Slide 1: Fourth Quarter Earnings Call January 31, 2008
Fourth Quarter Earnings Call January 31, 2008
Slide 2: Cautionary Statements And Factors That May Affect Future Results
Cautionary Statements And Factors That May Affect Future Results Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Actual results may
Slide 3: Agenda
Agenda • 2007 Earnings and Review of 2010 Earnings Forecast and Outlook • Fourth Quarter and Year-End Segment Results and Financial Overview • Operational Review • Q&A J. H. Miller P. A. Farr W. H. Spence 2
Slide 4: Strong Fourth Quarter Results
Strong Fourth Quarter Results Earnings from Ongoing Operations Per share $0.46 $0.60 $0.00 $0.50 $1.00 4Q 2006 4Q 2007 3 Note: See Appendix for the reconciliation of reported earnings and earnings from ongoing operations. Per share $0.46 $1.17 $0.00 $0.50 $1.00 $1.50 4Q 2006 4Q 2007 Reported Earning
Slide 5: Outstanding 2007 Results
Outstanding 2007 Results Earnings from Ongoing Operations Per share $2.25 $2.60 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 2006 2007 4 Note: See Appendix for the reconciliation of reported earnings and earnings from ongoing operations. Per share $2.24 $3.40 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $
Slide 6: Strong Long-Term Earnings Growth Forecast
$2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 2007A* 2008 2010 Strong Long-Term Earnings Growth Forecast 5 *Earnings from ongoing operations – See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. $2.60 $2.35 $2.45 $4.00 $4.60 Per Share
Slide 7: Ongoing Earnings Overview
Ongoing Earnings Overview $0.14$0.46$0.60Total 0.090.130.22International Delivery 0.020.070.09Pennsylvania Delivery $ 0.03$0.26$0.29Supply Change Q4 2006 Q4 2007 6 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. $0.35$2.25$2.60Total 0.09
Slide 8: Supply Segment Earnings Drivers
Supply Segment Earnings Drivers (0.05)O&M 0.06Synfuel 0.01Income taxes and other $1.422007 EPS – Ongoing Earnings 0.24Total 0.02Margins – West $0.20Margins – East $1.182006 EPS – Ongoing Earnings 2007 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing
Slide 9: Pennsylvania Delivery Segment Earnings Drivers
Pennsylvania Delivery Segment Earnings Drivers 0.02Discontinued Operations $0.402007 EPS – Ongoing Earnings 0.02Total (0.03)Income Taxes & Other (0.01)O&M $0.04Delivery Margins $0.382006 EPS – Ongoing Earnings 2007 8 Note: See Appendix for the per share reconciliation of reported earnings and earnin
Slide 10: International Delivery Segment Earnings Drivers
International Delivery Segment Earnings Drivers 0.02Depreciation (0.01)Latin American Operations 0.06Foreign currency translation $0.782007 EPS – Ongoing Earnings 0.09Total 0.03Income Taxes & Other (0.04)O&M 0.03Delivery Margins $0.692006 EPS – Ongoing Earnings 2007 9 Note: See Appendix for the per
Slide 11: 2007 Ongoing Earnings Contributions
2007 Ongoing Earnings Contributions 10 Note: See Appendix for the reconciliation of reported earnings and earnings from ongoing operations. $2.00 $2.25 $2.50 $2.75 $3.00 2006A 2007A $2.25 Energy Margins $0.22 U.K. Liquidations ($0.07) O&M ($0.10) Int’l Tax Benefit $0.08 $2.60 Foreign Currency Transl
Slide 12: 2008 Earnings Forecast
$2.00 $2.25 $2.50 $2.75 2006A* 2007A* 2008E 2008 Earnings Forecast 11 *Earnings from ongoing operations – See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. $2.25 $2.60 $2.35 $2.45 Per Share
Slide 13: Expected 2008 Earnings Contributions
Expected 2008 Earnings Contributions 12 * Earnings from ongoing operations – See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. **Midpoint of forecast $2.00 $2.25 $2.50 $2.75 2007A* $2.60 Energy Margins $0.06 Net Impact of Asset Divestiture ($0.0
Slide 14: Expected 2010 Earnings Contributions
Expected 2010 Earnings Contributions 13 *Midpoint of forecast $2.00 $3.00 $4.00 $5.00 2008E 2010E $2.40* Increased Energy Margins $2.28 $4.30* Increased O&M $(0.15) Increased Interest $(0.10) Increased Depreciation $(0.07) Other $(0.06) Per Share
Slide 15: Cash Flow Forecast
Cash Flow Forecast Millions ($200) $0 $200 $400 $600 $800 $1,000 2006A 2007A 2008E 2009E 2010E Free cash flow before dividends 14 Note: See Appendix for the reconciliation of cash flow measures.
Slide 16: Operational Update
Operational Update • PUC approved distribution rate increase effective January 1, 2008 • Bids for third PPL Electric Utilities solicitation for 2010 POLR supply due March 24, 2008; PUC approval expected March 27, 2008 • Scrubbers expected to be completed on schedule and on budget 15
Slide 17: Operational Update (cont.)
Operational Update (cont.) • Generation uprates continue to progress • Selected UniStar Nuclear Energy to prepare COLA application based on AREVA reactor design • 2010/2011 RPM auction results due February 1, 2008 • Asset expansion plan 16
Slide 18: Scrubbers Expected to be Completed on Budget and on Schedule
Scrubbers Expected to be Completed on Budget and on Schedule 17 Q2-09Brunner Island 1 & 2 Q4-08Brunner Island 3 Q2-08Montour 1 Q1-08Montour 2 Scheduled In-Service Dates December, 2006 December, 2007 Montour Scrubber Construction
Slide 19: Growing Constrained Region in PJM Increases Value of PPL Generation
Growing Constrained Region in PJM Increases Value of PPL Generation Source: PJM web site. 18
Slide 20: Expected Changes in Margins 2007 to 2008
Expected Changes in Margins -2007 to 2008 *Includes power price and spark spread changes as well as value from portfolio management. 1700 1800 1900 2000 2007A 2008E $/Million $1,824 $1,866 Improved Power Value* $95 Higher Nuclear Generation $26 Higher Coal Generation $18 Higher Hydro Generation $9 H
Slide 21: Key Driver of Fleet Value: Open EBITDA
Key Driver of Fleet Value: Open EBITDA 20 2010E Generation Output -millions of MWh 56.2 Unhedged Gross Margin -millions * 3,712 $ O&M -millions (814) $ Open EBITDA -millions 2,898$ Market value of Hedges -millions * (254) $ * Based on forward market prices as of December 31, 2007
Slide 22: 2010 Margin Sensitivities
2010 Margin Sensitivities • PJM electricity price change of $1/MWh = ±$19M (Based on average ATC price of $64/MWh) • PJM capacity price change of $1/MWD = ±$1.7M (Based on PJM capacity price of $191/MWD) • Baseload generation availability change of 1% = ±$20M (Based on an EQA of 91%) 21
Slide 23: PPL
PPL
Slide 24: Market Prices
Market Prices EAST PJM On-Peak Off-Peak ATC (3) WEST Mid-Columbia On-Peak Off-Peak ATC (3) GAS (4) NYMEX TZ6NNY PJM MARKET HEAT RATE (5) Actual Forward (1) At 10/2007(2) 2007 2008 2009 2010 2010 9.4 $7.78 $6.86 $51 $45 $57 $57 $43 $73 8.8 $9.04 $8.08 $60 $53 $67 $64 $51 $79 8.98.88.9 $9.56$9.52$8.82
Slide 25: Current Hedge Positions - Electricity and Fuel
Current Hedge Positions -Electricity and Fuel A-2 2008 2009 2010 Electricity Sales East 96% 94% 61% West 100% 80% 64% Total 96% 92% 62% Coal East 94% 76% 70% West 100% 100% 100% Total 95% 82% 78%
Slide 26: PPL Supply Business Overview
PPL Supply Business Overview 2008E Production GWh A-3 Gas/Oil 33% Coal 37% Nuclear 19% Hydro8% QFs 3% 2008E Installed Capacity MW Gas/ Oil 8% Coal 54% Nuclear 31% Hydro 7%
Slide 27: Proactive Coal Supply Management Supports Growth in Margins
Proactive Coal Supply Management Supports Growth in Margins Projected 2008 Coal Supply • Supply region diversity • Fleet trains (1600 cars) • Average delivered costs – 4% to 5% annual increase from 2007 to 2010 A-4 Central PA 20% PRB 6% Montana Mine-mouth 20% Central Appalachia 13% Southwest PA 41%
Slide 28: Key Drivers/Challenges Through 2010 and Beyond
Key Drivers/Challenges Through 2010 and Beyond • Increased prices for POLR sales • Expiration of supply contracts remarketed at current forward prices • Power plant uprates and planned levels of equivalent availability of generation • Net economic benefits from the installation of scrubbers at the M
Slide 29: RPM Auction Continues to Provide Robust Prices
$188.54 $111.92 $111.92 $148.80 $210.11 $40.80 $40.80 $197.67 $191.32 $191.32 $102.04 $0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 $160.00 $180.00 $200.00 $220.00 $240.00 $260.00 Rest of Pool MAAC/APS Eastern MAAC Southwest MAAC April 2007 Auction Results - 07/08 Planning Year July 2007
Slide 30: Load-following Components Example
0 20 40 60 80 100 120 2009 2009 2010 $/MWh Shaped Energy & Capacity Including Congestion Other Adders Line Losses GRT Load-following Components Example A-7 Total $105 $82.00* $45.47 Total $51.23 * Shaped price based on $63/MWh ATC energy price, $150/MW-Day capacity price, and congestion. $48.29 Tota
Slide 31: Expected 2008 to 2010 Margin Walk
Expected 2008 to 2010 Margin Walk A-8 1700 2100 2500 2900 3300 3700 2008E 2010E $1,866 $3,307 Improved Power Value* $969 Higher Capacity Value $540 Higher Nuclear Generation $61 Higher Fuel Costs ($80) Increased Environmental Costs ($49) *Includes power prices and spark spread changes as well as val
Slide 32: Shrinking Reserve Margins Create Potential Value for PPL
Shrinking Reserve Margins Create Potential Value for PPL 5% 10% 15% 20% 2007 2008 2009 2010 PJM Mid-Atlantic Expected Reserve Margin PJM Required 15% Reserve Margin A-9
Slide 33: PPL's Generation Portfolio
PPL’s Generation Portfolio Total Domestic Generation: 11,279 MW Planned Uprate Projects: 328 MW *Reflects reduction of 60 MW expected loss due to increased plant usage during scrubber operation. A-10 Coal 3,468* Nuclear 2,117 Oil 1,715 Gas 1,548 Hydro 337 CTs 446 QFs 347 East 9,978 MW* Nuclear Uprat
Slide 34: Continued Dividend Growth
$0.82 $0.92 $1.00 $1.10 $1.22 $0.00 $0.25 $0.50 $0.75 $1.00 $1.25 2004 April 2005 October 2005 April 2006 April 2007 $/share Annualized Continued Dividend Growth A-11
Slide 35: PPL Electric Utilities Phase-in Plan Proposal
PPL Electric Utilities Phase-in Plan Proposal A-12 54-Month Phase-In Plan Average Residential Customer - 1,000 kWh per month $1,000.00 $1,100.00 $1,200.00 $1,300.00 $1,400.00 $1,500.00 $1,600.00 $1,700.00 $1,800.00 1/1/2008 7/1/2008 2009 2010 2011 2012 Annualized Electric Cost ~6% ~7% ~7% ~6% ~6%
Slide 36: Reconciliation of Cash from Operations to Free Cash Flow before Dividends
Reconciliation of Cash from Operations to Free Cash Flow before Dividends (Millions of Dollars) A-13 $994$154($100)$513$167Free Cash Flow before Dividends (15)101493785Other Investing Activities-net (1,490)(1,456)(1,609)(1,685)(1,394)Capital Expenditures --(310)(310)(282)Transition Bond Repayment In
Slide 37: Capital Expenditures by Segment
Millions $1,043 $1,030 $824 $750 $692 $514 $302 $281 $305 $404 $521 $511 $340 $298 $327 $336 $343 $351 $0 $400 $800 $1,200 $1,600 $2,000 2007A 2008E 2009E 2010E 2011E 2012E Supply PA Delivery International Delivery $1,685 $1,556 $1,376 $1,490$1,456 $1,609 Capital Expenditures by Segment A-14
Slide 38: Reconciliation of Fourth Quarter Reported Earnings and Earnings from Ongoing Operations
Pennsylvania International Supply Delivery Delivery Total Qtr. Ending December 31, 2007 Reported earnings $116 $34 $289 $439 Special Items: MTM adj's from energy-related, nontrading economic hedges 12 12 Divestiture of Latin American businesses 211 211 Impairment of certain transmission rights (1) (
Slide 39: Reconciliation of Fourth Quarter Reported Earnings and Earnings from Ongoing Operations (per share)
Pennsylvania International Supply Delivery Delivery Total Qtr. Ending December 31, 2007 Reported earnings $0.31 $0.09 $0.77 $1.17 Special Items: MTM adj's from energy-related, nontrading economic hedges 0.03 0.03 Divestiture of Latin American businesses 0.56 0.56 Workforce reductions (0.01) (0.01) (
Slide 40: Reconciliation of Year-to-Date Reported Earnings and Earnings from Ongoing Operations
Reconciliation of Year-to-Date Reported Earnings and Earnings from Ongoing Operations A-17 (Millions of Dollars) Pennsylvania International Supply Delivery Delivery Total Year-to-Date December 31, 2007 Reported earnings $570 $131 $608 $1,309 Special Items: MTM adj's from energy-related, nontrading e
Slide 41: Reconciliation of Year-to-Date Reported Earnings and Earnings from Ongoing Operations
Reconciliation of Year-to-Date Reported Earnings and Earnings from Ongoing Operations A-18 Pennsylvania International Supply Delivery Delivery Total Year-to-Date December 31, 2007 Reported earnings $1.48 $0.34 $1.58 $3.40 Special Items: MTM adj's from energy-related, nontrading economic hedges 0.08
Slide 42: Reconciliation of PPL's Reported Earnings and Earnings from Ongoing Operations
Reconciliation of PPL’s Reported Earnings and Earnings from Ongoing Operations Actual High Low 2008 2008 2007 2006 2005 Per Share Earnings from Ongoing Operations $2.45 $2.35 $2.60 $2.25 $2.08 Special items (net of taxes): economic hedges 0.08 (0.03) Write-off of Hurricane Isabel regulatory assets (
Slide 43: Credit Ratings
Credit Ratings A-20 BBB Issuer Rating AAAAaa Tax-Exempt Bonds* STABLE STABLE STABLE Outlook AAA3Senior Secured Debt F-2A-2P-2Commercial Paper BBB+ BBBBaa3Preferred Stock BBBABaa1Issuer Rating AAA3First Mortgage Bonds AAAAaa Tax-Exempt Bonds** BBBBBBBaa3Preference Stock PPL Electric Utilities BBBBBBB
Slide 44: Credit Ratings (cont.)
Credit Ratings (cont.) A-21 A-3Commercial Paper ABBB+ Baa1Senior Unsecured Debt F2A-2P-2Commercial Paper STABLE STABLE STABLE Outlook BBB+ BBB+ Baa1Issuer Rating ABBB+ Baa1Senior Unsecured Debt F2A-2Commercial Paper STABLE STABLE STABLE Outlook Western Power Distribution (South West) PLC BBB+ BBB+ I
Slide 45: Forward-Looking Information Statement
Forward-Looking Information Statement Statements contained in this news release, including statements with respect to future earnings, energy prices, margins, sales and supply, marketing performance, growth, revenues, expenses, rates, regulation, cash flows, credit profile, financing, dividends, bus
Slide 46: Definitions of Financial Measures
Definitions of Financial Measures A-23 “Earnings from ongoing operations” excludes the impact of special items. Special items include charges, credits or gains that are unusual or non-recurring and the mark-to-market impact of energy-related, non-trading economic hedges. The mark-to-market impact of