from last year, resulting from smaller gains from our infrastructure funds investments relative to last year and lower lease income. Noncore items were not a significant factor in the quarter for EMG.

Now, please turn to page four, and I will briefly cover our year-to-date results. Core earnings in the first nine months increased 25% to $3.04 per share, compared to $2.43, last year reflecting the strong operating performance across each of our units. Consolidated earnings as reported were $2.69 per share for the first nine months compared to $2.71 per share last year. Both periods include significant noncore items, which we have discussed in prior periods and I won't go over them here. We turn to page five. You will see the core earnings story is a very good one. Solid growth at SCE consistent with higher general rate case related net revenues and lower taxes added $0.12 per share year-to-date. Very strong EMG operating performance up $0.46 or 48% led principally by higher realized margins at Midwest Generation and Homer City, as well as higher other project income and these were partially offset by higher wind development and other corporate expenses.

I do want to point out that these year-over-year results for Midwest Generation in Homer City, as in the third quarter, have been impacted by FAS 133 noncash mark-to-market losses associated with our hedge program. The impact was $0.08 per Midwest Gen and $0.05 for Homer City. And as of September 30th, Midwest Gen and Homer City have a total of $35 million of pretax FAS 133 unrealized losses that will be recorded as earnings in future periods. Year-to-date, EMMT and Edison capital have performed well. Nine-month EMMT pretax income is at $103 million, slightly lower than last year which was $109 million. Edison capital has earned $0.18 per share, up $0.04 over last year, largely from gains from the global infrastructure fund investments.

Now I will cover a few details on our operational metrics. Please turn to page six. Year-to-date, generation at Midwest Generation was up 9.5% to 23.2 terawatt hours. The increase continues to be driven by optic generation. Our capacity and load factors were both up significantly from Midwest Generation. And availability and forced outages were impacted particularly in the third quarter by boiler repairs at several of our plants and the very heavy August rainstorms experienced in Illinois and in the Chicago area that impacted our coal handling operations. The right side of this chart shows that average realized prices were up significantly, almost 10% year-to-date and 6% in the third quarter. Average realized unit gross margin per megawatt hour was up 14% year-to-date and 9% in the third quarter. Overall, we remain pleased with the performance of Midwest Generation.

Turn to page seven, you will see that Homer City also had a very strong operating story. Total generation is up 12.8% to 10.2 terawatt hours, with excellent operating performance across all of our measurement metrics. That's availability, capacity and load factors and forced outage rates. Now as we mentioned in previous reports, last year's unit three outage does impact year-over-year comparisons over on a stand-alone basis, this is a very good year for Homer City. Looking at the right side of that chart, the average realized prices are up 14% year-to-date and 9% in the third quarter. And average realized unit gross margin per megawatt hour is up 34% year-to-date and 18% in the third quarter, as we benefit from both higher prices and stable fuel costs. As I mentioned earlier, Homer City is having just an outstanding year.

Turn to page eight, provides our regular hedging disclosure and coal contract status which now includes information through 2010, as we began hedging into that year for first time during the quarter. For 2009, we have increased our hedge position at both Midwest Generation to 9.1 terawatt hours from 3.7 terawatt hours last quarter. We also added 1.8 terawatt hours to 2009 hedges at Homer City for a total of 3.9 terawatt hours. The 2010 hedge position added that were put in place included 3.5 terawatt hours at Midwest Generation and one terawatt hour at Homer City.

Go to page nine, this updates our PJM capacity auction participation, through the most recent 2009 and '10 auction that was completed last month. For Midwest Generation, in this most recent auction, the existing load requirement contracts that we have in place will have rolled off. And so we put all of our available capacity was bid into this auction at attractive prices. And for Homer City, we sold all of our capacity into the new PJM Mac APS zone, receiving very good pricing. We turn to page 10, as John mentioned, we have reaffirmed the 2007 earnings guidance range that we had increased in August of this year. Our core guidance remains at $3.24 to $3.59 per share, and the 2007 GAAP earnings guidance remains at $2.90 to $3.25 per share. However, given our solid operating performance in the third quarter, including the contribution from EMMT we now see earnings for the full year coming in at the high end of our guidance range.

Our reaffirmed guidance is based on foreign energy prices as of September 30th, assumes normal plant operating trends and as is our normal practice, no fourth quarter contributions from EMMT. And for those of you who are interred in which we might provide 2008 guidance, a reasonable time to assume is when we report full year results which will be late February of next year. Overall, as John mentioned we feel very good about our performance in the quarter and year-to-date. And with that I will turn the call over to the operator to moderate the Q&A.

Certainly. We will now have the question-and-answer session. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Dan Eggers of Credit Suisse. Please proceed.

Good morning, John, Ted, congratulations on your respective moves. First question for you, your neighbors to the north yesterday talked about some issues as far as cost inflation and efficiency targets having a hard time offsetting costs. I was wondering if you were seeing similar pricing pressures at SCE and if there's anything that we should be too concerned about ahead of the GRC?

Dan, thank you. I will just jump in and give the overall perspective to see if anybody wants to add anything. But, sure, we see the same cost pressures. Cost pressures exist across the economy. They are a challenge. We don't see them impacting our results.

Easy enough. Second question, you kind of -- with the GRC, looking like you will file it in November. Looking back to the last time around, any other tricks or any other strategies you plan to do to try and keep this one on schedule this time around?

Maybe -- why don't I -- since I -- yes, I mean, the key with us is really intense skilled work across the company to file the case that is -- that is comprehensive and meticulous and very careful in its preparation. And to communicate, kind of all the time, with the myriad of people at the regulatory side that need to see a comprehensive, well developed filing. And so that's what we've done. And we'll go forward that way, but you can't be absolutely certain, of course. Unexpected things can develop, but at this point what we have is a kind of mutual understanding between the regulatory staff and all of our people of what these -- of what the staff at PUC that will examine and test all of this need to see. So that's done. I mean, this is really encouraging to us. That's the reason I -- it sounds kind of small, but it's a big deal to do this this way. So it gives us a really strong sense that -- with good processes of this sort that PUC is committed to carry out that this can be done by the end of 2008.

And one last question. IEC, which operates in Michigan received this attachment FF approval from FERC, which allows them to take on all the costs for generator interconnections primarily on the renewable side. Is that potential precedent that could that open up more spending, given some of the difficult training that some of these projects have proposed?

Yes. I don't know. I'm going to ask if others around here do. I don't know the precedent.

I'm not sure the particulars of the case. This is Ronald Litzinger with Edison Transmission and Distribution. I do know that our Tehachapi plan, however, is set up that our collector substations are located such that the interconnections, the wind generators have to make our -- are not that excessive.

Okay. We will follow up later on next week. Thank you.

Thank you, Mr. Eggers. Our next question comes from the line of Paul Fremont of Jefferies Capital Partners. Please proceed.

Hello, Paul.

The question, the EMMT contribution to the third quarter?

Yes.

What was that?

Oh, $41 million.

$41 million.

Pretax.

And then I guess a couple of questions on wind. One would be, should we assume that everything that is either under construction or in service right now is under contract, long-term contract?

Yes. Except we --

I'm sorry, what?

I will have Jim Scilacci cover this.

Paul, right now, the only exceptions there are two minor exceptions. Of that, there's a small project in Pennsylvania called Lookout, which is 38 megawatts. It's in construction, and the other one we just put a project in construction in Texas by the name of Goat Mountain for 150 megawatts. And they are currently merchants. And when we talk merchants, our view is that it would remain uncontracted for a period of time, probably no more than a couple of years and we would look to contract them once we feel the values are more reflective of where we think they are going to go.

And as we move forward into the future, would -- should we expect an increasing percent of what's coming online to be sort of treated as merchant by you, or are you more looking to contract almost everything that's coming online?

That's a good question and it's a tough question. It really depends on a lot of different factors. When you look at developing merchant projects, there is a view that rec prices, or PPA prices could rise given the strong RPS standards that exist. But at the same time, if you want to finance wind projects, there's a balance between if you do merchant, you won't be able to finance as much. And it's very difficult if you do project financings to be able to structure these things to reflect and when you do contract them, higher financing amounts. So we are developing merchant projects and we'll make the decision as we get closer whether we contract a portion of them, all of them or whatever. So that's a -- it's an ongoing consideration. There could be a possibility we could do some more merchant projects.

And last question, what types of contract pricing for wind are you currently seeing? I think some other companies have mentioned some level of improvement from sort of the mid-[40s] levels. Is that consistent with what you are seeing?

Yes, that's a tough question too because it really depends on the wind regime and high wind regimes, you will have lower prices -- excuse me. Lower prices and high wind regimes and the reverse in poor wind regimes. So it really is, it's state specific and resource specific. I will generally say with the rising pressure on turbine costs we are pushing back on the PPAs to seek price increases to hold our return expectations.

Got it.

Thank you, Mr. Fremont. Our next question comes from the line of Jonathan Arnold of Merrill Lynch. Please proceed.

All right. Quick question on the fourth quarter, your year-to-date, I think core earnings are running at $3.04, if I look at the fourth quarter of 2006, I believe it was about $0.65 or so, and then you said, Tom, you were guiding a zero assumption of EMMT and if I'm right, that was $20 million pretax last year in the fourth quarter, which is about $0.04 or so. I want to check if those assumptions are right and also know where are the other places you'd expect to see pressure that would cause the fourth quarter results to be down?

Well, one of the things that occurred in the fourth quarter of last year is Edison capital, as you might recall, we had a very strong contribution from our infrastructure funds. And so that's not likely to occur in the fourth quarter of this year. And so that's really the main -- the main factor when we -- you might look at quarter-over-quarter comparisons.

That's helpful. Thank you.

Thank you, Mr. Arnold. Our next question comes from the line Ashar Khan of SAC Capital Partners. Please proceed.

Good morning. I just want to understand FAS 133, and I guess we have losses recognized this year, and I just want to understand how this might impact going forward into next year.

Well, Ashar, it's difficult to predict because it's a function of where forward prices move and so generally, as prices -- forward prices would impact -- it would impact us in terms of recording a -- an unrealized loss, if prices were to drop, then we would have a gain. And so it really is a function of -- of the degree to which we have hedged forward, and the degree to which forward prices move. Now, the one thing that -- I think that we can say is that the way we have structured our hedges -- and let me also defer over to [Mark Clark], that the impact associated with the structure of our hedges is not significant in terms of what is exposed to these price moves.

Okay. But when I'm right, Tom, they're like something -- am I right, something like $40 million in losses recognized in the first nine months?

$35 million.

$35 million. Okay. Thank you.

And thank you, Mr. Khan. Our next question comes from the line of Greg Gordon of CitiGroup. Please proceed.

Thanks. I just want to follow up on the first question from the call and maybe ask it a little bit more specifically. When you -- as you look at the -- putting together your base rate filing, and you look at the inflation pressures you are seeing in sort of on -- in waiver materials and other things, how steep do you think your expected O&M growth rate will be relative to what is it has been in the past several years? If you talk about what type of average growth in O&M you have seen in the past couple of years and what you are now seeing and what you plan to ask for in terms of relief, vis-a-vis those inflation costs?

Yes, this is Tom Noonan from Edison. In the -- historically we have seen inflation in the 3% to 4% range. We are not seeing things much greater than that right now. Maybe in certain areas of transmission, our capital projects related to transmission, but those are all reflected in the estimates that we have put forward to the commission. And, again, most of the increases we are seeing is in the large capital projects. They are reflected in the rate case. We live within the budget we receive with the rate case. We live within our 11.6% return on equity. So that's what we budget to.

No, I understand that. What I'm asking is, as you look to the next rate deal, and you try to get a beat on and a line of sight what you ought to be planning for, do you expect it to be meaningfully higher or lower and why?

No, not meaningfully higher. Again, there's certain pockets of the company where we'll experience higher inflation, but we have productivity in other areas of the company. So right now in the GRC, we are not forecasting significant inflation increases beyond what you would normally see.

Greg, and again, for us, I would say -- would ask Tom to comment on this. But we have been very focused on productivity tools and a fairly high percentage of those actually go to our capital costs for making the investments that we are putting in. And those are underway. They will roll out over time. All of that, of course, is taken into account in the judgment that Tom has just given you and what's in our filing. So the filing is net, of course, of all of those productivity steps of which we're very proud.

Okay. Thank you, gentlemen.

And thank you, Mr. Gordon. Our next question comes from the line of Michael Lapides of Goldman Sachs. Please proceed.

I would like an update and comments on your intervener testimony and your capital cost proceeding underway right now, when you expect resolution and kind of the likelihood of maintaining the 11.6% and the requested REO or even get in the 11.8%.

Again, Tom Noonan. We expect the decision out next week -- the ALJ decision out next week. We think we have presented a very strong case for the 11.8%, but the judge's decision comes out next year, ALJ, and we expect the final decision by year end.

Okay. And can you on -- kind of change of topic here, thinking about environmental capital spending on either Homer City or the Midwest Generation plant, any update on the Homer City side in terms of long-term plans for pollution control technologies?

No. No. As we have disclosed, we would really look to time frame beyond 2011, 2012, before we would need to take any action with regard to any additional environmental controls, other than the mercury controls we are putting on right now for Homer City.

Okay. Thank you guys.

And thank you, Mr. Lapides. Our next question comes from the line of David Frank of Catapult Partners. Please proceed.

Yes, hi, it's actually Steve Fleishman.

Hi, Steve.

Can you hear me? Hi, Tom. Question on the upcoming Illinois, I guess it's RFPs now. I think this week the utilities were supposed to come out with kind of how they plan to conduct procurement going forward. Could you give us a little flavor on how that -- how they are planning to conduct the procurements, and how that plays into the -- how you might place your power at Midwest Gen going forward?

Yes, I will let Jim Scilacci take that. That's just recently come out. We are still really evaluating what they put forward.

Yes, that's right, Steve. We are reviewing the utilities procurement plans. We are trying to decide if we will comment on the plans for ComEd especially. And so we have not made a decision on how we're going to -- if we are going to participate in their plan. We have a number of different ways we can hedge our power at Midwest Gen, and so we'll have to -- we can either enter into bilateral arrangements with others, major investment banks, we can do it over the counter or we can participate in these auctions. So it's just a matter of where we see value and then we'll have to look at the overall calculus.

You mentioned auctions. Are they auctions, or how are they supposed to work?

Well, that's a good question in terms of what they -- if there's going to be -- we are going to submit bids and then we'll have to -- there will be some kind of negotiations. All those details are being worked out, and we are looking at the collateral requirements, the margining needs so we can get a sense for what the potential pricing may look like. So we're supposed to go through the review of their proposed process later next week and make a determination in terms of how we will play in this -- in the next steps. It's a little bit early for us to get into the full details.

Okay. And then when are we going to know -- I guess it will be a year later that we'll know how the Illinois Power Authority is going to do this?

Yes, in 2008, they will go through a process to take a look and see how that is going to be developed. And we will participate in that process.

Okay. Okay. Thank you.

Okay, Steve.

Thank you, Mr. Frank. And there are currently no further questions from the phones at this time. I will now turn the call back over to Mr. Scott Cunningham.

Great, thank you very much, everyone, for participating on the call today. If you have any follow-up questions, please don't hesitate to call either Donna Hebb or myself in investor relations, and those in the media that are on the call, please feel free to follow-up with Charlie Coleman, our corporate communications group. Thanks very much, and have a good day.