Question-and-Answer Session
Operator
(Operator Instructions)Your first question comes from Michael Lapides - Goldman Sachs
Michael Lapides - Goldman Sachs
Can you talk about come in the fourth quarter, I mean if hedges back in year fourth quarter guidance, can you talk about the rate, how the rate redesign items impact fourth quarter of ‘09 versus fourth quarter of ‘08?
Marty Lyons
I think if you take a look at our year-to-date results as well as the guidance that we have provided and take a look at the balance of the year, I think you will find that as compared to last year’s say core earnings we expect to be down about $0.10 versus the prior year core net.
This is driven we positive impacts of the Missouri rate case of course which happened in March as well as the lack of a Callaway refueling outage which is having a positive impact year-over-year in the fourth quarter, both in terms of O&M costs which are reduced as well as the net fuel costs, you will recall last year we cannot have a fuel adjustment cost in Missouri, which meant that when the Callaway plant went down we had fewer megawatt hours to sale, and therefore higher fuel costs and less off system sales.
This year we will recognize in our cost of fuel will be the net base fuel cost that are reflected in the fuel adjustment cost we received earlier this year. So, that’s expected to have a net positive in the fourth quarter. We think those positives will be offset by higher distribution system expenses, higher taxes in the fourth quarter, as well as lower merchant margins and higher financing costs including dilution. So, that’s sort of a summary of what we’re expecting in the fourth quarter versus last year.
Michael Lapides - Goldman Sachs
One thick, what are you seeing and what kind of changes on the merchant side of you seen between basis differentials between your plants and kind of the hub.
Tom Voss
I think what we saw earlier this year was that, we were seeing basis differentials that were sort of, I would say 4% to 7% range between our generation and hub. We saw sort of those trends higher in the summer and then kind of drop off a little bit as we got into July and August.
In September, they rose a bit again and frankly as a result of that, we reflected a little bit higher basis differential in our forecast for the remainder of the year, but it really as you think about that, the basis differential only really impacts us in a bit of a limited way.
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