01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
PPL Corporation, an energy and utility holding company headquartered in Allentown, PA, reported 2008 net income of $930 milliona, or $2.47 diluted EPS, compared with $1,288 million in 2007 and $865 million in 2006.
Operating revenues were $8,044 millionb in 2008, up from $6,498 million in 2007. The filing attributes the earnings decline largely to lower net energy trading margins and lower Eastern U.S. non-trading margins, partly offset by Pennsylvania Delivery and special items. Income in 2007 was boosted by the sale of Latin American businesses, which generated gains in discontinued operations.
The company's central investor concern is the expiration at the end of 2009 of the full-requirements PLR contracts between PPL EnergyPlus and PPL Electric, which supply PPL Electric's default customers at capped rates. The filing states that PPL Electric's post-2009 supply cost recovery is uncertain, that Pennsylvania legislators have introduced bills to extend rate caps, and that the Governor has called for a phase-in of price increases. The filing says such legislation could cause PPL Electric substantial operating losses and cash flow shortfalls.
Management also reports that a 2009 outlook projects higher Supply segment earnings and lower Pennsylvania Delivery and International Delivery earnings. Balance sheet and liquidity items include total assets of $21,405 millionc, long-term debt of $7,838 million, and cash and cash equivalents of $1,100 million at year-end 2008.
S&P revised the outlook on PPL and PPL Energy Supply to negative in January 2009. The filing reports that capital expenditures are projected at about $8.1 billiond for 2009 through 2013, and that PPL announced in February 2009 a cost reduction initiative eliminating roughly 200 management and staff positions.
02—Key points
Key Highlights
- Net income fell to $930 million ($2.47 diluted EPS) in 2008 from $1,288 million ($3.35) in 2007; operating revenues rose to $8,044 million from $6,498 million.
- Net energy trading margins decreased by $162 million in 2008 and Eastern U.S. non-trading margins decreased by $106 million, driven by higher coal prices and lower baseload generation.
- PPL EnergyPlus's full-requirements PLR contracts with PPL Electric expire at the end of 2009; PPL Electric's post-2009 supply cost recovery is described as uncertain.
- Pennsylvania legislation to extend generation rate caps beyond December 31, 2009 could cause PPL Electric substantial operating losses and cash flow shortfalls, according to the filing.
- S&P revised its outlook on PPL and PPL Energy Supply to negative in January 2009, citing lower-than-expected 2008 cash flows and pressure on 2009 financial metrics.
- Projected capital expenditures total approximately $8.1 billion for 2009 through 2013, and the company reports 12,002 MW of owned or controlled generation capacity at December 31, 2008.
- Sale of the gas and propane businesses closed in October 2008 for $268 million in cash (adjusted for working capital), and Latin American businesses were sold in 2007.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $7.86B$6.46B | +21.6% |
| Operating Income | $1.70B$1.66B | +2.7% |
| Interest Expense | $447.00M$472.00M | −5.3% |
| Net Income | $930.00M$1.29B | −27.8% |
| EPS (Basic) | $2.48$3.37 | −26.4% |
| EPS (Diluted) | $2.47$3.34 | −26.0% |
| Shares Outstanding (Basic) | 373.63M380.56M | −1.8% |
| Shares Outstanding (Diluted) | 374.90M383.49M | −2.2% |
05—Questions
Frequently Asked Questions
What drove the decline in PPL's 2008 earnings compared with 2007?
Net income fell to $930 million from $1,288 million. The filing attributes much of the change to lower net energy trading margins (down $162 million, driven by lower power and gas prices), lower Eastern U.S. non-trading margins (down $106 million, due to higher fuel prices and lower generation), and the absence of 2007 gains from the sale of Latin American businesses in discontinued operations. Special items, including mark-to-market adjustments, partly offset these declines.
What happens to PPL Electric's electricity supply after 2009?
PPL EnergyPlus's full-requirements PLR contracts with PPL Electric expire at the end of 2009. PPL Electric has contracted for two-thirds of its expected 2010 default supply through competitive solicitations and plans further solicitations in 2009. The filing states that the PUC will determine the PLR obligation after 2009 and that the regulatory treatment of supply costs remains uncertain.
What is the risk from proposed Pennsylvania rate-cap legislation?
The filing says that if legislation extending generation rate caps or otherwise limiting cost recovery beyond December 31, 2009 were enacted, PPL Electric could experience substantial operating losses, cash flow shortfalls and other adverse financial impacts. PPL and PPL Electric state they believe such an extension would violate federal law and the U.S. Constitution. The Governor has also called for a mandatory phase-in of price increases beginning in 2010.
How strong is PPL's liquidity and credit position?
At December 31, 2008, PPL had $1,250 million of cash and short-term investments and total committed domestic credit facilities of $4,550 million, of which $3,549 million was unused. Its ratings were Baa2/BBB/BBB at the holding company, and S&P revised the outlook to negative in January 2009. The filing notes that a ratings downgrade could require posting additional collateral, estimated at $874 million if ratings fell below investment grade.
What are PPL's major capital spending plans?
Projected capital expenditures for 2009 through 2013 total approximately $8.1 billion, including $1.6 billion for transmission and distribution in 2010 and roughly $1.2 billion for environmental and generation projects in the period. Major items include pollution control scrubbers (estimated cost $1.6 billion, of which $1.3 billion had been spent), the Susquehanna nuclear uprate, and the Susquehanna-Roseland transmission line. PPL reports it cancelled the Holtwood hydroelectric expansion and withdrew its FERC application in December 2008.
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