Good day ladies and gentlemen and welcome to the Pacific Ethanol Incorporated third quarter 2008 earnings conference call. My name is Michelle and I will be your coordinator today. At this time all participants are in listen only mode. We will be facilitating a question and answer period toward the end of today’s conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would now like to turn the call over to your host or today, Mr. Gregory Pettit with Hill & Knowlton.

Welcome to the Pacific Ethanol third quarter conference call. Before we get started this morning, I would like to point out that there are slides to accompany this call available for downloading from the company’s homepage which is www.pacificethanol.net. Also, this call will be available for replay both telephonically and audio webcast replay within two hours of the conclusion of this call. Replays will be available for the next 15 days. For some Safe Harbor language with the exception of historical information, the manners discussed on this call are forward-looking statements that involve a number of risks and uncertainties. The actual future results of Pacific Ethanol could differ from those statements. Factors that can cause or contribute such differences include but are not limited to the ability of Pacific Ethanol to obtain additional debt of equity financing including additional working capital financing or failing new sources of financing, the ability of Pacific Ethanol to reschedule or restructure its indebtedness, the ability of Pacific Ethanol to successfully capitalize on its internal growth initiative, the ability of Pacific Ethanol to operate its plants at their planned production capacities, the price of ethanol relative to the price of corn and other inputs and the price of ethanol relative to the price of gasoline and the factors contained in the risk factors section of Pacific Ethanol’s Form 10K filed with the Securities & Exchange Commission on March 27, 2008 and the risk factors section of Pacific Ethanol’s Form 10Q for the quarterly period ending September 30, 2008 to be filed with the Securities & Exchange Commission. Now I would like to turn the call over to the President and CEO, Neil Koehler.

Welcome everyone to Pacific Ethanol’s investor call to discuss our financial results for the third quarter and year-to-date period ending September 20, 2008. I am joined today by Joe Hansen, our Chief Financial Officer. I will make a few opening remarks followed by Joe walking us through the numbers. After closing comments on the market environment, Joe and I will be available for Q&A. For the third quarter we achieved net sales of $184 Million dollars. An increase of 56% compared to $118.1 Million dollars in the third quarter of 2007. In the third quarter of 2008 we sold 65 million gallons a 30% increase compared to the 50 million gallons in the third quarter of 2007. We recorded a net loss available to common shareholders of $55.7 Million or $0.98 per share. This amount includes a non cash impairment charge of $26.6 million associated with suspension of our Imperial Valley project. Our operating results were negatively impacted by high corn prices coupled with rapidly falling ethanol prices that resulted in negative gross margins in our business. We also incurred expenses related to the startup of our Stockton, California facility in the quarter. While we made the considered and we believe prudent decision not to take forward hedge positions in corn during the quarter, we were consistently grinding higher priced corn into both falling corn and ethanol commodity markets. Since we bring corn into our facilities in unit trains from the Midwest, we have up to a month’s volume of corn purchased either at or in transit to our plants. Conversely, we hold relatively minimal ethanol inventories since our ethanol is sold primarily in local markets around our plants. In a market like today where corn and ethanol prices are correlated this further compresses margins in a falling corn market…

Slide 2 has a list of the items we will cover. On slide 3 we summarized the income statement. Our net sales increased to $184 million in Q3 2008 from $118.1 million in Q3 2007, a 56% year-over-year increase. Year-to-date our net sales increased to $543.5 million from $331.1 million in the first nine months of 2007 or an increase of 64%. Going to slide 4. We show our net sales in gallons sold. We sold 65 million gallons of ethanol in Q3 2008, up 30% from 50 million gallons in Q3 2007 but down 3% over the prior quarter. For the first nine months of the year we sold 191 million gallons of ethanol, up 44% from 132.8 million gallons in the first nine months of 2007. Our third party purchases and marketing activity represented 49% of our gallons sold in the third quarter and 54% of our gallons sold on a year-to-date basis. Going forward we expect that our marketing volume will continue to represent a significant portion of our total ethanol sales. Going to slide 5. We recorded a gross loss of $20.3 million in the third quarter of 2008 compared to a gross profit of $4.8 million in the third quarter of 2007. In the third quarter we experienced negative crush margins at our production facilities, noncash charges including an inventory valuation adjustment and a relatively low co-product return. Our gross loss includes a lower of cost to market inventory valuation adjustment of $5.6 million reflecting a markdown in the value of our ending ethanol and corn inventories as commodity prices continued to fall at the end of the quarter. In addition, our gross loss also includes a $1.7 million adjustment related to derivative positions and a $6.9 million of depreciation expense. Our commodity derivative loss…

The market environment in the ethanol business continues to be very challenging. While demand continues to grow, ethanol supply has increased approximately 50% year-over-year. While the physical market is actually reasonably well balanced with total US inventory holding constant at around 22 days, the supply has grown faster than minimum levels of lending required by the Renewable Fuels Standard which has resulted in pricing power favoring the buyers. In 2009 we believe there will be a shift in this dynamic as 1.5 billion gallons of new minimum demand will be required and new capacity coming on line will be 1 billion gallons or less. With the strains on ethanol margins resulting in some existing capacity currently being off line and new capacity in the industry being delayed, we expect supply/demand balances to tighten considerably over the next 12 months. We will certainly need new capacity to be built to meet the Renewable Fuels requirements in 2011 if not before. Margins will have to improve to not only provide a better business environment for existing capacity to operate but also to attract investment in needed new production. The new Obama Administration we believe will continue to support the rapid growth of the bio-fuels industry. In fact, in its campaign platform President-Elect Obama called for an increase of the Renewable Fuels Standard to 60 billion gallons by 2030 from the 36 billion gallons currently required by 2022. Combining continued policy support for the rapid growth of the ethanol industry with the significant value that ethanol delivers to the transportation fuel supply should result in a much healthier ethanol industry as we move through 2009. Low carbon fuel standards will be the next wave of policy support interaction for the growth of our industry. California is pioneering this effort and will be finalizing…

(Operator Instructions) Our first question comes from Joseph Gomes - Oppenheimer & Co. Joseph Gomes - Oppenheimer & Co.: I was wondering if you guys might be able to give me the amount of DDG sales in the quarter and what your average price was?

We don’t actually break those out but you can certainly back into it if you look at our co-product return. From a modeling standpoint you can probably work with the co-product return number based upon our corn; a pretty typical amount of distillers grain versus the corn used. Joseph Gomes - Oppenheimer & Co.: I’ll also ask my typical question on the [Pursuit Dynamics]. Anything new going on there?

We’re still working very diligently with Pursuit Dynamics. The status there we believe that it is going to result in meaningful yield improvements. Some of the operating issues that we ran into when we were putting it into commercial operations required us to work with Pursuit Dynamics to really reconfigure and expand the equipment so that we can have the units more integrated and be able to clean it off line while we continue to operate. So it’s essentially putting in an additional unit that is currently being constructed. We hope by the end of the year or early next to have that new equipment installed and continue with the testing regime. Joseph Gomes - Oppenheimer & Co.: On the liquidity issue if I was doing some quick back-of-the-envelope calculations correctly, with the final drawdown on the debt facility it sounded like in October you had roughly $36 million worth of cash left over for use of working capital purposes. Is that somewhat in the ballpark?

We don’t give forward guidance on exactly where we were but you can see from the end of the quarter that the cash on the balance sheet was a bit over $30 million and it was actually roughly the same as it had been the prior quarter and subsequent to that we did get the additional return of the equity that Joe talked about. Joseph Gomes - Oppenheimer & Co.: On the SG&A I know you mentioned it would be going down on a per gallon basis and on a percentage of revenue basis, but on an actual dollar basis it has been coming down. Is this level today or in the third quarter a good level to be modeling or do you still think there’s more to ring out in that?

There’s probably a little bit more to ring out in that. The SG&A was impacted by our Stockton facility, bringing it on line and also we’ve got a number of initiatives currently in place to reduce SG&A. So I think you’re going to see a reduced SG&A number in the future but I really can’t comment on what that number would be.

Our next question comes from Analyst for Jinming Liu - Ardour Capital.

In terms of your marketing business you talk about it as being a more increased percentage of your total ethanol sales. Can you shed some light on that? Do you anticipate buying more ethanol in the fourth quarter or how are you finding the market in terms of getting hold of it and reselling it?

It currently represents about 50%. Actually that proportion was down slightly from the prior quarter so we’re very responsive to market dynamics and opportunities. We are seeing good growth in the demand for ethanol in our market, specifically as California moves from a 5.7% to a 10% blend over the next 12 months. We will certainly evaluate opportunities to grow our marketing business along with our production.

Prices have continued to sort of pull back in fourth quarter. Is it fair to assume that we could see some more inventory write-downs in the coming quarter?

We don’t want to comment on the future quarters but it’s solely going to be dependent on where the commodity markets go. It’s highly uncertain and you’re just going to have to watch the commodity markets.

It all depends on your assumption on where ethanol prices will be at the end of December, and that’s awfully hard to call given the current volatility of all commodity markets.

Our next question comes from Pavel Molchanov - Raymond James & Associates. Pavel Molchanov - Raymond James & Associates: On your liquidity do you still have a $30 million loan payment that’s due in the first half of ’09?

Yes, that is true. Our strategic partner Lyles and we are talking with Lyles currently and have been talking with them throughout both the third quarter and like I indicated currently about possible restructuring. Pavel Molchanov - Raymond James & Associates: If you do need to make the prepayment, can you talk about some of the options for raising that cash?

That would be conjecture on our part at this point but obviously it would depend upon where margins were and what kind of cash was being generated by operations, and we obviously have options and access to debt and equity markets as well. Pavel Molchanov - Raymond James & Associates: In the third quarter it seems like third party sales kind of dropped off a little bit. Can you tell us what you’re seeing in terms of production from some of the smaller private producers?

It’s probably inappropriate for us to comment on partners that we work with but certainly you’ve seen general industry reports on how some production has come off line and some has been reduced. So certainly we’re seeing that across the industry. Our own reduction on third party sales was also a function of not only our own production increasing but really our taking a fairly disciplined approach to the market. We were walking away from business that we thought was inappropriately priced. It’s part of what we’re able to do with the marketing and the production business is that we can calibrate our sales and how much we buy versus how much we produce depending upon our view of the market. Pavel Molchanov - Raymond James & Associates: I know you haven’t historically given marketing margins but have you seen any noticeable change in marketing margins let’s say in the last two or three months?

No. So many of our deals we take a pretty low risk view and we have marketing agreements that are based upon a fixed margin so typically they don’t change all that much. Certainly and you can see it from our inventory write-down, when you are purchasing product and selling into a falling market we do end up taking a hit on inventory as the market goes down and conversely pick that up when the markets go up.

Our next question comes from Ian Horowitz - Soleil Securities.

Joe, I think you made a comment on the distillers grain side that you had a high ratio of fixed price contracts for the third quarter. Have those anniversaried or sunsetted or are we to expect another fourth quarter with a significant volume still remaining under these fixed contracts?

We normally don’t comment on what’s going to happen in the fourth quarter but traditionally these fixed price contracts are renewed, they’re called [caught] contracts, in the late third quarter or early fourth quarter. I really don’t want to comment on what we’re going to be doing in 2009. Maybe I’ll just leave my comments on that unless Neil’s got something further to add.

The only thing I would add is that Joe’s correct and there’s still some of that contracting we’ve done. Obviously it’s reset at different values of corn but just as we’ve been fairly close in on our going out and taking forward positions on corn and ethanol, we’ve tended to try to match up our distillers grain sales as well. We also are seeing a response on the part of the feeders. The dairies and the feedlots are taking a similar view. So there’s less long-term contracting that’s going on in that business as well. It’s more weighted to contracts that are shorter term and often indexed to corn prices.

Joe, can you just run down the noncash charges for the quarter again? You have an inventory adjustment of $5.6, a net derivative loss of $1.7, and I understand the Imperial one as well. Were there any others that I missed?

There would be $0.7 million of noncash compensation.

Do you remember what the depreciation was? Had we provided that?

$7 million. $6.9 million depreciation and there was also [gap] reserve of about $300,000. I think that would catch all of it.

And then you’ve got the $26.6 million impairment.

Our next question comes from Joseph Gomes - Oppenheimer & Co. Joseph Gomes - Oppenheimer & Co.: Just following up on what Ian said. On the co-products do you guys think you can get back to that mid-20 co-product return level?

It is our effort to increase the value of all the products we sell so it is our effort to move than number up. Without offering guidance on that we do see some indications in the market that we’re going to be able to improve some value.

That does conclude the question and answer session. I’ll now turn it back to management for closing remarks.

Thank you all for participating on the call. We appreciate your interest and support and look forward to speaking to you next quarter.

Ladies and Gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.