賓州電力 (PPL) 2008 Q1 法說會逐字稿

Good morning, my name is Jessica, and I will be your conference operator today.

At this time, I would like to welcome everyone to the PPL Corporation first quarter conference call.

(OPERATOR INSTRUCTIONS) After the speakers' remarks, there will be a question-and-answer session.

(OPERATOR INSTRUCTIONS)

At this time, I would like to turn the call over to Mr.

Paukovits, Director of Investor Relations.

Sir, you may begin your call.

Thank you.

Good morning.

Thank you for joining the PPL conference call on first quarter results and our general business outlook.

We're providing slides of this presentation on our Web site at www.pplweb.com.

Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from such forward-looking statements.

A discussion of factors that could cause actual results or events to vary is contained in the appendix of this presentation and in the company's SEC filings.

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

Thank Tim, and good morning, everyone.

Today, We'll follow the usual format, and we'll respond to the questions after a general business update and some commentary on the first quarter 2008 results we announced this morning.

On the call today with me are Paul Farr, our Chief Financial Officer, and Bill Spence, Chief Operating Officer.

Today, we reported first quarter earnings of $0.69 per share compared with $0.52 per share from the same period a year ago.

The 33% improvement over last year was driven by strong results in our international delivery segment and some special items related to the mark-to-market energy hedges.

Earnings from ongoing operations, which exclude the special items, were $0.61 per share, about 6% lower than in 2007.

As we previously discussed, our ongoing earnings for all of 2008 will be down about $0.20 versus 2007 results as the result of the loss of the synfuel earnings and the cost to replace synfuel at our Eastern power plant.

In the first quarter, the loss of synfuel led to an $0.08 reduction in earnings compared to last year.

Our first quarter results from ongoing operations put us on solidly on target achieve our 2008 earnings forecast.

As was the case last year, we expect virtually all the margin growth in our supply business to come in the second half of the year.

The supply business margin growth will be driven primarily by the replacement of expiring supply obligations with higher margin wholesale energy contracts, by higher base-load generation and by further growth in energy marketing and trading activity.

And Paul and Bill will provide more details on the financial and operational performance in the first quarter.

Before we hear from them, though, I would like to talk about our 2008 and '10 forecast.

As you probably saw in our release this morning, we're reaffirming our 2008 forecast of earnings from ongoing operations of $2.35 to $2.45 a share.

Our reported earnings forecast is $2.43 to $2.53 per share, reflecting the special items recorded through March 31st.

We're also reaffirming our 2010 forecast earnings range of $4.00 to $4.60 a share.

Our 2010 forecast is driven primarily by higher energy margins based on higher wholesale electricity and capacity prices, higher expected generation output and increased earnings from marketing and trading activities.

We continue to execute on the tactical plans to achieve this 2010 forecast.

Our top priorities include achieving higher availabilities in our generation fleet, improving hedging, improving the value in the energy market and in trading operations.

Our 2010 forecast is not include the impact of any new assets that might be added to the company's portfolio and assumes the PPL Electric Utilities will be able to fully recover -- recover it's cost-to-purchase the provider of last resort electricity provided under Pennsylvania law.

While we certainly are focused on making the 2010 numbers, we're also aggressively pursuing additional growth opportunities as evidenced by our recent acquisition for a tolling agreement from a 660-megawatt plant in PJM.

Our marketing organization is continuing to identify ways to enhance the value of our Gen-fleet and increase the value of our trading operation.

We've significantly upgraded our in-house capabilities in a number of areas, especially in the pursuit and execution of bilateral contracts, expanding our offering of products to the market and in the sophistication of the trading operations in general.

We're also working on the construction and operating license for a potential new nuclear unit near our Susquehanna plant in Northeast Pennsylvania, and we expect to file application with the NRC in September, followed closely by an application of DOE loan guarantees, which is a critical requirement to move forward with construction.

We're continuing negotiations with potential partners in the new unit and hope to reach agreement on participation in the near future.

In addition to the possibility of building new near Susquehanna, we're exploring opportunities to jointly invest in new nuclear facilities at other sites, and we recently brought on board Vic Lopiano, who was an industry -- an industry veteran with an extensive background in large construction projects and nuclear technology.

And Vic will head our nuclear development efforts.

Nuclear expansion, I believe, is increasingly becoming a viable option as it's more difficult to build coal-fired plants as energy prices continue to climb and as reserve margins continue to decline.

This viability is predicted, is predicated, I should say, on federal loan guarantees being available, so we'll continue to watch that closely.

We're continuing to provide input as the commonwealth of Pennsylvania considers the state energy policy.

The Special Legislative Session is ongoing, and we continue to be involved in many constructive discussions with legislators, regulators and administration officials and other officials with energy companies in the state.

The legislative proposals are focused on four areas.

First, demand-side management and conservation.

This legislation would require energy and demand reduction while requiring Smart Meter technology and new billing options for customers.

A second item deals with how electric distribution companies will acquire provider-of-last resort electricity in the future.

The main issue in this discussion is the mechanism for making long-term contracts part of that procurement mix.

Third, there is a bill that would provide for phase-in of rate increases as caps expire beginning in 2010.

This bill would enable the type of prepayment program that PPL Electric Utilities has proposed as well as a post-cap phase-in with recovery of carry-in cost by utilities.

And, the fourth area, is the establishment of an energy fund, which would provide money for clean energy projects, such as energy-efficient buildings and a large solar program for home owners and businesses.

There seems to be fairly widespread agreement on most of the measures being discussed, and we're supportive of the attempt of all the legislation that I have just described.

There is substantial debate, however, regarding the details of the energy fund.

In addition to those bills, there remains one bill that proposes to extend rate caps beyond their current end dates.

We believe that reasonable parties to the debate understand the severe consequences and substantial disruption that could result in the state's distribution companies if that type of legislation were to be implemented.

In the meantime, PPL Electric Utilities is continuing to purchase the default energy supplies that it's customers will need for 2010.

The company is now purchased half of the supply and has another RFP scheduled for the fall.

On another front, PPL Electric Utilities is continuing to push for PUC approval of it's rate stabilization plan, an option that would allow customers to manage price increase when the rate caps come off.

Under our proposed 54-month stabilization plan, an average residential customer could limit annual price increases to approximately 7% in 2008 and '09, and 6% in 2010, '11, and '12.

Unfortunately, the PUC recently postponed action on this plan.

Our ability to provide these levels -- these levels annual increases depends on the timing of the approval of this filing.

We believe tha electric utilities phase-in proposal appropriately addresses the most pressing concerns regarding rate cap expiration,a large one-time increase in customer bills.

So, we'll continue to work with all parties involved to continue the transition to a competitive marketplace in Pennsylvania.

We're hopeful that we can address the needs of the customers and encourage the wise use of energy going forward.

Continue to believe that our focus, strategy and our focus on solid execution of that strategy will continue to result in sustained growth for our shareowners.

I look forward to questions, and thanks for your attendance on the call.

And, now, I will turn it over to Paul Farr for the financial overview.

Paul?

Thanks, Jim, and good morning, everyone.

First quarter earnings from ongoing operations are lower than last year.

And the loss of synfuel earnings and reduced international earnings is the loss of our sale of our Latin American portfolio in 2007.

As outlined on slide six, lowerer earnings in our supply business segment were partially offset by increased earnings in our two delivery segments.

Each of our business segments is performing within our expected ranges for them, and we're on target achieve our 2008 forecast of earnings from ongoing operation.

As I've indicated on the past several calls, earnings from ongoing operations, include the results of the Latin-American and natural gas delivery businesses, but excludes special items related to their divestiture.

Turning to slide seven, I will discuss the supply segment earnings drivers.

The unregulated supply segment earned $0.18 per share (sic -- see Press Release) in the first quarter 2008, a $0.13 decrease compared to a year ago.

This decrease was primarily due to the loss of synfuel earnings and lower wholesale energy margins.

The $0.08 per share loss in synfuel benefits, includes the loss of earnings from synfuel operations as well as the cost of replacing synfuel consumed at our Eastern power plants in2007.

Lower energy margins in the east were the net result of higher average fuel prices, lower base-flow generation, primarily due to the retirement of the two Martins Creek coal units in September 2007, increased energy margins from energy marketing and trading activities and higher forward prices.

Lower energy margins in the West were the net result of lower hydrogeneration and unrealized trading losses partially offset by higher margins on energy markets and trading activities.

The supply segment also reported higher operating expenses as a result of planned and unplanned outages at our Eastern fossil generating systems and higher energies expenses in our energy marketing group.

Moving to slide eight, our Pennsylvania delivery segment earned $0.16 per share in the first quarter, a $0.1 increase over last year.

This increase was driven by higher electric delivery revenues as a result of the distribution rate increase effective 1/1/08 as well as customer load growth.

The revenue benefits were partially offset by higher storm expenses and inflationary increases.

On slide nine,our international delivery segment earned $0.26 per share in the first quarter of 2008, an $0.8 increase compared to a year ago The increase was a result of higher U.K.

delivery revenues, reflecting the benefit of the annual the inflation factor, lower pension expense, lower depreciation, lower U.K.

income t taxes and lower financing costs.

These positive factors were partially offset by the loss of earnings from the Latin American portfolio as a result of the divestitures in '07 we talked about.

As Jim mentioned, we're on target to to achieve our ongoing earnings forecast of $2.35 to $2.45 per share.

Similar to what we experienced in 2007, we expect most of our margin growth to occur in the second half of the year.

This slide changed slightly from the last time we spoke with you to reflect current expectation of 2008.

We also changed the synfuel loss to $0.18 per share to combine in one line item the loss of earnings from synfuel operations as well the increased fuel costs for replacing synfuel consumed at our power plants in '07 that was previously reflected in margins.

Our 2008 ongoing earnings are expected to benefit from lower O&M of $0.04 per share, driven by lower pension expense at WPD, which is being partially offset by higher expenses in the Pennsylvania delivery segment and higher energy margins of $0.10 per share due to higher margin wholesale energy contracts, higher base-flow generation and expanded market and trading activities, partially offset by higher coal expense as a result of higher coal prices and higher coal transportation costs.

Also contributing to 2008 ongoing earnings are higher delivery margins of $0.06 per share, which include higher delivery expense of $0.04 in the U.K.

and $0.02 per share as a result of PPL Electric's new distribution rate that were affective January 1 of this year.

The impact of PPL Electric's $55 million improved revenue increase is netted down by an assumption of a return of normal weather this year.

These positive earnings drivers will be more than offset by the $0.18 per share loss of synfuel benefits, a decrease of $0.08 per share as a result of the sale of the Latin American asset, $0.08 per share in certain tax benefits recorded in '07 that will not repeat of similar levels this year, or are at least not expected to.

And we also project higher did depreciation expense, primarily in the supply business segment due the scrubbers coming on line -- some of the scrubbers coming on line in '08 and other additional plant and service.

We expect 55% of our 2008 earnings from ongoing operations to come from the supply segment, 28% from international delivery and 17% from Pennsylvania delivery.

On slide 11, we highlighted the primary earnings drivers between the $2.40 midpoint of our 2008 forecast and the $4.30 per share midpoint of our 2010 forecast.

The earnings drivers of this forecast haven't changed since our year-end call.

The increase from 2008 to 2010 earnings is driven almost exclusively by our unregulated supply segment, which is expected to provide approximately 77% of our 2010 earnings.

We expect the contribution of our international and Pennsylvania delivery segments to be 14% and 9% respectively.

Clearly, the most significant driver of the forecast is the increase in energy margins, and we continue to see strengthening in the prices since the the 2010 forecast last fall.

On slide 12, you will notice an improvement in our projected 2008 free cash flow before dividends, reflecting the expected proceeds from the pending sale of our gas and propane distribution businesses.

Consistent with our procedure assumption, the CapEx spending includes funding for the ongoing preparation of a Acola for a possible third nuclear unit near Susquehanna, but does not include funding of long time materials that might be committed to and partially funded before year-end 2008.

While our business plan continues to incorporate planned common stock buybacks, they continue to be a placeholder for other growth opportunities with a capability to add greater shareholder value.

Recognizing that a stable growing dividend is valuable to our share owners and also an important component of total share holder return, we increased our common stock dividend by 10% effective April 1st.

The current annualized dividend rate of $1.34 per share brings PPL payout ratio to 56%, based on the $2.40 per share midpoint on the 2008 earnings forecast.

With that financial update, I would like to turn the call over to Bill for an update on operations.

Thanks, Paul, and good morning, everyone.

Let me begin with our Pennsylvania electric utility business.

In late March, PPL Electric Utilities concluded the third of six solicitations for 2010 generation polar supply for small C&I customers.

PPL Electric Utilities bow has one half of its expected 2010 polar supply needs under contract with a number of suppliers.

On March 27, the Pennsylvania PUC approved this third solicitation.

The prices in that auction were about $3.00 per megawatt higher than the previous RFP.

A summary of prices achieved in the first three solicitations is available in the appendix to today's presentation.

Of course, final 2010 prices will not be known until all six supply purchases have been completed.

The next solicitation will be conducted later this year with bids due September 9, and PUC approval is expected October 2nd.

Turning to slide 15, I'm very pleased to report that the unit two scrubber at our Montour facility shown in the slide went into service in mid-March, and the unit one scrubber is being tied in as we speak.

Our team is really doing an excellent job of bringing the scrubbers into service on time and on budget.

This project illustrates PPL's commitment to the environment as well as our capability to manage large-scale construction efforts.

Construction at Brunner Island is also progressing very well, and we're applying lessons learned from the Montour project that should provide cost benefits as we drive to completion of that site.

On slide 16, our generation expansion efforts took an very important step forward in April when we agreed to aware a long-term tolling agreement for the capacity, energy and ancillary services from the 664-megawatt Ironwood combined cycle facility in PJM.

This tolling arrangement runs through December 2021, providing us with quick access to additional megawatts in the PJM region and the ability to contribute to our future market growth.

We're also continuing to execute on our planned increase of generation capacity in Pennsylvania and Montana by 331 megawatts through upgrades at our existing generating facilities.

We completed phase one of our Susquehanna nuclear upgrade earlier this month.

During phase one, we expect to see an additional capacity of 7% at unit one this year with the remaining 7% increase occurring in 2010, following the spring refueling outage.

Unit two is upgrade is scheduled for the 2009 outage.

Other capacity expansion includes new hydro-facilities in Pennsylvania at our Holtwood site and in Montana at the Rainbow plant.

Almost all are these capacity additions are non-carbon emitting, and we will continue to add to the strong position in the event carbon legislation is passed.

As we communicated to you in the past, about 40% of our current output is non-carbon-emitting, and, upon completion of all projects in the pipeline, that could rise to more than 50%.

We're also continuing with our plans to invest $100 million or more in renewable energy projects over the next five years, and, in fact, we may end up reaching that commitment level to projects before the end of this year.

To date, we have developed renewable energy projects that total more than 30 megawatts of generation.

Slide 17 provides an overview of key milestones associated with our new nuclear development opportunity that Jim mentioned.

By the end of September, we plan to submit the COLA application, Combined Operating License and Construction Agreement Application, for the third unit near our Susquehanna nuclear site.

We also plan to submit our DOE loan application later this year and could make commitments on long-lead time material, such as large foraging to achieve a yet-to-be-finalized commercial operation for target date.

As we stated before, DOE loan guarantees are absolutely critical to the success of getting new nuclear generation built, especially merchant generation in the nuclear states.

It's clear to PPL that the current congressional appropriation level of $18.5 billion must be expanded in order to build sufficient nuclear generation that we believe the country desperately needs.

Early site work could commence as early as next year, but the NRC approval of the COLA would likely not be received until 2011.

The timing of commercial operations will be dependent upon many factors, but certainly I would not expect operations to begin any earlier than 2016.

As far as an RPM update on the PJM capacity pricing, the FERC made a couple of rulings during April 2008 that could have potential significant impacts on the upcoming 2011/2012 RPM action.

First, FERC denied PJM's request to increase the CONE, that's the cost of new entry limit, of the PJM capacity pricing formula beginning with the 2011/'12 auction.

FERC's rationale for the denial was administrative, indicating that PJM missed the filing date to make adjustments for the -- to the pricing formula.

PJM can, of course, re-file the request for cone pricing increase for the 2012/'13 auction.

In the second action with Duquesne leaving PJM, FERC ruled that PJM may allow capacity resources in the Duquesne zone to bid into the 2011/'12 RPM auction.

In response to this ruling, PJM has indicated it will have transmission rates to generators in that Duquesne zone.

These actions, in our view, will not affect our margins for 2010, but we do expect they'll reduced capacity pricing for the 2011/'12 RPM auction that is going to take place later this month.

On the flip side to the extent that some supply projects in the PJM queue cancelled or delayed due to the reduced capacity prices, that could actually improve heat rates.

Of course, it's difficult to predict the net outcome of the changes, but we're, of course, going to be monitoring them closely.

Turning to slide 19, I'm sure you're all well aware of the recent worldwide supply and demand events that have driven the price of coal to new highs.

I'll first address our hedge position in the physical supply picture, and then I would like to give you an update in how the run-up in prices is expected to impact PPL and how we plan to mitigate some of the cost pressure Our Eastern fleet, we consume 9 million-tons of coal annually.

In the West, 3 million-tons annually.

Our coal supply in the West is 100% hedged through the 2008 to 2010 period, and we don't expect negative coal price or issues there.

Based on a recent agreement with the mean owner at Colstrip for units one and two, now all four coal strip units have committed supply through 2019.

In the East,,t we're hedged 89% for the 2008 to '10 period.

Ultimately, our total coal portfolio will come from a mix of purchases under fixed price contracts, contracts with that have price collars, and mind mouth cost agreements with a remainder from spot-market purchases.

Thus far, we have not experienced any supply defaults, and we're working closely with our coal suppliers and transport providers to make sure deliveries occur as they're scheduled.

Our diversified coal sourcing and our fleet of over 1,600 rail cars have been very helpful in maintaining our deliveries in the current environment.

We're also evaluating several options to help mitigate any future price increases..

For example, we're taking steps necessary to allow us to planned PRB coal at our Eastern fleet.

This is an option we have looked at in the past, and we believe we is can have some of the capability in place by 2009.

On top of the e evaluating the PRB option, next month we're planning test burns of Illinois-basin coal in our Eastern fleet.

The completion of the scrubbers will allow us to further diversify our coal supply sources.

The Illinois Basin is a growing source of coal that be able -- that we will be able to utilize at our Eastern unit as the scrubber comes online.

This region has been expanding the coal production capability and has generally been a lower-cost provider.

Turning to slide 20, when examining the impact of rising coal prices on PPL earnings, I believe it's important to look at this in three separate time periods -- short, medium and longer-term.

The first is the 2008 and 2009 period while rate caps are still in place.

Looking at the 2008 hedge positions, you can see why we're comfortable in our ability to deliver on the forecasted 2008 ongoing earnings range that we affirmed -- that we reaffirm today.

Uranium is 100% hedged, and only 1% of our coal is unhedged for 2008.

Our coal and power hedges are also both at 99% at this time.

So, while we will experience increases in coal expense due to the loss of synfuel supply, higher-price contract and increases in transport cost, the pressure due to spot coal price increase is greatly reduced.

Looking at 2009, while we're still highly hedged at 93%, this is also a period during which we remain under rate caps.

If coal prices remain at the level they are now, we would expect to see our average delivery coal price for 2009 increase by about 10% to 15% over the average delivered price for 2008.

Previously, we were expecting about 5% increases.

However, as I mentioned, we're working on PRB and Illinois Basin coals to help offset the potential increase.

This 10% to 15% increase takes into account the higher prices for the coal currently not under contract and the portion of contracted coal subject price powers as well as increases in rail transportation costs.

We expect to provide with you a 2009 earnings forecast later this year.

The next period is 2010, the year in which our rate caps come off, our hedging strategy for that year is focused on achieving that forecast Paul talked about earlier.

For 2010, we have a significant portion of our fuel supply hedged and plenty of generation length to more than offset the impact of higher coal prices.

Finally, when you look at the period beyond 2010, particularly 2011 and '12, where we have lower power hedges executed, we see actual positive incremental value based on current fuel and power prices.

We see coal prices levellizing in the outer years, and, again, I would note the rise in power price increases are energy margins in those years, exceeding the impact coal prices could have on the same margins.

So, in summary, while we have some 2009 pressures, we're really in good shape overall, and our highly-hedged positions in the short-term having provided real meaningful risk protection.

Turning to slide 21, you will see our open EBITDA position in 2010 has been updated to reflect forward prices as of the end of March, which are available on page A-1 of today's presentation.

Based on all recent price movements, beyond hedge or implied, gross margin for the supply segment of 2010 is expected to be $3.7 billion with associated OEM cost of $814 million.

This brings the value of our open EBITDA to $2.9 billion, a decrease of only $14 million from our update based on forward prices as of the end of last year.

This small decline is the net affect of the effect of higher spot prices offset by increases in power prices and improvement in the value of our peaking units.

You noticed the mark-to-market of our hedges has improved since the last update.

This reflects the favorable value of our coal hedges, including new contracts with prices lower than current spot, offset by the negative value of electric hedges cost by the increase in power prices.

The bottom line message from this slide is that in 2010, we expect to be able to withstand the recent increases in fuel prices.

With that, I'd like to turn the call back over to Jim Miller for the Q-and-A.

Okay, thanks Bill.

And, operator, we're ready for questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of John Kiani.

Your line is open.

For the $2.9 billion of open EBITDA on slide 21, I'm trying to understand what price you used when you marked your Eastern coal position.

I did some basic math, and I got to an Eastern coal price equivalent of about $71 a ton for your PJM assets.

Is that close, or in the ballpark of what you used for that 2010 opening EBITDA figure?

John, to be honest, I haven't roughed out that calculation, and I don't have those numbers right here in front of me.

I think, generally speaking prices on average for 2010 -- previously, we were expecting a 4% to 5% increase, and, as I indicated, if you look at current forward prices for 2009 and '10, we would expect that would be more like the 10% to 15%.

For those, of course, positions that are currently unhedged.

Okay, and then maybe there is another way to come at it.

for the 2010 open EBITDA, it sounds like you remarked your 100% of your Eastern coal position and then treated the in-the-money value, or accounted for the in-the-money value for the 70% to 77% of 2010 that is hedged in the $240 million of below-market hedges.

You're right.

Yes, John, you're right.

That is correct.

So, you marked 100% of the East, but not the West, obviously, because Colstrip has the very, very long-term mine mouth-type contracts.

Correct.

Correct.

Okay, that is helpful.

And, then from the perspective of your 2009 and 2010 coal hedges that you discussed on the prior slide, what portion or volume metric or cost based and not fixed price?

For '09 and '10?

Yes.

'9 and '10 are all fixed price.

All fixed price.

Yes, he contracts that we have got that flip into the collar-type arrangements or have variability around them are in outer years.

Okay.

Great, and the one last question.

Can you talk a little bit about the -- how we should think about the value associated with the PPA you signed off the Longview coal plant.

Am I correct in assuming that any earnings from that contract or accrual base in some of the out years, when will you see a benefit from that in earnings?

Starting in 2012.

2012.

Okay, and how far out did does that go roughly?

2017.

A five-year contract.

Okay.

And can you say if that's been hedged or not?

It's in the portfolio with the rest of the generation resource.

It's a West hub delivery under the contracts.

Yes.

So, we've got, again, a much, much lower amount of 2012 hedged than what is reflected in '10.

Got you.

So, think about it from a portfolio perspective and the accrual earnings from that contract, we'll see starting in 2012.

That's correct.

Okay, great.

Thanks, guys.

That is very helpful.

Sure.

Your next question comes from Paul Ridzon from Keybanc.

In the second quarter, what is the drop off of synfuel going to be?

One second.

It's going to be much lower than it was in the first quarter because of the mark-to-market on the oil collars that benefited the first quarter.

And then what was -- can you delve more deeply live into what happened with U.K.

taxes, and how much of an impact that was?

The synfuel is going to be about $0.03 or $0.04 a share for next quarter.

On the U.K.

tax side, that was a positive outcome of an item that was under negotiation with Inland revenue that got resolved within the quarter and was $0.03.

Okay.

Thank you very much.

Thanks.

The next question comes from Tom O'Neill with Highbridge.

Your line is open.

Good morning.

I was wondering if you could give a little more detail, just in terms of volume, what you might be able to burn from a PRB or the Illinois Basin?

Sure, on the PRB call, let me start with that first.

Without major modification to the Eastern units, which are mostly in the coal-handling facilities, we could probably burn safely up to about 10% blend.

With modifications, which would take us probably into 2010 to complete those, you're talking about may be up to 30%.

On the Illinois basin call, as I indicated, we're doing test burns.

So until we complete those, it's difficult to say.

But clearly with the scrubbers in place, we can burn that higher sulphur coal coming from the Illinois Basin.

Of course, in both the Illinois Basin as well as the Western PRB coal, they're typically much lower BTU content.

So, you have to net affect the actual output and heat content of the coals when looking at the economics, which we do.

But, we still think there are very positive economics to looking at this, particularly compared to current spot pricing.

And then to get to the 30% blend?

What sort of CapEx are you talking about?

We have not, yet, put the exact numbers together, so I will have to -- I can probably update you in the second quarter call.

Okay.

Thank you.

Sure.

At this time, there are no more questions in cue.

Okay, well thank you all for participating in the call, and we'll see you next quarter.

Thank you.

This concludes today's conference.

You may now disconnect.