Thank you. I’m pleased to be here to talk with you about PPL. I’m sure many of you know us as the local power company. We are that, of course, but we’re much more. Since the deregulation of Pennsylvania’s electricity industry, we’ve expanded into a global company with a portfolio of strong businesses in the U.S. and abroad. In fact, we’ve recently made some major acquisitions that have transformed and dramatically improved our business mix. Over the next few minutes, I’ll share some more information about PPL’s solid business base, our strong growth opportunities, and the positive impacts that will have here in Pennsylvania.
This slide gives you some idea of how dramatically PPL’s business has changed since Pennsylvania deregulated its electricity industry in the mid-1990s. In 1994, the year prior to deregulation, we owned 7,800 megawatts of generating capacity, which was strictly used to produce power for our 1.4 million customers in eastern and central Pennsylvania. We had about $2.7 billion in revenue and 7,400 employees – again, essentially all in eastern and central Pennsylvania. Following our acquisition of the WPD Midlands business in the U.K., we serve more than 10 million energy customers in Pennsylvania, Kentucky, Virginia, England and Wales. That deal closed in April 2011. We own more than 19,000 megawatts of generating capacity in Pennsylvania, Montana and Kentucky. And our annual revenue is expected to increase to about $11 billion.
We may be a global company, but we haven’t lost sight of the local roots on which our success is based. We’re still dedicated to strong customer service for our PPL Electric Utilities customers in Pennsylvania, and continue to place highly in independent surveys of customer satisfaction. We’re making a major investment in our Pennsylvania delivery networks to ensure reliability. I’ll talk more about that in a few minutes. We continue to be a strong supporter of our communities. Both PPL as a company and our individual employees give generously of their time and money to community agencies like the United Way and economic development groups. As always, we’re a source of good-paying jobs that support Pennsylvania people; tax revenues that support Pennsylvania communities; and a reliable dividend that benefits shareowners wherever they may live. And finally, we’re the only major energy company with headquarters here in Pennsylvania – in Allentown, where they’ve been since PPL’s founding in 1920. So we still have deep roots and a deep connection to Pennsylvania, even as our business has expanded beyond the state.
One way to look at PPL’s operations is to split them into “regulated” and “unregulated.” All our companies are subject to some degree of government oversight, but some – the “regulated” businesses – are overseen more strictly than others – which we call “unregulated.” Here’s a quick look at our unregulated businesses. In Pennsylvania, our electricity transmission business is regulated by the Federal Energy Regulatory Commission, and our distribution business is regulated by the state Public Utility Commission. So, essentially, our “poles and wires” business is regulated. When we want to invest in that business, we need to obtain approvals from the state to add that money to our rate base. That is, the state needs to approve that these are costs ratepayers should pick up. In Kentucky, both our generating and delivery businesses are regulated by the state Public Service Commission. They operate the way PPL used to operate in Pennsylvania: The power plants in Kentucky make electricity that, for the most part, is delivered to customers there. We also need to get the state’s approval to charge customers for major investments in power plants or the delivery system. And in the United Kingdom, our delivery businesses are regulated on the federal level by an agency called Ofgem. The U.K.’s regulatory model is different, and interesting. Instead of filing rate requests related to specific projects or spending plans, every delivery company files five-year investment plans with Ofgem. Ofgem approves those plans in advance. So we get government approval before we spend the money on major projects – in contrast to the U.S. approach, where we undertake a project and then ask for state permission to charge customers. Ofgem also offers financial incentives to companies that outperform their five-year plans in terms of efficiency and customer service. Our Western Power Distribution business in the U.K. has benefitted from that.
Meanwhile, our unregulated businesses can be broken into two general categories – our power generating plants in Pennsylvania and Montana; and PPL EnergyPlus, which markets the energy produced at those plants on regional power markets. We’ve been making some important decisions lately on expansions and major projects in this area, too. We’re in the process of increasing the capacity of two major hydroelectric dams – Holtwood in Pennsylvania, and Rainbow in Montana – to produce more emissions-free electricity. We’ve also increased production through upgrades at our Susquehanna nuclear power plant here in Pennsylvania. And we’re always looking for ways to make our other existing plants operate more efficiently. PPL EnergyPlus has operations in both Pennsylvania and Montana. Their job is to sell the power we produce in those states. They look at market demand, price trends and other information and decide how much power to sell now, and how much to hold in reserve to take advantage of possible price increases. It’s a challenging job – balancing risk and reward – that requires a lot of market knowledge to do well. One of the biggest decisions we’ll face in our unregulated business over the next few years is the possibility of adding new nuclear generating capacity. We are keeping our options open on the potential for a new reactor, called Bell Bend, to be located near our current Susquehanna plant in Luzerne County. We’re still several years away from making a decision on that project. Among other things, we need to obtain an investment partner or partners, as well as a federal loan guarantee or other form of financing for this costly project.
You may wonder why I’ve gone to such length explaining regulated vs. deregulated business lines. The distinction is important because each type of business brings different advantages to PPL’s business mix. Regulated businesses offer a stable, steady cash flow that is not susceptible to changes in power markets. At the same time, we still have opportunities to grow those businesses by growing our rate base through investments in networks and power plants. And our positive, long-standing relationships with regulatory agencies help us navigate the rate request process. Meanwhile, although energy prices are at low levels now, our unregulated operations give us the opportunity for strong profit when those prices increase, as they eventually will. Our unregulated generation assets are efficiently and competitively operated. And we’ve also been environmentally responsible, installing emissions control equipment at our fossil fuel-powered plants and complying with all state and federal environmental regulations.
As I mentioned before, we’ve recently made some acquisitions that beef up the regulated side of our operations and transform our business mix. Late last year we acquired Louisville Gas & Electric and Kentucky Utilities, two regulated utilities providing electricity and natural gas to portions of Kentucky and Virginia. And this year we acquired Central Networks, an energy delivery company serving the British Midlands in areas adjacent to our existing Western Power Delivery business. Regulated businesses are expected to make up 75 percent of our earnings – a steady, solid base for PPL. The deal improves the risk and credit profiles of our company, and offers solid support for our dividend. We have reached the targeted balance for our business mix – one that offers reliable income, but is poised to take advantage of unregulated assets when energy prices increase.
Of course, we didn’t buy those companies just to change our business mix. The Kentucky utilities are well-run companies that have been repeatedly recognized by independent agencies for their strong customer service. We’ve kept the senior leadership team in place at those companies and anticipate that their performance will continue to excel. WPD Midlands, meanwhile, offers strong opportunities for cost-saving synergies because it is located adjacent to our existing U.K. operations. We have brought WPD Midlands under the same management team that has turned WPD into one of the country’s most efficient and successful delivery companies. We are optimistic that the management team will find ways to improve WPD Midlands’ customer response and profitability.
Now that we’ve reviewed PPL’s businesses in other areas, I’d like to return to Pennsylvania. Electric deregulation here has offered customers new opportunities to save money by shopping for a competitive electricity supplier – especially after Dec. 31, 2009, when state-set rate caps expired for PPL Electric Utilities customers. More than one-third of our customers, and most of our large business customers, are now buying their energy from a competitive supplier. We encourage you to consider alternative suppliers and pursue an agreement if it makes sense for you. Remember that shopping for a new supplier doesn’t hurt PPL Electric Utilities. Think of us like UPS: We deliver electricity to customers, the same way UPS delivers packages. And we charge a cost for delivery, just as they do. But it doesn’t matter to us who the supplier is, just as it doesn’t matter to UPS whether the package is coming from Amazon.com or your uncle in Florida. Electricity rates have also been considerably lower than some people predicted before the expiration of rate caps. That’s because natural gas prices have fallen sharply, driving down the cost of electricity, which of course is based on the costs of the fuels that produce it. Also, demand for electricity has slightly declined due to the economy, which means more supply is available, which brings the price down.
Our Pennsylvania customers have come to associate us with reliable service, and it’s important to us that that continue. That’s why we’re planning to invest more than $3 billion in our delivery infrastructure over the next five years – improving existing lines, building new lines, replacing substations and more. This effort will benefit Pennsylvania in a number of ways: It will improve reliability along lines that are currently aging. It will create jobs during the construction phase and boost the local companies that make supplies for the work. And, it will keep our transmission and delivery infrastructure current. We’re also investing in vegetation management – keeping the rights-of-way along our major transmission lines free of trees and other vegetation that could pose a risk to reliability. We’re responding to federal rules that could impose significant fines on utilities for vegetation-related outages. We want to keep the power flowing and keep our major lines free from interference. We may also have been in your communities recently, holding public hearings on the siting process for new transmission or distribution lines we plan to build to improve reliability. Siting new lines is always a challenge: We try to balance the lowest cost and the most direct path with environmental issues and property owner concerns. We make our siting process as public and open as possible, to give affected communities a chance to share their input and help us reach the best possible decisions.
As a side note related to infrastructure improvements, we’re currently working with Pennsylvania lawmakers to suggest improvements to the way these major projects are funded. Today, there’s a significant lag between when we finish a project and when the state approves our rate case to fund the work. Also, it’s inefficient for us to file a rate case with the state for every project we’re doing. That might require us to file cases every year, and would also add significantly to the workload of state regulators. We support new proposals that would streamline the state approval process and allow us to more quickly recover the costs of major construction projects. This will save both PPL and customers money.
Another example of PPL improving its infrastructure for customers’ benefit is our “smart grid” project, which you might have read about. We’re installing software and equipment in a 150-square-mile area of our service territory in Harrisburg that will help us save energy, improve reliability and strengthen our service. The smart grid will provide system operators better situational awareness, allow us to operate more efficiently, and will recognize problems immediately and respond within seconds to get the lights back on. This initiative is a demonstration; we hope to eventually apply what we learn to our entire delivery system.
Our investment in keeping the lights on is just one measure of PPL’s commitment to its communities. We donate to economic improvement agencies, educational institutions and other groups that work to improve the quality of life in the places where we live and work. PPL and its employees are also among the leading supporters of United Way agencies throughout our service area. In each of the past two years, PPL’s employees and retirees have given more than $2 million to the company United Way campaign, and the company has provided corporate gifts and matching funds that make employee donations go farther. Finally, our employee volunteers give countless hours throughout our service area, giving a hands-on boost to nonprofit community agencies. We encourage employees to get involved in their communities – again, because strong communities are better places to live and work.
Although the smart grid hasn’t been rolled out systemwide, we have created energy-saving customer opportunities that were unheard-of just 10 or 15 years ago. PPL Electric Utilities’ website, www.pplelectric.com , gives customers the chance to track their electricity usage and billing online. You can also use the online Energy Analyzer to get personalized energy-saving tips, and find out how much energy you are using compared to homes of similar size. We’ll be updating our price to compare every three months, starting in May. The price to compare is the price you pay to obtain electricity from PPL Electric Utilities if you don’t choose a competitive supplier. You can find the latest price to compare on PPL Electric Utilities’ website. We encourage you to use that information to shop for competitive offers and get the best deal possible. Finally, we’re offering additional energy-saving programs as part of Act 129, a Pennsylvania law that requires us to help customers save energy. We’ve distributed energy-saving compact fluorescent light bulbs to customers, and you may have seen our E-Power Team at public events sharing information to help you manage your electricity use. Again, you can find out more about these programs – for homeowners or business owners – by visiting the PPL Electric Utilities website at www.pplelectric.com and clicking the green E-Power logo.
To sum up, today’s PPL is on the right track to reward customers and shareowners alike with solid business and operating performance. We’ve assembled a smart mix of companies that combine solid base-line performance with the opportunity for growth. We’re leading the way in offering new services to our customers in all areas. And we’re focused, as always, on strong service and keeping the lights on in Pennsylvania and everywhere we do business.
PPL Local roots-global reach 0711
PPL: Local roots, global reach
Today’s PPL 2 <ul><li>Dramatic changes in recent years </li></ul><ul><li>Global company with strong portfolio </li></ul><ul><li>Transformed business mix with major acquisitions </li></ul><ul><li>One of America’s major energy companies </li></ul>
PPL then and now 2 Year End 1994 Today Generating capacity 7,800 megawatts 19,000 megawatts Revenue $2.7 billion $11 billion Energy delivery customers 1.4 million 10 million Number of employees 7,400 More than 15,000 Geographic scope Eastern and Pennsylvania, Montana, central PA Kentucky, Virginia, south east England and Wales
Global growth strengthens local roots <ul><li>Still dedicated to customer service </li></ul><ul><li>Major investment in Pennsylvania delivery networks </li></ul><ul><li>Strong investor in communities </li></ul><ul><li>Good-paying jobs </li></ul><ul><li>Tax revenues </li></ul><ul><li>Reliable dividend </li></ul><ul><li>Only major energy company headquartered in Pennsylvania </li></ul>3
PPL’s businesses: Regulated <ul><li>In Pennsylvania: </li></ul><ul><ul><li>Transmission regulated by FERC </li></ul></ul><ul><ul><li>Distribution regulated by PUC </li></ul></ul><ul><li>In Kentucky: </li></ul><ul><ul><li>Generation and delivery regulated by state PSC </li></ul></ul><ul><li>In the United Kingdom: </li></ul><ul><ul><li>Delivery regulated by Ofgem (federal) </li></ul></ul>4
PPL’s businesses: Unregulated <ul><li>In Pennsylvania and Montana: </li></ul><ul><ul><li>Generation capacity </li></ul></ul><ul><ul><li>Decisions on adding new capacity </li></ul></ul><ul><ul><li>Improving efficiency/output from existing plants </li></ul></ul><ul><ul><li>PPL EnergyPlus marketing operations </li></ul></ul><ul><ul><li>Keeping options open for additional nuclear capacity </li></ul></ul>5
Why “regulated vs. unregulated” matters <ul><li>Advantages of regulated businesses </li></ul><ul><ul><li>Steady cash flow </li></ul></ul><ul><ul><li>Opportunity for growing rate base </li></ul></ul><ul><ul><li>Strong relationships with regulatory agencies </li></ul></ul><ul><li>Advantages of unregulated businesses </li></ul><ul><ul><li>Opportunity for profit when energy prices increase </li></ul></ul><ul><ul><li>Efficiently run, competitive assets </li></ul></ul><ul><ul><li>Environmentally responsible </li></ul></ul>6
Why “regulated vs. unregulated” matters <ul><li>Recently transformed business mix </li></ul><ul><li>Acquired regulated businesses in Kentucky, United Kingdom </li></ul><ul><li>Regulated business now 75 percent of earnings </li></ul><ul><li>Improves risk and credit profiles </li></ul><ul><li>Solid support for our dividend </li></ul><ul><li>Achieved targeted business balance </li></ul>6
Other advantages of recent acquisitions <ul><li>Kentucky: </li></ul><ul><ul><li>Well-run companies </li></ul></ul><ul><ul><li>Recognized for strong customer service </li></ul></ul><ul><li>WPD Midlands: </li></ul><ul><ul><li>Adjacent to existing PPL operations in the United Kingdom </li></ul></ul><ul><ul><li>Offers opportunity for cost-saving synergies </li></ul></ul><ul><ul><li>Under strong WPD management </li></ul></ul>7
Pennsylvania after deregulation <ul><li>Opportunities to save by shopping </li></ul><ul><li>More than one-third of customers buying power from competitive supplier </li></ul><ul><li>Most large businesses shopping </li></ul><ul><li>Rates considerably lower than some predicted </li></ul><ul><ul><li>Lower natural gas prices led to lower electricity prices </li></ul></ul><ul><ul><li>Law of supply and demand </li></ul></ul>8
PPL’s investment in Pennsylvania <ul><li>Investing more than $3 billion in delivery infrastructure over 5 years </li></ul><ul><li>Improving reliability </li></ul><ul><li>Creating jobs and boosting area companies </li></ul><ul><li>Keeping infrastructure current </li></ul><ul><li>Vegetation management </li></ul><ul><li>Siting new lines </li></ul>9
Making investment easier <ul><li>Current Pennsylvania ratemaking method inefficient </li></ul><ul><ul><li>Could require frequent rate cases </li></ul></ul><ul><li>PPL backs new legislative/regulatory proposals to fund infrastructure investment </li></ul><ul><ul><li>Assure more timely, certain recovery of new investments </li></ul></ul><ul><li>Working with lawmakers </li></ul>10
Smart grid project <ul><li>Another example of PPL improving its infrastructure </li></ul><ul><li>Demonstrating benefits of “smart grid” technology in Harrisburg area </li></ul><ul><ul><li>Improving operations, strengthening service reliability, supporting energy savings </li></ul></ul><ul><li>Will apply model design to entire grid </li></ul>11
Making our communities better places <ul><li>Shared commitment to communities in all our areas </li></ul><ul><li>PPL donates to agencies, educational institutions </li></ul><ul><li>PPL supports economic development agencies </li></ul><ul><li>Strong employee and company support for United Way campaign </li></ul><ul><li>Employee volunteers give countless hours </li></ul>12
Innovative ways to serve customers <ul><li>Offering customer service unheard-of 10 years ago </li></ul><ul><ul><li>Track your usage, bill on website </li></ul></ul><ul><ul><li>Price to compare enables shopping </li></ul></ul><ul><ul><li>Customer focused energy-saving programs </li></ul></ul>13
The future looks bright <ul><li>Solid business performance </li></ul><ul><li>Smart mix of companies </li></ul><ul><li>Innovative services to customers </li></ul><ul><li>Focus on strong service </li></ul>13