01—Abstract
Summary
Summary of the 10-K filed February 28, 2011. Cited figures are marked; the original filing is the authoritative source.
PPL Corporation, headquartered in Allentown, PA, is an energy and utility holding company.
Its 2010 results were shaped by the November 1, 2010 acquisition of E.ON U.S. LLC, renamed LG&E and KU Energy LLC (LKE), for approximately $7.6 billiona including debt assumed through consolidation. PPL states that the acquisition increases the regulated portion of its business and that it projects 50% of 2011 net income will come from regulated businesses, with the remainder from competitive supply businesses. PPL reported 2010 net income attributable to PPL Corporation of $1,288 million and diluted EPS of $2.17, compared with $1.08 in 2009, and operating revenues of $8,521 million, up from $7,449 million.
LKE contributed only two months of results in 2010. The filing reports that the expiration of Pennsylvania generation rate caps and a long-term PLR supply contract at the end of 2009 had a significant positive effect on 2010 unregulated gross energy margins, which PPL states increased over $600 millionb after tax. PPL expects lower Supply segment earnings in 2011 due to lower energy and capacity prices in the East, higher fuel costs and higher operation and maintenance expense, while Pennsylvania Regulated earnings are expected to rise on a $77.5 million distribution rate increase effective January 1, 2011.
Financing was substantial: PPL issued 103.5 million common shares and $1.15 billionc of Equity Units in June 2010, and net cash used in investing activities was $8,229 million, primarily for the LKE acquisition. Total assets rose to $32,837 million from $22,165 million.
Key risks disclosed include a pending IRS appeal of the Tax Court's Windfall Profits Tax ruling, a Montana hydroelectric streambed litigation charge of $56 milliond pre-tax in the first quarter of 2010, an FERC challenge to PJM capacity pricing, a new New Jersey capacity law that PPL says may depress PJM capacity prices, and environmental rules on air, coal combustion residuals and greenhouse gases whose capital costs could be significant. The Trimble County Unit 2 construction contract remains subject to unresolved contractor claims, and PPL states it cannot estimate the ultimate outcome.
02—Key points
Key Highlights
- Completed the $7.6 billion acquisition of E.ON U.S. LLC (renamed LG&E and KU Energy LLC) on November 1, 2010, funded partly by a June 2010 issuance of 103.5 million common shares and $1.15 billion of Equity Units.
- 2010 net income attributable to PPL Corporation was $1,288 million, with diluted EPS of $2.17, versus $1.08 in 2009; operating revenues were $8,521 million versus $7,449 million.
- PPL projects that 50% of its 2011 net income will come from regulated businesses, a shift the filing attributes to the LKE acquisition.
- Expiration of Pennsylvania generation rate caps and the PLR supply contract at the end of 2009 increased unregulated gross energy margins by over $600 million after tax in 2010.
- Pennsylvania Regulated earnings are projected to rise in 2011 on a $77.5 million (1.6%) distribution rate increase effective January 1, 2011, while Supply earnings are expected to decline on lower Eastern energy and capacity prices.
- Total assets increased to $32,837 million at December 31, 2010 from $22,165 million, and 2011-2015 capital expenditure projections total approximately $15.1 billion.
- Open items include a pending IRS appeal of the Windfall Profits Tax ruling, Montana streambed litigation with a $56 million pre-tax charge in Q1 2010, and an FERC complaint over PJM capacity pricing.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 28, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $8.52B$7.45B | +14.4% |
| Operating Income | $1.87B$896.00M | +108.3% |
| Interest Expense | $593.00M$387.00M | +53.2% |
| Net Income | $938.00M$407.00M | +130.5% |
| EPS (Basic) | $2.17$1.08 | +100.9% |
| EPS (Diluted) | $2.17$1.08 | +100.9% |
| Shares Outstanding (Basic) | 431.35M376.08M | +14.7% |
| Shares Outstanding (Diluted) | 431.57M376.41M | +14.7% |
05—Questions
Frequently Asked Questions
Why did PPL acquire LG&E and KU Energy LLC and what does it change?
PPL states the acquisition substantially reapportions its mix of regulated and competitive businesses by increasing the regulated portion, strengthens its credit profile and enhances rate-regulated growth opportunities. The filing says increased regulated assets provide earnings stability through regulated returns, in contrast to the competitive supply business where earnings and cash flows depend on market conditions.
How did PPL's 2010 earnings compare with 2009?
Net income attributable to PPL Corporation was $1,288 million and diluted EPS was $2.17, compared with diluted EPS of $1.08 in 2009. PPL notes that 2010 includes LKE results for only the two months after acquisition, and that the expiration of generation rate caps and the PLR contract had a significant positive effect on unregulated gross energy margins.
What does PPL expect for 2011?
Excluding special items, PPL expects higher earnings in Pennsylvania Regulated from a distribution rate increase effective January 1, 2011, comparable International Regulated earnings, and generally driven Kentucky Regulated earnings, which the filing says are expected to contribute about 20% of 2011 earnings. Supply segment earnings are projected to be lower due to lower energy and capacity prices in the East, higher average fuel costs and higher operation and maintenance expense.
How is PPL funding its capital program and the acquisition?
PPL funded the acquisition with its June 2010 common stock and Equity Unit issuances, $3.2 billion of borrowings under an existing credit facility in October 2010, $249 million from monetizing certain full-requirement sales contracts, and cash on hand. PPL plans to issue up to $750 million of long-term debt in 2011, subject to market conditions, and up to $300 million of common stock under employee plans and its DRIP.
What are the main legal and regulatory uncertainties?
The filing discusses the IRS appeal of the U.S. Tax Court's ruling on the U.K. Windfall Profits Tax, Montana hydroelectric streambed rental litigation (a $56 million pre-tax charge in Q1 2010), a FERC complaint about PJM capacity market pricing, a New Jersey capacity law challenged in federal court, and EPA rules on air, coal combustion residuals and greenhouse gases. PPL states it cannot predict the outcome of these matters, and the Trimble County Unit 2 construction claims remain unresolved.
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