Bank of America-Merrill Lynch Power & Gas Leaders Conference September 28, 2010

Transcription

1 Bank of America-Merrill Lynch Power & Gas Leaders Conference September 28, 2010 PPL Corporation 2010

2 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 Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the Appendix to this presentation and in the Company s SEC filings. PPL Corporation

3 Investment Highlights Significant growth in rate regulated businesses Acquisition of E.ON US will significantly transform business mix Substantial Capex to support performance of existing networks in PA, KY and the United Kingdom Attractive formula rate mechanism for PA transmission tariffs at ROE of 11.68% Regulated infrastructure growth of $3 billion from 2011 to 2014 Regulated businesses operate in constructive regulatory jurisdictions Highly attractive generation fleet Competitively positioned nuclear, hydro and efficient coal Complemented by flexible dispatch gas fired units Three significant drivers of upside Increasing gas prices Increasing heat rates Carbon regulation Secure dividend with current yield of 5.2% (1) (1) Based on 9/17/2010 closing price of $26.75 PPL Corporation

4 E.ON US Transaction Timeline Regulatory Body Kentucky PSC Virginia & Tennessee Commission Milestone Settlement Agreement reached with all interveners filed with KY PSC on 9/2/10 Expected Timing 120 day statutory expiration 9/30/2010 Expected approval shortly after Kentucky DOJ/FTC Antitrust clearance granted Completed FERC Transaction Close Settlement Agreement reached with all objecting parties filed with FERC on 9/15/10 Requested FERC approval by 10/15/2010 Maximum 15 business days post final regulatory approval PPL Corporation

5 Progressive and Constructive Regulation - Kentucky Kentucky Rate Mechanisms: Environmental Cost Recovery ( ECR ) Recovery of and return on environmental investment required as a result of coal combustion reflected in bill two months after incurred Construction Work In Progress ( CWIP ) History of including CWIP in ECR and base rates Fuel Adjustment Clause ( FAC ) Variations in fuel costs and economic power purchases are reflected monthly in rates charged to electric customers two months after incurred Gas Supply Clause Adjustment ( GSC ) Cost of natural gas supply for LG&E Gas reflected in rates reset quarterly with mechanisms to balance to actual costs and provide utility performance-based incentive Demand Side Management ( DSM ) Concurrent recovery of DSM costs including lost revenue Supportive and progressive regulation combined with competitive customer rates PPL Corporation

6 UK Electricity Distribution Regulation Electricity and natural gas supply and distribution are regulated by the UK s Office of Gas and Electricity Markets. Electricity distribution revenues are set every five years through a Distribution Price Control Review (DPCR) process. Price control is based on a forward looking assessment of income sufficient to finance an efficient business. Revenues cover operating and capital costs at an efficient level for the service territory. Efficiency is determined through a detailed comparable analysis of all UK electricity distribution companies. Annual adjustments for inflation An incentive / penalty arrangement exists for reliability and customer service levels. The revenue that a company can earn in each of the five years is the sum of: The Regulator s view of efficient costs, A return on the value of Regulated Asset Value ( RAV ), and A return of capital being the depreciation of the RAV. Rate set through March 31, PPL Corporation

7 UK Return on Regulatory Equity Figure Potential equity returns (RoRE) at 4.7 per cent WACC (vanilla) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% WPD Potential equity returns (RORE) at 4.7% WACC (vanilla) 0% WPD S Wales WPD S West SSE Hydro SSE Southern CE YEDL CE NEDL CN East CN West ENW EDFE SPN EDFE EPN EDFE LPN SP Manweb SP 2% Distribution Debt (+/ 0.5%) Taxation trigger Incentives Customer satisfaction Incentives Interruptions Incentives Losses Costs Guaranteed standards Plausible range of returns OFGEM allowances PPL Corporation

8 Recent Rate Case Developments LG&E and KU rate stipulations approved by KY PSC on July 29 $189 million total rate increase ROE in range of 10.25% % PPL Electric Utilities reached a settlement with all interveners in rate case Subject to ALJ and PA PUC approval $77.5 million rate increase Settlement does not address rate design or rate allocation ALJ recommended decision expected by middle of October PA PUC final decision expected by middle of December PPL Corporation

9 Increased Scale with Continued Growth ($ in billions) 2011E 2014E CAGR: 7.1% $18 $16 $14 $14.4 $13.4 $12.7 $15.6 $12 $10 $6.7 $7.0 $7.4 $7.7 $8 $6 $4 $5.6 $5.5 $2.6 $2.6 $2.8 $2.9 $3.1 $3.3 $2 $2.9 $3.0 $3.2 $3.5 $3.9 $4.6 $0 2009A Standalone 2010E Standalone 2011E Combined 2012E Combined 2013E Combined 2014E Combined PPL Electric Utilities WPD LG&E and KU Note: Represents capitalization for E.ON US since LG&E and KU rate constructs are based on capitalization. (1) Figures based on assumed exchange rate of $1.60 / GBP. (1) PPL Corporation

10 Dividend Profile $/Share Annualized $1.50 $1.25 $1.00 $1.00 $1.10 $1.22 $1.34 $1.38 $1.40 $0.75 $0.50 $0.25 $ PPL Corporation

11 PPL Corporation

12 Market Prices Actual Forward (1) ELECTRIC PJM On-Peak Off-Peak ATC (2) Mid-Columbia On-Peak Off-Peak ATC (2) GAS (3) NYMEX TZ6NNY PJM MARKET HEAT RATE (4) CAPACITY PRICES (Per MWD) EQA 2009 Jul-Dec $44 $54 $53 $54 $31 $38 $39 $40 $38 $46 $46 $47 $36 $43 $44 $48 $29 $35 $36 $38 $33 $40 $40 $44 $3.92 $4.82 $5.34 $5.68 $4.63 $5.28 $5.93 $ $ $ $ $ % 91.5% 89.4% 90.9% (1) (2) (3) (4) Market prices based on the average of broker quotes as of 6/30/ hour average NYMEX and TZ6NNY forward gas prices on 6/30/2010 Market Heat Rate = PJM on-peak power price divided by TZ6NNY gas price PPL Corporation 2010 A-1

13 Per Share $5.00 Strong Expected Earnings Growth $4.00 $3.50 $3.00 $2.00 $2.02 $1.95 $3.10 $3.05 $2.70 $1.00 $ A 2009A Forecast (1) Forecast (2) Note: See Appendix for the reconciliation of earnings from ongoing operations to reported earnings. (1) (1) Unadjusted for share dilution (2) (2) Adjusted for share dilution PPL Corporation 2010 A-2

14 Supply Segment Asset Hedge Positions Baseload Expected Generation* (Million MWhs) East West Current Hedges (%) East West 99% 100% 98% 97% 98% 92% 61% 57% 83% Average Hedged Price (Energy Only) ($/MWh) East West $59 $60 $50 $57 $58 $54 $59 $60 $56 Expected Average Price (Fully Loaded) ($/MWh) East** West $69 $71 $50 $64 $65 $54 $64 $66 $56 % Hedged Through Swaps/Options Energy Transactions 96% 96% 61% % Hedged Through Load-following Transactions 3% 1% 0% Intermediate/Peaking Expected Generation (Million MWhs) Current Hedges (%) As of June 30, 2010 *Represents expected sales based on current business plan assumptions **Represents energy, capacity, congestion and other revenues % 5.2 0% 5.2 0% PPL Corporation 2010 A-3

15 Current Fuel Contracts - Base Prices Uranium 100% 100% 100% Coal East 100% 98% 93% West 100% 100% 92% Total 100% 98% 93% Eastern Coal Contracts (1) Hedge Level Price Hedge Level Price Hedge Level Price % Fixed Base Price 93% $49 44% $51 32% $64 % Collars 0% N/A 52% $48-$53 68% $44-$52 % Diesel Surcharge 7% $45 4% $45 0% N/A Note: As of June 30, 2010 (1) Weighted Average $/ton at mine for east wholly owned plants; excludes Keystone & Conemaugh PPL Corporation 2010 A-4

16 Capital Expenditures by Segment Millions $2,000 $1,600 $1,675 $320 $1,826 $1,796 $358 $385 $1,200 $403 $533 $567 $800 $400 $952 $935 $844 $0 2010E 2011E 2012E Supply PA Delivery International Delivery PPL Corporation 2010 A-5

17 Reconciliation of PPL s Earnings from Ongoing Operations to Reported Earnings Forecast [a] Actual High Low Earnings from Ongoing Operations per share of common stock $ 3.05 $ 2.70 $ 1.95 $ 2.02 Special Items (through June 30, 2010): Energy-related economic activity (0.27) (0.27) (0.59) 0.67 Sales of assets: Long Island generation business (0.09) Latin American businesses (0.07) Interest in Wyman Unit 4 (0.01) Gas and propane businesses (0.01) Majority of Maine hydroelectric generation business 0.06 Impairments: Impacts from emission allow ances (0.02) (0.02) (0.05) (0.07) Adjustments - NDT investments (0.04) Holtw ood hydroelectric plant (0.03) Other asset impairments (0.01) (0.01) Pending E.ON U.S. acquisition-related costs: Monetization of certain full-requirement sales contracts (0.17) (0.17) Deferred Bridge Facility financing costs (0.03) (0.03) Other pending acquisition-related costs (0.01) (0.01) Workforce reductions (0.03) (0.01) Other: Montana hydroelectric litigation (0.08) (0.08) (0.01) Health Care Reform - tax impact (0.02) (0.02) Change in tax accounting method related to repairs (0.07) Synfuel tax adjustment (0.04) Montana basin seepage litigation (0.01) Total Special Items (0.60) (0.60) (0.87) 0.45 Reported Earnings per share of common stock $ 2.45 $ 2.10 $ 1.08 $ 2.47 Note: Per share amounts are based on diluted shares outstanding. [a] 2010 forecast amounts reflect the dilution associated w ith the June 2010 offering of common stock. PPL Corporation 2010 A-6

18 Forward-Looking Information Statement Statements contained in this press release, including statements with respect to future events and their timing, including statements concerning the acquisition by PPL Corporation of E.ON U.S. LLC and its subsidiaries Louisville Gas and Electric Company and Kentucky Utilities Company (collectively, the E.ON Entities ), the expected results of operations of any of the E.ON Entities or PPL Corporation both before or following PPL Corporation s acquisition of the E.ON Entities, as well as statements as to future earnings, energy prices, margins and sales, growth, revenues, expenses, cash flow, credit profile, ratings, financing, asset disposition, marketing performance, hedging, regulation, corporate strategy and generating capacity and performance, are forward-looking statements within the meaning of the federal securities laws. Although PPL Corporation believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, these expectations, assumptions and statements are subject to a number of risks and uncertainties, and actual results may differ materially from the results discussed in the statements. The following are among the important factors that could cause actual results to differ materially from the forward-looking statements: capital market conditions and decisions regarding capital structure; the market prices of equity securities and the impact on pension income and resultant cash funding requirements for defined benefit pension plans; the securities and credit ratings of PPL Corporation and its subsidiaries; stock price performance; receipt of necessary government permits, approvals, rate relief and regulatory cost recovery; market demand and prices for energy, capacity and fuel; weather conditions affecting customer energy usage and operating costs; competition in power markets; the effect of any business or industry restructuring; the profitability and liquidity of PPL Corporation, the E.ON Entities and either of their subsidiaries; new accounting requirements or new interpretations or applications of existing requirements; operating performance of plants and other facilities; environmental conditions and requirements and the related costs of compliance, including environmental capital expenditures and emission allowance and other expenses; system conditions and operating costs; development of new projects, markets and technologies; performance of new ventures; asset acquisitions and dispositions; any impact of hurricanes or other severe weather on our business, including any impact on fuel prices; the impact of state, federal or foreign investigations applicable to PPL Corporation, the E.ON Entities and either of their subsidiaries; the outcome of litigation against PPL Corporation, the E.ON Entities and either of their subsidiaries; political, regulatory or economic conditions in states, regions or countries where PPL Corporation, the E.ON Entities and either of their subsidiaries conduct business, including any potential effects of threatened or actual terrorism or war or other hostilities; foreign exchange rates; new state, federal or foreign legislation, including new tax or environmental legislation or regulation; and the commitments and liabilities of PPL Corporation, the E.ON Entities and each of their subsidiaries. Any such forward-looking statements should be considered in light of such important factors and in conjunction with PPL Corporation s Form 10-K and other reports on file with the Securities and Exchange Commission. PPL Corporation 2010 A-7

19 Definitions of Non-GAAP Financial Measures Earnings from ongoing operations should not be considered as an alternative to reported earnings, or net income attributable to PPL, which is an indicator of operating performance determined in accordance with generally accepted accounting principles (GAAP). PPL believes that earnings from ongoing operations, although a non-gaap financial measure, is also useful and meaningful to investors because it provides them with management s view of PPL s fundamental earnings performance as another criterion in making their investment decisions. PPL s management also uses earnings from ongoing operations in measuring certain corporate performance goals. Other companies may use different measures to present financial performance. Earnings from ongoing operations is adjusted for the impact of special items. Special items include: Energy-related economic activity (as discussed below). Foreign currency-related economic hedges. Gains and losses on sales of assets not in the ordinary course of business. Impairment charges (including impairments of securities in the company s nuclear decommissioning trust funds). Workforce reduction and other restructuring impacts. Costs related to the pending E.ON U.S. acquisition, including gains or losses associated with the sale of certain fullrequirement sales contracts in support of raising cash for the acquisition. Other charges or credits that are, in management s view, not reflective of the company s ongoing operations. Energy-related economic activity includes the changes in fair value of positions used to economically hedge a portion of the economic value of PPL s generation assets, load-following and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power). Also included in this special item is the ineffective portion of qualifying cash flow hedges and the premium amortization associated with options classified as economic activity. These items are included in ongoing earnings over the delivery period of the item that was hedged or upon realization. Management believes that adjusting for such amounts provides a better matching of earnings from ongoing operations to the actual amounts settled for PPL s underlying hedged assets. Please refer to the Notes to the Consolidated Financial Statements and MD&A in PPL Corporation s periodic filings with the Securities and Exchange Commission for additional information on energy-related economic activity. Free cash flow before dividends is derived by deducting capital expenditures and other investing activities-net, from cash flow from operations. Free cash flow before dividends should not be considered as an alternative to cash flow from operations, which is determined in accordance with GAAP. PPL believes that free cash flow before dividends, although a non-gaap measure, is an important measure to both management and investors since it is an indicator of the company s ability to sustain operations and growth without additional outside financing beyond the requirement to fund maturing debt obligations. Other companies may calculate free cash flow before dividends in a different manner. PPL Corporation 2010 A-8

20 Definitions of Non-GAAP Financial Measures (continued) "Domestic Gross Energy Margins" and "Domestic Gross Delivery Margins" are not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. "Domestic Gross Energy Margins" is a single financial performance measure of PPL's domestic energy non-trading and trading activities. In calculating this measure, the Supply segment's energy revenues are offset by the cost of fuel and energy purchases, and adjusted for other related items. This performance measure excludes utility revenues and includes PLR revenues from energy sales to PPL Electric by PPL EnergyPlus. In addition, PPL excludes from "Domestic Gross Energy Margins" energy-related economic activity, which includes the changes in fair value of positions used to economically hedge a portion of the economic value of PPL's generation assets, fullrequirement and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power) prior to the delivery period that was hedged. Also included in this energy-related economic activity is the ineffective portion of qualifying cash flow hedges, losses on the monetization of certain full-requirement sales contracts and premium amortization associated with options. This economic activity is deferred, with the exception of the full-requirement sales contracts monetized, and included in domestic gross energy margins earnings over the delivery period that was hedged or upon realization. PPL believes that "Domestic Gross Energy Margins" provides another criterion to make investment decisions. This performance measure is used, in conjunction with other information, internally by senior management and the Board of Directors to manage its domestic energy non-trading and trading activities. PPL's management also uses "Domestic Gross Energy Margins" in measuring certain corporate performance goals used in determining variable compensation. Other companies may use different measures to present the results of their energy non-trading and trading activities. "Domestic Gross Delivery Margins" is a single financial performance measure of PPL's domestic regulated electric delivery operations, which includes transmission and distribution activities, including PLR supply. In calculating this measure, domestic regulated utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset. These mechanisms allow for full cost recovery of certain expenses; therefore certain expenses and revenues offset with minimal impact on earnings. As a result, this measure represents the net revenues from PPL's domestic regulated electric delivery operations. This performance measure is used, in conjunction with other information, internally by senior management and the Board of Directors to manage its domestic regulated electric delivery operations. PPL believes that "Domestic Gross Delivery Margins" provides another criterion to make investment decisions. Other companies may use different measures to present the results of their regulated electric delivery operations. PPL Corporation 2010 A-9