Good day ladies and gentlemen and welcome to the second 2008 Pacific Ethanol Inc earnings conference call. My name is Erica and will be coordinator for today (Operator instructions) I would now like to turn the presentation over to your host for today’s call, Mr. Gregory Pettit with Hill & Knowlton, please proceed sir.

Good morning, before we get started I would to that there are slides to accompany this conference call available on the companies home page pacificethanol.net and after the call, about an hour or hour and half after the call there will be replays available both web based and telephonic and information on how to access those replays are also available on the company’s home page. This call contains forward-looking statements, including statements concerning future conditions in the ethanol marketing and production industries, and concerning the company’s future business, financial condition, operating strategies and operational and legal risks. The company uses words like believe, expect, may, will, could, seek, estimate, continue, anticipate, intend, goal, future plan or variations of those terms and other similar expressions including their use in the negative to identify forward-looking statements. Respective investors should not place undue reliance on these forward-looking statements which speak only as to the company’s expectations as of the date of these materials. These forward-looking statements are subject to a number of risks and uncertainties, including those identified under risk factors in the most recently filed of the company’s annual report on form 10-K or registration statement, as filed with these Securities and Exchange Commission. Although the company believes that the expectations reflected in these forward-looking statements are reasonable, actual conditions in the ethanol marketing and production industries, and actual conditions that results in the company’s business could different materially from those expressed in these forward-looking statements. In addition, none of the events anticipated in the forward-looking statements may actually occur, any of these different outcomes could cause the value of the securities, including the price of the companies common stock to decline substantially expect as required by law, the company undertakes no duties to update any forward-looking statement after the date of this call either to conform any statement to reflect actual results or to reflect the occurrence of unanticipated events, and with that I’d like to turn the call over to CEO and President, Neil Koehler.

Thank you Gregory, and welcome everyone to Pacific Ethanol’s investor call to discuss our financial results for the second quarter and year to date for the period ending June 30, 20008. I am joined today by Joseph Hansen our Chief Financial Officer. I will make a few opening remarks followed by Joe walking us through the numbers. After a closing comment or two on the market environment, Joe and I will be available for Q-and-A. For the second quarter we achieved record sales of $198 million, an increase of 74% compare to $113.8 million in the second quarter of 2007. In the second quarter 2008, we sold a record 66.8 million gallons, a 52% increase compared to the 43.9 million gallons in the second quarter of 2007. We recorded a net loss of $10.5 million after preferred dividends for $0.23 per share. Our gross profit was $0.4 million compare to a $11.1 million in the second quarter of 2007. Gross profit through the first six months of 2008 was $16.1 million compared to $26.5 million in the first six months of 2007. EBITDA in the quarter was negative, $0.8 million compare to a positive $3.5 million in the second quarter of 2007. EBITDA for the first six months of 2008 was $11.7 million compared to $8.3 million in the first six months of 2007. Rapidly increasing corn and national gas cost in the quarter coupled with a somewhat difficult start up of our Magic Valley Ethanol Facility in Burley, Idaho negatively impacted earnings in the quarter. Even with the difficult second quarter, we had positive operating performance over the first six months of 2008 in what we all know has been a challenging market environment. We made great progress in the quarter in strengthening our working capital position, we received…

Thank you Neil. Good morning everyone, slide two contains a list of the items that we will cover during this call. Slide three, is a summary income statement for the second quarter. Our net sales increased to $198 million in Q2, 2008 from $113.8 million in Q2, 2007, a 74% year over year increase. Year-to-date our net sales increased to $359.5 million from $213 million in the first half of 2007 or an increase of 69%.Slide four shows our net sales in gallons sold. We sold 66.8 million gallons of ethanol in Q2 2008 up 52% from 43.9 million gallons in Q2, 2007 and also up 13% over the prior quarter. For the first half of the year we sold 126 million gallons of ethanol up 52% from 82.8 million gallons in the first six months of 2007.Our third party purchases and marketing activity represented 52% of our gallons sold in the second quarter and 56% of our gallons sold on a year to date basis. As we bring our Stockton plant online in Q3, we may see production show some further increase in its share of gallons sold. Over the long run however, we expect that our third party marketing volumes will continue to make up a significant portion of our total ethanol sales. Going to slide five, we show a disappointing gross profit margin in Q2, of 2008 hurt by significantly higher corn and natural gas costs, erosion in our co-product to return and cost associated with the start up of our Magic Valley Facility. Our gross profit was $0.4 million or 0.2% as a percentage of sales in Q2, 2008 compared to gross profit of $11.1 million or 9.8% as a percentage of sales in Q2, 2007 During the quarter we maintained a positive gross profit on…

Thanks Joe. I want to just take a minute to update you on our views of the ethanol market place. Corn prices have declined significantly in the last number of weeks. Ethanol prices have declined as well with all commodity prices, but there has been some margin of improvement in ethanol production economics. Tight margins and tight credit markets have both slowed the completion of new production capacity and the run rates of some existing capacities. Virtually no new construction has been initiated this year. Very favorable ethanol blending economics continued to increase the demand for ethanol. With a 50% increase in domestic production year-over-year supply is pushing demand which along with high corn prices has contributed to margin compression. As we move through 2008 into 2009 new plant openings are slowing in the industry while ethanol demand will continue to accelerate. We still believe the production margins will improve significantly as this will be necessary to encourage a new round of production expansion needed to meet future demand. In spite of the negative Propaganda Campaign by the Grocery Manufactures Association, the policy support for ethanol remains solid. We were very encouraged by EPA denial last week of the taxis waver request from the renewal fuel standard. EPA administrator, Johnson summed it up distinctly in his press conference last week by stating that “The RFS remains an important tool in our ongoing efforts to reduce America’s Greenhouse gas submissions and less in our dependents on foreign oil in aggressive, yet practical ways”, so we agree and stand ready to do our part as a company to deliver increasing supplies of cost competitive low carbon ethanol fuel to the transportation fuel market, and Erica at this time please open up the lines for questions.

(Operator instructions) Our first question comes from the line of Joe Gomes with Oppenheimer please proceed. Joe Gomes – Oppenheimer: Good Morning

Good morning, Joe Joe Gomes – Oppenheimer:

We like to be fairly circumspect in terms of these sorts of projects until we have more definitive results, but I can say that we have run a first phase of testing that what we ran the equipment continuously for a week’s period of time and we saw yield improvements anywhere from 0% to 12%. If you look across the individual fomenters there were some issues in terms of operations that we are addressing to make sure that we can run the equipment more continual manner and we are working that out now and expect over this quarter to have more definitive results and know exactly how we will be implementing this across, our Boardman Facility and the other ethanol plants. Joe Gomes – Oppenheimer: Okay, great. In the Burley start up, I think Joe in his comment mentioned that you had a difficult start up there. Could you provide some more detail on that and what kind of impact on volume that might have in the quarter?

Sure, we’ve been very fortunate, our first two startups to have very flawless and really incredibly quick and efficient startups. The Magic Valley Facility, we had some equipment issues specifically (inaudible) tank at the front end failed at start up, we had to shut up the plant down and have to fix that. We were fixing it on the fly, it had some impact on yield at Magic Valley, probably cost us overall based on our earlier projections about a half a month’s production at Magic Valley, and also there were some ancillary costs involved in additional chemicals used to overcome some of the front end pumps that we had so that we could continue to run and the logistical cost in terms of hauling ethanol from other areas to cover contractual, so commitments of lost gallons which obviously impacted some profitability in growth margin as well as added cost dealing with the starter-up, I guess it is running efficiently now. Joe Gomes – Oppenheimer: Okay and one last one. Can you kind of give us an idea of your conversing clause, I know some of the other ethanol guys do that interims of, this was all the other factors of production outside of this the corn?

We don’t break that out in specific detail, but I think you know Joe from our business model our conversion costs are pretty efficient due to our using on average about 30% less energy. Joe Gomes – Oppenheimer: Right

Obviously our corn cost is going to be higher, that’s going to be off set by higher product sales, but on the actual variable cost at the production level pretty standard with the exception of our energy cost being lower than, would be typical of the dry mill, dryness distillers grain in the mid West. Joe Gomes – Oppenheimer: I’ll get back in queue, thanks.

Thank you.

Our next question comes from the line of JinMing Liu with Ardour Capitals. Please proceed.

Good morning.

Good morning.

Can you share a bit of information about forward contracts with corn and ethanol for say third quarter?

In our queue that will come out later you will see what positions that we have, but as I think we have stated in our last call, we have very little corn coverage going into the this quarter and we had very little coming into this last quarter. There are conscious decisions in terms of risk management even if you look at the forward curves on the ethanol and corn. It’s very difficult to take fixed price ethanol contracts to be able to forward purchase corn and have a margin that we are, that we think is adequate. So we have been certainly much more matched, I mean opened to both the ethanol and the corn markets and to the extent that we have fixed priced ethanol purchases we have matched that with or sales, but with purchases on third party and with corn on production side. You’ll see from the numbers that our positions are relatively open as we entered the third quarter.

Okay, thanks.

Our next question comes from the line of Michael Cohen with Pacific American Securities please proceed.

Good morning.

Good morning.

I have a couple of questions about your shift in capital structure, specifically related to the preferred stock. It looks like the Series A preferred came off in the last six months and Series B came on, is that correct?

That is correct.

Okay, and could you tell me who the owners is of the Series A was, and it looks like the Series B is insiders and I was wondering is there anyone other than insiders who have the Series B?

The Series A was Cascade Investments and as you observed they have converted all of that to common share, and that actually had an impact of saving us on dividend payments relative to the Series B, smaller amount of dividend payments overall. The Series B it is exclusively insider’s with the largest bulk of that coming from Lyles United who is affiliated with Lyles the construction company of our plants.

I am Series A was exclusively Cascade?

That is correct.

Okay, thank you very much.

Our next question comes from the line of Ian Horowitz with Soleil Securities please proceed.

Hi good morning guys.

Hi Ian

Just a couple of questions, the SG&A looks like its down pretty significantly and I know Joe talked about down as a percent of gallons. Is this a dollar amount that we should expect going forward or are we are going to see some reversion back to previous levels of SG&A?

We expect SG&A to continue to decrease as a percentage of our overall volume. We are continually focused on SG&A and it’s become a real focus point here within the company to bring those costs significantly down.

I would add, Ian that on an absolute basis, you can see it down slightly quarter over the quarter and that we are still in 2008, obviously in the middle of bringing on these new plants. So if you look at the amount of gallons that we produced in the quarter over the overhead, because naturally we have the significant amount of our production that’s not yet online, those numbers per gallon are obviously quite high close to $0.30 a gallon. As we bring in all of our production and hold those dollars constant or even try to drive them down, we will achieve SG&A that is $0.10 a gallon or less and after that is the goal. So that the biggest reduction obviously is on a cent per gallon, but we also do believe that there is more absolute dollars that we can bring out of the SG&A.

Great and I mean how are you doing this, bringing out the absolute dollar, so are you laying people off or are you cutting salaries?

Joe can you just do me a favor, you went over the third quarter spends for Stockton, but I didn’t quite. Can you just repeat that please?

Sure, what I said was that our construction loan facility has remaining availability of approximately $74 million. During the quarter, during Q2 we contributed an additional $1.6 million in equity and that completed our required equity contribution for Stockton. During the third quarter we expect that the total cash outflow will be about $50 million to complete the construction at the Stockton plant and all of this is going to be funded under our existing senior debt facility. There is the final $24 million remaining from our debt facility will be drawn upon completion of the plant and the performance testing of the plant, and it’s essentially a return of our equity.

These are new plans. I mean it’s all within the operating budgets of the plan, so there are no major capital projects at our plans.

Okay and then one last question and I’ll get back in queue, we’ve seen the co-product correlation appear and both from co-products ethanol as well as co-product to corn, and just wondering if maybe Neal if you could give us some color on, why you think this is going on. I mean the corn moved quite rapidly and so you can see and disconcert earl this sort term, but are there local excuses going on. The requirement is doing, changing there key direction, are they doing their parching decisions a little differently and how are you going to respond to any of these changes?

Our biggest problem has been, and these are contracts that will all come up at the end of the third quarter, but we went into about a year ago, fixed price contracts before the price of corn had going up, did not had corn bought against it, a portion of that, so were you typically see the distillers grain, its kind of a natural hedge on corn prices. We’ve got into a mismatch situation that we are addressing by. We want be taking fixed price contracts that are not complicatedly headed against the corn position as we move. So that’s really a legacy problem that we are working through and then we get to the forth quart that will be a very different situation and that we would expect our co-product return to improve. There also is a natural as corn is on it so quickly and the feeders have been under a lot of pressure and have been very aggressive about looking at alternatives and there has been a fare amount of new suppliers. For distillers grain we have overall seen a relationship between the distillers grain weather it will be dry or wet relative to corn that had certainly declined with the rapidly increasing price of corn. We have the opportunity with the corn coming off so fast to see some lag on the way down and that also could be a benefit. We really see both market conditions improving the overall co-product return, as well as our specific own issue of working though this fixed prized contracts.

Okay, thanks guys I’ll get back in queue.

.: Joe Gomes – Oppenheimer: What’s a good number for use of shares outstanding going forward?

Well the diluted shares for the purpose of the our current is about 46.7 [ph] million shares I believe, that’s weighted average. When you look at on a go forward bases certainly you were to take the preferred shard and assume that they all converted to common, it would be in the 60 million range or so.

Joe Gomes – Oppenheimer: You’re saying 50 million.

If you assume all the, which want happen, so I’m not sure exactly what your trying to get to in the question, but it will increase slightly over the next few quarters but then if you want it to look at the total capitalization of the company and all of the common plus preferred as converted to common, that’s where you would get to, a but above 60. Joe Gomes – Oppenheimer: I guess the slight increase over the next few quarters.

Joe Gomes – Oppenheimer: And Neal anything new in the states you guys are operating in the legislator front interims of mandates for bio-fuel or anything new out there?

Well, still very solid support, the Oregon mandate which successfully implemented and continues to move forward and be a real success for the state both from a fuel supply and cost and economic and environmental benefits. The state of Washington is just this year, at the end of this year and as of January 1, implement a 3% requirements that has the through some announces at the state level could be increased to 10%, but we are already seeing the refiners go to 10% blend in the state of Washington, so that has been an increasing market really coincident with Oregon implementing its requirement, Southern Washington, the Vancouver area Pasco those sorts of areas converted to 10%.That was followed here a number of months ago by the Tacoma area. Most of the refiners now are blending 10% ethanol and the expectation is at this for most of Seattle. So we are seeing some pretty significant growth in the State of Washington. Probably the biggest opportunity is the great State of California where by 2010 all of the refiners to meet the new regulations will be at a 10% blend level from the current 5.7%.So that is the 700 million gallon increase in the demand for ethanol in California between now and 2010.Much as we saw that sort of an orderly transition out of MTB and ethanol, we are expecting to see the same from the 5.7% to 10%. There are some (inaudible) that will allow refiners to increased flexibility, starting almost immediately to go to a higher level blend of ethanol then the 5.7% and we know of number of our customers who are intending to move in that direction yet this year. So we expect that between now and the end of 2009, that we will see a pretty steady move to higher level blending in California. From a policy stand point in the state of California the big issue now is the implementation of the low carbon fuel standard, where ethanol is clearly providing the most significant CO2 reduction opportunity to meet the 10% CO2 requirement from transportation fuels that the state is looking for. So we expect that to you know not only back stop the 10% ethanol blending in California, but as we work with EPA and the car manufactures to move to blends above 10%. California to get additional CO2 reductions will be very eager to move beyond the 10% ethanol blend ratio, so we see significant growth over the next number of years in the state of California due to those policy initiatives. Joe Gomes – Oppenheimer: Thanks for the update Neil, appreciate it.

There are no further questions; I would now like to turn the call back over to Mr. Koehler for closing remarks.

Well thank you all, appreciate everybody interest and support for our company and I appreciate your time today and look forward to updating you on our next quarterly call. Have a good day.

Thank you for your participation at today’s conference. This concludes the presentation.