Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Hugh Wynne - Sanford Bernstein.
Hugh Wynne - Sanford Bernstein
You mentioned that, you expect cash from operations to rise by about $150 million to $5.6 billion, even though you are now contributing $350 million to your pension fund, implying that you’ve been able to increase cash generation of the business by something like $500 million. When I look at your financial coverage ratios, it seems to be having a materially positive impact.
Now, based on your cash flow statement, the improvement seems to derive from deferred income taxes, which are $740 million at the end of nine months as compared to about $150 million at the end of six months. My question then is, what have you been able to do on the tax front? Is this a benefit that’s going to reverse next year or can this cash be put in the bank? What should we expect on a going-forward basis?
Matthew Hilzinger
Let me just start with overall where we are with cash, that the $850 million is against our original planning assumptions and guidance that we had given to the Street, so about $400 million of that is coming from the stimulus plan.
About $300 million of that is coming from some tax planning that Tom Terry and the tax groups have done around repairs deductions. This quarter we got a methodology change with the IRS around repairs reduction, that’s going to generate about $300 million this year. There’s a piece of that that will flow into next year and the remaining balance is really coming from some of the PJM changes that we get in working capital.
So that’s where the $850 million is coming from. You are seeing the deferred taxes change a little bit. It’s primarily around the manufacturer’s deduction that we see and the repairs allowance that we expect to get a benefit from. So the manufacturer’s deduction, I think next year is expected to increase and we may get a little bit of a benefit up and beyond where we are this year and the repairs deduction, as I said, is more onetime and we’ll get a little bit as we go into next year.
Hugh Wynne - Sanford Bernstein
Matt, can you try to the comment just quickly on the forward hedging program? It seems that your estimated open gross margin in 2011 is now about $400 million lower than you estimated at the end of Q1 and that has occurred despite a slight increase of $0.20 in the price of natural gas and it seems to reflect about a $2.50 reduction in ATC Energy prices at Ni-Hub and PJM West. My question is, do you see that compression and forward spark spreads as persisting? What impact, if any has that forward spark spread compassion had on your hedging?
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