[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 for the quarterly period ended September
30, 2005 |
OR | |
[
] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 for the transition period from _________ to
___________ |
Commission
File
Number |
Registrant;
State of Incorporation;
Address
and Telephone Number |
IRS
Employer
Identification
No. | |
1-11459 |
PPL
Corporation
(Exact
name of Registrant as specified in its charter)
(Pennsylvania)
Two
North Ninth Street
Allentown,
PA 18101-1179
(610)
774-5151 |
23-2758192 | |
333-74794 |
PPL
Energy Supply, LLC
(Exact
name of Registrant as specified in its charter)
(Delaware)
Two
North Ninth Street
Allentown,
PA 18101-1179
(610)
774-5151 |
23-3074920 | |
1-905 |
PPL
Electric Utilities Corporation
(Exact
name of Registrant as specified in its charter)
(Pennsylvania)
Two
North Ninth Street
Allentown,
PA 18101-1179
(610)
774-5151 |
23-0959590 |
PPL
Corporation |
Yes
X |
No
| |
PPL
Energy Supply, LLC |
Yes
X |
No
| |
PPL
Electric Utilities Corporation |
Yes
X |
No
|
PPL
Corporation |
Yes
X |
No
| |
PPL
Energy Supply, LLC |
Yes
|
No
X | |
PPL
Electric Utilities Corporation |
Yes
|
No
X |
PPL
Corporation |
Yes
|
No
X | |
PPL
Energy Supply, LLC |
Yes
|
No
X | |
PPL
Electric Utilities Corporation |
Yes
|
No
X |
PPL
Corporation |
Common
stock, $.01 par value, 380,138,936
shares outstanding at October 31, 2005, excluding 62,113,042 shares
held as treasury stock | |
PPL
Energy Supply, LLC |
PPL
Corporation indirectly holds all of the membership interests in PPL Energy
Supply, LLC. | |
PPL
Electric Utilities Corporation |
Common
stock, no par value, 78,029,863 shares outstanding and all held by PPL
Corporation at October 31, 2005, excluding 79,270,519 shares held as
treasury stock | |
Page | |||||
GLOSSARY
OF TERMS AND ABBREVIATIONS |
i | ||||
FORWARD-LOOKING
INFORMATION |
1 | ||||
PART
I. FINANCIAL INFORMATION |
|||||
Item
1. Financial Statements |
|||||
PPL
Corporation and Subsidiaries |
|||||
2 | |||||
3 | |||||
4 | |||||
PPL
Energy Supply, LLC and Subsidiaries |
|||||
6 | |||||
7 | |||||
8 | |||||
PPL
Electric Utilities Corporation and Subsidiaries |
|||||
10 | |||||
11 | |||||
12 | |||||
14 | |||||
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations |
|||||
42 | |||||
56 | |||||
68 | |||||
72 | |||||
72 | |||||
PART
II. OTHER INFORMATION |
|||||
72 | |||||
73 | |||||
74 | |||||
COMPUTATION
OF RATIO OF EARNINGS TO FIXED CHARGES |
|||||
75 | |||||
76 | |||||
77 | |||||
CERTIFICATES
OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 |
|||||
78 | |||||
80 | |||||
82 | |||||
CERTIFICATES
OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 |
|||||
84 | |||||
86 | |||||
88 |
· |
market
demand and prices for energy, capacity and fuel; |
· |
market
prices for crude oil and the potential impact on synthetic fuel tax
credits and synthetic fuel operations; |
· |
weather
conditions affecting customer energy usage and operating costs;
|
· |
competition
in retail and wholesale power markets; |
· |
the
effect of any business or industry restructuring; |
· |
the
profitability and liquidity of PPL and its subsidiaries;
|
· |
new
accounting requirements or new interpretations or applications of existing
requirements; |
· |
operation
and availability of existing generation facilities and operating costs;
|
· |
transmission
and distribution system conditions and operating costs;
|
· |
current
and future environmental conditions and requirements and the related costs
of compliance, including environmental capital expenditures and emission
allowance and other expenses; |
· |
development
of new projects, markets and technologies; |
· |
performance
of new ventures; |
· |
asset
acquisitions and dispositions; |
· |
political,
regulatory or economic conditions in states, regions or countries where
PPL or its subsidiaries conduct business, including potential effects of
threatened or actual terrorism or war or other hostilities;
|
· |
any
impact of 2005's hurricanes on PPL and its subsidiaries, including any
impact on fuel prices; |
· |
receipt
of necessary governmental permits, approvals and rate relief;
|
· |
new
state, federal or foreign legislation, including new tax legislation;
|
· |
state,
federal and foreign regulatory developments; |
· |
impact
of state, federal or foreign investigations applicable to PPL and its
subsidiaries and the energy industry; |
· |
capital
market conditions, including changes in interest rates, and decisions
regarding capital structure; |
· |
stock
price performance; |
· |
the
market prices of equity securities and the impact on pension income and
resultant cash funding requirements for defined benefit pension
plans; |
· |
securities
and credit ratings; |
· |
foreign
currency exchange rates; |
· |
the
outcome of litigation against PPL and its subsidiaries;
and |
· |
the
commitments and liabilities of PPL and its
subsidiaries. |
Part
I. FINANCIAL INFORMATION | ||||||||||||||||||||
Item
1. Financial Statements | ||||||||||||||||||||
PPL
Corporation and Subsidiaries | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(Millions
of Dollars, except per share data) | ||||||||||||||||||||
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | |||||||||||||||||||
2005 |
2004 |
2005 |
2004 | |||||||||||||||||
Operating
Revenues |
||||||||||||||||||||
Utility |
$ |
1,068 |
$ |
923 |
$ |
3,234 |
$ |
2,916 |
||||||||||||
Unregulated
retail electric |
25 |
27 |
73 |
87 |
||||||||||||||||
Wholesale
energy marketing |
358 |
363 |
899 |
927 |
||||||||||||||||
Net
energy trading margins |
20 |
6 |
35 |
18 |
||||||||||||||||
Energy
related businesses |
172 |
135 |
480 |
383 |
||||||||||||||||
Total |
1,643 |
1,454 |
4,721 |
4,331 |
||||||||||||||||
Operating
Expenses |
||||||||||||||||||||
Operation |
||||||||||||||||||||
Fuel |
284 |
191 |
697 |
577 |
||||||||||||||||
Energy
purchases |
221 |
218 |
732 |
690 |
||||||||||||||||
Other
operation and maintenance |
331 |
288 |
1,026 |
920 |
||||||||||||||||
Amortization
of recoverable transition costs |
71 |
64 |
199 |
192 |
||||||||||||||||
Depreciation |
107 |
103 |
315 |
300 |
||||||||||||||||
Taxes,
other than income |
73 |
67 |
214 |
186 |
||||||||||||||||
Energy
related businesses |
170 |
140 |
486 |
409 |
||||||||||||||||
Total |
1,257 |
1,071 |
3,669 |
3,274 |
||||||||||||||||
Operating
Income |
386 |
383 |
1,052 |
1,057 |
||||||||||||||||
Other
Income - net |
5 |
18 |
23 |
45 |
||||||||||||||||
Interest
Expense |
127 |
128 |
387 |
382 |
||||||||||||||||
Income
from Continuing Operations Before Income Taxes,
Minority
Interest and Dividends on Preferred Stock |
264 |
273 |
688 |
720 |
||||||||||||||||
Income
Taxes |
65 |
74 |
137 |
179 |
||||||||||||||||
Minority
Interest |
1 |
2 |
5 |
6 |
||||||||||||||||
Dividends
on Preferred Stock |
1 |
1 |
2 |
2 |
||||||||||||||||
Income
from Continuing Operations |
197 |
196 |
544 |
533 |
||||||||||||||||
Loss
from Discontinued Operations (net of income taxes) |
51 |
12 |
||||||||||||||||||
Net
Income |
$ |
197 |
$ |
196 |
$ |
493 |
$ |
521 |
||||||||||||
Earnings
Per Share of Common Stock (a): |
||||||||||||||||||||
Income
from Continuing Operations: |
||||||||||||||||||||
Basic |
$ |
0.52 |
$ |
0.52 |
$ |
1.43 |
$ |
1.46 |
||||||||||||
Diluted |
0.51 |
0.52 |
1.42 |
1.45 |
||||||||||||||||
Net
Income: |
||||||||||||||||||||
Basic |
$ |
0.52 |
$ |
0.52 |
$ |
1.30 |
$ |
1.42 |
||||||||||||
Diluted |
0.51 |
0.52 |
1.29 |
1.42 |
||||||||||||||||
Dividends
Declared per Share of Common Stock (a) |
$ |
0.25 |
$ |
0.205 |
$ |
0.71 |
$ |
0.615 |
||||||||||||
(a) |
Prior
periods have been adjusted to reflect PPL's 2-for-1 common stock split
completed in August 2005. See Note 2 to the Financial Statements for
additional information. | |||||||||||||||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial statements. | ||||||||||||||||||||
PPL
Corporation and Subsidiaries | |||||||||||
(Unaudited) | |||||||||||
(Millions
of Dollars) | |||||||||||
Nine
Months Ended
September
30, | |||||||||||
2005 |
2004 | ||||||||||
Cash
Flows from Operating Activities |
|||||||||||
Net
income |
$ |
493 |
$ |
521 |
|||||||
Adjustments
to reconcile net income to net cash provided by operating
activities |
|||||||||||
Pre-tax
loss from the sale of the Sundance plant |
72 |
||||||||||
Depreciation |
318 |
306 |
|||||||||
Stock
compensation expense |
30 |
10 |
|||||||||
Amortizations
- recoverable transition costs and other |
190 |
178 |
|||||||||
Pension
expense (income) - net |
20 |
(18 |
) | ||||||||
Pension
funding |
(54 |
) |
(2 |
) | |||||||
Deferred
income taxes (benefits) and investment tax credits |
(43 |
) |
90 |
||||||||
Accrual
for PJM billing dispute |
47 |
||||||||||
Accrual
for remediation of ash basin leak |
33 |
||||||||||
Unrealized
gain on derivatives and other hedging activities |
(26 |
) |
(12 |
) | |||||||
Deferral
of storm-related costs |
(12 |
) |
|||||||||
Interest
accretion on asset retirement obligation and other |
18 |
17 |
|||||||||
Other |
29 |
19 |
|||||||||
Change
in current assets and current liabilities |
|||||||||||
Accounts
receivable |
(85 |
) |
81 |
||||||||
Accounts
payable |
97 |
(48 |
) | ||||||||
Fuel,
materials and supplies |
33 |
(37 |
) | ||||||||
Other |
(59 |
) |
11 |
||||||||
Other
operating activities |
|||||||||||
Other
assets |
(50 |
) |
(42 |
) | |||||||
Other
liabilities |
(10 |
) |
(22 |
) | |||||||
Net
cash provided by operating activities |
1,041 |
1,052 |
|||||||||
Cash
Flows from Investing Activities |
|||||||||||
Expenditures
for property, plant and equipment |
(538 |
) |
(501 |
) | |||||||
Investment
in generating assets and electric energy projects |
(32 |
) | |||||||||
Proceeds
from the sale of the Sundance plant |
190 |
||||||||||
Proceeds
from the sale of minority interest in CGE |
123 |
||||||||||
Purchases
of auction rate securities |
(19 |
) |
(103 |
) | |||||||
Proceeds
from the sale of auction rate securities |
83 |
69 |
|||||||||
Net
increase in restricted cash |
(20 |
) |
(53 |
) | |||||||
Other
investing activities |
(13 |
) |
(1 |
) | |||||||
Net
cash used in investing activities |
(317 |
) |
(498 |
) | |||||||
Cash
Flows from Financing Activities |
|||||||||||
Issuance
of common stock |
36 |
595 |
|||||||||
Issuance
of long-term debt |
224 |
322 |
|||||||||
Retirement
of long-term debt |
(1,177 |
) |
(1,008 |
) | |||||||
Payment
of common dividends |
(252 |
) |
(218 |
) | |||||||
Net
increase in short-term debt |
80 |
31 |
|||||||||
Other
financing activities |
(20 |
) |
(12 |
) | |||||||
Net
cash used in financing activities |
(1,109 |
) |
(290 |
) | |||||||
Effect
of Exchange Rates on Cash and Cash Equivalents |
4 |
4 |
|||||||||
Net
Increase (Decrease) in Cash and Cash Equivalents |
(381 |
) |
268 |
||||||||
Cash
and Cash Equivalents at Beginning of Period |
616 |
466 |
|||||||||
Cash
and Cash Equivalents at End of Period |
$ |
235 |
$ |
734 |
|||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial
statements. |
PPL
Corporation and Subsidiaries | ||||||||||
(Unaudited) | ||||||||||
(Millions
of Dollars) | ||||||||||
September
30,
2005 |
December
31,
2004 | |||||||||
Assets |
||||||||||
Current
Assets |
||||||||||
Cash
and cash equivalents |
$ |
235 |
$ |
616 |
||||||
Restricted
cash |
86 |
50 |
||||||||
Accounts
receivable (less reserve: 2005, $86; 2004, $88) |
539 |
459 |
||||||||
Unbilled
revenues |
413 |
407 |
||||||||
Fuel,
materials and supplies |
275 |
309 |
||||||||
Prepayments |
74 |
56 |
||||||||
Deferred
income taxes |
321 |
162 |
||||||||
Price
risk management assets |
657 |
115 |
||||||||
Other |
93 |
130 |
||||||||
2,693 |
2,304 |
|||||||||
Investments |
||||||||||
Investment
in unconsolidated affiliates - at equity |
56 |
51 |
||||||||
Nuclear
plant decommissioning trust fund |
432 |
409 |
||||||||
Other |
8 |
12 |
||||||||
496 |
472 |
|||||||||
Property,
Plant and Equipment |
||||||||||
Electric
plant in service |
||||||||||
Transmission
and distribution |
8,003 |
7,936 |
||||||||
Generation |
8,698 |
8,946 |
||||||||
General |
641 |
666 |
||||||||
17,342 |
17,548 |
|||||||||
Construction
work in progress |
249 |
148 |
||||||||
Nuclear
fuel |
289 |
314 |
||||||||
Electric
plant |
17,880 |
18,010 |
||||||||
Gas
and oil plant |
342 |
336 |
||||||||
Other
property |
286 |
285 |
||||||||
18,508 |
18,631 |
|||||||||
Less:
accumulated depreciation |
7,628 |
7,482 |
||||||||
10,880 |
11,149 |
|||||||||
Regulatory
and Other Noncurrent Assets |
||||||||||
Recoverable
transition costs |
1,234 |
1,431 |
||||||||
Goodwill |
1,090 |
1,127 |
||||||||
Other
acquired intangibles |
381 |
336 |
||||||||
Other |
989 |
942 |
||||||||
3,694 |
3,836 |
|||||||||
$ |
17,763 |
$ |
17,761 |
|||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial
statements. |
CONDENSED
CONSOLIDATED BALANCE SHEET | |||||||||
PPL
Corporation and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions
of Dollars) | |||||||||
September
30,
2005 |
December
31,
2004 | ||||||||
Liabilities
and Equity |
|||||||||
Current
Liabilities |
|||||||||
Short-term
debt |
$ |
112 |
$ |
42 |
|||||
Long-term
debt |
798 |
866 |
|||||||
Accounts
payable |
500 |
407 |
|||||||
Above
market NUG contracts |
71 |
73 |
|||||||
Taxes |
194 |
164 |
|||||||
Interest |
102 |
129 |
|||||||
Dividends |
96 |
79 |
|||||||
Price
risk management liabilities |
716 |
167 |
|||||||
Other |
485 |
368 |
|||||||
3,074 |
2,295 |
||||||||
Long-term
Debt |
5,879 |
6,792 |
|||||||
Long-term
Debt with Affiliate Trust |
89 |
89 |
|||||||
Deferred
Credits and Other Noncurrent Liabilities |
|||||||||
Deferred
income taxes and investment tax credits |
2,376 |
2,426 |
|||||||
Accrued
pension obligations |
413 |
476 |
|||||||
Asset
retirement obligations |
276 |
257 |
|||||||
Above
market NUG contracts |
153 |
206 |
|||||||
Other |
1,091 |
874 |
|||||||
4,309 |
4,239 |
||||||||
Commitments
and Contingent Liabilities |
|||||||||
Minority
Interest |
56 |
56 |
|||||||
Preferred
Stock without Sinking Fund Requirements |
51 |
51 |
|||||||
Shareowners'
Common Equity |
|||||||||
Common
stock |
4 |
2 |
|||||||
Capital
in excess of par value |
3,622 |
3,577 |
|||||||
Treasury
stock |
(838 |
) |
(838 |
) | |||||
Earnings
reinvested |
2,092 |
1,870 |
|||||||
Accumulated
other comprehensive loss |
(552 |
) |
(323 |
) | |||||
Capital
stock expense and other |
(23 |
) |
(49 |
) | |||||
4,305 |
4,239 |
||||||||
$ |
17,763 |
$ |
17,761 |
||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial
statements. |
PPL
Energy Supply, LLC and Subsidiaries | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
(Millions
of Dollars) | ||||||||||||||||||
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | |||||||||||||||||
2005 |
2004 |
2005 |
2004 | |||||||||||||||
Operating
Revenues |
||||||||||||||||||
Wholesale
energy marketing |
$ |
358 |
$ |
363 |
$ |
899 |
$ |
927 |
||||||||||
Wholesale
energy marketing to affiliate |
415 |
373 |
1,194 |
1,129 |
||||||||||||||
Utility |
265 |
237 |
842 |
771 |
||||||||||||||
Unregulated
retail electric |
25 |
27 |
73 |
87 |
||||||||||||||
Net
energy trading margins |
20 |
6 |
35 |
18 |
||||||||||||||
Energy
related businesses |
163 |
131 |
459 |
369 |
||||||||||||||
Total |
1,246 |
1,137 |
3,502 |
3,301 |
||||||||||||||
Operating
Expenses |
||||||||||||||||||
Operation |
||||||||||||||||||
Fuel |
273 |
184 |
611 |
506 |
||||||||||||||
Energy
purchases |
156 |
160 |
525 |
523 |
||||||||||||||
Energy
purchases from affiliate |
41 |
40 |
111 |
116 |
||||||||||||||
Other
operation and maintenance |
255 |
200 |
759 |
664 |
||||||||||||||
Depreciation |
76 |
73 |
220 |
211 |
||||||||||||||
Taxes,
other than income |
25 |
26 |
75 |
74 |
||||||||||||||
Energy
related businesses |
162 |
133 |
463 |
388 |
||||||||||||||
Total |
988 |
816 |
2,764 |
2,482 |
||||||||||||||
Operating
Income |
258 |
321 |
738 |
819 |
||||||||||||||
Other
Income - net |
9 |
15 |
28 |
52 |
||||||||||||||
Interest
Expense |
69 |
65 |
199 |
182 |
||||||||||||||
Interest
Expense with Affiliates |
5 |
6 |
18 |
13 |
||||||||||||||
Income
from Continuing Operations Before Income
Taxes
and
Minority Interest |
193 |
265 |
549 |
676 |
||||||||||||||
Income
Taxes |
33 |
71 |
75 |
163 |
||||||||||||||
Minority
Interest |
1 |
2 |
5 |
6 |
||||||||||||||
Income
from Continuing Operations |
159 |
192 |
469 |
507 |
||||||||||||||
Loss
from Discontinued Operations (net of income taxes) |
51 |
12 |
||||||||||||||||
Net
Income |
$ |
159 |
$ |
192 |
$ |
418 |
$ |
495 |
||||||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial
statements. |
PPL
Energy Supply, LLC and Subsidiaries | |||||||||||||
(Unaudited) | |||||||||||||
(Millions
of Dollars) | |||||||||||||
Nine
Months Ended
September
30, | |||||||||||||
2005 |
2004 | ||||||||||||
Cash
Flows from Operating Activities |
|||||||||||||
Net
income |
$ |
418 |
$ |
495 |
|||||||||
Adjustments
to reconcile net income to net cash provided by operating
activities |
|||||||||||||
Pre-tax
loss from the sale of the Sundance plant |
72 |
||||||||||||
Depreciation |
223 |
217 |
|||||||||||
Stock
compensation expense |
19 |
7 |
|||||||||||
Amortizations
- energy commitments and other |
(29 |
) |
(41 |
) | |||||||||
Pension
expense (income) - net |
12 |
(23 |
) | ||||||||||
Pension
funding |
(43 |
) |
|||||||||||
Deferred
income taxes and investment tax credits |
49 |
107 |
|||||||||||
Accrual
for remediation of ash basin leak |
33 |
||||||||||||
Unrealized
gain on derivatives and other hedging activities |
(25 |
) |
(10 |
) | |||||||||
Interest
accretion on asset retirement obligation and other |
18 |
17 |
|||||||||||
Other |
26 |
3 |
|||||||||||
Change
in current assets and current liabilities |
|||||||||||||
Accounts
receivable |
(42 |
) |
(4 |
) | |||||||||
Accounts
payable |
95 |
(24 |
) | ||||||||||
Collateral
on PLR energy supply |
(302 |
) | |||||||||||
Fuel,
materials and supplies |
31 |
(28 |
) | ||||||||||
Other |
(59 |
) |
35 |
||||||||||
Other
operating activities |
|||||||||||||
Other
assets |
(51 |
) |
(44 |
) | |||||||||
Other
liabilities |
(40 |
) |
21 |
||||||||||
Net
cash provided by operating activities |
707 |
426 |
|||||||||||
Cash
Flows from Investing Activities |
|||||||||||||
Expenditures
for property, plant and equipment |
(387 |
) |
(336 |
) | |||||||||
Investment
in generating assets and electric energy projects |
(32 |
) | |||||||||||
Proceeds
from the sale of the Sundance plant |
190 |
||||||||||||
Proceeds
from the sale of minority interest in CGE |
123 |
||||||||||||
Purchase
of auction rate securities |
(15 |
) |
(48 |
) | |||||||||
Proceeds
from the sale of auction rate securities |
66 |
14 |
|||||||||||
Net
increase in restricted cash |
(11 |
) |
(16 |
) | |||||||||
Other
investing activities |
(17 |
) |
(6 |
) | |||||||||
Net
cash used in investing activities |
(174 |
) |
(301 |
) | |||||||||
Cash
Flows from Financing Activities |
|||||||||||||
Issuance
of long-term debt |
322 |
||||||||||||
Retirement
of long-term debt |
(209 |
) |
(669 |
) | |||||||||
Distributions
to Member |
(206 |
) |
(169 |
) | |||||||||
Contributions
from Member |
50 |
358 |
|||||||||||
Net
increase (decrease) in short-term debt |
80 |
(57 |
) | ||||||||||
Net
increase (decrease) in note payable to affiliate |
(495 |
) |
495 |
||||||||||
Other
financing activities |
(4 |
) |
(1 |
) | |||||||||
Net
cash provided by (used in) financing activities |
(784 |
) |
279 |
||||||||||
Effect
of Exchange Rates on Cash and Cash Equivalents |
4 |
4 |
|||||||||||
Net
Increase (Decrease) in Cash and Cash Equivalents |
(247 |
) |
408 |
||||||||||
Cash
and Cash Equivalents at Beginning of Period |
357 |
222 |
|||||||||||
Cash
and Cash Equivalents at End of Period |
$ |
110 |
$ |
630 |
|||||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial
statements. |
PPL
Energy Supply, LLC and Subsidiaries | ||||||||||
(Unaudited) | ||||||||||
(Millions
of Dollars) | ||||||||||
September
30,
2005 |
December
31,
2004 | |||||||||
Assets |
||||||||||
Current
Assets |
||||||||||
Cash
and cash equivalents |
$ |
110 |
$ |
357 |
||||||
Restricted
cash |
33 |
3 |
||||||||
Accounts
receivable (less reserve: 2005, $65; 2004, $68) |
316 |
259 |
||||||||
Unbilled
revenues |
268 |
250 |
||||||||
Accounts
receivable from affiliates |
117 |
152 |
||||||||
Collateral
on PLR energy supply to affiliate |
300 |
300 |
||||||||
Fuel,
materials and supplies |
224 |
256 |
||||||||
Prepayments |
40 |
42 |
||||||||
Deferred
income taxes |
273 |
128 |
||||||||
Price
risk management assets |
648 |
113 |
||||||||
Other |
71 |
97 |
||||||||
2,400 |
1,957 |
|||||||||
Investments |
||||||||||
Investment
in unconsolidated affiliates - at equity |
56 |
51 |
||||||||
Nuclear
plant decommissioning trust fund |
432 |
409 |
||||||||
Other |
4 |
5 |
||||||||
492 |
465 |
|||||||||
Property,
Plant and Equipment |
||||||||||
Electric
plant in service |
||||||||||
Transmission
and distribution |
4,004 |
4,032 |
||||||||
Generation |
8,698 |
8,946 |
||||||||
General |
271 |
303 |
||||||||
12,973 |
13,281 |
|||||||||
Construction
work in progress |
198 |
115 |
||||||||
Nuclear
fuel |
289 |
314 |
||||||||
Electric
plant |
13,460 |
13,710 |
||||||||
Gas
and oil plant |
64 |
64 |
||||||||
Other
property |
203 |
210 |
||||||||
13,727 |
13,984 |
|||||||||
Less:
accumulated depreciation |
5,820 |
5,755 |
||||||||
7,907 |
8,229 |
|||||||||
Other
Noncurrent Assets |
||||||||||
Goodwill |
1,034 |
1,072 |
||||||||
Other
acquired intangibles |
250 |
202 |
||||||||
Other |
588 |
559 |
||||||||
1,872 |
1,833 |
|||||||||
$ |
12,671 |
$ |
12,484 |
|||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial
statements. |
CONDENSED
CONSOLIDATED BALANCE SHEET | |||||||||
PPL
Energy Supply, LLC and Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions
of Dollars) | |||||||||
September
30,
2005 |
December
31,
2004 | ||||||||
Liabilities
and Equity |
|||||||||
Current
Liabilities |
|||||||||
Short-term
debt |
$ |
70 |
|||||||
Long-term
debt |
103 |
$ |
181 |
||||||
Accounts
payable |
434 |
338 |
|||||||
Accounts
payable to affiliates |
47 |
52 |
|||||||
Above
market NUG contracts |
71 |
73 |
|||||||
Taxes |
97 |
101 |
|||||||
Interest |
80 |
87 |
|||||||
Deferred
revenue on PLR energy supply to affiliate |
12 |
12 |
|||||||
Price
risk management liabilities |
706 |
163 |
|||||||
Other |
325 |
262 |
|||||||
1,945 |
1,269 |
||||||||
Long-term
Debt |
3,555 |
3,694 |
|||||||
Note
Payable to Affiliate |
495 |
||||||||
Long-term
Debt with Affiliate Trust |
89 |
89 |
|||||||
Deferred
Credits and Other Noncurrent Liabilities |
|||||||||
Deferred
income taxes and investment tax credits |
1,281 |
1,261 |
|||||||
Accrued
pension obligations |
276 |
341 |
|||||||
Asset
retirement obligations |
276 |
257 |
|||||||
Above
market NUG contracts |
153 |
206 |
|||||||
Deferred
revenue on PLR energy supply to affiliate |
38 |
46 |
|||||||
Other |
927 |
720 |
|||||||
2,951 |
2,831 |
||||||||
Commitments
and Contingent Liabilities |
|||||||||
Minority
Interest |
56 |
56 |
|||||||
Member's
Equity |
4,075 |
4,050 |
|||||||
$ |
12,671 |
$ |
12,484 |
||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial
statements. |
PPL
Electric Utilities Corporation and
Subsidiaries | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
(Millions
of Dollars) | ||||||||||||||||||
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | |||||||||||||||||
2005 |
2004 |
2005 |
2004 | |||||||||||||||
Operating
Revenues |
||||||||||||||||||
Retail
electric |
$ |
782 |
$ |
663 |
$ |
2,258 |
$ |
2,017 |
||||||||||
Wholesale
electric |
1 |
1 |
3 |
5 |
||||||||||||||
Wholesale
electric to affiliate |
41 |
40 |
111 |
116 |
||||||||||||||
Total |
824 |
704 |
2,372 |
2,138 |
||||||||||||||
Operating
Expenses |
||||||||||||||||||
Operation |
||||||||||||||||||
Energy
purchases |
65 |
54 |
208 |
164 |
||||||||||||||
Energy
purchases from affiliate |
415 |
373 |
1,194 |
1,129 |
||||||||||||||
Other
operation and maintenance |
75 |
87 |
261 |
252 |
||||||||||||||
Amortization
of recoverable transition costs |
71 |
64 |
199 |
192 |
||||||||||||||
Depreciation |
28 |
27 |
83 |
80 |
||||||||||||||
Taxes,
other than income |
48 |
41 |
138 |
110 |
||||||||||||||
Total |
702 |
646 |
2,083 |
1,927 |
||||||||||||||
Operating
Income |
122 |
58 |
289 |
211 |
||||||||||||||
Other
Income - net |
5 |
11 |
15 |
12 |
||||||||||||||
Interest
Expense |
39 |
46 |
132 |
142 |
||||||||||||||
Interest
Expense with Affiliate |
3 |
1 |
8 |
1 |
||||||||||||||
Income
Before Income Taxes |
85 |
22 |
164 |
80 |
||||||||||||||
Income
Taxes |
32 |
6 |
59 |
27 |
||||||||||||||
Income
Before Dividends on Preferred Stock |
53 |
16 |
105 |
53 |
||||||||||||||
Dividends
on Preferred Stock |
1 |
1 |
2 |
2 |
||||||||||||||
Income
Available to PPL Corporation |
$ |
52 |
$ |
15 |
$ |
103 |
$ |
51 |
||||||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial
statements. |
PPL
Electric Utilities Corporation and
Subsidiaries | |||||||||||
(Unaudited) | |||||||||||
(Millions
of Dollars) | |||||||||||
Nine
Months Ended
September
30, | |||||||||||
2005 |
2004 | ||||||||||
Cash
Flows from Operating Activities |
|||||||||||
Net
income |
$ |
103 |
$ |
51 |
|||||||
Adjustments
to reconcile net income to net cash provided by operating
activities |
|||||||||||
Depreciation |
83 |
80 |
|||||||||
Stock
compensation expense |
7 |
2 |
|||||||||
Accrual
for PJM billing dispute |
47 |
||||||||||
Amortizations
- recoverable transition costs and other |
216 |
208 |
|||||||||
Deferred
income taxes (benefits) and investment tax credits |
(5 |
) |
48 |
||||||||
Deferral
of storm-related costs |
(12 |
) |
|||||||||
Change
in current assets and current liabilities |
|||||||||||
Accounts
receivable |
(16 |
) |
9 |
||||||||
Accounts
payable |
(39 |
) |
37 |
||||||||
Collateral
on PLR energy supply |
302 |
||||||||||
Other |
(38 |
) |
(60 |
) | |||||||
Other
operating activities |
|||||||||||
Other
assets |
(3 |
) |
(3 |
) | |||||||
Other
liabilities |
18 |
(24 |
) | ||||||||
Net
cash provided by operating activities |
361 |
650 |
|||||||||
Cash
Flows from Investing Activities |
|||||||||||
Expenditures
for property, plant and equipment |
(125 |
) |
(140 |
) | |||||||
Purchases
of auction rate securities |
(50 |
) | |||||||||
Proceeds
from the sale of auction rate securities |
10 |
50 |
|||||||||
Net
increase in note receivable from affiliate |
(300 |
) | |||||||||
Net
increase in restricted cash |
(3 |
) |
(35 |
) | |||||||
Other
investing activities |
2 |
1 |
|||||||||
Net
cash used in investing activities |
(116 |
) |
(474 |
) | |||||||
Cash
Flows from Financing Activities |
|||||||||||
Issuance
of long-term debt |
224 |
||||||||||
Retirement
of long-term debt |
(497 |
) |
(333 |
) | |||||||
Payment
of common dividends to PPL Corporation |
(59 |
) |
(23 |
) | |||||||
Net
increase in short-term debt |
88 |
||||||||||
Other
financing activities |
(11 |
) |
(10 |
) | |||||||
Net
cash used in financing activities |
(343 |
) |
(278 |
) | |||||||
Net
Decrease in Cash and Cash Equivalents |
(98 |
) |
(102 |
) | |||||||
Cash
and Cash Equivalents at Beginning of Period |
151 |
162 |
|||||||||
Cash
and Cash Equivalents at End of Period |
$ |
53 |
$ |
60 |
|||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial
statements. |
PPL
Electric Utilities Corporation and
Subsidiaries | ||||||||||
(Unaudited) | ||||||||||
(Millions
of Dollars) | ||||||||||
September
30,
2005 |
December
31,
2004 | |||||||||
Assets |
||||||||||
Current
Assets |
||||||||||
Cash
and cash equivalents |
$ |
53 |
$ |
151 |
||||||
Restricted
cash |
42 |
42 |
||||||||
Accounts
receivable (less reserve: 2005, $19; 2004, $18) |
204 |
179 |
||||||||
Unbilled
revenues |
141 |
148 |
||||||||
Accounts
receivable from affiliates |
8 |
17 |
||||||||
Note
receivable from affiliate |
300 |
300 |
||||||||
Prepayments |
27 |
6 |
||||||||
Prepayment
on PLR energy supply from affiliate |
12 |
12 |
||||||||
Other |
81 |
66 |
||||||||
868 |
921 |
|||||||||
Property,
Plant and Equipment |
||||||||||
Electric
plant in service |
||||||||||
Transmission
and distribution |
3,999 |
3,904 |
||||||||
General |
357 |
352 |
||||||||
4,356 |
4,256 |
|||||||||
Construction
work in progress |
41 |
29 |
||||||||
Electric
plant |
4,397 |
4,285 |
||||||||
Other
property |
5 |
4 |
||||||||
4,402 |
4,289 |
|||||||||
Less:
accumulated depreciation |
1,703 |
1,632 |
||||||||
2,699 |
2,657 |
|||||||||
Regulatory
and Other Noncurrent Assets |
||||||||||
Recoverable
transition costs |
1,234 |
1,431 |
||||||||
Intangibles |
114 |
117 |
||||||||
Prepayment
on PLR energy supply from affiliate |
38 |
46 |
||||||||
Other |
373 |
354 |
||||||||
1,759 |
1,948 |
|||||||||
$ |
5,326 |
$ |
5,526 |
|||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial
statements. |
CONDENSED
CONSOLIDATED BALANCE SHEET | |||||||||
PPL
Electric Utilities Corporation and
Subsidiaries | |||||||||
(Unaudited) | |||||||||
(Millions
of Dollars) | |||||||||
September
30,
2005 |
December
31,
2004 | ||||||||
Liabilities
and Equity |
|||||||||
Current
Liabilities |
|||||||||
Short-term
debt |
$ |
42 |
$ |
42 |
|||||
Long-term
debt |
427 |
336 |
|||||||
Accounts
payable |
39 |
39 |
|||||||
Accounts
payable to affiliates |
136 |
168 |
|||||||
Taxes |
65 |
46 |
|||||||
Collateral
on PLR energy supply from affiliate |
300 |
300 |
|||||||
Other |
125 |
98 |
|||||||
1,134 |
1,029 |
||||||||
Long-term
Debt |
1,846 |
2,208 |
|||||||
Deferred
Credits and Other Noncurrent Liabilities |
|||||||||
Deferred
income taxes and investment tax credits |
791 |
776 |
|||||||
Other |
187 |
190 |
|||||||
978 |
966 |
||||||||
Commitments
and Contingent Liabilities |
|||||||||
Preferred
Stock without Sinking Fund Requirements |
51 |
51 |
|||||||
Shareowner's
Common Equity |
|||||||||
Common
stock |
1,476 |
1,476 |
|||||||
Additional
paid-in capital |
361 |
361 |
|||||||
Treasury
stock |
(912 |
) |
(912 |
) | |||||
Earnings
reinvested |
399 |
354 |
|||||||
Capital
stock expense and other |
(7 |
) |
(7 |
) | |||||
1,317 |
1,272 |
||||||||
$ |
5,326 |
$ |
5,526 |
||||||
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the financial
statements. |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
PPL |
2005 |
2004 |
2005 |
2004 | |||||||||||||
Income
Statement Data |
|||||||||||||||||
Revenues
from external customers |
|||||||||||||||||
Supply |
$ |
557 |
$ |
514 |
$ |
1,431 |
$ |
1,364 |
|||||||||
International
Delivery |
283 |
253 |
897 |
821 |
|||||||||||||
Pennsylvania
Delivery |
803 |
687 |
2,393 |
2,146 |
|||||||||||||
1,643 |
1,454 |
4,721 |
4,331 |
||||||||||||||
Intersegment
revenues |
|||||||||||||||||
Supply |
415 |
373 |
1,194 |
1,129 |
|||||||||||||
Pennsylvania
Delivery |
42 |
40 |
113 |
118 |
|||||||||||||
Net
Income |
|||||||||||||||||
Supply
(a) |
112 |
145 |
238 |
314 |
|||||||||||||
International
Delivery (b) |
36 |
38 |
152 |
152 |
|||||||||||||
Pennsylvania
Delivery |
49 |
13 |
103 |
55 |
|||||||||||||
$ |
197 |
$ |
196 |
$ |
493 |
$ |
521 |
PPL |
September
30,
2005 |
December
31,
2004 | |||||||
Balance
Sheet Data |
|||||||||
Total
assets |
|||||||||
Supply |
$ |
7,073 |
$ |
6,673 |
|||||
International
Delivery |
5,171 |
5,390 |
|||||||
Pennsylvania
Delivery |
5,519 |
5,698 |
|||||||
$ |
17,763 |
$ |
17,761 |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
PPL
Energy Supply |
2005 |
2004 |
2005 |
2004 | |||||||||||||
Income
Statement Data |
|||||||||||||||||
Revenues
from external customers |
|||||||||||||||||
Supply |
$ |
963 |
$ |
884 |
$ |
2,605 |
$ |
2,480 |
|||||||||
International
Delivery |
283 |
253 |
897 |
821 |
|||||||||||||
1,246 |
1,137 |
3,502 |
3,301 |
||||||||||||||
Net
Income |
|||||||||||||||||
Supply
(a) |
123 |
154 |
266 |
343 |
|||||||||||||
International
Delivery (b) |
36 |
38 |
152 |
152 |
|||||||||||||
$ |
159 |
$ |
192 |
$ |
418 |
$ |
495 |
PPL
Energy Supply |
September
30,
2005 |
December
31,
2004 | |||||||
Balance
Sheet Data |
|||||||||
Total
assets |
|||||||||
Supply |
$ |
7,500 |
$ |
7,094 |
|||||
International
Delivery |
5,171 |
5,390 |
|||||||
$ |
12,671 |
$ |
12,484 |
(a) |
The
nine months ended September 30, 2005, and the three and nine months ended
September 30, 2004, include the operating results of the Sundance plant
that are recorded in "Loss from Discontinued Operations." The nine months
ended September 30, 2005, also includes the loss on the sale of the
Sundance plant that is recorded in "Loss from Discontinued Operations."
See Note 8 for additional information. | |
(b) |
The
nine months ended September 30, 2004, includes the operating results of a
Latin American telecommunications company, as well as an insignificant
write-down of its net assets, that are recorded in "Loss from Discontinued
Operations." See Note 8 for additional
information. |
· |
stock
options, restricted stock and restricted stock units granted under the
incentive compensation plans; |
· |
stock
units representing common stock granted under the directors compensation
programs; |
· |
common
stock purchase contracts that were a component of the PEPS Units and PEPS
Units, Series B; and |
· |
convertible
senior notes. |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
2005 |
2004 |
2005 |
2004 | ||||||||||||||
Income
(Numerator) |
|||||||||||||||||
Income
from continuing operations |
$ |
197 |
$ |
196 |
$ |
544 |
$ |
533 |
|||||||||
Loss
from discontinued operations (net of income taxes) |
51 |
12 |
|||||||||||||||
Net
Income |
$ |
197 |
$ |
196 |
$ |
493 |
$ |
521 |
|||||||||
Shares
(Denominator) |
|||||||||||||||||
Shares
for Basic EPS |
379,660 |
377,172 |
378,955 |
365,778 |
|||||||||||||
Add
incremental shares: |
|||||||||||||||||
Convertible
Senior Notes |
3,326 |
2,106 |
|||||||||||||||
Stock
options and other share-based awards |
2,523 |
1,485 |
2,288 |
1,275 |
|||||||||||||
Shares
for Diluted EPS |
385,509 |
378,657 |
383,349 |
367,053 |
|||||||||||||
Basic
EPS |
|||||||||||||||||
Income
from continuing operations |
$ |
0.52 |
$ |
0.52 |
$ |
1.43 |
$ |
1.46 |
|||||||||
Loss
from discontinued operations (net of income taxes) |
0.13 |
0.04 |
|||||||||||||||
Net
Income |
$ |
0.52 |
$ |
0.52 |
$ |
1.30 |
$ |
1.42 |
|||||||||
Diluted
EPS |
|||||||||||||||||
Income
from continuing operations |
$ |
0.51 |
$ |
0.52 |
$ |
1.42 |
$ |
1.45 |
|||||||||
Loss
from discontinued operations (net of income taxes) |
0.13 |
0.03 |
|||||||||||||||
Net
Income |
$ |
0.51 |
$ |
0.52 |
$ |
1.29 |
$ |
1.42 |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, |
||||||||||||||
(Thousands
of Shares) |
2005 |
2004 |
2005 |
2004 |
|||||||||||
Antidilutive
stock options |
1,494 |
2,532 |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
PPL |
2005 |
2004 |
2005 |
2004 | |||||||||||||
Reconciliation
of
Income
Tax Expense |
|||||||||||||||||
Indicated
federal income tax on Income from Continuing Operations Before Income
Taxes, Minority Interest and Dividends on Preferred Stock at statutory tax
rate - 35% |
$ |
93 |
$ |
96 |
$ |
241 |
$ |
252 |
|||||||||
Increase
(decrease) due to: |
|||||||||||||||||
State
income taxes |
8 |
9 |
10 |
11 |
|||||||||||||
Amortization
of investment tax credit |
(3 |
) |
(3 |
) |
(8 |
) |
(8 |
) | |||||||||
Difference
related to income recognition of foreign affiliates (net of foreign income
taxes) |
(5 |
) |
(8 |
) |
(25 |
) |
(26 |
) | |||||||||
Federal
income tax credits |
(27 |
) |
(21 |
) |
(81 |
) |
(50 |
) | |||||||||
Other |
(1 |
) |
1 |
||||||||||||||
(28 |
) |
(22 |
) |
(104 |
) |
(73 |
) | ||||||||||
Total
income tax expense |
$ |
65 |
$ |
74 |
$ |
137 |
$ |
179 |
|||||||||
Effective
income tax rate |
24.6% |
27.1% |
19.9% |
24.9% |
|||||||||||||
PPL
Energy Supply |
|||||||||||||||||
Reconciliation
of
Income
Tax Expense |
|||||||||||||||||
Indicated
federal income tax on Income from Continuing Operations Before Income
Taxes and Minority Interest at statutory tax rate - 35% |
$ |
67 |
$ |
93 |
$ |
192 |
$ |
237 |
|||||||||
Increase
(decrease) due to: |
|||||||||||||||||
State
income taxes |
1 |
9 |
(3 |
) |
9 |
||||||||||||
Amortization
of investment tax credit |
(2 |
) |
(2 |
) |
(6 |
) |
(6 |
) | |||||||||
Difference
related to income recognition of foreign affiliates (net of foreign income
taxes) |
(5 |
) |
(8 |
) |
(25 |
) |
(26 |
) | |||||||||
Federal
income tax credits |
(27 |
) |
(21 |
) |
(81 |
) |
(50 |
) | |||||||||
Other |
(1 |
) |
(2 |
) |
(1 |
) | |||||||||||
(34 |
) |
(22 |
) |
(117 |
) |
(74 |
) | ||||||||||
Total
income tax expense |
$ |
33 |
$ |
71 |
$ |
75 |
$ |
163 |
|||||||||
Effective
income tax rate |
17.1% |
26.8% |
13.7% |
24.1% |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
PPL
Electric |
2005 |
2004 |
2005 |
2004 | |||||||||||||
Reconciliation
of
Income
Tax Expense |
|||||||||||||||||
Indicated
federal income tax on Income Before Income Taxes at statutory tax rate -
35% |
$ |
30 |
$ |
8 |
$ |
58 |
$ |
28 |
|||||||||
Increase
(decrease) due to: |
|||||||||||||||||
State
income taxes |
3 |
(1 |
) |
3 |
1 |
||||||||||||
Amortization
of investment tax credit |
(1 |
) |
(1 |
) |
(2 |
) |
(2 |
) | |||||||||
Change
in tax reserves |
(1 |
) |
|||||||||||||||
Other |
1 |
||||||||||||||||
2 |
(2 |
) |
1 |
(1 |
) | ||||||||||||
Total
income tax expense |
$ |
32 |
$ |
6 |
$ |
59 |
$ |
27 |
|||||||||
Effective
income tax rate |
37.6% |
27.3% |
36.0% |
33.8% |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
PPL |
2005 |
2004 |
2005 |
2004 | |||||||||||||
Net
Income |
$ |
197 |
$ |
196 |
$ |
493 |
$ |
521 |
|||||||||
Other
comprehensive income (loss): |
|||||||||||||||||
Foreign
currency translation adjustments |
9 |
(11 |
) |
(30 |
) |
39 |
|||||||||||
Sale
of CEMAR - currency translation adjustment |
(4 |
) | |||||||||||||||
Sale
of CGE - currency translation adjustment |
10 |
||||||||||||||||
Unrealized
gain (loss) on available-for-sale securities |
5 |
1 |
5 |
(3 |
) | ||||||||||||
Unrealized
loss on qualifying derivatives |
(124 |
) |
(8 |
) |
(204 |
) |
(37 |
) | |||||||||
Total
other comprehensive income (loss) |
(110 |
) |
(18 |
) |
(229 |
) |
5 |
||||||||||
Comprehensive
Income |
$ |
87 |
$ |
178 |
$ |
264 |
$ |
526 |
|||||||||
PPL
Energy Supply |
|||||||||||||||||
Net
Income |
$ |
159 |
$ |
192 |
$ |
418 |
$ |
495 |
|||||||||
Other
comprehensive income (loss): |
|||||||||||||||||
Foreign
currency translation adjustments |
9 |
(11 |
) |
(30 |
) |
39 |
|||||||||||
Sale
of CEMAR - currency translation adjustment |
(4 |
) | |||||||||||||||
Sale
of CGE - currency translation adjustment |
10 |
||||||||||||||||
Unrealized
gain (loss) on available-for-sale securities |
6 |
(2 |
) |
5 |
(6 |
) | |||||||||||
Unrealized
loss on qualifying derivatives |
(134 |
) |
(2 |
) |
(213 |
) |
(39 |
) | |||||||||
Total
other comprehensive loss |
(119 |
) |
(15 |
) |
(238 |
) |
|||||||||||
Comprehensive
Income |
$ |
40 |
$ |
177 |
$ |
180 |
$ |
495 |
· |
enacting
standard transmission tariffs and uniform market mechanisms,
|
· |
monitoring
and mitigating "market power," |
· |
managing
transmission congestion through pricing and tradable financial
rights, |
· |
requiring
independent operational control over transmission facilities,
|
· |
forming
state advisory committees on regional transmission organizations and
resource adequacy, and |
· |
exercising
FERC jurisdiction over all transmission
service. |
· |
The
Public Utility Holding Company Act of 1935, or PUHCA, will be repealed
effective six months after the 2005 Energy Act is enacted. PUHCA
significantly restricted mergers and acquisitions in the electric utility
sector. |
· |
The
FERC will appoint and oversee an electric reliability organization to
establish and enforce mandatory reliability rules regarding the interstate
electric transmission system. |
· |
The
FERC will establish incentives for transmission companies, such as
performance-based rates, recovery of the costs to comply with reliability
rules and accelerated depreciation for investments in transmission
infrastructure. |
· |
The
Price Anderson Amendments
Act of 1988,
which provides the framework for nuclear liability protection, will be
extended by twenty years to 2025. |
· |
Federal
support will be available for certain clean coal power initiatives,
nuclear power projects and renewable energy technologies.
|
Recorded
Liability at |
Exposure
at |
||||||||||||
September
30, 2005 |
December
31, 2004 |
September
30, 2005 (a) |
Expiration
Date | ||||||||||
PPL |
|||||||||||||
Residual
value guarantees of leased equipment |
$ |
10 |
2006 |
(b) | |||||||||
PPL
Energy Supply
(c) |
|||||||||||||
WPD
LLP guarantee of obligations under SIUK Capital Trust I preferred
securities |
82 |
(d) |
2027 |
||||||||||
Letters
of credit issued on behalf of affiliates |
5 |
(e) |
2007 |
||||||||||
Support
agreements to guarantee partnerships' obligations for the sale of
coal |
9 |
2007 |
|||||||||||
Retroactive
premiums under nuclear insurance programs |
38 |
||||||||||||
Nuclear
claims under The Price Anderson Amendments Act of 1988 |
201 |
(f) |
|||||||||||
Contingent
purchase price payments to former owners of synfuel
projects |
$ |
11 |
33 |
2007 |
|||||||||
Residual
value guarantees of leased equipment |
3 |
2006 |
(b) | ||||||||||
WPD
guarantee of pension and other obligations of unconsolidated
entities
(g) |
$ |
4 |
43 |
2017 |
|||||||||
|
|||||||||||||
Indemnifications
for entities in liquidation |
270 |
2008
to 2012 | |||||||||||
WPD
guarantee of an unconsolidated entity's lease obligations |
1 |
2008 |
|||||||||||
Indemnifications
related to the sale of the Sundance plant |
1 |
(h) |
(h) | ||||||||||
Tax
indemnification related to unconsolidated WPD affiliates |
9 |
|
2012 |
||||||||||
Obligation
to purchase commodities under option contracts |
2 |
50 |
|
2007 |
|||||||||
Recorded
Liability at |
Exposure
at |
||||||||||||
September
30, 2005 |
December
31, 2004 |
September
30, 2005 (a) |
Expiration
Date | ||||||||||
PPL
Electric (c) |
|||||||||||||
Guarantee
of a portion of an unconsolidated entity's debt |
7 |
(d) |
2008 |
||||||||||
Residual
value guarantees of leased equipment |
1 |
75 |
2006 |
(b) |
(a) |
Represents
the estimated maximum potential amount of future payments that could be
required to be made under the guarantee. | |
(b) |
Although
the expiration date noted is 2006, equipment of similar value is generally
leased and guaranteed on an on-going basis. | |
(c) |
Other
than the exceptions noted in (e) below, all guarantees of PPL Energy
Supply and PPL Electric also apply to PPL on a consolidated
basis. | |
(d) |
Reflects
principal payments only. | |
(e) |
Represents
letters of credit issued at the direction of PPL Energy Supply for the
benefit of third parties for assurance against nonperformance by PPL and
PPL Gas Utilities. This is not a guarantee by PPL on a consolidated
basis. | |
(f) |
Amount
is per incident. | |
(g) |
As
a result of the privatization of the utility industry in the U.K., certain
electric associations' roles and responsibilities were discontinued or
modified. As a result, certain obligations, primarily pension-related,
associated with these organizations have been guaranteed by the
participating members. Costs are allocated to the members based on
predetermined percentages as outlined in specific agreements. However, if
a member becomes insolvent, costs can be reallocated to and are guaranteed
by the remaining members. At September 30, 2005, WPD has recorded an
estimated discounted liability based on its current allocated percentage
of the total expected costs. Neither the expiration date nor the maximum
amount of potential payments for certain obligations is explicitly stated
in the related agreements and, therefore, have been estimated based on the
types of obligations. | |
(h) |
In
connection with the sale of the Sundance plant, PPL Energy Supply has
provided indemnifications to the purchaser for losses arising out of any
breach of the representations, warranties and covenants under the related
transaction documents and for losses arising with respect to liabilities
not specifically assumed by the purchaser, including certain pre-closing
environmental and tort liabilities. PPL Energy Supply's maximum exposure
with respect to these indemnifications and the expiration of the
indemnifications cannot be estimated because, in the case of certain of
the indemnification provisions, the maximum potential liability is not
capped by the transaction documents and the expiration date is based on
the applicable statute of limitations. Certain of the indemnifications are
triggered only if the purchaser's losses reach $1 million in the
aggregate, are capped at 50% of the purchase price (or approximately $95
million), and survive for a period of only 24 months after the May 13,
2005, transaction closing. The indemnification provision for unknown
environmental and tort liabilities related to periods prior to PPL Energy
Supply's ownership of the real property on which the facility is located
are capped at approximately $4 million in the aggregate and survive for a
maximum period of five years after the transaction
closing. |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, |
|||||||||||||
2005 |
2004 |
2005 |
2004 |
|||||||||||
Direct
expenses |
||||||||||||||
PPL
Energy Supply |
$ |
26 |
$ |
25 |
$ |
77 |
$ |
73 |
||||||
PPL
Electric |
17 |
15 |
45 |
43 |
||||||||||
Overhead
costs |
||||||||||||||
PPL
Energy Supply |
17 |
15 |
56 |
47 |
||||||||||
PPL
Electric |
6 |
6 |
25 |
19 |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
PPL |
2005 |
2004 |
2005 |
2004 | |||||||||||||
Other
Income |
|||||||||||||||||
Interest
income - IRS settlement |
$ |
23 |
$ |
23 |
|||||||||||||
Other
interest income |
$ |
5 |
5 |
$ |
17 |
11 |
|||||||||||
Equity
earnings |
1 |
2 |
3 |
||||||||||||||
Realized
earnings on nuclear decommissioning trust |
2 |
3 |
6 |
||||||||||||||
Sale
of CEMAR (Note 8) |
23 |
||||||||||||||||
Miscellaneous
- International |
3 |
6 |
3 |
||||||||||||||
Miscellaneous
- Domestic |
2 |
6 |
7 |
||||||||||||||
Total |
10 |
31 |
34 |
76 |
|||||||||||||
Other
Deductions |
|||||||||||||||||
Impairment
of investment in technology supplier (Note 8) |
10 |
||||||||||||||||
Realized
loss on available-for-sale investment |
6 |
6 |
|||||||||||||||
Taxes,
other than income |
1 |
1 |
|||||||||||||||
Charitable
contributions |
1 |
1 |
3 |
3 |
|||||||||||||
Miscellaneous
- International |
1 |
4 |
2 |
6 |
|||||||||||||
Miscellaneous
- Domestic |
3 |
2 |
5 |
5 |
|||||||||||||
Other
Income - net |
$ |
5 |
$ |
18 |
$ |
23 |
$ |
45 |
|||||||||
PPL
Energy Supply |
|||||||||||||||||
Other
Income |
|||||||||||||||||
Affiliated
interest income |
$ |
5 |
$ |
1 |
$ |
10 |
$ |
2 |
|||||||||
Interest
income - IRS settlement |
15 |
15 |
|||||||||||||||
Other
interest income |
3 |
3 |
11 |
7 |
|||||||||||||
Equity
earnings |
1 |
1 |
3 |
3 |
|||||||||||||
Realized
earnings on nuclear decommissioning trust |
2 |
3 |
6 |
||||||||||||||
Sale
of CEMAR (Note 8) |
23 |
||||||||||||||||
Miscellaneous
- International |
3 |
6 |
3 |
||||||||||||||
Miscellaneous
- Domestic |
1 |
3 |
3 |
||||||||||||||
Total |
13 |
22 |
36 |
62 |
|||||||||||||
Other
Deductions |
|||||||||||||||||
Taxes,
other than income |
1 |
1 |
1 |
||||||||||||||
Miscellaneous
- International |
1 |
4 |
2 |
6 |
|||||||||||||
Miscellaneous
- Domestic |
2 |
3 |
5 |
3 |
|||||||||||||
Other
Income - net |
$ |
9 |
$ |
15 |
$ |
28 |
$ |
52 |
|||||||||
PPL
Electric |
|||||||||||||||||
Other
Income |
|||||||||||||||||
Affiliated
interest income |
$ |
4 |
$ |
1 |
$ |
10 |
$ |
1 |
|||||||||
Interest
income - IRS settlement |
8 |
8 |
|||||||||||||||
Other
interest income |
2 |
2 |
5 |
3 |
|||||||||||||
Miscellaneous |
2 |
1 |
|||||||||||||||
Total |
6 |
11 |
17 |
13 |
|||||||||||||
Other
Deductions |
1 |
2 |
1 |
||||||||||||||
Other
Income - net |
$ |
5 |
$ |
11 |
$ |
15 |
$ |
12 |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||
PPL |
2005 |
2004 |
2005 |
2004 | |||||||||||
Beginning
accumulated derivative gain (loss) |
$ |
(143 |
) |
$ |
12 |
$ |
(63 |
) |
$ |
41 |
|||||
Net
change associated with current period hedging activities and
other |
(131 |
) |
(3 |
) |
(179 |
) |
(83 |
) | |||||||
Net
change from reclassification into earnings |
7 |
(5 |
) |
(25 |
) |
46 |
|||||||||
Ending
accumulated derivative gain (loss) |
$ |
(267 |
) |
$ |
4 |
$ |
(267 |
) |
$ |
4 |
|||||
PPL
Energy Supply |
|||||||||||||||
Beginning
accumulated derivative gain (loss) |
$ |
(124 |
) |
$ |
23 |
$ |
(45 |
) |
$ |
60 |
|||||
Net
change associated with current period hedging activities and
other |
(140 |
) |
5 |
(184 |
) |
(80 |
) | ||||||||
Net
change from reclassification into earnings |
6 |
(7 |
) |
(29 |
) |
41 |
|||||||||
Ending
accumulated derivative gain (loss) |
$ |
(258 |
) |
$ |
21 |
$ |
(258 |
) |
$ |
21 |
Pension
Benefits | ||||||||||||||||||||||||||||||||
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | |||||||||||||||||||||||||||||||
Domestic |
International |
Domestic |
International | |||||||||||||||||||||||||||||
2005 |
2004 |
2005 |
2004 |
2005 |
2004 |
2005 |
2004 | |||||||||||||||||||||||||
PPL |
||||||||||||||||||||||||||||||||
Service
cost |
$ |
14 |
$ |
12 |
$ |
4 |
$ |
4 |
$ |
42 |
$ |
36 |
$ |
13 |
$ |
11 |
||||||||||||||||
|
||||||||||||||||||||||||||||||||
Interest
cost |
29 |
28 |
37 |
35 |
86 |
84 |
113 |
107 |
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Expected
return on plan assets |
(40 |
) |
(38 |
) |
(49 |
) |
(53 |
) |
(119 |
) |
(113 |
) |
(153 |
) |
(158 |
) | ||||||||||||||||
|
||||||||||||||||||||||||||||||||
Amortization
of transition obligation |
(1 |
) |
(1 |
) |
(3 |
) |
(3 |
) |
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Amortization
of prior service cost |
4 |
4 |
2 |
2 |
11 |
11 |
4 |
4 |
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Amortization
of (gain) loss |
(2 |
) |
7 |
2 |
2 |
(5 |
) |
21 |
5 |
|||||||||||||||||||||||
Net
periodic pension cost (credit) prior to termination
benefits |
6 |
3 |
1 |
(10 |
) |
19 |
10 |
(2 |
) |
(31 |
) | |||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Termination
benefits |
6 |
|||||||||||||||||||||||||||||||
Net
periodic pension cost (credit) |
$ |
6 |
$ |
3 |
$ |
1 |
$ |
(10 |
) |
$ |
19 |
$ |
10 |
$ |
4 |
$ |
(31 |
) | ||||||||||||||
PPL
Energy Supply |
||||||||||||||||||||||||||||||||
Service
cost |
$ |
1 |
$ |
1 |
$ |
4 |
$ |
4 |
$ |
3 |
$ |
3 |
$ |
13 |
$ |
11 |
||||||||||||||||
Interest
cost |
1 |
1 |
37 |
35 |
3 |
3 |
113 |
107 |
||||||||||||||||||||||||
Expected
return on plan assets |
(1 |
) |
(2 |
) |
(49 |
) |
(53 |
) |
(4 |
) |
(4 |
) |
(153 |
) |
(158 |
) | ||||||||||||||||
Amortization
of prior service cost |
1 |
2 |
2 |
1 |
4 |
4 |
||||||||||||||||||||||||||
Amortization
of loss |
7 |
2 |
21 |
5 |
||||||||||||||||||||||||||||
Net
periodic pension cost (credit) prior to termination
benefits |
1 |
1 |
1 |
(10 |
) |
2 |
3 |
(2 |
) |
(31 |
) | |||||||||||||||||||||
Termination
benefits |
6 |
|||||||||||||||||||||||||||||||
Net
periodic pension cost (credit) |
$ |
1 |
$ |
1 |
$ |
1 |
$ |
(10 |
) |
$ |
2 |
$ |
3 |
$ |
4 |
$ |
(31 |
) |
Other
Postretirement Benefits | ||||||||||||||||
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | |||||||||||||||
PPL |
2005 |
2004 |
2005 |
2004 | ||||||||||||
Service
cost |
$ |
1 |
$ |
2 |
$ |
5 |
$ |
5 |
||||||||
Interest
cost |
6 |
7 |
19 |
21 |
||||||||||||
|
||||||||||||||||
Expected
return on plan assets |
(5 |
) |
(4 |
) |
(15 |
) |
(13 |
) | ||||||||
Amortization
of transition obligation |
2 |
3 |
7 |
7 |
||||||||||||
Amortization
of prior service cost |
1 |
3 |
2 |
|||||||||||||
Amortization
of loss |
1 |
4 |
5 |
|||||||||||||
Net
other postretirement benefits cost |
$ |
5 |
$ |
9 |
$ |
23 |
$ |
27 |
September
30, 2005 | ||||||||||||||
PPL |
PPL
Energy Supply |
PPL
Electric | ||||||||||||
Current: |
||||||||||||||
Collateral
for letters of credit (a) |
$ |
42 |
$ |
42 |
||||||||||
Deposits
for trading purposes with NYMEX broker |
17 |
$ |
17 |
|||||||||||
Counterparty
collateral |
12 |
12 |
||||||||||||
Client
deposits |
11 |
|||||||||||||
Miscellaneous |
4 |
4 |
||||||||||||
Restricted
cash - current |
86 |
33 |
42 |
|||||||||||
Noncurrent: |
||||||||||||||
Required
deposit of WPD's insurance subsidiary |
17 |
17 |
||||||||||||
PPL
Transition Bond Company Indenture reserves (b) |
25 |
25 |
||||||||||||
Restricted
cash - noncurrent |
42 |
17 |
25 |
|||||||||||
Total
restricted cash |
$ |
128 |
$ |
50 |
$ |
67 |
December
31, 2004 | ||||||||||||||
PPL |
PPL
Energy Supply |
PPL
Electric | ||||||||||||
Current: |
||||||||||||||
Collateral
for letters of credit (a) |
$ |
42 |
$ |
42 |
||||||||||
Client
deposits |
5 |
|||||||||||||
Miscellaneous |
3 |
$ |
3 |
|||||||||||
Restricted
cash - current |
50 |
3 |
42 |
|||||||||||
Noncurrent: |
||||||||||||||
Required
deposit of WPD's insurance subsidiary |
37 |
37 |
||||||||||||
PPL
Transition Bond Company Indenture reserves (b) |
22 |
22 |
||||||||||||
Restricted
cash - noncurrent |
59 |
37 |
22 |
|||||||||||
Total
restricted cash |
$ |
109 |
$ |
40 |
$ |
64 |
(a) |
A
deposit with a financial institution of funds from the asset-backed
commercial paper program to fully collateralize $42 million of letters of
credit. See Note 7 for further discussion on the asset-backed commercial
paper program. | |
(b) |
Credit
enhancement for PPL Transition Bond Company's $2.4 billion Series 1999-1
Bonds to protect against losses or delays in scheduled
payments. |
AROs
at December 31, 2004 |
$ |
257 |
||
Add:
Accretion expense |
16 |
|||
Add:
Additional liabilities |
3 |
|||
AROs
at September 30, 2005 |
$ |
276 |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, |
|||||||||||||||
2005 |
2004 |
2005 |
2004 |
|||||||||||||
Net
income |
$ |
197 |
$ |
196 |
$ |
493 |
$ |
521 |
||||||||
EPS
- basic |
$ |
0.52 |
$ |
0.52 |
$ |
1.30 |
$ |
1.42 |
||||||||
EPS
- diluted |
$ |
0.51 |
$ |
0.52 |
$ |
1.29 |
$ |
1.42 |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||||
Domestic: |
||||||||||
Eastern
U.S. non-trading margins |
$ |
(23 |
) |
$ |
(12 |
) | ||||
Northwestern
U.S. non-trading margins |
2 |
(4 |
) | |||||||
Southwestern
U.S. non-trading margins |
(1 |
) |
(4 |
) | ||||||
Net
energy trading margins |
8 |
10 |
||||||||
Delivery
revenues (net of CTC/ITC amortization, interest expense on transition
bonds and ancillary charges) |
34 |
92 |
||||||||
Operation
and maintenance expenses |
(21 |
) | ||||||||
Depreciation |
1 |
(2 |
) | |||||||
Taxes,
other than income (excluding gross receipts tax) |
1 |
(7 |
) | |||||||
Interest
expense |
(1 |
) |
2 |
|||||||
Interest
income on 2004 IRS tax settlement |
(14 |
) |
(14 |
) | ||||||
Reversal
of certain state income tax credits in 2004 |
6 |
|||||||||
Realized
loss in 2004 on available-for-sale investment |
3 |
3 |
||||||||
Earnings
from synfuel projects |
10 |
29 |
||||||||
Other |
(4 |
) |
(2 |
) | ||||||
Total
Domestic |
22 |
70 |
||||||||
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||||
International: |
||||||||||
U.K. |
||||||||||
Delivery
margins |
10 |
12 |
||||||||
Operation
and maintenance expenses |
(9 |
) |
(20 |
) | ||||||
Interest
expense |
2 |
5 |
||||||||
Impact
of changes in foreign currency exchange rates |
(1 |
) |
4 |
|||||||
U.K.
income taxes |
(7 |
) |
(3 |
) | ||||||
Latin
America |
(1 |
) |
||||||||
U.S.
income taxes |
4 |
14 |
||||||||
Other |
2 |
|||||||||
Total
International |
(2 |
) |
14 |
|||||||
Unusual
items |
(19 |
) |
(112 |
) | ||||||
$ |
1 |
$ |
(28 |
) |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | |||||||||||||||
2005 |
2004 |
2005 |
2004 | |||||||||||||
Supply
Segment |
||||||||||||||||
Off-site
remediation of ash basin leak (Note 9) |
$ |
(19 |
) |
$ |
(19 |
) |
||||||||||
Sale
of the Sundance plant (Note 8) |
(47 |
) |
||||||||||||||
Acceleration
of stock-based compensation expense for periods prior to 2005 (Note
2) |
(3 |
) |
||||||||||||||
NorthWestern
litigation (Note 9) |
(6 |
) |
||||||||||||||
Impairment
of investment in technology supplier (Note 8) |
$ |
(6 |
) | |||||||||||||
(19 |
) |
(75 |
) |
(6 |
) | |||||||||||
International
Delivery Segment |
||||||||||||||||
Sale
of CGE (Note 8) |
(7 |
) | ||||||||||||||
Sale
of CEMAR (Note 8) |
23 |
|||||||||||||||
Sale
of Latin American telecommunications company (Note 8) |
(2 |
) | ||||||||||||||
14 |
||||||||||||||||
Pennsylvania
Delivery Segment |
||||||||||||||||
PJM
billing dispute (Note
9) |
(27 |
) |
||||||||||||||
Acceleration
of stock-based compensation expense for periods prior to 2005 (Note
2) |
(2 |
) |
||||||||||||||
(29 |
) |
|||||||||||||||
Total |
$ |
(19 |
) |
$ |
(104 |
) |
$ |
8 |
· |
PPL's
future energy margins can be impacted by changes in market prices and
demand for electricity, as well as fluctuations in fuel prices, fuel
transportation costs and emission allowance expenses. For instance,
although PPL expects market prices for electricity in 2005 to continue to
be higher than in 2004, PPL is not expecting an increase in its 2005
energy margins due to expected increases in the cost of fuel, fuel
transportation and emissions allowances. |
· |
PPL's
ability to manage operational risk with respect to its generation plants
is critical to its financial performance. Specifically, depending on the
timing and duration of both planned and unplanned outages (in particular,
if such outages are during peak periods or during periods of, or caused
by, severe weather), PPL's revenue from energy sales could be adversely
affected and its need to purchase power at then-current market prices to
satisfy its energy commitments could be significantly increased. For
instance, in late-October 2005, PPL Susquehanna shut down its Unit 1
nuclear reactor for a maintenance outage to improve the operation of the
unit's control rods prior to the planned 2006 refueling outage. PPL
expects this discretionary outage to last approximately three weeks, but
PPL cannot predict with certainty the length of the outage or the final
costs associated with it. |
· |
A
key part of PPL's overall strategy has been to enter into long-term energy
supply agreements in order to mitigate market price and supply risk.
Whether PPL continues to enter into such agreements or renews existing
energy supply agreements and the market conditions at that time will
affect its future earnings. For example, based on current forward energy
prices, PPL currently expects that, upon the expiration of certain of its
existing supply agreements, it may be able to enter new supply agreements
or arrangements at significantly higher market prices than the prices
included in those existing supply agreements. See "Energy Purchases,
Energy Sales and Other Commitments" in Note 9 to the Financial Statements
for more information regarding PPL's wholesale energy commitments and "PLR
Contracts" in Note 10 for more information regarding the PLR
contracts. |
· |
Due
to current electricity and natural gas price levels, there is a risk that
PPL may be unable to recover its investment in certain gas-fired
generation facilities. Under GAAP, PPL does not believe that there is an
impairment charge to be recorded for these facilities at this time. PPL is
unable to predict the earnings impact of this issue, based upon future
energy and fuel price levels, applicable accounting rules and other
factors, but such impact may be material. |
· |
In
May 2005, a subsidiary of PPL Generation completed the sale of its 450 MW
Sundance power plant located in Pinal County, Arizona to Arizona Public
Service Company for approximately $190 million in cash. Proceeds of the
sale were used to reduce PPL's outstanding debt and improve liquidity. PPL
recognized a non-cash loss on the sale of approximately $47 million after
tax (or $0.12 per share) in the second quarter of 2005 related to
this transaction. |
· |
PPL
has interests in two synthetic fuel facilities and receives tax credits
pursuant to Section 29 of the Internal Revenue Code based on its sale of
synthetic fuel to unaffiliated third-party purchasers. PPL has estimated
that these facilities will contribute approximately $0.11 to annual EPS
through 2007, when the availability of such tax credits is scheduled to
expire. See "Regulatory Issues - IRS Synthetic Fuels Tax Credits" in Note
9 to the Financial Statements for a discussion of the requirements to
receive the Section 29 tax credits and the impact of higher oil prices on
the Section 29 tax credits. Also see "Risk Management - Energy Marketing
& Trading and Other - Synthetic Fuel Tax Credit Risk" for a discussion
of PPL's risk management activities to mitigate the impact of a potential
phase-out of the synthetic fuel tax credit due to high oil prices.
|
· |
To
comply with existing and future environmental requirements and as a result
of pollution control measures it may take, PPL expects to spend
significant amounts on environmental control and compliance in the future.
The costs of such measures, in many cases, are not now determinable, but
could be material. For instance, PPL's current cost estimates for sulfur
dioxide reduction at its generating plants are preliminary and PPL could
incur significantly higher capital and operating expenses due to more
stringent environmental requirements, changing market conditions with
respect to the cost of pollution control equipment or emissions
allowances, delays in the installation of pollution control equipment or
other factors. See "Environmental Matters - Domestic" in Note 9 to the
Financial Statements for more information regarding current environmental
requirements and initiatives, including those relating to air emissions,
and PPL's anticipated capital expenditure program to meet the sulfur
dioxide reduction requirements of the Clean Air Act. |
· |
In
August 2005, a leak from one of two disposal basins containing fly ash and
water used in connection with the operation of the coal-fired generating
units at PPL's Martins Creek plant caused the discharge of approximately
100 million gallons of water containing ash from the basin onto adjacent
roadways and fields and into the Delaware River. See "Environmental
Matters - Domestic - Water/Waste" in Note 9 to the Financial Statements
for more information regarding the Martins Creek leak. In the third
quarter of 2005, PPL Energy Supply recognized a charge of $22 million
after tax (or $0.06 per share for PPL), in connection with the current
expected on-site and off-site costs relating to the leak. PPL cannot
predict the final costs to be incurred as a result of this
matter. |
· |
In
September 2005, PPL and NorthWestern reached a final agreement to settle
litigation described under "Legal Matters - NorthWestern Corporation
Litigation" in Note 9 to the Financial Statements. See Note 9 for more
information regarding the settlement of this matter. In the first quarter
of 2005, PPL recognized a charge of $6 million after tax (or $0.02 per
share) related to the agreement in principle to settle the lawsuit that
the parties reached in May 2005. |
· |
Earnings
in 2005 and beyond are expected to continue to be adversely affected by
increased pension costs. Specifically, WPD will experience increased
pension costs based upon an actuarial valuation of WPD's plans that
reflects higher pension obligations. The increase in pension costs in 2005
is forecasted to be approximately $24 million after tax and the increase
in pension costs is expected to continue to be significant in 2006. An
additional $4 million of after-tax expense was recognized in the first
quarter of 2005 related to termination
benefits. |
· |
In
December 2004, the PUC approved an increase in PPL Electric's distribution
rates of approximately $137 million (based on a return on equity of
10.7%), and approved PPL Electric's proposed mechanism for collecting an
additional $57 million in transmission-related charges, for a total annual
increase of approximately $194 million, effective January 1,
2005. |
· |
PPL
Electric has agreed to provide electricity supply to its PLR customers at
predetermined rates through 2009 and has entered into PUC-approved, full
requirements energy supply agreements with PPL EnergyPlus to fulfill its
PLR obligation. The predetermined charges for generation supply which PPL
Electric collects from its PLR customers and pays to PPL EnergyPlus under
the energy supply agreements provide for annual increases in each year
commencing in 2006 and continuing through 2009. PPL Electric's PLR
obligation after 2009 will be determined by the PUC pursuant to rules that
have not yet been promulgated. See "PLR Contracts" in Note 10 to the
Financial Statements for more information. |
· |
In
January 2005, severe ice storms hit PPL Electric's service territory. As a
result, PPL Electric had to restore service to approximately 238,000
customers. The total cost of restoring service, excluding capitalized
costs and regular payroll expenses, was approximately $16 million (or
$0.02 per share for PPL). |
On
February 11, 2005, PPL Electric filed a petition with the PUC for
authority to defer and amortize for regulatory accounting and reporting
purposes these storm costs. On August 26, 2005, the PUC issued an order
granting PPL Electric's petition subject to certain conditions, including:
(i) the PUC's authorization of deferred accounting is not an assurance of
future rate recovery of the storm costs, (ii) PPL Electric must request
recovery of the deferred storm costs in its next distribution base rate
case, and (iii) PPL Electric must begin immediately to expense the
deferred storm costs on a ten-year amortization schedule for regulatory
accounting and reporting purposes. As a result of the PUC Order and in
accordance with SFAS 71, "Accounting for the Effects of Certain Types of
Regulation," in the third quarter of 2005, PPL Electric deferred
approximately $12 million (or $0.02 per share for PPL) of the previously
expensed storm costs. The deferral was based on its assessment of the
timing and likelihood of recovering the deferred costs in PPL Electric's
next distribution base rate case. At this time, PPL Electric cannot be
certain that it will recover the storm costs, nor can it predict whether
other incidents of severe weather will cause significant facility damage
and service disruptions that would also result in significant costs.
| |
· |
As
a result of the Order issued by the FERC in connection with the litigation
described under "Regulatory Issues - PJM Billing" in Note 9 to the
Financial Statements, PPL recognized an after-tax charge of $27 million
(or $0.07 per share) in the first quarter of 2005 for a loss contingency
related to the litigation. See Note 9 for information concerning the
settlement agreement reached by PPL Electric and Exelon Corporation to
settle this litigation, which is subject to approval by the FERC. PPL
cannot be certain of the outcome of this matter or the impact on PPL and
its subsidiaries. |
· |
PPL
is unable to predict whether future impairments of goodwill may be
required for its domestic and international investments. While no goodwill
impairments were required based on the annual review performed in the
fourth quarter of 2004, future impairments may occur due to determinations
of carrying value exceeding the fair value of these
investments. |
· |
From
time to time, PPL and its subsidiaries are involved in negotiations with
third parties regarding acquisitions and dispositions of businesses and
assets. Any such transactions may impact future
earnings. |
· |
See
Note 9 to the Financial Statements for other potential commitments and
contingent liabilities that may impact future earnings. |
· |
See
Note 16 to the Financial Statements for new accounting standards that have
been issued but not yet adopted by PPL that may impact future
earnings. |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
2005 |
2004 |
2005 |
2004 | ||||||||||||||
Supply |
$ |
112 |
$ |
145 |
$ |
238 |
$ |
314 |
|||||||||
International
Delivery |
36 |
38 |
152 |
152 |
|||||||||||||
Pennsylvania
Delivery |
49 |
13 |
103 |
55 |
|||||||||||||
Total |
$ |
197 |
$ |
196 |
$ |
493 |
$ |
521 |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
2005 |
2004 |
2005 |
2004 | ||||||||||||||
Energy
revenues |
|||||||||||||||||
External |
$ |
403 |
$ |
396 |
$ |
1,007 |
$ |
1,032 |
|||||||||
Intersegment |
415 |
373 |
1,194 |
1,129 |
|||||||||||||
Energy
related businesses |
154 |
118 |
424 |
332 |
|||||||||||||
Total
operating revenues |
972 |
887 |
2,625 |
2,493 |
|||||||||||||
Fuel
and energy purchases |
|||||||||||||||||
External |
362 |
290 |
939 |
870 |
|||||||||||||
Intersegment |
42 |
40 |
113 |
118 |
|||||||||||||
Other
operation and maintenance |
189 |
145 |
549 |
482 |
|||||||||||||
Depreciation |
36 |
38 |
109 |
106 |
|||||||||||||
Taxes,
other than income |
10 |
11 |
32 |
34 |
|||||||||||||
Energy
related businesses |
162 |
135 |
465 |
376 |
|||||||||||||
Total
operating expenses |
801 |
659 |
2,207 |
1,986 |
|||||||||||||
Other
Income - net |
(3 |
) |
8 |
(2 |
) |
6 |
|||||||||||
Interest
Expense |
32 |
29 |
89 |
82 |
|||||||||||||
Income
Taxes |
24 |
61 |
37 |
105 |
|||||||||||||
Minority
Interest |
1 |
1 |
2 |
||||||||||||||
Loss
from Discontinued Operations |
51 |
10 |
|||||||||||||||
Total |
$ |
112 |
$ |
145 |
$ |
238 |
$ |
314 |
Sept.
30, 2005 vs. Sept. 30, 2004 | |||||||||
Three
Months
Ended |
Nine
Months
Ended | ||||||||
Eastern
U.S. non-trading margins |
$ |
(23 |
) |
$ |
(12 |
) | |||
Northwestern
U.S. non-trading margins |
2 |
(4 |
) | ||||||
Southwestern
U.S. non-trading margins |
(1 |
) |
(4 |
) | |||||
Net
energy trading margins |
8 |
10 |
|||||||
Operation
and maintenance expenses |
(7 |
) |
(15 |
) | |||||
Earnings
from synfuel projects |
10 |
29 |
|||||||
Depreciation |
2 |
||||||||
Interest
expense |
(3 |
) |
(2 |
) | |||||
Interest
income on 2004 IRS tax settlement |
(9 |
) |
(9 |
) | |||||
Reversal
of certain state income tax credits in 2004 |
6 |
||||||||
Realized
loss in 2004 on available-for-sale investment |
3 |
3 |
|||||||
Other |
(2 |
) |
(3 |
) | |||||
Total |
(14 |
) |
(7 |
) | |||||
Unusual
items |
(19 |
) |
(69 |
) | |||||
$ |
(33 |
) |
$ |
(76 |
) |
· |
See
"Domestic Gross Energy Margins" for an explanation of non-trading margins
by geographic region and for an explanation of net energy trading
margins. |
· |
Higher
operation and maintenance expenses for both periods were primarily due to
outage costs at the Brunner Island facility and the on-site Martins Creek
remediation costs of the ash basin leak. The nine months ended
September 30, 2005, was further impacted by outage costs at the
Colstrip Unit 2 and Corette facilities and the accelerated amortization of
stock-based compensation for retirement-eligible employees, which resulted
from additional guidance. See Note 2 to the financial statements for
information on the additional accounting guidance. |
· |
The
improved earnings contribution from synfuel projects for both periods
resulted primarily from unrealized gains on options purchased to hedge the
risk associated with synthetic fuel tax credits for 2006 and 2007 and
higher synthetic fuel tax credits, due to higher output, primarily related
to the Tyrone facility that went into commercial operation in August
2004. |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
2005 |
2004 |
2005 |
2004 | ||||||||||||||
Utility
revenues |
$ |
265 |
$ |
237 |
$ |
842 |
$ |
771 |
|||||||||
Energy
related businesses |
18 |
16 |
55 |
50 |
|||||||||||||
Total
operating revenues |
283 |
253 |
897 |
821 |
|||||||||||||
Fuel
and energy purchases |
69 |
54 |
197 |
159 |
|||||||||||||
Other
operation and maintenance |
56 |
45 |
180 |
154 |
|||||||||||||
Depreciation |
41 |
37 |
117 |
109 |
|||||||||||||
Taxes,
other than income |
15 |
14 |
44 |
41 |
|||||||||||||
Energy
related businesses |
7 |
5 |
20 |
32 |
|||||||||||||
Total
operating expenses |
188 |
155 |
558 |
495 |
|||||||||||||
Other
Income - net |
3 |
(1 |
) |
10 |
27 |
||||||||||||
Interest
Expense |
50 |
51 |
152 |
153 |
|||||||||||||
Income
Taxes |
11 |
7 |
41 |
42 |
|||||||||||||
Minority
Interest |
1 |
1 |
4 |
4 |
|||||||||||||
Loss
from Discontinued Operations |
2 |
||||||||||||||||
Total |
$ |
36 |
$ |
38 |
$ |
152 |
$ |
152 |
Sept.
30, 2005 vs. Sept. 30, 2004 | |||||||||
Three
Months
Ended |
Nine
Months
Ended | ||||||||
U.K. |
|||||||||
Delivery
margins |
$ |
10 |
$ |
12 |
|||||
Operation
and maintenance expenses |
(9 |
) |
(20 |
) | |||||
Interest
expense |
2 |
5 |
|||||||
Impact
of changes in foreign currency exchange rates |
(1 |
) |
4 |
||||||
U.K.
income taxes |
(7 |
) |
(3 |
) | |||||
Latin
America |
(1 |
) |
|||||||
U.S.
income taxes |
4 |
14 |
|||||||
Other |
2 |
||||||||
Total |
(2 |
) |
14 |
||||||
Unusual
items |
(14 |
) | |||||||
$ |
(2 |
) |
$ |
· |
The
U.K.'s earnings were positively impacted in both periods by higher
delivery margins primarily due to favorable customer mix and an incentive
revenue award for outstanding customer service. These favorable variances
were offset by higher operation and maintenance expenses, primarily due to
increased pension costs in both periods. |
· |
U.S.
income taxes decreased, primarily due to greater utilization of foreign
tax credits in both periods. |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
2005 |
2004 |
2005 |
2004 | ||||||||||||||
Operating
revenues |
|||||||||||||||||
External |
$ |
803 |
$ |
687 |
$ |
2,393 |
$ |
2,146 |
|||||||||
Intersegment |
42 |
40 |
113 |
118 |
|||||||||||||
Total
operating revenues |
845 |
727 |
2,506 |
2,264 |
|||||||||||||
Fuel
and energy purchases |
|||||||||||||||||
External |
74 |
65 |
293 |
238 |
|||||||||||||
Intersegment |
415 |
373 |
1,194 |
1,129 |
|||||||||||||
Other
operation and maintenance |
86 |
98 |
297 |
284 |
|||||||||||||
Amortization
of recoverable transition costs |
71 |
64 |
199 |
192 |
|||||||||||||
Depreciation |
30 |
28 |
89 |
85 |
|||||||||||||
Taxes,
other than income |
48 |
42 |
138 |
111 |
|||||||||||||
Energy
related businesses |
1 |
1 |
1 |
||||||||||||||
Total
operating expenses |
725 |
670 |
2,211 |
2,040 |
|||||||||||||
Other
Income - net |
5 |
11 |
15 |
12 |
|||||||||||||
Interest
Expense |
45 |
48 |
146 |
147 |
|||||||||||||
Income
Taxes |
30 |
6 |
59 |
32 |
|||||||||||||
Dividends
on Preferred Stock |
1 |
1 |
2 |
2 |
|||||||||||||
Total |
$ |
49 |
$ |
13 |
$ |
103 |
$ |
55 |
Sept.
30, 2005 vs. Sept. 30, 2004 | |||||||||
Three
Months
Ended |
Nine
Months
Ended | ||||||||
Delivery
revenues (net of CTC/ITC amortization, interest expense on transition
bonds and ancillary charges) |
$ |
34 |
$ |
92 |
|||||
Operation
and maintenance expenses |
7 |
(6 |
) | ||||||
Taxes,
other than income (excluding gross receipts tax) |
(8 |
) | |||||||
Interest
income on 2004 IRS tax settlement |
(5 |
) |
(5 |
) | |||||
Other |
4 |
||||||||
Total |
36 |
77 |
|||||||
Unusual
items |
(29 |
) | |||||||
$ |
36 |
$ |
48 |
· |
Delivery
revenues increased for both periods as a result of higher transmission and
distribution customer rates effective January 1, 2005, and a 7.4% and
a 3.9% increase in electricity delivery sales volumes for the three and
nine months ended September 30, 2005, compared to the same periods in
2004. |
· |
The
decrease in operation and maintenance expenses for the three months ended
September 30, 2005, was primarily due to the deferral, based on a PUC
Order, of costs incurred in January 2005 to restore electric service to
customers as a result of severe ice storms that affected portions of PPL
Electric's service territory. The increase for the nine months ended
September 30, 2005, was primarily due to $4 million of storm-related costs
that were not deferred and the accelerated amortization of stock-based
compensation for retirement-eligible employees, which resulted from
additional guidance. See Note 2 to the financial statements for
information on the additional accounting guidance. |
· |
Taxes,
other than income, benefited in 2004 from the reversal of 1998 and 1999
PURTA tax accruals related to the PPL Susquehanna tax
appeals. |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||||
Utility
|
$ |
145 |
$ |
318 |
||||||
Unregulated
retail electric |
(2 |
) |
(14 |
) | ||||||
Wholesale
energy marketing |
(5 |
) |
(28 |
) | ||||||
Net
energy trading margins |
14 |
17 |
||||||||
Other
revenue adjustments (a) |
(101 |
) |
(223 |
) | ||||||
Total
revenues |
51 |
70 |
||||||||
Fuel |
93 |
120 |
||||||||
Energy
purchases |
3 |
42 |
||||||||
Other
cost adjustments (a) |
(22 |
) |
(75 |
) | ||||||
Total
cost of sales |
74 |
87 |
||||||||
Domestic
gross energy margins |
$ |
(23 |
) |
$ |
(17 |
) |
(a) |
Adjusted
to exclude the impact of any revenues and costs not associated with
domestic gross energy margins, in particular, revenues and energy costs
related to the international operations of PPL Global, the domestic
delivery operations of PPL Electric and PPL Gas Utilities and an accrual
for the loss contingency related to the PJM billing dispute in March 2005
(see Note 9 to the Financial Statements for additional information). Also
adjusted to include the margins of PPL's Sundance plant, which are
included in "Loss from Discontinued Operations," and gains or losses on
sales of emission allowances, which are included in "Other operation and
maintenance" expenses, on the Statement of
Income. |
Sept.
30, 2005 vs. Sept. 30, 2004 | |||||||||
Three
Months
Ended |
Nine
Months
Ended | ||||||||
Eastern
U.S. |
$ |
(39 |
) |
$ |
(21 |
) | |||
Northwestern
U.S. |
3 |
(6 |
) | ||||||
Southwestern
U.S. |
(1 |
) |
(7 |
) | |||||
Net
energy trading |
14 |
17 |
|||||||
Domestic
gross energy margins |
$ |
(23 |
) |
$ |
(17 |
) |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||||
Domestic: |
||||||||||
Retail
electric revenue (PPL Electric) |
||||||||||
Electric
delivery |
$ |
67 |
$ |
149 |
||||||
PLR
electric generation supply |
50 |
91 |
||||||||
Gas
revenue (PPL Gas Utilities) |
(1 |
)
|
10 |
|||||||
Wholesale
electric revenue (PPL Electric) |
(2 |
) | ||||||||
Other |
1 |
(1 |
) | |||||||
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||||
International: |
||||||||||
Retail
electric delivery (PPL Global) |
||||||||||
Chile |
15 |
36 |
||||||||
U.K. |
10 |
27 |
||||||||
El
Salvador |
1 |
6 |
||||||||
Bolivia |
2 |
2 |
||||||||
$ |
145 |
$ |
318 |
· |
higher
domestic delivery revenues resulting from higher transmission and
distribution customer rates effective January 1, 2005, and increases
in volumes of 7.4% and 3.9% for the three and nine months ended September
30, 2005, compared with the same periods in 2004; |
· |
higher
PLR revenues due to higher energy and capacity rates in 2005 compared with
2004, and increases in volumes of 8.9% and 5.7% for the three and nine
months ended September 30, 2005, compared with the same periods in
2004, in part due to the return of customers previously served by
alternate suppliers; |
· |
higher
revenues in Chile, primarily due to a 7% increase in sales volumes and
higher average prices overall; and |
· |
higher
U.K. revenues, primarily due to favorable customer mix and an incentive
revenue award for outstanding customer
service. |
· |
a
$3 million increase from PPL Telcom due to an increase in
transport-related sales, as well as reduced spending on a product line;
and |
· |
a
$4 million higher pre-tax contribution from synfuel projects. This
reflects a $12 million net unrealized gain on options purchased to hedge
the risk associated with synthetic fuel tax credits for 2006 and 2007,
offset by $8 million of additional expenses due to higher production
levels. |
· |
a
$15 million pre-tax loss in 2004, related to the sale of CGE (see Note 8
to the Financial Statements); |
· |
an
aggregate increase of $5 million from various international subsidiary
businesses; |
· |
a
$4 million increase from PPL Telcom due to an increase in
transport-related sales, as well as reduced spending on a product line;
and |
· |
a
$2 million increase from energy services subsidiaries due to a favorable
closeout on a major project and an increase in business; partially offset
by |
· |
additional
pre-tax losses in 2005 of $8 million on synfuel projects. This reflects
$25 million of additional expenses due to higher production levels, offset
by a $17 million net unrealized gain on options purchased to hedge the
risk associated with synthetic fuel tax credits for 2006 and
2007. |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||
Increase
in domestic and international pension costs |
$ |
10 |
$ |
38 |
||||
Martins
Creek ash basin remediation (Note 9) |
33 |
33 |
||||||
Costs
associated with severe ice storms in January 2005 |
16 |
|||||||
Subsequent
deferral of a portion of costs associated with January 2005 ice storms
(Note 2) |
(12 |
) |
(12 |
) | ||||
Accelerated
amortization of stock-based compensation (Note 2) |
18 |
|||||||
NorthWestern
litigation accrual (Note 9) |
9 |
|||||||
Outage
costs at Brunner Island and Lower Mt. Bethel plants |
5 |
8 |
||||||
Outage
costs at the Colstrip Unit 2 and Corette facilities |
4 |
|||||||
Change
in foreign currency exchange rates |
(1 |
) |
2 |
|||||
Reduction
in WPD costs that are a pass-through to customers |
(6 |
) | ||||||
Gain
on sales of emission allowances |
(11 |
) | ||||||
Other |
8 |
7 |
||||||
$ |
43 |
$ |
106 |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||
Lower
Mt. Bethel generation facility, which began commercial operation in May
2004 |
$ |
6 |
||||||
Other
additions to PP&E |
$ |
3 |
10 |
|||||
Reduction
of useful lives of certain assets (Note 2) |
5 |
5 |
||||||
Foreign
currency exchange rates |
(1 |
) |
2 |
|||||
Extension
of useful lives of certain generation assets (Note 2) |
(3 |
) |
(8 |
) | ||||
$ |
4 |
$ |
15 |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||
Interest
expense related to the Lower Mt. Bethel generation facility, which began
commercial operation in May 2004 (a) |
$ |
14 |
||||||
Increase
in interest expense due to hedging activities accounted for under SFAS
133, "Accounting for Derivative Instruments and Hedging
Activities" |
$ |
9 |
19 |
|||||
Interest
accrued for PJM billing dispute (Note 9) |
8 |
|||||||
Write-off
of financing costs associated with PPL Energy Supply's 2-5/8% Convertible
Senior Notes (Note 7) |
6 |
6 |
||||||
Increase
in short-term debt interest expense |
1 |
4 |
||||||
Change
in foreign currency exchange rates |
(1 |
) |
2 |
|||||
Decrease
in interest expense due to the repayment in June 2004 of financing related
to the University Park generation facility (b) |
(7 |
) | ||||||
Financing
costs associated with the repayment of the consolidated trust's debt for
the University Park generation facility (b) |
(6 |
) | ||||||
Decrease
in other long-term debt interest expense due to lower debt levels
|
(17 |
) |
(37 |
) | ||||
Other |
1 |
2 |
||||||
$ |
(1 |
) |
$ |
5 |
(a) |
Prior
to commercial operation, interest related to the Lower Mt. Bethel
financing was capitalized as part of the cost of the
facility. | |
(b) |
In
June 2004, a subsidiary of PPL Energy Supply purchased the University Park
generation facility from the lessor that was consolidated by PPL Energy
Supply under FIN 46 (revised December 2003), "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51." In connection with
the purchase, the related financing was
repaid. |
· |
tax
benefits of $6 million and $31 million for the three and nine months ended
September 30, 2005, related to additional nonconventional fuel tax credits
in excess of credits recognized for the same periods in
2004; |
· |
decreases
of $5 million and $13 million in income tax expense due to lower pre-tax
book income for the three and nine months ended September 30, 2005,
relative to the same periods in 2004; offset by |
· |
a
$2 million increase in tax expense on foreign earnings for the three
months ended September 30, 2005, relative to the same period in
2004. |
· |
the
retirement of $1.2 billion of long-term debt; |
· |
the
payment of $254 million of common and preferred
dividends; |
· |
a
$20 million net increase in restricted cash; and |
· |
$538
million of capital expenditures; offset by |
· |
$1
billion of cash provided by operating activities; |
· |
the
issuance of $224 million of tax-exempt long-term debt at PPL
Electric; |
· |
$190
million of proceeds from the sale of the Sundance power plant;
and |
· |
a
$70 million net increase in short-term debt (includes the impact of
currency translation adjustments). |
· |
WPDH
Limited to BBB- from BBB |
· |
WPD
LLP to BBB from BBB+ |
· |
WPD
(South West) and WPD (South Wales) to BBB+/F2 from
A-/F1 |
Projected |
||||||||||||||||||
2005 |
2006 |
2007 |
2008 |
2009 |
||||||||||||||
Generating
facilities |
$ |
195 |
$ |
231 |
$ |
208 |
$ |
150 |
$ |
138 |
||||||||
Transmission
and distribution facilities |
481 |
505 |
521 |
511 |
532 |
|||||||||||||
Environmental |
53 |
349 |
500 |
376 |
150 |
|||||||||||||
Other |
73 |
77 |
56 |
30 |
9 |
|||||||||||||
Total
Construction Expenditures (a) (b) |
802 |
1,162 |
1,285 |
1,067 |
829 |
|||||||||||||
Nuclear
fuel |
68 |
69 |
76 |
76 |
78 |
|||||||||||||
Total
Capital Expenditures |
$ |
870 |
$ |
1,231 |
$ |
1,361 |
$ |
1,143 |
$ |
907 |
(a) |
Construction
expenditures include AFUDC and capitalized interest, which are expected to
be approximately $98 million for the 2005-2009 period. | |
(b) |
This
information excludes any potential investments by PPL Global and PPL
Development Company for new projects. |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | |||||||||||||||
2005 |
2004 |
2005 |
2004 | |||||||||||||
Fair
value of contracts outstanding at the beginning of the
period |
$ |
(129 |
) |
$ |
88 |
$ |
(11 |
) |
$ |
86 |
||||||
Contracts
realized or otherwise settled during the period |
(8 |
) |
(11 |
) |
(31 |
) |
(56 |
) | ||||||||
Fair
value of new contracts at inception |
9 |
22 |
||||||||||||||
Other
changes in fair values |
(147 |
) |
(15 |
) |
(255 |
) |
32 |
|||||||||
Fair
value of contracts outstanding at the end of the period |
$ |
(275 |
) |
$ |
62 |
$ |
(275 |
) |
$ |
62 |
Fair
Value of Contracts at Period-End
Gains
(Losses) | ||||||||||||||||||||
Maturity
Less
Than
1
Year |
Maturity
1-3
Years |
Maturity
4-5
Years |
Maturity
in
Excess
of
5 Years |
Total
Fair
Value | ||||||||||||||||
Source
of Fair Value |
||||||||||||||||||||
Prices
actively quoted |
$ |
21 |
$ |
18 |
$ |
2 |
$ |
41 |
||||||||||||
Prices
provided by other external sources |
(77 |
) |
(238 |
) |
(42 |
) |
(357 |
) | ||||||||||||
Prices
based on models and other valuation methods |
18 |
23 |
41 |
|||||||||||||||||
Fair
value of contracts outstanding at the end of the period |
$ |
(38 |
) |
$ |
(197 |
) |
$ |
(40 |
) |
$ |
(275 |
) |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | |||||||||||||||
2005 |
2004 |
2005 |
2004 | |||||||||||||
Fair
value of contracts outstanding at the beginning of the
period |
$ |
11 |
$ |
12 |
$ |
10 |
$ |
3 |
||||||||
Contracts
realized or otherwise settled during the period |
(10 |
) |
(3 |
) |
(17 |
) |
(10 |
) | ||||||||
Fair
value of new contracts at inception |
(2 |
) |
2 |
4 |
||||||||||||
Other
changes in fair values |
11 |
3 |
15 |
15 |
||||||||||||
Fair
value of contracts outstanding at the end of the period |
$ |
10 |
$ |
12 |
$ |
10 |
$ |
12 |
Fair
Value of Contracts at Period-End
Gains
(Losses) | ||||||||||||||||||||
Maturity
Less
Than
1
Year |
Maturity
1-3
Years |
Maturity
4-5
Years |
Maturity
in
Excess
of
5 Years |
Total
Fair
Value | ||||||||||||||||
Source
of Fair Value |
||||||||||||||||||||
Prices
actively quoted |
$ |
6 |
$ |
6 |
||||||||||||||||
Prices
provided by other external sources |
9 |
$ |
1 |
|
10 |
|||||||||||||||
Prices
based on models and other valuation methods |
(6 |
) |
(6 |
) | ||||||||||||||||
Fair
value of contracts outstanding at the end of the period |
$ |
9 |
$ |
1 |
$ |
10 |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||
2005 |
2004 |
2005 |
2004 | ||||||||||||
$ |
159 |
$ |
192 |
$ |
418 |
$ |
495 |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||||
Domestic: |
||||||||||
Eastern
U.S. non-trading margins |
$ |
(23 |
) |
$ |
(12 |
) | ||||
Northwestern
U.S. non-trading margins |
2 |
(4 |
) | |||||||
Southwestern
U.S. non-trading margins |
(1 |
) |
(4 |
) | ||||||
Net
energy trading margins |
8 |
10 |
||||||||
Operation
and maintenance expenses |
(8 |
) |
(13 |
) | ||||||
Interest
expense |
(2 |
) |
(8 |
) | ||||||
Interest
income on 2004 IRS tax settlement |
(9 |
) |
(9 |
) | ||||||
Interest
income on loans to affiliates |
2 |
5 |
||||||||
Reversal
of certain state income tax credits in 2004 |
6 |
|||||||||
Earnings
from synfuel projects |
10 |
29 |
||||||||
Other |
3 |
4 |
||||||||
Total
Domestic |
(12 |
) |
(2 |
) | ||||||
International: |
||||||||||
U.K. |
||||||||||
Delivery
margins |
10 |
12 |
||||||||
Operation
and maintenance expenses |
(9 |
) |
(20 |
) | ||||||
Interest
expense |
2 |
5 |
||||||||
Impact
of changes in foreign currency exchange rates |
(1 |
) |
4 |
|||||||
U.K.
income taxes |
(7 |
) |
(3 |
) | ||||||
Latin
America |
(1 |
) |
||||||||
U.S.
income taxes |
4 |
14 |
||||||||
Other |
2 |
|||||||||
Total
International |
(2 |
) |
14 |
|||||||
Unusual
items |
(19 |
) |
(89 |
) | ||||||
$ |
(33 |
) |
$ |
(77 |
) |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
2005 |
2004 |
2005 |
2004 | ||||||||||||||
Supply
Segment |
|||||||||||||||||
Off-site
remediation of ash basin leak (Note 9) |
$ |
(19 |
) |
$ |
(19 |
) |
|||||||||||
Sale
of the Sundance plant (Note 8) |
(47 |
) |
|||||||||||||||
Acceleration
of stock-based compensation expense for periods prior to 2005 (Note
2) |
(3 |
) |
|||||||||||||||
NorthWestern
litigation (Note 9) |
(6 |
) |
|||||||||||||||
(19 |
) |
(75 |
) |
||||||||||||||
International
Delivery Segment |
|||||||||||||||||
Sale
of CGE (Note 8) |
$ |
(7 |
) | ||||||||||||||
Sale
of CEMAR (Note 8) |
23 |
||||||||||||||||
Sale
of Latin American telecommunications company (Note 8) |
(2 |
) | |||||||||||||||
14 |
|||||||||||||||||
Total |
$ |
(19 |
) |
$ |
(75 |
) |
$ |
14 |
· |
PPL
Energy Supply's future energy margins can be impacted by changes in market
prices and demands for electricity, as well as fluctuations in fuel
prices, fuel transportation costs and emission allowance expenses. For
instance, although PPL Energy Supply expects market prices for electricity
in 2005 to continue to be higher than in 2004, PPL Energy Supply is not
expecting an increase in its 2005 energy margins due to expected increases
in the cost of fuel, fuel transportation and emissions
allowances. |
· |
PPL
Energy Supply's ability to manage operational risk with respect to its
generation plants is critical to its financial performance. Specifically,
depending on the timing and duration of both planned and unplanned outages
(in particular, if such outages are during peak periods or during periods
of, or caused by, severe weather), PPL Energy Supply's revenue from energy
sales could be adversely affected and its need to purchase power at
then-current market prices to satisfy its energy commitments could be
significantly increased. For instance, in late-October 2005, PPL
Susquehanna shut down its Unit 1 nuclear reactor for a maintenance outage
to improve the operation of the unit's control rods prior to the planned
2006 refueling outage. PPL Energy Supply expects this discretionary outage
to last approximately three weeks, but PPL Energy Supply cannot predict
with certainty the length of the outage or the final costs associated with
it. |
· |
A
key part of PPL Energy Supply's overall strategy has been to enter into
long-term energy supply agreements in order to mitigate market price and
supply risk. Whether PPL Energy Supply continues to enter into such
agreements or renews existing energy supply agreements and the market
conditions at that time will affect its future earnings. For example,
based on current forward energy prices, PPL Energy Supply currently
expects that, upon the expiration of certain of its existing supply
agreements, it may be able to enter new supply agreements or arrangements
at significantly higher market prices than the prices included in those
existing supply agreements. See "Energy Purchases, Energy Sales and Other
Commitments" in Note 9 to the Financial Statements for more information
regarding PPL Energy Supply's wholesale energy commitments and "PLR
Contracts" in Note 10 for more information regarding the PLR
contracts. |
· |
PPL
Electric has agreed to provide electricity supply to its PLR customers at
predetermined rates through 2009 and has entered into PUC-approved, full
requirements energy supply agreements with PPL EnergyPlus to fulfill its
PLR obligation. The predetermined charges for generation supply which PPL
Electric collects from its PLR customers and pays to PPL EnergyPlus under
the energy supply agreements provide for annual increases in each year
commencing in 2006 and continuing through 2009. PPL Electric's PLR
obligation after 2009 will be determined by the PUC pursuant to rules that
have not yet been promulgated. See Note 10 to the Financial Statements for
more information regarding the PLR contracts. |
· |
Due
to current electricity and natural gas price levels, there is a risk that
PPL Energy Supply may be unable to recover its investment in certain
gas-fired generation facilities. Under GAAP, PPL Energy Supply does not
believe that there is an impairment charge to be recorded for these
facilities at this time. PPL Energy Supply is unable to predict the
earnings impact of this issue, based upon future energy and fuel price
levels, applicable accounting rules and other factors, but such impact may
be material. |
· |
In
May 2005, a subsidiary of PPL Generation completed the sale of its 450 MW
Sundance power plant located in Pinal County, Arizona to Arizona Public
Service Company for approximately $190 million in cash. Proceeds of the
sale were used to reduce PPL Energy Supply's outstanding debt and improve
liquidity. PPL Energy Supply recognized a non-cash loss on the sale of
approximately $47 million after tax in the second quarter of 2005 related
to this transaction. |
· |
PPL
Energy Supply has interests in two synthetic fuel facilities and receives
tax credits pursuant to Section 29 of the Internal Revenue Code based on
its sale of synthetic fuel to unaffiliated third-party purchasers. PPL
Energy Supply has estimated that these facilities will contribute
approximately $40 million per year to earnings through 2007, when the
availability of such tax credits is scheduled to expire. See "Regulatory
Issues - IRS Synthetic Fuels Tax Credits" in Note 9 to the Financial
Statements for a discussion of the requirements to receive the Section 29
tax credits and the impact of higher oil prices on the Section 29 tax
credits. Also see "Risk Management - Energy Marketing & Trading and
Other - Synthetic Fuel Tax Credit Risk" for a discussion of PPL Energy
Supply's risk management activities to mitigate the impact of a potential
phase-out of the synthetic fuel tax credit due to high oil
prices. |
· |
To
comply with existing and future environmental requirements and as a result
of pollution control measures it may take, PPL Energy Supply expects to
spend significant amounts on environmental control and compliance in the
future. The costs of such measures, in many cases, are not now
determinable, but could be material. For instance, PPL Energy Supply's
current cost estimates for sulfur dioxide reduction at its generating
plants are preliminary and PPL Energy Supply could incur significantly
higher capital and operating expenses due to more stringent environmental
requirements, changing market conditions with respect to the cost of
pollution control equipment or emissions allowances, delays in the
installation of pollution control equipment or other factors. See
"Environmental Matters - Domestic" in Note 9 to the Financial Statements
for more information regarding current environmental requirements and
initiatives, including those relating to air emissions, and PPL Energy
Supply's anticipated capital expenditure program to meet the sulfur
dioxide reduction requirements of the Clean Air Act. |
· |
In
August 2005, a leak from one of two disposal basins containing fly ash and
water used in connection with the operation of the coal-fired generating
units at PPL Energy Supply's Martins Creek plant caused the discharge of
approximately 100 million gallons of water containing ash from the basin
onto adjacent roadways and fields and into the Delaware River. See
"Environmental Matters - Domestic - Water/Waste" in Note 9 to the
Financial Statements for more information regarding the Martins Creek
leak. In the third quarter of 2005, PPL Energy Supply recognized a charge
of $22 million after tax, in connection with the current expected on-site
and off-site costs relating to the leak. PPL Energy Supply cannot predict
the final costs to be incurred as a result of this
matter. |
· |
In
September 2005, PPL Energy Supply and NorthWestern reached a final
agreement to settle litigation described under "Legal Matters -
NorthWestern Corporation Litigation" in Note 9 to the Financial
Statements. See Note 9 for more information regarding the settlement of
this matter. In the first quarter of 2005, PPL Energy Supply recognized a
charge of $6 million after tax related to the agreement in principle to
settle the lawsuit that the parties reached in May
2005. |
· |
Earnings
in 2005 and beyond are expected to continue to be adversely affected by
increased pension costs. Specifically, WPD will experience increased
pension costs based upon an actuarial valuation of WPD's plans that
reflects higher pension obligations. The increase in pension costs in 2005
is forecasted to be approximately $24 million after tax and the increase
in pension costs is expected to continue to be significant in 2006. An
additional $4 million of after-tax expense was recognized in the first
quarter of 2005 related to termination
benefits. |
· |
PPL
Energy Supply is unable to predict whether future impairments of goodwill
may be required for its domestic and international investments. While no
goodwill impairments were required based on the annual review performed in
the fourth quarter of 2004, future impairments may occur due to
determinations of carrying value exceeding the fair value of these
investments. |
· |
From
time to time, PPL Energy Supply and its subsidiaries are involved in
negotiations with third parties regarding acquisitions and dispositions of
businesses and assets. Any such transactions may impact future
earnings. |
· |
See
Note 9 to the Financial Statements for other potential commitments and
contingent liabilities that may impact future earnings. |
· |
See
Note 16 to the Financial Statements for new accounting standards that have
been issued but not yet adopted by PPL Energy Supply that may impact
future earnings. |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
2005 |
2004 |
2005 |
2004 | ||||||||||||||
Supply |
$ |
123 |
$ |
154 |
$ |
266 |
$ |
343 |
|||||||||
International
Delivery |
36 |
38 |
152 |
152 |
|||||||||||||
Total |
$ |
159 |
$ |
192 |
$ |
418 |
$ |
495 |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
2005 |
2004 |
2005 |
2004 | ||||||||||||||
Energy
revenues |
$ |
818 |
$ |
769 |
$ |
2,201 |
$ |
2,161 |
|||||||||
Energy
related businesses |
145 |
115 |
404 |
319 |
|||||||||||||
Total
operating revenues |
963 |
884 |
2,605 |
2,480 |
|||||||||||||
Fuel
and energy purchases |
401 |
330 |
1,050 |
986 |
|||||||||||||
Other
operation and maintenance |
199 |
155 |
579 |
510 |
|||||||||||||
Depreciation |
35 |
36 |
103 |
102 |
|||||||||||||
Taxes,
other than income |
10 |
12 |
31 |
33 |
|||||||||||||
Energy
related businesses |
155 |
128 |
443 |
356 |
|||||||||||||
Total
operating expenses |
800 |
661 |
2,206 |
1,987 |
|||||||||||||
Other
Income - net |
6 |
16 |
18 |
25 |
|||||||||||||
Interest
Expense |
24 |
20 |
65 |
42 |
|||||||||||||
Income
Taxes |
22 |
64 |
34 |
121 |
|||||||||||||
Minority
Interest |
1 |
1 |
2 |
||||||||||||||
Loss
from Discontinued Operations |
51 |
10 |
|||||||||||||||
Total |
$ |
123 |
$ |
154 |
$ |
266 |
$ |
343 |
Sept.
30, 2005 vs. Sept. 30, 2004 | |||||||||
Three
Months
Ended |
Nine
Months
Ended | ||||||||
Eastern
U.S. non-trading margins |
$ |
(23 |
) |
$ |
(12 |
) | |||
Northwestern
U.S. non-trading margins |
2 |
(4 |
) | ||||||
Southwestern
U.S. non-trading margins |
(1 |
) |
(4 |
) | |||||
Net
energy trading margins |
8 |
10 |
|||||||
Operation
and maintenance expenses |
(8 |
) |
(13 |
) | |||||
Interest
expense |
(2 |
) |
(8 |
) | |||||
Interest
income on 2004 IRS tax settlement |
(9 |
) |
(9 |
) | |||||
Interest
income on loans to affiliates |
2 |
5 |
|||||||
Reversal
of certain state income tax credits in 2004 |
6 |
||||||||
Earnings
from synfuel projects |
10 |
29 |
|||||||
Other |
3 |
4 |
|||||||
Total |
(12 |
) |
(2 |
) | |||||
Unusual
items |
(19 |
) |
(75 |
) | |||||
$ |
(31 |
) |
$ |
(77 |
) |
· |
See
"Domestic Gross Energy Margins" for an explanation of non-trading margins
by geographic region and for an explanation of net energy trading
margins. |
· |
Higher
operation and maintenance expenses for both periods were primarily due to
outage costs at the Brunner Island facility and the on-site Martins Creek
remediation costs of the ash basin leak. The nine months ended
September 30, 2005, was further impacted by outage costs at the
Colstrip Unit 2 and Corette facilities and the accelerated amortization of
stock-based compensation for retirement-eligible employees, which resulted
from additional guidance. See Note 2 to the financial statements for
information on the additional accounting guidance. |
· |
The
improved earnings contribution from synfuel projects for both periods
resulted primarily from unrealized gains on options purchased to hedge the
risk associated with synthetic fuel tax credits for 2006 and 2007 and
higher synthetic fuel tax credits, due to higher output, primarily related
to the Tyrone facility that went into commercial operation in August
2004. |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | ||||||||||||||||
2005 |
2004 |
2005 |
2004 | ||||||||||||||
Utility
revenues |
$ |
265 |
$ |
237 |
$ |
842 |
$ |
771 |
|||||||||
Energy
related businesses |
18 |
16 |
55 |
50 |
|||||||||||||
Total
operating revenues |
283 |
253 |
897 |
821 |
|||||||||||||
Fuel
and energy purchases |
69 |
54 |
197 |
159 |
|||||||||||||
Other
operation and maintenance |
56 |
45 |
180 |
154 |
|||||||||||||
Depreciation |
41 |
37 |
117 |
109 |
|||||||||||||
Taxes,
other than income |
15 |
14 |
44 |
41 |
|||||||||||||
Energy
related businesses |
7 |
5 |
20 |
32 |
|||||||||||||
Total
operating expenses |
188 |
155 |
558 |
495 |
|||||||||||||
Other
Income - net |
3 |
(1 |
) |
10 |
27 |
||||||||||||
Interest
Expense |
50 |
51 |
152 |
153 |
|||||||||||||
Income
Taxes |
11 |
7 |
41 |
42 |
|||||||||||||
Minority
Interest |
1 |
1 |
4 |
4 |
|||||||||||||
Loss
from Discontinued Operations |
2 |
||||||||||||||||
Total |
$ |
36 |
$ |
38 |
$ |
152 |
$ |
152 |
Sept.
30, 2005 vs. Sept. 30, 2004 | |||||||||
Three
Months
Ended |
Nine
Months
Ended | ||||||||
U.K. |
|||||||||
Delivery
margins |
$ |
10 |
$ |
12 |
|||||
Operation
and maintenance expenses |
(9 |
) |
(20 |
) | |||||
Interest
expense |
2 |
5 |
|||||||
Impact
of changes in foreign currency exchange rates |
(1 |
) |
4 |
||||||
U.K.
income taxes |
(7 |
) |
(3 |
) | |||||
Latin
America |
(1 |
) |
|||||||
U.S.
income taxes |
4 |
14 |
|||||||
Other |
2 |
||||||||
Total |
(2 |
) |
14 |
||||||
Unusual
items |
(14 |
) | |||||||
$ |
(2 |
) |
$ |
· |
The
U.K.'s earnings were positively impacted in both periods by higher
delivery margins primarily due to favorable customer mix and an incentive
revenue award for outstanding customer service. These favorable variances
were offset by higher operation and maintenance expenses, primarily due to
increased pension costs in both periods. |
· |
U.S.
income taxes decreased, primarily due to greater utilization of foreign
tax credits in both periods. |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||||
Wholesale
energy marketing |
$ |
(5 |
) |
$ |
(28 |
) | ||||
Wholesale
energy marketing to affiliate |
42 |
65 |
||||||||
Unregulated
retail electric |
(2 |
) |
(14 |
) | ||||||
Net
energy trading margins |
14 |
17 |
||||||||
Other
revenue adjustments (a) |
2 |
30 |
||||||||
Total
revenues |
51 |
70 |
||||||||
Fuel |
89 |
105 |
||||||||
Energy
purchases |
(4 |
) |
2 |
|||||||
Energy
purchases from affiliate |
1 |
(5 |
) | |||||||
Other
cost adjustments (a) |
(12 |
) |
(15 |
) | ||||||
Total
cost of sales |
74 |
87 |
||||||||
Domestic
gross energy margins |
$ |
(23 |
) |
(17 |
) |
(a) |
Adjusted
to exclude the impact of any revenues and costs not associated with
domestic gross energy margins, in particular, revenues and energy costs
related to the international operations of PPL Global. Also
adjusted to include the margins of PPL's Sundance plant, which are
included in "Loss from Discontinued Operations," and gains or losses on
sales of emission allowances, which are included in "Other operation and
maintenance" expenses, on the Statement of
Income. |
Sept.
30, 2005 vs. Sept. 30, 2004 | |||||||||
Three
Months
Ended |
Nine
Months
Ended | ||||||||
Eastern
U.S. |
$ |
(39 |
) |
$ |
(21 |
) | |||
Northwestern
U.S. |
3 |
(6 |
) | ||||||
Southwestern
U.S. |
(1 |
) |
(7 |
) | |||||
Net
energy trading |
14 |
17 |
|||||||
Domestic
gross energy margins |
$ |
(23 |
) |
$ |
(17 |
) |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||||
International: |
||||||||||
Retail
electric delivery (PPL Global) |
||||||||||
Chile |
$ |
15 |
$ |
36 |
||||||
U.K. |
10 |
27 |
||||||||
El
Salvador |
1 |
6 |
||||||||
Bolivia |
2 |
2 |
||||||||
$ |
28 |
$ |
71 |
· |
higher
revenues in Chile, primarily due to a 7% increase in sales volumes and
higher average prices overall; and |
· |
higher
U.K. revenues, primarily due to favorable customer mix and an incentive
revenue award for outstanding customer
service. |
· |
a
$15 million pre-tax loss in 2004, related to the sale of CGE (see Note 8
to the Financial Statements); |
· |
an
aggregate increase of $5 million from various international subsidiary
businesses; and |
· |
a
$2 million increase from energy services subsidiaries due to a favorable
closeout on a major project and an increase in business; partially offset
by |
· |
additional
pre-tax losses in 2005 of $8 million on synfuel projects. This reflects
$25 million of additional expenses due to higher production levels, offset
by a $17 million net unrealized gain on options purchased to hedge the
risk associated with synthetic fuel tax credits for 2006 and
2007. |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||
Increase
in domestic and international pension costs |
$ |
9 |
$ |
34 |
||||
Martins
Creek ash basin remediation (Note 9) |
33 |
33 |
||||||
Accelerated
amortization of stock-based compensation (Note 2) |
13 |
|||||||
Increase
in allocation of corporate service costs (Note 10) |
3 |
13 |
||||||
NorthWestern
litigation accrual (Note 9) |
9 |
|||||||
Outage
costs at Brunner Island and Lower Mt. Bethel plants |
5 |
8 |
||||||
Outage
costs at the Colstrip Unit 2 and Corette facilities |
4 |
|||||||
Change
in foreign currency exchange rates |
(1 |
) |
2 |
|||||
Reduction
in WPD costs that are a pass-through to customers |
(6 |
) | ||||||
Gain
on sales of emission allowances |
(11 |
) | ||||||
Other |
6 |
(4 |
) | |||||
$ |
55 |
$ |
95 |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||
Lower
Mt. Bethel generation facility, which began commercial operation in May
2004 |
$ |
6 |
||||||
Other
additions to PP&E |
$ |
2 |
4 |
|||||
Reduction
of useful lives of certain assets (Note 2) |
5 |
5 |
||||||
Foreign
currency exchange rates |
(1 |
) |
2 |
|||||
Extension
of useful lives of certain generation assets (Note 2) |
(3 |
) |
(8 |
) | ||||
$ |
3 |
$ |
9 |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||
Interest
expense related to the Lower Mt. Bethel generation facility, which began
commercial operation in May 2004 (a) |
$ |
14 |
||||||
Write-off
of financing costs associated with PPL Energy Supply's 2-5/8% Convertible
Senior Notes (Note 7) |
$ |
6 |
6 |
|||||
Increase
in short-term debt interest expense |
1 |
4 |
||||||
Increase
(decrease) in other long-term debt interest expense |
(2 |
) |
1 |
|||||
Increase
(decrease) in interest expense with affiliate |
(1 |
) |
5 |
|||||
Change
in foreign currency exchange rates |
(1 |
) |
2 |
|||||
Decrease
in interest expense due to the repayment in June 2004 of financing related
to the University Park generation facility (b) |
(7 |
) | ||||||
Financing
costs associated with the repayment of the consolidated trust's debt for
the University Park generation facility (b) |
(6 |
) | ||||||
Other |
3 |
|||||||
$ |
3 |
$ |
22 |
(a) |
Prior
to commercial operation, interest related to the Lower Mt. Bethel
financing was capitalized as part of the cost of the
facility. | |
(b) |
In
June 2004, a subsidiary of PPL Energy Supply purchased the University Park
generation facility from the lessor that was consolidated by PPL Energy
Supply under FIN 46 (revised December 2003), "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51." In connection with
the purchase, the related financing was
repaid. |
· |
decreases
of $31 million and $57 million in income tax expense due to lower pre-tax
book income for the three and nine months ended September 30, 2005,
relative to the same periods in 2004; |
· |
tax
benefits of $6 million and $31 million for the three and nine months ended
September 30, 2005, related to additional nonconventional fuel tax credits
in excess of credits recognized for the same periods in 2004; offset by
|
· |
a
$2 million increase in tax expense on foreign earnings for the three
months ended September 30, 2005, relative to the same period in
2004. |
· |
the
retirement of $209 million of foreign long-term debt; |
· |
distributions
to Member of $206 million; |
· |
the
retirement of $495 million in note payable to affiliate;
and |
· |
$387
million of capital expenditures; offset by |
· |
$707
million of cash provided by operating activities; |
· |
$190
million of proceeds from the sale of the Sundance power plant;
|
· |
a
$70 million net increase in short-term debt (includes the impact of
currency translation adjustments); and |
· |
a
$50 million capital contribution from
Member. |
· |
WPDH
Limited to BBB- from BBB |
· |
WPD
LLP to BBB from BBB+ |
· |
WPD
(South West) and WPD (South Wales) to BBB+/F2 from
A-/F1 |
Projected |
|||||||||||||||||||
2005 |
2006 |
2007 |
2008 |
2009 |
|||||||||||||||
Generating
facilities |
$ |
195 |
$ |
231 |
$ |
208 |
$ |
150 |
$ |
138 |
|||||||||
Transmission
and distribution facilities |
287 |
292 |
283 |
286 |
293 |
||||||||||||||
Environmental |
51 |
347 |
498 |
374 |
148 |
||||||||||||||
Other |
37 |
52 |
38 |
17 |
18 |
||||||||||||||
Total
Construction Expenditures (a) (b) |
570 |
922 |
1,027 |
827 |
597 |
||||||||||||||
Nuclear
fuel |
68 |
69 |
76 |
76 |
78 |
||||||||||||||
Total
Capital Expenditures |
$ |
638 |
$ |
991 |
$ |
1,103 |
$ |
903 |
$ |
675 |
(a) |
Construction
expenditures include capitalized interest, which are expected to be
approximately $85 million for the 2005-2009 period. | |
(b) |
This
information excludes any potential investments by PPL Global for new
projects. |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | |||||||||||||||
2005 |
2004 |
2005 |
2004 | |||||||||||||
Fair
value of contracts outstanding at the beginning of the
period |
$ |
(127 |
) |
$ |
85 |
$ |
(9 |
) |
$ |
86 |
||||||
Contracts
realized or otherwise settled during the period |
(9 |
) |
(11 |
) |
(33 |
) |
(55 |
) | ||||||||
Fair
value of new contracts at inception |
9 |
22 |
||||||||||||||
Other
changes in fair values |
(145 |
) |
(12 |
) |
(252 |
) |
31 |
|||||||||
Fair
value of contracts outstanding at the end of the period |
$ |
(272 |
) |
$ |
62 |
$ |
(272 |
) |
$ |
62 |
Fair
Value of Contracts at Period-End
Gains
(Losses) | ||||||||||||||||||||
Maturity
Less
Than
1
Year |
Maturity
1-3
Years |
Maturity
4-5
Years |
Maturity
in
Excess
of
5 Years |
Total
Fair
Value | ||||||||||||||||
Source
of Fair Value |
||||||||||||||||||||
Prices
actively quoted |
$ |
21 |
$ |
18 |
$ |
2 |
$ |
41 |
||||||||||||
Prices
provided by other external sources |
(75 |
) |
(238 |
) |
(41 |
) |
(354 |
) | ||||||||||||
Prices
based on models and other valuation methods |
18 |
23 |
41 |
|||||||||||||||||
Fair
value of contracts outstanding at the end of the period |
$ |
(36 |
) |
$ |
(197 |
) |
$ |
(39 |
) |
$ |
(272 |
) |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, | |||||||||||||||
2005 |
2004 |
2005 |
2004 | |||||||||||||
Fair
value of contracts outstanding at the beginning of the
period |
$ |
11 |
$ |
12 |
$ |
9 |
$ |
3 |
||||||||
Contracts
realized or otherwise settled during the period |
(10 |
) |
(3 |
) |
(16 |
) |
(10 |
) | ||||||||
Fair
value of new contracts at inception |
(2 |
) |
2 |
4 |
||||||||||||
Other
changes in fair values |
11 |
3 |
15 |
15 |
||||||||||||
Fair
value of contracts outstanding at the end of the period |
$ |
10 |
$ |
12 |
$ |
10 |
$ |
12 |
Fair
Value of Contracts at Period-End
Gains
(Losses) | ||||||||||||||||||||
Maturity
Less
Than
1
year |
Maturity
1-3
years |
Maturity
4-5
years |
Maturity
in
Excess
of
5 Years |
Total
Fair
Value | ||||||||||||||||
Source
of Fair Value |
||||||||||||||||||||
Prices
actively quoted |
$ |
6 |
$ |
6 |
||||||||||||||||
Prices
provided by other external sources |
9 |
$ |
1 |
10 |
||||||||||||||||
Prices
based on models and other valuation methods |
(6 |
) |
(6 |
) | ||||||||||||||||
Fair
value of contracts outstanding at the end of the period |
$ |
9 |
$ |
1 |
$ |
10 |
Three
Months Ended
September
30, |
Nine
Months Ended
September
30, |
||||||||||||||
2005 |
2004 |
2005 |
2004 |
||||||||||||
$ |
52 |
$ |
15 |
$ |
103 |
$ |
51 |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||
Delivery
revenues (net of CTC/ITC amortization, interest expense on transition
bonds and ancillary charges) |
$ |
34 |
$ |
92 |
||||
Operation
and maintenance expenses |
7 |
(4 |
) | |||||
Taxes,
other than income (excluding gross receipts taxes) |
(1 |
) |
(9 |
) | ||||
Interest
income on 2004 IRS tax settlement |
(5 |
) |
(5 |
) | ||||
Interest
income on loans to affiliates |
2 |
5 |
||||||
Other |
2 |
|||||||
Unusual
items |
(29 |
) | ||||||
$ |
37 |
$ |
52 |
Nine
Months Ended
September
30, | ||||||||
2005 |
2004 | |||||||
PJM
billing dispute (Note 9) |
$ |
(27 |
) |
|||||
Acceleration
of stock-based compensation expense for periods prior to 2005 (Note
2) |
(2 |
) |
||||||
Total |
$ |
(29 |
) |
· |
In
December 2004, the PUC approved an increase in PPL Electric's distribution
rates of approximately $137 million (based on a return on equity of
10.7%), and approved PPL Electric's proposed mechanism for collecting an
additional $57 million in transmission-related charges, for a total
increase of approximately $194 million, effective January 1,
2005. |
· |
PPL
Electric has agreed to provide electricity supply to its PLR customers at
predetermined rates through 2009 and has entered into PUC-approved, full
requirements energy supply agreements with PPL EnergyPlus to fulfill its
PLR obligation. The predetermined charges for generation supply which PPL
Electric collects from its PLR customers and pays to PPL EnergyPlus under
the energy supply agreements provide for annual increases in each year
commencing in 2006 and continuing through 2009. PPL Electric's PLR
obligation after 2009 will be determined by the PUC pursuant to rules that
have not yet been promulgated. See "PLR Contracts" in Note 10 to the
Financial Statements for more information. |
· |
In
January 2005, severe ice storms hit PPL Electric's service territory. As a
result, PPL Electric had to restore service to approximately 238,000
customers. The total cost of restoring service, excluding capitalized
costs and regular payroll expenses, was approximately $16 million.
|
On
February 11, 2005, PPL Electric filed a petition with the PUC for
authority to defer and amortize for regulatory accounting and reporting
purposes these storm costs. On August 26, 2005, the PUC issued an order
granting PPL Electric's petition subject to certain conditions, including:
(i) the PUC's authorization of deferred accounting is not an assurance of
future rate recovery of the storm costs, (ii) PPL Electric must request
recovery of the deferred storm costs in its next distribution base rate
case, and (iii) PPL Electric must begin immediately to expense the
deferred storm costs on a ten-year amortization schedule for regulatory
accounting and reporting purposes. As a result of the PUC Order and in
accordance with SFAS 71, "Accounting for the Effects of Certain Types of
Regulation," in the third quarter of 2005, PPL Electric deferred
approximately $12 million of the previously expensed storm costs. The
deferral was based on its assessment of the timing and likelihood of
recovering the deferred costs in PPL Electric's next distribution base
rate case. At this time, PPL Electric cannot be certain that it will
recover the storm costs, nor can it predict whether other incidents of
severe weather will cause significant facility damage and service
disruptions that would also result in significant costs.
| |
· |
As
a result of the Order issued by the FERC in connection with the litigation
described under "Regulatory Issues - PJM Billing" in Note 9 to the
Financial Statements, PPL Electric recognized an after-tax charge of $27
million in the first quarter of 2005 for a loss contingency related to the
litigation. See Note 9 for information concerning the settlement agreement
reached by PPL Electric and Exelon Corporation to settle this litigation,
which is subject to approval by the FERC. PPL Electric cannot be certain
of the outcome of this matter. |
· |
See
Note 9 to the Financial Statements for other potential commitments and
contingent liabilities that may impact future earnings. |
· |
See
Note 16 to the Financial Statements for new accounting standards that have
been issued but not yet adopted by PPL Electric that may impact future
earnings. |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||
Electric
delivery |
$ |
67 |
$ |
149 |
||||
PLR
electric generation supply |
50 |
91 |
||||||
Other |
2 |
1 |
||||||
$ |
119 |
$ |
241 |
Sept.
30, 2005 vs. Sept. 30, 2004 | ||||||||
Three
Months
Ended |
Nine
Months
Ended | |||||||
Costs
associated with severe ice storms in January 2005 |
$ |
16 |
||||||
Subsequent
deferral of a portion of costs associated with January 2005 ice storms
(Note 2) |
$ |
(12 |
) |
(12 |
) | |||
Accelerated
amortization of stock-based compensation (Note 2) |
5 |
|||||||
Increase
in domestic pension costs |
2 |
|||||||
Other |
(2 |
) | ||||||
$ |
(12 |
) |
$ |
9 |
· |
the
retirement of $497 million of long-term debt; |
· |
the
payment of $61 million of common and preferred dividends;
and |
· |
$125
million of capital expenditures; partially offset by |
· |
$361
million of cash provided by operating activities; and |
· |
the
issuance of $224 million of tax-exempt long-term
debt. |
(a) |
Evaluation
of disclosure controls and procedures. | |
The
registrants' principal executive officers and principal financial
officers, based on their evaluation of the registrants' disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of
the Securities Exchange Act of 1934) have concluded that, as of September
30, 2005, the registrants' disclosure controls and procedures are adequate
and effective to ensure that material information relating to the
registrants and their consolidated subsidiaries is recorded, processed,
summarized and reported within the time periods specified by the SEC's
rules and forms, particularly during the period for which this quarterly
report has been prepared. The aforementioned principal officers have
concluded that the disclosure controls and procedures are also effective
to ensure that information required to be disclosed in reports filed under
the Exchange Act is accumulated and communicated to management, including
the chief executive and chief financial officers, to allow for timely
decisions regarding required disclosure. | ||
(b) |
Change
in internal controls over financial reporting. | |
The
registrants' principal executive officers and principal financial officers
have concluded that there were no changes in the registrants' internal
control over financial reporting during the registrants' third fiscal
quarter that have materially affected, or are reasonably likely to
materially affect, the registrants' internal control over financial
reporting. |
For
additional information regarding various pending administrative and
judicial proceedings involving regulatory, environmental and other
matters, which information is incorporated by reference into this Part II,
see: | ||
· |
"Item
3. Legal Proceedings" in PPL's, PPL Energy Supply's and PPL Electric's
2004 Form 10-K; and | |
· |
Note
9 of the registrants' "Combined Notes to Condensed Consolidated Financial
Statements" in Part I of this report. | |
*3(a)
|
-
|
Amended
and Restated Articles of Incorporation of PPL Corporation, effective
August 17, 2005 (Exhibit 3.1 to PPL Corporation Form 8-K Report (File No.
1-11459) dated August 19, 2005)
|
*3(b)
|
-
|
Bylaws
of PPL Corporation, as amended and restated effective August 17, 2005
(Exhibit 3.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated
August 19, 2005)
|
*4(a)
|
-
|
Supplement,
dated October 1, 2005, to Indenture, dated as of October 1, 2001, by PPL
Energy Supply and JPMorgan Chase Bank, N.A., as Trustee (Exhibit 4(a) to
PPL Energy Supply Form 8-K Report (File No. 333-74794) dated October 28,
2005)
|
*4(b)
|
-
|
Form
of Note for PPL Energy Supply’s $300 million aggregate principal amount of
5.70% REset Put Securities due 2035 (REPSSM)
(Exhibit 4(b) to PPL Energy Supply Form 8-K Report (File No. 333-74794)
dated October 28, 2005)
|
|
-
|
Second
Amendment dated as of September 1, 2005, to Reimbursement Agreement, dated
as of March 31, 2005, among PPL Energy Supply, LLC, The Bank of Nova
Scotia, as Issuer and Administrative Agent, and the Lenders party thereto
from time to time
|
|
-
|
PPL
Corporation and Subsidiaries Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
|
|
-
|
PPL
Energy Supply, LLC and Subsidiaries Computation of Ratio of Earnings to
Fixed Charges
|
|
-
|
PPL
Electric Utilities Corporation and Subsidiaries Computation of Ratio of
Earnings to Fixed Charges
|
* |
- |
previously
filed |
Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the
quarterly period ended September 30, 2005, filed by the following officers
for the following companies:
| ||
|
-
|
William
F. Hecht for PPL Corporation
|
|
-
|
John
R. Biggar for PPL Corporation
|
|
-
|
William
F. Hecht for PPL Energy Supply, LLC
|
|
-
|
Paul
A. Farr for PPL Energy Supply, LLC
|
|
-
|
John
F. Sipics for PPL Electric Utilities Corporation
|
|
-
|
Paul
A. Farr for PPL Electric Utilities Corporation
|
Certifications
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the
quarterly period ended September 30, 2005, furnished by the following
officers for the following companies:
| ||
|
-
|
William
F. Hecht for PPL Corporation
|
|
-
|
John
R. Biggar for PPL Corporation
|
|
-
|
William
F. Hecht for PPL Energy Supply, LLC
|
|
-
|
Paul
A. Farr for PPL Energy Supply, LLC
|
|
-
|
John
F. Sipics for PPL Electric Utilities Corporation
|
|
-
|
Paul
A. Farr for PPL Electric Utilities Corporation
|
PPL
Corporation | ||
(Registrant) |
||
PPL
Energy Supply, LLC | ||
(Registrant) |
||
PPL
Electric Utilities Corporation | ||
(Registrant) |
||
Date:
November 3, 2005 |
/s/ John
R. Biggar | |
John
R. Biggar |
||
Executive
Vice President and |
||
Chief
Financial Officer |
||
(PPL
Corporation) |
||
(principal
financial officer) |
||
/s/ Paul
A. Farr | ||
Paul
A. Farr |
||
Vice
President and Controller |
||
(PPL
Energy Supply, LLC) |
||
Senior
Vice President-Financial and Controller |
||
(PPL
Electric Utilities Corporation) |
||
(principal
financial officer) |