Duke Energy Corporation (DUK) Q3 2008 Earnings Report, Transcript and Summary

Good morning and welcome to the Progress Energy's 2008 Third Quarter Earnings Conference Call. This call is being recorded and all of your phone will be in the listen-only mode until we begin the question-and-answer session. For opening remarks and introductions, I would now like to turn the call over to Mr. Bob Drennan of Progress Energy. Please go ahead sir. Robert F. (Bob) Drennan Jr. - Vice President of Investor Relations: Thank you. Good morning, and welcome to everyone. Joining me this morning are Bill Johnson our Chairman and Chief Executive Officer; Mark Mulhern our Chief Financial Officer; and other members of our management team. This call will be archived on our website for the next two weeks. We are currently being webcast from our Investor Relations page of progress-energy.com. We are also offering an audio replay of this call in the MP3 format, which is also available from our website. Also I'll direct your attention to our website where we have included a set of slides which accompany our speakers' prepared remarks this morning. These slides can be found at www.progress-energy.com/webcast. Today we will be making forward-looking statements during this call as well as reviewing historical information. There are numerous factors that may cause future actual results to differ materially from these statements. And we have outlined these in our earnings release, Form 10-K, 10-Q and other SEC filings as well as the risk factor discussion which are also filed in our Forms 10-K and 10-Q. This morning, following opening comments from Bill and Mark, we will then open the phone lines to address your questions. Now, I will turn the call over to Bill Johnson. William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: Thanks Bob. Good morning to everyone. Thanks for joining us for our third quarter call and thanks for your interest in our company. We have a very solid third quarter despite the challenges that our company, our sector and really our entire country have experienced. The market turmoil, its economic impacts have affected us of course just like they have everyone else, but we've maintained access to capital, we stay focused on what we can control, and we've executed well on the elements of the business that we do control. So we're meeting the challenges this market presents in good fashion. We remain quite component about our long term business strategy, and I'm especially proud of how our employees are rising to these challenges. As they continue to excel in the fundamental of our business and how they continue to provide excellent customer service everyday. So the topics I'm going to address today are shown on slide four if you're following along with the slides. Then our CFO Mark Mulhern will cover the financials in more detail and then we'll be glad to take any questions that you have. So, let's start with the earnings update on slide 5. We earned $306 million in the third quarter up $6 million over the same quarter a year ago. That's essentially flat on an earnings per share basis of a $1.17. Year-to-date through the third quarter we were in $653 million up $62 million over the time period year ago, up $0.19 a share in earnings. Now we've scrubbed our projections for the rest of the year, and we're narrowing of guidance range to $2.95 to $3.05 per share. This is the lower half of the range that we announced at the beginning at the year, and it still represents earning growth over 2007 in line with our long term growth part. We believe we're on a good path to achieve this guidance range for 2008, while we've already earned $2.51 a share for three quarter. The last year the fourth quarter was abnormal and we're focused on a much stronger finish this year. As I said earlier, Mark will cover the details for both the quarter and year-to-date in a minute, but I want to presses his remarks by saying I'm very pleased with the mitigation steps we've taken in cost management, in the regulatory arena and in new wholesale business. These actions have enabled us to offset some of the negatives of the slowing economy and higher cost pressures. Just a word about 2009, we know once you get the third quarter results your focus turns to next year's earnings. We intend to give official guidance for 2009 in January. We'll have a more complete picture of the 2008 actual. We'll have an updated view of Florida's economic prospects and hopefully we'll have a more stable financing environment. We'll provide guidance in January for 2009. We do expect 2009 to be a challenging year in all of our jurisdictions. But we have great clarity around our rate based growth plans and for the direct recovery mechanisms we have in place for a lot of these investments and we have confidence in our ability to fund our capital plans even though we expect to do so at slightly higher cost. Now a moment for the regulatory update. Regulatory actions are one key to our ability to meet our objectives. So I want to give you an update on some of the things in both Carolinas and Florida that we're doing. Slide 6 shows three regulatory actions in Carolinas, first concerning the clean Smokestacs amortizations. As we've discussed before, the North Carolina commission issued an order on September 5th approving our request to terminate accelerated amortizations on environmental capital expenditures. For now all amounts above $584 million, I know expenditures will be additions to the Progress Energy Carolinas rate. On depreciation of the Harris plant, last week the South Carolina commission approved our request to terminate accelerated depreciation of the Harris. This allows us to remove $38 million of minimum depreciation we were required to take by the end of 2009. Turning to fuel recovery, we expect an order from the North Carolina Commission by December 1st on our proposed fuel settlement. This settlement involves a three year recovery period with interest charges included. So these three regulatory actions have provided Progress Energy Carolinas greater financial flexibility to address rising cost and the challenges in revenue growth. Turning to Florida, we made several cost recovery filings in August related fuel prices, environmental improvements and nuclear generation. The Florida Commission approved our nuclear cost recovery filing associated with the Levy project and Crystal River Power upgrade on October the 14th and I'll speak more about that in just a moment. Also earlier this month, we updated our fuel filings to reflect lower natural gas and oil prices. Next week, the Florida Commission will hold its hearings on the fuel and other remaining cost recovery items. In any changes in rates coming out of these proceedings will be effective January 1st. We've discussed on previous calls our balanced solution strategy for adjusting demand growth and climate change. I'll give you a brief update on where we are in executing this strategy. Start with the first two problems of this portfolio approach which are energy efficiency and alternative energy. On slide 5, you will see that we made excellent progress on both of these in the third quarter. We recently received approval from the North Carolina Commission for four new efficiency and demand side management program and we're waiting approval of one more program. The loss of the filing additional programs in the near future. Early this week, we announced our third utility scale solar project this year in North Carolina. We have a long term agreement to purchase the output of the 1 megawatt solar PV plant to be built on a closed landfill site in Haywood County in West to North Carolina. In August we announced a 1.2 megawatt project at our Sutton Plant in Wilmington. And earlier this year, we announced a similar solar project of the SAS software company campus and care. As for Florida, we signed two new contracts with Progress Energy Florida to purchase up to 100 megawatts of electricity from renewable energy sources, 30 and 40 megawatts from biomass and 60 megawatts from municipal solid waste sources in Central Florida. So let's turn our attention to our major capital projects on slide 8. This is really the third prong of our balanced solutions strategy which is state of the art plants. Capital projects listed here will help us meet customer and environmental requirements and they also will provide a basis for earnings growth. In the Carolinas we're about two thirds of the way through completing our environmental retrofits under the North Carolina clean smokestacs act. We're also planning to a build a combustion turbine at Wayne County and a combined cycle plant at the Richmond County site to meet customer needs. In Florida, we're more than 60% of the way through making the environmental retrofits at our Crystal River 4 and 5 processes. Also we're quite far along more than 85% in finishing a substantial re powering project at our Bartow plant by next summer. And we're doing both a power upgrade and steam generator replacement at our Crystal River nuclear unit. I want to you to know that we're taking a close look at our 2009 capital expenditures and we'll give you an update on this when we give 2009 guidance in January. As I just discussed, some of these projects are near completion or they have regulatory or legislative required completion dates. So work on those projects will continue. But we'll be looking hard at our growth capital projects, especially in transmission and distribution to make sure we're not building for growth before the need is there. So we'll have more clarity on this in January. Now a little more about our Levy nuclear project in Florida. We have a very significant regulatory decision at the CSC earlier this month in a 5-0 vote the Commission approved the first cost recovery filing for the Levy project. In January Progress Energy Florida will begin collecting almost $395 million in preconstruction and licensing costs related to the Levy project. The Commission also approved about $25 million in costs associated with the power upgrade project at Crystal River unit 3. This really continues a strong support for expanded use of nuclear power in Florida to meet customer needs, to diversify the fuel supply, to increase energy security and to reduce CO2 emissions. We remain focused on several critical elements of the Levy project including EPC contract, joint ownership, BNRC schedule and our financing plans. There's not much new to report here. The NRC did recently dock at our license application for a review and we're making progress on all of these issues. And before our CFO Mark Mulhern gives you more detail about our financial results, I do want to emphasize we are making and will continue to make the necessary adjustments to adapt to these market conditions. We continued to have excellent prospects for long term growth and we're working hard to meet our short term and long term objectives. Now I'll turn over to Mark.

Thank you Bill and good morning. Before I get into my remarks let me just try to clear up any confusion that we may have had with respect to our reported numbers, especially with respect to ongoing earnings comparisons for 2007. You recall that in 2007, we still had coal and synfuel, though we had broken out core ongoing earnings versus non-core. Because now we are just the two regulated utilities, who no longer need the non-core designation. So, just again to alleviate any confusion, I would point you to footnote C on page S-1 of our release and footnote D on page S-2 to see that we have collapsed the 2007 non-core losses into the corporate and other columns. Hopefully, this helps you reconcile our comparisons, and if you have further questions, please call Bob Drennan and the IR team and we can answer those questions if you have them. For today's discussion, slide 10 shows the topics that I will cover. But before I cover the specific variances in our quarterly and year-to-date earnings, let me review our liquidity position and briefly discuss our funding plans for 2008 to 2010. Obviously there has been great turmoil in the financing markets and fortunately we started from a position of strength to continue to maintain a strong financial profile. To summarize our position on liquidity, there are two slides in our package. The first slide summarizes our liquidity position at September 30th 2008 and the second slide shows you the members of our bank group. At September 30th Progress Energy had total liquidity of $1.9 billion including $400 million in cash and $1.5 billion of net availability under our $2 billion of committed credit facilities. There was $495 million of commercial paper outstanding at September 30 all at the holding company. EEC and PES had cash investments at September 30 of $145 million to $123 million respectively. Given the level of commercial paper balances and the short duration of current A2/P2 investment mostly overnight, we provided notice to our bank group on October 29 that we would make a $600 million draw under our revolving credit agreement. We elected to draw on the revolver... to draw on the revolver, to reduce the risk of going over commercial paper again mostly overnight. As you know, we have a long record of conservative, prudent, financial management and believe this draw reflects that philosophy. We've been in regular communication with our bank group and appreciate their continued support. We'll continue to monitor the commercial paper and short-term credit market to determine when to repay the outstanding balance on the draw while maintaining the appropriate levels of liquidity for the company. Year-to-date, we've been successful in issuing a $1.8 billion of long term debt at the utilities. We issued $325 million of Progress Energy Carolina and $1.5 billion of Progress Energy, Florida. Approximately $900 million of those proceeds funded debt maturities at the utilities. And we do not currently anticipate any additional long term debt issuance for the remainder of 2008. An update on the equity front, we had issued $106 million of new equity in the first nine months of 2008 and we expect an additional $25 million in the fourth quarter through our existing drip plants. Based on our current CapEx plan, the company expects to increase the amount of equity it issued each year to approximately $300 billion annually through the existing drip plants. In terms of maturities and financing needs for the next two years, we have maturities in 2009 of approximately $400 million. That would be of Progress Energy Carolina and then for 2010 we have another $400 million in maturities. That's $300 million at PEF, Progress Energy, Florida and $100 million at the Holding Company. When we plan our meeting notes financing needs in 2009 and 2010 through a combination of long and short term debts, the gross equity we referred to other drip plan. All debt maturities are expected to be refinanced with additional long term issues of approximately $1 billion each year to support our financial plan, so an additional billion on top of the maturity. So we are in a solid position on liquidity and financing needs for the next two years. On the topic of quarterly earnings I will lead to all of the variances on the slide 13 which just summarizes what's enumerated in our press release and I will address whether which has been significant impact on our earnings on slide 14. So it's not shown on slide 13 as an unfavorable variance. The base rates from new generation of appliances, Florida wholesale margins and AC/DC equity in both utilities comprised $0.15 of the positive $0.22 of favorable variances for the quarter. As for the negatives, interest expense due primarily to the issuance of the $1.5 billion from first mortgage bonds at PEF was higher, Florida growth in usage and Carolina wholesale margins were both unfavorable in the third quarter. Slide 14 shows you the dramatic impact the weather has on the year-over-year comparison. In the quarter, there was a negative weather impact of $0.10 versus 2007. The 2007 third quarter weather was $0.09 above normal making for a challenging comparison. Year-to-date, negative weather impact versus 2007 was $0.08. Now shifting to the year-to-date earnings, go to slide 15 and that shows you the key variances to our budget year-to-date. At $2.51, we are $0.09 below our budget with approximately one half of that attributable to milder than normal weather. Wholesale margins and cost management which Bill referred to has helped offset the weaker growth in usage terms. On slide 16, we've shown the customer data with respect to Florida and the Carolinas. But you can see here that the impact on Florida has been dramatic. We do not expect a recovery until 2010 and beyond. Carolinas are still growing and we expect the moderate slowing that's occurred there to continue into 2009. Now, a word about 2008 ongoing earnings guidance, so on slide 17, I want to just make a few points about our 2008 guidance. While as Bill said, we reported $2.51 of year-to-date earnings. Our guidance of $2.95 to $3.05 is very achievable. In last year's fourth quarter, we reported $0.40 but when adjusting for non-recurring items, we earned $0.55. We expect slightly higher interest expense in the fourth quarter but our October weather was about normal, so with two months to go, we should be in good shape. The trailing 12 months earnings of $3.91 including last year's $0.40 fourth quarter, and its important to know what our amortization and depreciation position is to understand those numbers. So in the fourth quarter of 2007, we actually recorded $46 million of amortization and depreciation under the clean Smokestacs and Harris regulatory provisions. As a result of our regulatory initiatives this year, we are now only required to record $27 million of additional Harris depreciation over the next 15 months. These regulatory outcomes enhanced our ability to achieve our 2008 earnings targets. The last point, I want to cover is cost management. You'll recall we adopted this format of adjusting O&M expense reported for the various recoverable clauses and other items. The reported O&M appears to have grown year-over-year by 2.5%, but when adjusted those amounts are almost flat. This reflects our aggressive proactive cost management efforts and the matching of O&M costs of lower revenues. This is real evidence of our ability to adapt and adjust to changing market conditions. So before I turn it back to Bill for Q&A, let me summarize with these key points. Our liquidity position is solid and we have manageable financing needs for 2009 and 2010. We're on track for our 2008 earning guidance with clear visibility about how we get there. Our capital expenditure plans for 2009 have clear recovery mechanisms and we expect to continue to grow the dividend. Now I'll turn it back to Bill for your questions William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: We'll be happy to take your questions at this time. Question And Answer

Thank you. The question-and-answer session will be conducted electronically today. [Operator Instructions]. And we'll take our first question from Dan Eggers from Credit Suisse.

Hey, good morning. Bill I guess I know that guidance won't come into January, but if we were to sit down and think about a slowing economy and the implications of slower customer additions, how much of your CapEx budget is devoted to affectively bringing new customers into the system whether it be generation adds or distribution adds, dropping meters and that sort to figure out in a normal course of business major changes in plan, how much CapEx come down next year? Robert F. (Bob) Drennan Jr. - Vice President of Investor Relations: Thanks, Dan. I will ask Mark Mulhern to give you numbers that without giving you too much peek of what we're going to tell you in January.

Dan, just to give you some perspective, our total T&D growth capital, if you remember we breakout maintenance and growth capital. We have between the two utilities about $375 million in our CapEx budget for growth capital in T&D for next year.

Okay. And if I mean some of that has to be spent regardless of customer additions, I suppose, but healthy amount of that would potentially be deferred if the customer growth isn't there, is that a fair assumption?

Yes. That's a fair assumption.

Okay, O&M cost inflation. You have a good success you shared on the slide keeping it flat this year adjusted. As we look out can you keep that at similar levels and could it actually come down if you're having less body supporting new customer decisions? Robert F. (Bob) Drennan Jr. - Vice President of Investor Relations: Well we're hoping that it continues. It would be great if it came down or continue at the low level it is. I would tell you that we are mightily focused on that. We're looking for significant ways to increase efficiency, productivity, with a focus that we've never had before. So, I think the bottom line here is that we'll continue to control those costs and we'll just find new and innovative ways to do things better, faster and cheaper.

You think about the $300 million in the drip next year, you kind of given where the stock is, the cost of the dividend out the door, it's a current yield. Is there ... is there any thoughts trimming CapEx even further to avoid that equity issuance or you guys pretty satisfied that the drips is going to decrease next year? Robert F. (Bob) Drennan Jr. - Vice President of Investor Relations: I don't think we'll really be in a position to answer that Dan until we get to January because we're looking hard at all of our capital expenditures. Obviously we're going to the some issuance through the drip next year, but we are cognizant of what you just said about stock price, the yield, those various things. So, we will be looking for ways to reduce our financing needs and to reduce our capital to a reasonable level, now considering the things that we need to do.

Okay. I'll quit asking January questions today. Thanks a lot.

We'll go next to Jonathan Arnold from Merrill Lynch.

Good morning. Robert F. (Bob) Drennan Jr. - Vice President of Investor Relations: Good morning.

Could you guys give some insight into or maybe update on where you stand on pension funding and any thoughts around how cost might move next year but also from the cash angle as well?

Yeah. I'll be glad to. To give a partial answer to that, we have been looking at the pensions since the Pension Protection Act and looking what we needed to do in future years to make sure we're in compliance with the act. Historically our pension has been a very good producer. It has had high returns, obviously like everybody else's pension plan this year we haven't had the returns that we've had in the past. I think we'll be in better shape to tell you this in January once we have the year end results. But I will say we were looking at a plan next year. that had an infusion of about $35 million into the pension already, and we just don't know if that's going to be the number or whether it is going to be on either side of that but that... what we were planning for next year and we will have more on this in January.

Was that at the beginning of this year or before the most recent market declines?

Yes that was certainly before the recent market declines. So that would have been here for second quarter kind of thinking.

Okay. Thank you.

[Operator Instructions]. And we will go next to Mark Siegel from Canaccord Adams.

Hi, good morning thanks for taking my call. I believe in the past you made some comments about Smart Grid and Smart Meter initiatives that you guys were contemplating, can you give us an update of what your thoughts are now, where things stand and what your plans might be going forward? Robert F. (Bob) Drennan Jr. - Vice President of Investor Relations: I'm going to ask Lloyd Yates, the CEO of Carolinas Utility to address that.

We still plan some minimum investments in Smart Grid, not necessarily moving all the way to two-way communication and advanced metering, but a more basic investment or something we call distribution demand response system which essentially controls creating about 250 megawatts or so of generation. But it is a basic investment, building on the platform that we already have.

Okay, great. Thanks a lot.

And we'll take our next question Ashar Khan from SAC Capital.

Hi good morning. Robert F. (Bob) Drennan Jr. - Vice President of Investor Relations: Hey Ashar.

I just wanted to check, if I remember from the presentation way back in the spring, the annual presentation, the future growth rate was based on 6.5% cost of debt. Am I hearing that the higher cost of debt, if we have mechanisms under which we would be compensated for that higher cost of debt that we would have to pay if the current market conditions prevail?

Ashar, this is Mark. What I would say to that question is no. We obviously have regulatory initiatives in Florida with respect to it. We got a settlement that expires at the end of this year. And so, any filing we make with respect to rates in Florida we would obviously incorporate our expectations about higher interest costs here. We've had a very low cost debt portfolio for a long period of time. Obviously we expect to it, we do long term debt issuances that the coupons will be higher and we've seen that here in the short-term with a number of utilities that have gone to the market. So, it will play into any of our regulatory filings. We obviously haven't had any rate issues or rate cases in the Carolinas in a number of years. So, we got to that point where we had a rate case obviously we incorporate the higher cost of capital.

Okay. But Mark just to kind of look if I go back where do we stand if I can just go to the nuclear project right now? You had kind of budgeted about like $160 million in '08 and $520 million '09, where do we stand on the nuclear construction? Could you just bring us up to-date on the nuclear project. William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: Yes, I will take that we are ... as I said we just have an order out in Florida Commission approving $395 million in preconstruction costs. That's essentially licensing, engineering, and may be some equipment procurement. I'm not sure about the last part. So, we are proceeding ahead on that project. It is sort of the rate we had discussed earlier in the year at the investor presentation.

Okay, those numbers are good then? William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: Yes, we may see some reduction next year as we look at, trying to reduce capital. It's possible we'll be able to reduce them there. Part of this is as you go back and look at all of your other sending, can you move things around and do things a little later. But we're on a similar track on that spending as where we were earlier this year.

Okay. But if I am right, Bill, you are reaffirming the 4% to 5% growth rate today, is that correct? William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: I'm affirming that as a long term target. I think we all recognize these are extraordinary times and I think Mark said in his comments, we expect the impacts of recent events to continue through 2009, may be in the 2010, probably take that as a long term target. And we're just working extraordinary circumstances we're in the short term the best we can.

Okay. And then if I can just end up, could you just tell us, what is the plan regarding the Florida case? William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: I can give you the logistical plan which is filing of the rate case in the first quarter of 2009, proceeding some time in that year and the decision at the end of the year or early 2010, something around that schedule.

Okay, okay. Thank you, sir. William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: Thank you.

And we'll take our next question from Carrie St. Louis from Fidelity.

Hi, I've missed part of the call. You've already answered this, but I guess what I heard from prior questions was that there is $300 million of growth capital in your '09 forecast for CapEx? William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: Good morningCarrie, we have Mark to look at your question.

Carrie, no, we really specifically answered was growth CapEx in T&D. So, if you look at transmission and distribution.

Okay. So, that's somewhat flexible?

Yes. I think it's subject to review and sizing, that's what we expect.

Okay. What about like... I don't know if yours is called the Save-a-watt, but... so what about, and, I know someone asked about automated meters. What I am trying to understand is can you give me an idea how much of next year's budget is flexible overall?

Yes. The way I would think about it, Carrie, I think, I can't remember what the K numbers today, but it is like $2.8 billion, something like that in capital, which includes nuclear fuel as I recall, just off the top of my head.

Okay.

We've got a chance to reduce that fairly significantly with respect to reviewing the growth capital we have in T&D. We have a number of environmental projects that are being completed, and we're pretty far along in that, and you saw those numbers if you looked at the slides that Bill went over on CapEx. We have a few generation things that we can potentially push out and delay. So there is flexibility there. I think what you will hear from us in January is revised capital numbers as well.

Okay. Was '09 big year front any event energy efficiency or not yet.

Not significant dollars.

Okay by going forward not significant, but it picks up going forward?

You've got it.

Okay. But that, I mean besides I guess some generation, some of that energy efficiency, and then some of your growth for T&D, that would be kind of the areas that I could look to for flexibility?

Yes.

Okay. And I was just also curious of your thoughts about issuing at the HoldCo. Are you kind of at this point... I know you've been predominately issuing out of your OPCO's first mortgage fund, but how do you feel about issuing out of a HoldCo over the longer term and especially with respect to your 2011 maturity?

Yes. I think when you think about... we don't have, you're right. We don't have a significant maturity of HoldCo until '011. We got $100 million I think in 2010. So we will be forced to do anything there but I think its part of our financial plan over the next 12 months, we could have an issuance to HoldCo. So obviously we're going to evaluate what that would mean half the rates availability in that area. But generally leaning on the utilities as much we can with respect to secured financing to finance the plans which you've seen. So we will make a judgment whole cover, I think in the next 12 months, you can assume we'll probably do something with the Holding company.

Okay. Thank you.

You are welcome.

[Operator Instructions]. And we'll go next to Ted Durban from Goldman Sachs.

Hey, guys. Sorry to keep harping on the CapEx. Just thinking about specific projects, the 600 megawatt combined cycle in Richmond County. Is the demand coming this summer where you would may be we don't have that need for are we going to need it or is that still kind of a needed project? William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: That project is going to be needed at some point. As we're really not in a position yet to say exactly what that timing is. But at some point we are going to need that plan. But that's one of the things we will be talking about in January.

Okay. And then just in terms of the demand trend Florida specifically. Can you give us a little more color on what you're seeing through ex-weather, what's the core demand look like there? William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: As Mark did speak to that and I think when we look at the chart we included in the slides, on the low used customers, you saw that the trend obviously in Florida continues to be upward. When we characterize low use, less than 200 KW a month, and I see the graph we have there. So we have had a continuation of weak performance, effectively at the revenue line in Florida and don't really have any expectation that that's going to change quickly. The financial challenges we've had in the market I think just compound the housing and economic problems we've had in Florida. So, I think maybe you've heard from others the same thing, but we're not planning a recovery here. We think we'll be flattish into 2009 with respect to customer growth and usage in Florida.

Okay. Great, thanks a lot.

And we'll take our next question from Paul Ridzon from KeyBanc.

Good morning, Mark. How are you?

Paul how are you going?

Okay. You're seeing commodities come off considerably. Has that impacted what you're seeing as a potential cost of the nuclear build? And just on the nuclear, do you have the ability to buy some options on cheap steel or concrete and then how much flexibility is there to push the new time line? William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: Paul I'll take it a chance to answer that. It's too soon to tell the impact on commodity prices on projected nuclear costs. But you would expect that since the large part of those is concrete, steel and other commodities and decreasing costs markets of price projections for those to go down. I think this is such recent phenomena over the last couple of months no one has factored that in yet and a lot of those contracts have escalation or industries tied to commodity price, various construction prices. So, I would expect if this continues, that that would be reflected in the price of the plant.

Are there illiquid markets to hedge those types of costs? William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: Not at the moment. We've actually spent a little time looking into that and trying to see what we could do there. So, at the moment there is not a particularly good way to hedge those costs in the future.

And then just flexibility to push the new timeline if growth doesn't occur for some time and if the demand just isn't there? William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: Yeah, there is a couple of elements especially the Levy project that are not growth dependent. It is a way to diversify fuel in Florida. It does reduce CO2 emissions dramatically and it does work for energy security. Having said that, we are in the process of evaluating all of our plans, we do need the base load in Florida in that same timeline, and I think it is just a little too early to tell about what flexibility we have with the schedule.

Okay. Thank you.

[Operator Instructions]. And want to take our next question from Tatiana Thibodeau from ClearBridge Advisors.

Yes hi. William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: Good morning.

I have a question related to the underlying demand trends you are witnessing in the Carolinas. Because its seems that at least in terms of the cooling degree days weather in the quarter was pretty close to normal. Yet, we saw a big decline in volumes both on the wholesale side and in all other categories. Can you just address what you are observing in terms of underlying demand trends? William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: Yes. We have seen a little bit of slow down in the growth of customers in the Carolinas. But if you again refer to the charts that included in slide that hasn't been dramatic. So would you expect to get a little moderation in growth in the growth of new customers. So when you think about a revenue performance in the quarter and year-to-date, that has really impacted is in wholesale sales in the Carolinas and that phenomenon comes from the relationship of the price of coal and the price of gas reducing our opportunities sale of system that's really than the main impact on revenues in the Carolinas. When you look forward, we think that the customer growth is going to hold up across all sectors in the Carolinas, but we're not immune to the economic slowdown, and we have seen some early indications of industrial and commercial customer struggles here. So, I think you will have a more moderate expectation about revenues going forward even in the Carolinas.

And then also...thank you for that. And then also related to Florida, also similar question, if you look at the wholesale volumes, I know that so far you have been able to offset any weakness at the customer front with wholesale volumes. But this quarter was also a big drop-off in wholesale results. So you can just address that, and what is your expectation is going forward?

Actually the current data that's in front on me which shows the wholesale actually improved in Florida for the quarter. And that should reflect the contracts and extensions that we have been talking about here. So, I expect the wholesale business to be strong in Florida. We signed a number of new contracts that we talked about on our last quarter call that will carry over into 2009 as well. So on the wholesale front in Florida we should be fine. I do think on the retail level we'll continue to have struggles with respect to getting back to more reasonable growth and usage numbers but in wholesale we should be pretty well grounded.

Okay thank you.

You are welcome.

And with no further questions in the queue, I would like to turn the conference back over to Bill Johnson for any additional or closing remarks. William (Bill) D. Johnson - Chairman, President, and Chief Executive Officer: Thanks for joining us today on the call and thanks for your questions. I feel very good about our company's focus, our discipline, and our flexibility in managing through extraordinary times. Now, we remain confident of achieving the earnings guidance we laid out today. Our balanced strategy for growth remains sound, it is on track and it presents significant opportunity for investing in the two strong utilities and we have great clarity around our direct recovery mechanisms. I think we've demonstrated our ability to manage our O&M costs, to have constructive regulatory outcomes, to do increased wholesale business when the need arises, and also to make investments to recover those investments. So, I think going forward our long-term prospects are good. Our management team is committed to doing what it takes to adapt to these challenging economic conditions and I look forward to seeing many of you at the upcoming EEI conference in Arizona. So, thanks for being with us this morning.

And this concludes today's conference. We thank you for your participation. You may now disconnect. .