01—Abstract
Summary
Summary of the 10-K filed February 23, 2015. Cited figures are marked; the original filing is the authoritative source.
PPL Corporation, an energy and utility holding company headquartered in Allentown, Pennsylvania, reported 2014 operating revenues of $11.50 billiona and net income attributable to PPL shareowners of $1.74 billion, or $2.61 diluted EPS, up from $1.76 diluted EPS in 2013.
Operating income rose to $3.27 billionb from $2.28 billion, and the 2013 results included a $697 million charge for terminating the Colstrip operating lease. The U.K. Regulated segment contributed 57% of 2014 net income attributable to PPL shareowners, and PPL's management projects higher 2015 earnings excluding special items, with the U.K., Kentucky and Pennsylvania regulated businesses expected to drive the outlook.
The most significant strategic development is the planned spinoff of PPL Energy Supply, which will be combined with RJS Power into Talen Energy, a new publicly traded company in which PPL shareowners will own 65%. The transaction is expected to close in the second quarter of 2015 and is subject to conditions including regulatory approvals and at least $1 billionc of undrawn credit capacity. Following the spinoff, PPL will focus on its regulated utilities and expects to reduce annual ongoing corporate support costs by approximately $75 million.
Other items investors should note include the $900 milliond cash sale of 633 MW of Montana hydroelectric facilities in November 2014, the $2.4 billion environmental capital expenditure forecast for 2015-2019, and a $19.1 billion total construction expenditure plan for 2015-2019. The filing also highlights risks including PPL Energy Supply's below-investment-grade credit rating after 2014 downgrades, exposure to U.K. currency translation and Ofgem regulation, low wholesale energy and capacity prices, and pending environmental rules such as MATS, CCR and carbon regulations. Long-term debt was $20.39 billion at year-end 2014, and cash and cash equivalents were $1.75 billion.
02—Key points
Key Highlights
- Net income attributable to PPL shareowners rose to $1.74 billion ($2.61 diluted EPS) in 2014, compared with $1.13 billion ($1.76 diluted EPS) in 2013.
- Anticipated spinoff of PPL Energy Supply to form Talen Energy, with PPL shareowners owning 65% and Riverstone affiliates owning 35%; closing expected in the second quarter of 2015.
- Sale of 633 MW of Montana hydroelectric facilities to NorthWestern in November 2014 for approximately $900 million in cash, producing a pre-tax gain of $237 million at PPL.
- U.K. Regulated segment provided 57% of 2014 net income attributable to PPL shareowners; WPD is fast-tracked for RIIO-ED1 beginning April 1, 2015.
- Kentucky rate case filed November 2014 requesting about $30 million at LG&E and $153 million at KU in electric base rate increases, with a 10.5% requested return on equity.
- Capital expenditure projections of $19.10 billion in construction expenditures for PPL over 2015-2019, with $2.4 billion of projected environmental capital expenditures.
- PPL Energy Supply's corporate credit rating was lowered to below investment grade in 2014, and PPL Energy Supply posted $190 million of additional collateral as a result of the downgrade.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 23, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $7.85B$7.26B | +8.1% |
| Operating Income | $2.87B$2.56B | +11.9% |
| Interest Expense | $843.00M$778.00M | +8.4% |
| Net Income | $1.74B$1.13B | +53.7% |
| EPS (Basic) | $2.64$1.85 | +42.7% |
| EPS (Diluted) | $2.61$1.76 | +48.3% |
| Shares Outstanding (Basic) | 653.50M608.98M | +7.3% |
| Shares Outstanding (Diluted) | 665.97M663.07M | +0.4% |
05—Questions
Frequently Asked Questions
Why is PPL spinning off PPL Energy Supply, and what will PPL look like afterward?
The filing says PPL analyzed its business mix after changes in wholesale power markets and determined that combining its competitive generation business with affiliates of Riverstone into Talen Energy would best maximize shareowner value. Following the spinoff, PPL will have no ownership in Talen Energy and will focus on its regulated utility businesses in the U.K., Kentucky and Pennsylvania, serving more than 10 million customers, while maintaining investment grade credit ratings.
What are the main conditions that could prevent the Talen Energy spinoff from closing?
Completion depends on a tax counsel opinion that the spinoff qualifies as tax-free, SEC effectiveness of Talen Energy's registration statement, NYSE listing approval, regulatory approvals including from the NRC, FERC and the PUC, Hart-Scott-Rodino clearance, and at least $1 billion of undrawn credit capacity. The transaction may be terminated if it is not completed by June 30, 2015, or December 31, 2015 if only the regulatory approvals remain outstanding.
How did the U.K. business affect PPL's 2014 results?
The U.K. Regulated segment represented 57% of 2014 net income attributable to PPL shareowners. The filing reports that a $194 million benefit from April price increases was partly offset by $88 million from lower volume due primarily to weather. It also reports a $65 million increase in the Ofgem DPCR4 line loss liability, and that the U.K. distribution business faces foreign currency translation risk because a majority of cash flows and reported earnings are generated in the U.K.
What are PPL's key capital spending and financing plans for 2015?
PPL plans to incur approximately $2.2 billion of long-term indebtedness in 2015, of which $600 million refinances existing debt, and to issue approximately $200 million of common stock. Total projected capital expenditures are $19.67 billion for 2015 through 2019, and PPL expects to fund 2015 capital expenditures with cash from operations, debt and equity issuances, parent contributions and short-term debt.
What environmental regulations could materially affect PPL's coal-fired plants?
The filing identifies several pending rules, including the EPA's coal combustion residuals rule, effluent limitation guidelines expected in late 2015, MATS, CSAPR, National Ambient Air Quality Standards for ozone and fine particulates, and proposed carbon dioxide regulations for existing power plants. PPL states it cannot predict the ultimate impact of several of these rules, though it describes the financial and operational impact of the CCR rule and ELG rule as potentially significant.
06—Continue