賓州電力 (PPL) 2005 Q1 法說會逐字稿

Good day, everyone.

Welcome to PPL corporation's first quarter earnings release conference call.

Today's call is being recorded.

For opening remarks and introductions I will now turn the call over to Investor Relations Manager, Mr. Tim Paukovits.

Please go ahead, sir.

Thank you.

Good morning.

Thank you for joining the PPL conference call on first quarter results and our general business outlook.

Today's discussion includes forward-looking statements concerning earnings and other matters.

Although we expect the expectations and assumptions reflected in these statements are reasonable, these statements involve a number of risks and uncertainties and actual results could differ.

For more information in this regard you should refer to PPL Corporation's form 10-K reports and other reports on file with the SEC.

Discussing earnings and other financial measures, we will be talking about such measures as reported in accordance with generally accepted accounting principles, or GAAP, as well as non-GAAP measures, such as earnings from ongoing operations which exclude items that we do not expect to recur on a regular basis.

A reconciliation of GAAP and non-GAAP measures is provided in PPL's earnings press release, issued this morning, which is available on our website, www.pplweb.com.

At this time I'd like to turn the call over to Bill Hecht, PPL's Chairman, President and CEO.

Good morning.

Here with me this morning are John Biggar, CFO, Jim Miller, COO and I also have with us Paul Farr, who is our Controller, Vice President and Controller.

I'll give some introductory remarks about our first quarter performance, then I'll turn it over to Jim.

Jim will talk about operations, both the supply group as well as the regulated delivery businesses in the U.S. and overseas and then -- then John will follow with a financial overview and then we'll open it up for questions.

We'll do our best to answer all of your questions.

If we can't answer them immediately, we will make every effort to come back to the questions and give you answers before we close the call.

For the first quarter PPL reported net income of $168 million or $0.88 per share and that compares with a first quarter earnings a year ago of 177 million or $0.99 per share.

In those first quarter GAAP earnings there's an unusual after tax charge of $27 million or $0.14 per share for a loss contingency.

That relates to a previously announced PJM billing dispute.

The billing dispute relates to period, to the period from 1998 into, part way into 2003.

It also includes a $6 million charge or a $0.03 per share for an agreement in principle that we reached with NorthWestern Energy settling litigation regarding certain transmission assets -- claims and counter claims by each party.

The PJM billing dispute deals with a substation, which has facilities in it for both PPL Electric Utilities as well as Pico Energy and PJM mistakenly allocated some of the load on a transformer at that station to Pico instead of to PPL and that resulted in a misallocation or an apparent alleged misallocation of certain transmission congestion charges.

In the first quarter of 2004, by comparison, PPL reported an unusual charge of $8 million or $0.04 per share, and that relates to the sale of a minority interest in a Chilean energy holding company.

Now I'm going to turn to on going operations which excludes some of the effects of the unusual items and talk about some of the components in on going operations earnings.

Ongoing operations earnings increased by 9% compared to a year ago.

That's an increase to $201 million from $185 million.

On a per share basis PPL's first quarter earnings from ongoing operations increased by 2% to $1.05 from $1.03 last year.

And that is despite a charge to accelerate the amortization of certain stock based compensation which was included in our first quarter 2005 earnings, and also it is despite 13 million more average, 13 million more shares outstanding, compared to a year ago.

The Company's first quarter 2005 results from ongoing operations do reflect an after tax non-cash charge of about $10 million or $0.06 per share to accelerate the recording of certain stock based compensation for retirement eligible employees, and that's -- those are cases where PPL's stock based compensation plans provide for immediate vesting upon retirement of an individual.

That's a -- a clarified interpretation of FASB.

We understand it affects quite a number of companies.

About one half of that $0.06 adjustment relates to prior periods.

Our first quarter operating results, I think you can see growing from 185 million to $201 million's a really strong operational performance.

Included in the 2005 ongoing results is about $0.06 for an ice storm which you should -- you may be aware of that occurred early in -- in the year.

It is despite higher fuel costs, and despite higher emission allowance costs.

Things that really operated in our favor during the first quarter to offset those -- those challenges, we had some considerably improved power plant performance, and we continue to see very strong performance -- operating performance by our power plants.

We had the distribution rate increase in Pennsylvania, which you're aware of.

We had the favorable outcome of the rate review in the United Kingdom and we had some significant load growth.

Electricity delivery customers increased their consumption by about 3.7% quarter-over-quarter, and in Latin America, the distribution customers there increased their use by 6.7% year-over-year for the first quarter.

We are reaffirming our 2005 forecast of 380 to 420 per share in earnings from ongoing operations, and that $4 midpoint of that forecast is about an 8% increase over 2004 earnings per share.

Our 2005 forecast for reported earnings, GAAP earnings, is 363 to 403 and that reflects the first quarter unusual charges of $0.17 per share.

So that's an overview of what the numbers look like on a total company basis.

Now I'll turn it over to Jim Miller and he'll discuss our operating results.

Jim?

Thanks, Bill.

Good morning, everyone.

Let's start with supply, for the first quarter supply business reported earnings of 86 million or $0.45 a share for the first quarter of this year compared to 89 million or $0.50 a share a year ago.

Reported earnings for the quarter were impacted by the unusual charge of 6 million or $0.03 a share related to the NorthWestern Energy litigation that Bill spoke to earlier.

We're pleased to get this settlement concluded and that allows us, certainly to -- us and NorthWestern, to focus on our core businesses in Montana.

Excluding this unusual charge, our supply earnings from ongoing operations for the first quarter of 2005 were 92 million or $0.48 a share as compared to 89 million or $0.50 a share a year ago.

The earnings per share reflect the dilutive effect of about 13 million more average shares outstanding, and that factor also impacts first quarter per share earnings for our international and our Pennsylvania delivery businesses.

The 3.4% increase in total earnings for ongoing operations was driven by higher energy margins and improved earnings from our company's synfuel facilities.

You may recall that we placed a new synfuel facility on line that was not online first quarter of 2004.

The increase in eastern energy margins driven primarily by the increase in the Company's nuclear, hydro and coal fire generation.

As Bill mentioned, we had a very strong operational first quarter from our power plant performance.

Plants operated very, very solid for the first quarter this year.

Higher eastern energy more gins were partially offset by lower energy margins in the west, basically from lower output from our coal fired facilities and some unplanned outages, and lower hydro output due to severe drought conditions in the northwest.

Other factors that impacted the supply business during the quarter were as I mentioned higher synfuel earnings, and that was due to the Tyrone facility being placed online mid- year last year, and higher -- a little bit of higher O & M expenses throughout supply due to the heavy planned outage schedule we have this year in 2005.

Including the -- as well, the previously mentioned accelerated amortization of the stock based compensation issue, some higher depreciation and interest expense with our lower Mount Bethel plant, as well, impacted supplies earnings.

Despite the lower output from plants in the north -- northwest, the Company's generating facilities that I mentioned performed very well. 3% higher output this quarter as compared to first quarter 2004, principally driven by our nuclear and fossil plants in the east.

Prime time availability was excellent, over 98% for the quarter for our peak operations and again, that was higher than first quarter of 2004.

I'd like to move now to the Pennsylvania delivery side.

Segment reported earnings of 20 million or $0.10 per share for the first quarter of 2005 compared to 40 million or $0.22 per share a year ago.

These reported earnings were adversely impacted by the previously discussed after tax charge, $0.14 per share or a loss contingency related to a PJM billing dispute that Bill mentioned.

Excluding this charge, earnings from ongoing operations for the first quarter were 47 million or $0.24 per share compared to 40 million or $0.22 per share in 2004.

Key driver for the delivery business segment, of course was the $194 million annual rate increase approved by the Pennsylvania PUC last year that became effective January 1 of this year.

Customers distribution rates, rate and transmission charges increased about 7% and as well, PPL's electric delivery customers increased their usage by about 370 billion kilowatt hours.

Partially offsetting these benefits were the previously announced expenses of $19 million or about $0.06 per share regarding the severe ice storm that occurred in January.

In February of this year, we did file a petition with the PUC requesting approval to defer all of the storm expenses, and the PUC has not yet acted on this petition.

Quarterly results were also impacted by the accelerated amortization of stock based compensation issue, and there was in the first quarter of 2004 a favorable resolution of some tax issues that did not reoccur in 2005.

Let's move to international.

PPL's international delivery business reported earnings of $62 million, $0.33 per share for the first quarter compared to 48 million or $0.27 per share a year ago.

No unusual items for the international delivery segment in this quarter.

Reported earnings in the first quarter of 2004 happened to be impacted by an unusual charge at $8 million for the sale of its minority interest in a -- in a Chilean energy holding company.

Excluding this charge, earnings from ongoing operations in the first quarter of 2004 were about $0.31 per share for your reference.

Our favorably quarterly performance is really due to the increased electricity sales, that Bill mentioned, in Latin America. 6.7 increase was very encouraging, and also in the U.S., we're realizing lower taxes due to greater utilization of a foreign tax credits from the UK.

And of course, a positive foreign exchange rate in the UK.

Partially offsetting this performance in this quarter compared to a year ago were slightly lower volumes and higher pension costs in the UK.

Now that I've covered the first quarter operational results I'd like to provide you with a bit more information and an overview of issues that we expect to impact our financial performance going forward. 2004 was a critical year for the delivery business.

New retail rates that were approved in both Pennsylvania and the UK were very important decisions for the Company.

We felt it provided a reasonable balance between cost recovery for the Company and value for the customers.

As a result of the completion of the rate case in Pennsylvania, we expect Pennsylvania delivery earnings from ongoing operations to roughly double 2004's performance.

And be in the range of about 80 to $0.90 per share.

At WPD in the UK, 2004 rate review resulted in a relatively small reduction in revenue of about 3.5%.

And that is a significantly lower reduction than the UK regulator has given in prior years, prior reviews.

This reduction, effective April 2005 coupled with increased WPD pension costs will be partially offset by our expected growth and earnings from our Latin American affiliates particularly ML in Chili.

As a result, the international delivery per share earnings from on going operations are expected to be in the $0.90 to $1.00 per share range.

The supply business where we get -- PPL really projects is majority of our earnings growth to occur over the next several years, to get this -- to obtain the growth there's also some cost pressures that I'm going to speak to today and let you know how we feel we've successfully addressed these issues on a going forward basis.

Before I talk about the plans that -- and having plans that we've implemented to deal with cost pressures, I'd like to review our revenue opportunities.

On the supply side, you may remember that PPL Energy Plus has a contract with PPL Electric Utilities to supply the provider of last result loads through 2009.

Beginning in 2006, this contract has a significant uptick, over 8% rate increase beginning in 2006.

Given the fact that we supply about 39 million megawatt-hours annually under this contract, we expect 2006 revenues to grow as a result of this by about $120 million.

This is the key driver of 2006 earnings growth.

Polar contract contains additional price increases all the way through 2009, at much smaller levels but these price increases are important and provide offsets to increasing supply costs through the years.

PPL Montana has a contract to supply NorthWestern with 300 megawatts around the clock and an additional 150 megawatts of contingent on-peak power through June of 2007 at a price of about $32 per megawatt-hour.

As you know, this price is significant and below market value.

Currently I don't have anything to report on the status of the NorthWestern renewal of NorthWestern's contracts post 2007, but discussions will continue.

And you obviously can see there's significant upsides to either taking our power to market through NorthWestern or through other methods, mid C and other bilateral contracts.

As a reference point, in this area in the northwest, recent forward market prices in the northwest for around the clock firm power for the three year period starting in 2007 have averaged around $50 a megawatt-hour.

About a $6.00 increase since last fall.

Another contributor to revenue growth will be the completion of previously announced generation expansion projects.

Let's start with Susquehanna and several of the large coal generators.

We're expected through those two areas, Susquehanna extended power uprate and addition capacity improvements to large coal generators, will be adding about 250 megawatts of very low cost base load power to the portfolio.

Primarily in the 2007 through 2010 time frame.

We're also aware of the phase out of the section 29 synfuel tax credits based on the reference price for domestic crude.

We've been monitoring this situation closely, and the price accrued in both the spot and the forward markets for 2005.

Based on current market conditions, we see -- don't anticipate any significant phase out of the synfuel tax credit for 2005.

For 2006 and 2007, we've taken measures to mitigate the impact of the phase out the synfuel tax credit due to higher oil prices through hedging activities.

Let's talk a little bit about some of the cost pressures that face the industry and face our supply business.

I'll walk you through our plans to deal with these cost issues that confront our business.

As you're aware, fuel prices have been increasing.

The spot price of coal has increased since -- significantly since the beginning of 2004.

We're protected from the rapid increase in coal costs through long-term contracts.

We're fully hedged in 2005, we're over 90% hedged in coal for 2006 and in excess of 80% hedged in 2007.

And lesser amounts there after, and as we move through this year, we continue to put on longer term coal contracts and increase our hedge positions.

The new longer term coal contracts are clearly at higher prices, but it's important to note that our long-term contractual prices are significantly below spot prices you see in the market price -- place today.

We expect delivered prices for currently contracted coal for our eastern facilities to increase about 5 to 6% annually through 2007.

Our average price for contracted coal was substantially lower than the existing wholesale market prices.

Due to the long-term nature of our contracts, we found that this is a -- an excellent way to hedge the increase in coal prices and we are now looking at even longer contracts than we had previously dealt with in the coal hedging, coal procurement areas.

We expect as I mentioned earlier, to recover the majority of the cost increases that I mentioned through the scheduled increases in our polar pricing through 2009 and higher wholesale electricity prices.

Let's talk a little bit about emissions allowances, which are currently trading at over $800 per allowance for SO2.

They've quadrupled in just a few years.

We've put a lot of effort into dealing with this situation.

We have, in the past years, made substantial purchases -- purchases of allowances out into the future as far out as 2010, 2011.

And we're certainly in a position now to say that we have enough allowances fully to cover us through 2005, 2006, and also last year we began a fast track effort to install scrubbers on three -- our three largest eastern coal facilities, Montour 1, Montour 2 and Brunner 3.

Permits have submitted, have been submitted to the DEP and we expect to have all three units scrubbed in 2008.

From that point forward we'll be in a long position with emissions allowances and so I think we have dealt with this situation.

I might note that all the costs associated with emission allowances as well as, of course, installation of scrubbers, and the expiration of the synfuel tax credit, all of that is baked into our guidance that we've provided in our growth -- in our growth plans through the future.

So we think we've dealt very effectively with this issue, and from the scrubbing standpoint, I think we're well prepared to be out in front of the pack when we -- the industry sees the large number of scrubbers that will be coming on in 2009, 2010.

I guess I'd make one comment regarding Montana, speak to the hydro situation in Montana, and just -- mentioned this in previous calls.

We normally plan our hydro capacity in Montana by looking at 60 years of water flow averages.

We generally, given the drought situations over the past five, six years in Montana, budget at around 70% of that and what we're seeing this year for Montana hydro appears to be coming out right around what our hydro production was in 2004, which is about 70% of that 60-year average flow rate.

So nothing significantly changed from a -- a Montana hydro situation.

The draught continues and we'll see how the remaining precipitation situation goes through -- through the year.

I think with that, I'd like to turn it over to John Biggar and he'll cover some additional financial information.

Thanks, Jim.

Good morning.

I think our first quarter performance demonstrates that our -- our strategy really does produce growth for our -- for our share owners.

Although Bill noted and covered this in his first quarter earnings remarks, I think it's worth noting again that our total earnings from ongoing operations for the first quarter were up $16 million or 9% from -- from last year's first quarter.

Earnings from ongoing operations for the first quarter were $1.05 a share, that's a 2% improvement over the first quarter of last year.

And importantly, that's despite the dilutive effect of 13 million more average stock outstanding and the cash accelerated amortization of our stock based compensation.

About $0.05 of that $0.06 impact from accelerated amortization of stock based compensation relates to periods other than the first quarter, either prior periods or amounts that would have been incurred later on in 2000 -- 2005, so if you add -- add that nickel back to the $1.05 reported of earnings from ongoing operations and add the $0.06 for the ice storm that equals $1.16 a share and I think that gives you an idea of the strength of our ongoing operations.

We continue to strengthen our credit profile while maintaining a solid liquidity position.

Our GAAP equity at the end of March was 36% and that's projected to grow to 40% by the end of the year driven by an overall debt reduction of about $600 million and about $400 million increase in common equity through growth and retained earnings.

In the past when we've looked at capitalization we've also looked at it on the basis of adjusted capitalization.

That is excluding the impact of non-recourse securitization debt and international debt.

We do that and look at March 31's capitalization and exclude about a billion dollars of securitization debt and about $2.3 billion of international debt, our equity ratio would be 50%.

We take that out to the end of the year, again excluding the international debt of $2.3 billion and about 890 million of securitization debt, which is what would be outstanding at the end of the year, our equity ratio would be -- would be 55%.

On a free cash basis, looking at free cash before dividends, our cash from operations this year is about $1.375 billion, subtract from that our transition bond repayments and our CapEx, those numbers are two six -- 265 million and $830 million respectively.

It gives us free cash flow before dividends for 2005 of about $280 million.

Our cash -- our cash from operations, as we indicated in our release today, is down from where it was in 2004 by about $60 million.

That's driven primarily by the fact that in 2004 we had a federal income tax refund that was about $50 million.

We expect our cash income taxes to be somewhat higher in 2005, about $40 million and we have some reduction in cash flow from our international operations, primarily the pension fund contribution increase at WPD and slightly lower revenues at WPD resulting from, off Jim's rate review, that became effective the on April 1.

On the positive side, however, we do see cash flow improvement from the PUC's decision in December of last year for PPL Electric Utilities allowing us to decrease rates and transmission charges and that's became effective on January 1, and we do see some higher cash flow from our -- from energy margins this year.

As we noted in the earnings release, our CapEx is expected to be about $95 million more this year than it was in 2004.

That's driven primarily by more planned outages at our generating plants this year than last year, but those planned outages are necessary to improve our long-term reliability of those plants.

It's also the increase in environmental expenditures at those plants that Jim talked about as well as increased CapEx by both our domestic and international delivery business for system reliability purposes -- and I guess I'd just point out that at least with respect to the UK, the rate structure in the UK provides us to earn on those capital expenditures as soon as they're made.

Jim talked about the installation of scrubbers and other pollution control equipment at the plants.

We plan to finance the installation of that as part of our overall CapEx program with cash from operations, and when necessary, the issuance of debt securities.

We have no plans to issue any common stock during this period.

As Bill noted in his remarks we have reaffirmed our 2000 five forecast of $3.80 to $4.20 per share in earnings from ongoing operations.

And if we use the midpoint of that range, that represents an 8% increase in earnings per share compared to the $3.72 per share earnings from ongoing operations in 2004.

I'm sure you'll remember that in December 2004 we announced a plan to more aggressively grow the common stock dividend.

Based on our sound financial position we've adopted a policy that provides for growing the dividend at a rate that exceeds the projected growth rate in per share earnings from ongoing operations and we plan to pursue that policy until the payout ratio reaches the 50% level, which we expect to -- to see happen within -- within two years.

And of course consistent with that policy, in February the board authorized a dividend increase of a little over 12% to an annualized dividend rate of $1.84 a share and that was effective with the dividend that was paid on April 1.

We continue to believe our strategy will result in compound growth rate and per share earnings over the next several years of 3% to 5% and as Jim noted in his remarks, this does take into account our plans to, to meet our emission allowance needs and it factors in the expiration of the synfuel tax credits at the end of 2007.

It's probably important to put this 3 to 5% growth rate into perspective.

If you assume, for example a constant multiple over this period and factor in the current dividend as well as projected dividend growth, it would result in an increase in total return to share owners that could be as much as double our projected earnings per share growth rate.

Our earnings growth is visible.

We are projecting -- we have increases in our polar prices with PPL Electric Utilities including the 8.4% increase that applies in 2006.

We have increases in volumes of polar sales reflecting load growth at PPL electric utilities and we have plans for incremental capacity additions of about 255 megawatts at existing generating facilities, including the power up rate Susquehanna and other minor capacity enhancements at our fossil plants that Jim talked about.

In importantly in developing our long-term forecast we have conservatively assumed no growth in wholesale price levels and that no new assets are added to our portfolio.

Before we open the call to questions, I'd like to mention that we've closely analyzed our credit metrics and other factors for 2005 and beyond, we determined that the strong growth in PPL's retained earnings not only supports our dividend earning policy but provides the potential for stock buybacks in the future while sustaining our overall credit quality.

With that -- this concludes our prepared remarks and I'll turn it back to Bill for the Q and A period.

Okay.

Thanks a lot, John.

We'll open it up for questions now.

Operator?

Thank you, gentlemen. [Operator Instructions] We'll take our first question from David [inaudible] Capital Management.

Good morning.

Good morning.

Thanks for the -- the level of detail you gave us on -- on both the revenue enhancements and the -- and the emissions, but I -- I do have a -- one follow-up question on what you were talking about on the emissions road map.

You said you're -- you're covered through '06 in terms of your having emissions allowances or emissions credits either coming to you in the form of allowances or past purchases, and the scrubbers are going to come online in '08.

Can you give us an idea of the size of the requirements that you still need to fill for '07?

Yeah.

We -- we will not be able to do that.

That's competitive information.

What I -- what I will say, though, is this.

We've had an emission allowance management plan and hedging plan in place for many years and we have purchased allowances out into the future, and with the scrubber construction that we've announced and with the allowances we have in place, there will be no surprises in PPL's earnings related to emission allowances.

I can say that absolutely affirmatively.

We have a substantial amount of allowances hedged.

We know what the market is.

We know what allowances will be freed up and when with new scrubbers coming online and there -- it all reflects the market for allowances and there will be no earnings surprise related to allowance -- allowances at this company.

All right.

That helps a lot.

Thank you.

Next question?

We'll now hear from David Schanzer, Janney Montgomery Scott.

Good morning, everybody.

Hi, David.

Good morning David.

A couple of questions.

First of all, you were talking about the -- your needs for financing, pollution control equipment and you were -- you mention that, that you would be accessing cash and maybe debt.

My question is, what is the capacity for industrial revenue bonds?

Are you grandfathered for any of that or do you plan to do that?

We have taken steps to qualify the -- the expenditures.

The first step you should take is to get an inducement resolution from PEDFA which is the Pennsylvania agency that handles tax exempt pollution control financing or solid waste financing.

That's, that's under way.

And now it's a matter of determining the extent to which the facilities qualify and it's our intention to make maximum use of tax exempt financing that becomes available to us.

Great.

In Latin America you talked about a 6.7% increase in consumption and my question is, how much of that is new customers and how much of that is increased usage?

Because of weather or whatever?

I -- I don't think weather was a particular factor.

I'm not sure I could easily break down new customers versus increased usage per customer.

Certainly the rate of increased use per customer in Latin America is generally higher than it would be in the U.S. or the UK.

Okay.

You mentioned that the public utility commission's considering the ice term deferral.

Do you have any rough idea without getting specific, I mean, maybe by quarter, when that decision might -- might come?

Actually, I don't.

I -- I can give you -- the background I can give you is this.

A you know, when regulated rates are set, it's done on a so-called test period basis and you put together a pro forma, financials and expenses and -- and that's used to -- to set rates.

In that pro forma, I believe we allowed, and were allowed by the commission when the rates were set, about $7 million for storms.

And of course, that's kind of a -- an effort at normalizing storms that are going to vary from year to year.

The actual expenditures for the ice storm in question were well over $20 million.

About three times what was built into our test period.

Now, in -- in our request for a deferral, what we do is, we take the total cost and we back out of it straight time pay.

In other words, the people who worked on storm restorations would have still been paid straight time had there been no storms, so we back that out, and that's where the approximate $18 million deferral request came from.

The commission has our application.

I believe they've held it over for hearings and I don't believe the hearings have been scheduled.

So I would hope that we have a ruling sometime later this year.

Now, when later this year is -- it's really not possible for us to tell at this time.

I would obvious -- emphasize what I -- what I think you all know.

What we said was that the costs of the ice storm are reflected in our ongoing earnings results and I think that that's particularly significant that we've been able to find strong growth in our other businesses and -- and still provide very strong growth in ongoing operations despite the cost of those -- that ice storm.

That's -- I can't give you any more detail on the regulatory process right now, David.

I don't think that detail exists.

Well, I guess what I was driving at is that that the commission currently is in the state of flux and I was wondering if that's going to hold things up?

In terms of the composition of the membership.

It -- I don't know that it would.

I think the commission does have turnover from time to time.

Other commissioners have -- have come and gone, so I don't know that the commission would necessarily -- the turnover of commissioners would necessarily delay this.

It may well be that the hearings will be held and briefs taken and so forth, and the -- when that record is fully developed, by that time the new commissioners would be seated.

So there may not be as big an interplay.

Okay.

It's hard to tell though, David.

Sure.

Susquehanna, could you remind me what the -- what kind of shape it's in for the summer?

Is it expected to operate fully, both units?

Yes.

Okay.

And my last question has to do with the synfuel.

Could you kind of do a same facility comparison without including the new facility that was added in 2005?

I mean, how did the synfuel perform in -- in -- in the first quarter of '05 versus '04 without the new facility?

Okay.

We'll try to sort that out.

Give us just a second.

Sure.

About a penny a share for Summer Set, penny and a half for Summer Set.

About $0.03 for Tyrone, which was the on going operation.

Okay.

Something like that.

All right, thanks.

Okay?

Yes, great.

Thanks.

Okay, David, thanks.

Moving on we hear from Paul Ridzon, Key McDonald.

Could you give some more flavor as to the magnitude of the increased UK pension costs?

And then just back to the deferral, if -- if you get favorable commission ruling will you back -- will you restate first quarter or how will you handle that, the accounting there?

And then what should we look for in subsequent years with regards to stock compensation expenses like the one that hit this quarter?

Thank you.

Okay.

We won't take them in exactly that order.

The deferral we would not restate.

This is something that we've -- kind of thing that's been dealt with before.

We simply reverse the -- reverse that chargeout in -- in a subsequent period based on the facts at that time.

Stock based compensation about $0.03 -- annually.

We, we took a charge of $0.06 and I said about half of that was prior period stuff.

UK pension, give us a second on that.

Okay.

About $1 million in -- about 1.4 million or so in '05 net periodic pension costs -- income.

Is this a reduced income?

Is that the impact?

No.

Paul, was your question an earnings impact or a cash impact?

Or both?

Or both?

Earnings, but I'll take both.

Okay, cash was about 20 million.

Cash was 20 million.

Earnings was 1.4 million positive.

There's a net -- the net periodic pension cost is a credit in the UK.

Okay?

Thank you very much.

Moving on we hear from Paul Patterson Glenrock Associates.

Hi, guys.

Hello, Paul.

Hey, Paul.

How much was the impact of currency?

I'm sorry if I missed that.

Yeah, we -- I don't believe we gave that number.

Paul, do you have the number in currency?

One cent.

About a penny.

About a penny for the quarter?

Yes.

Yes.

And then for the -- for the synfuel, sounded like it was four and a half cents for the quarter.

Is that right?

$0.04 improvement for the quarter.

Oh, $0.04 improvement.

How much was the total impact, the total synfuel for the quarter?

We'll give you that in a moment.

And then while you're looking at that, I guess I'm sort of interested in you indicated you've taken some steps to protect yourselves from price increases in '06 and '07 and I was wondering if you could elaborate a little bit more on that with synfuel?

Well, we've done some larger forward purchases some months ago for number 6.

We're not going to quantify that , of course, for competitive reasons.

When oil prices ran some months ago, but then settled back -- you'll recall they ran a little bit some months ago and then settled back down below 50 bucks and then went back above, that first time they ran, number 6 didn't follow crude and as a hedge we bought some number 6 oil forward.

We've also put in some crude oil hedges so that we've covered a fair amount of our exposure for synfuel tax credits in the crude oil markets.

I wouldn't want to get into more detail than that just now.

Okay.

Competitive reasons but we think -- we've taken steps to begin to -- to hedge the exposure to loss of the synfuel tax credits for higher crude oil prices.

Okay.

You can't tell us what the new phase out would be or anything like that?

And in circling back to your question on synfuel, the tax credit for the first quarter total was about $0.07 a share.

$0.07 a share?

So should we just multiply that by 4 for the new synfuel number?

Does that make sense?

Probably not.

Okay.

Are you still on board for $0.21 or is the number higher now ?

No, we're on board for $0.21.

Okay, so it's just an unusual amount that you guys had this year

Yeah.

Maybe it'll be $0.25, $0.21, $0.25 something in that neighborhood for the year.

Okay.

And just to recap what you said about the emissions credits, we really shouldn't see any big earnings variation due to -- due to the need to -- to get emissions credits in the future pretty much over the next several years is that right?

That's right.

Now, Jim said that we have built in to our earnings forecast both our guidance for this year and our longer term 3 to 5% earnings growth number.

We've baked into that things like, the expiration of this synthetic fuel tax credits and things like, the current emissions market.

You will not see surprises at this company related to emissions allowances.

Okay, when you mention the 3 to 5%, just remind us what base we're looking off of on that.

2004.

That's off of 2004.

And that's for, about the four to five year period.

Okay?

So it takes you out past the syn -- the expiration of the synfuel tax credits

Right.

But it's before the expiration of the affiliate hedge.

Okay.

Okay?

But you guys are also looking at some -- some sort of benefits over the next -- over this year and next year that are clearly higher than 3 to 5% so we should assume that growth really flattens off?

Or should we -- would there be a decline?

I mean, can you elaborate a little bit more on that ?

No, because you'll see some opportunities for growth in the later years as well with the increased production at our plants that Jim mentioned.

I just want to -- want to emphasize too, that the 3 to 5% we talk about, you know, sort of understates the share owner opportunity because that's only an earn -- that's an earnings growth.

And as John pointed out, if you assume only a constant multiple, which is a conservative assumption, you've got 3 to 5% growth in share price, plus our dividend.

So that's a total share owner return that's probably in the neighborhood of double the 3 to 5% and that's only assuming a constant multiple and I think there are good arguments recognizing our growth opportunity as well -- and our low risk profile, that our multiple is still probably a bit below our peer group.

So when you add up the pieces you've got a pretty strong share owner return.

Right.

But I guess, people don't also want to see a lot of variation I guess, as well.

So when you guys mention 3 to 5% growths we shouldn't expect any years in which there are going to be down earnings right?

I wouldn't -- not on an ongoing basis.

Okay.

That's great.

Appreciate it.

You bet.

Moving on, we hear from Asher Khan, SAC capital.

Good morning.

Might have not understood this answer that Paul Ridzon asked.

John, the pension costs you mentioned in your release that the pension cost for the international business was a negative quarter-over-quarter.

I was trying to understand what is that negative?

It wasn't -- well, first of all, it was, it was -- what I talked about was cash and it wasn't quarter-over-quarter.

It was one -- it was 2005 compared to 2004.

Okay.

And it was the -- it was the cash contribution to the WPD pension plan.

Okay.

But -- because it says in the international delivery segment that -- that in the first quarter 2005 the positives were lower U.S. tax due to foreign tax credits, increased electric delivery sales and positive foreign currency exchange rates, and the negatives were, were lower electric delivery sales volumes and higher pension costs in the UK.

Yes.

The higher pension costs are the -- the fact that our -- our net periodic pension cost was a larger credit in 2004 than we're projecting for 2005

Could you tell us what that Delta was?

Yes.

About 30 -- about 30 million -- $31 million, $32 million -- pre-tax.

So you absorbed the 32 million pre-tax Delta in the first quarter.

I that a fair -- ?

For the year.

That will be for the year.

For the year.

How much was it for the first quarter?

$0.03.

About $0.03. 8 million.

Okay, $0.03, 8 million, so that was the negative Delta.

That was the negative Delta.

The net periodic pension cost was a larger credit in 2004 than in 2005.

I understand.

$0.03 in the first quarter.

$0.03 in the first quarter.

Yes.

Now, if I'm correct you will start the revenues, the new revenues start in the UK in April.

Correct?

So there was no -- you did not have any revenues to match this loss in the first quarter and you will start with the new rate structure in April which should provide for recovery of some of these costs.

Is that a fair point?

Some of it, yes.

Okay.

And then if -- is it possible that you could break up your international delivery?

You might have done it I might have missed it in the comments the 0 - $0.90 to $1.00 for the year in '05, is it possible if you could break it down between UK and other?

It's about 85% UK and 15% Latin America.

Okay.

And then John, just going to the -- if I understand the -- the -- the range, the 380 to 420 is the continuing operation range, so if -- but you are absorbing the -- the way you're still looking at this range is you're still absorbing the $0.03 from the higher compensation costs

Yes.

Which are for years you're absorbing them this year -- Yes, that's correct. -- but in essence that's a one-time item because it's for previous years but you're absorbing it this year.

Is that correct?

That's correct.

And then there is another $0.06 if you get a favorable ruling by the commission, you have absorbed it but if you get it that will be an upside.

Correct?

Correct.

Okay.

Thank you.

You're welcome.

Moving on, we hear from Daniele Seitz, Maxcor Financial.

Thank you.

I just was wondering, the 255 megawatt of additional capacity, does it happen toward the end of the full five-year period or do you have -- is there a schedule for this?

Yes, Daniele.

We'll try to give you a rough breakdown.

Yes, that's fine.

Let's start with the big piece.

Around 170 to 180 megawatts would come in in the 2007, 2009 or '10 time frame.

Okay.

Then, if you would look at, let's say, 2005 through 2008, you can then take the remaining portion of that 255 and sprinkle it in 2005 through 2008.

Uh-huh.

It's the easiest way to look at it.

Okay.

But it's toward the end, I mean, the major -- the bulk of it would be around 2007, 2009

Yes.

The larger portion at Susquehanna will come in 2007, 8, 9 and then the remaining, let's say, 80 or so megawatts, 70 or so megawatts, come in 5, 6 and 7.

Okay.

Is there any update on the Sundance sale or is that -- ?

Not at present.

It's in the hands of FERC.

We've completed all necessary work with the Arizona Public Commiss -- ACC in Arizona, so it's in the hands of FERC, and no further --

Your best bet is it will be second quarter or third quarter?

I couldn't really, you know, tell you, Daniele.

It's -- it's in their hands and up to FERC when they decide to hear this matter.

Okay.

Just a quick other question.

You mentioned that you had unplanned power plant outages in the west.

Is this a continuing issue of -- that was just for the first quarter and could you give us a sense of the size of that?

No.

From the standpoint of stepping back, yes, there were some unplanned outages, but from overall perspectives, the western assets continued to still run very well and are still projected to be at the expected performance level for 2005.

So it's not a matter of great concern.

We just note that an occasion --

So it was not like a major outage, a lengthy outage.

No, not at all.

Not a major, not a lengthy outage at all.

So you anticipate that aside from the 70% hike or condition there shouldn't be any other remaining problems for the rest of the year?

Well, we don't -- we foresee our generation in the west running as per our expectations on an annualized basis.

Uh-huh.

Can you quantify the -- the impact of that relative to the hydro condition in the west?

I'm sorry.

Can you --

Can you quantify the impact?

Was it minor in the first quarter?

On hydro, Daniele?

On the unplanned outages.

The impact was minor collective to --

Yes, in the -- if I were to put a number on the western impact, let me try here.

Possibly it was an offsetting, perhaps a penny to two pennies offsetting on our supply overall earnings for the quarter.

Okay.

Okay.

Thanks a lot.

Thank you.

Moving on we hear from Vedula Murti, Tribeca Global Management.

Good morning.

Hi, Vedula.

I want to -- I'm wondering, in terms of when you talk about longer term outlook without any benefits from higher market prices, I want to get a sense if you can help me a little bit in terms of what type of potential lift there may be.

First I'm wondering, are you in your longer term outlook basically making the assumption that the, you know, Montana power contract is simply renewed at the exact same price?

No.

No.

We're looking at the forward market, and taking -- assuming that we take that power to the forward market and adding into it the transmission charges to get it there.

And also reflecting in that the availability -- likely availability of transmission.

Well, maybe to ask it a different way then, if you use -- you said the 2004 was the base at which you used the forward price.

Can you help us in terms of how much the forward price may have moved out west?

And since then in terms of your -- in terms of your base?

Jim, you want to -- you can give an estimate.

Yes, I can give you a sense of, you know, current forwards that -- current -- or current prices at mid C, around the clock, are in the high 50s.

As you look out beyond '06 all the way out to '09 you see around the clock at mid C really looking to be in the low 50s.

But how does that compare to kind of like your '04 kind of a foundation base view?

Well, our 0 -- as I said, our '04 -- currently we're at 32.

About 6 bucks maybe.

Okay.

About $6.

And in the eastern fleet, can you help me with how many, you know, the volumes that are available away from the -- away from the contract back to PP&L Electric Utility is available on the market and since again, you're not assuming any commodity lift there, what, what -- what might be working there?

Well, that -- that could be pretty tough to do.

We have greater volumes available off peak than on peak.

You would find that on an on peak basis, we'll be making some purchases to cover the polar contract.

Uh-huh.

So if we gave you a number of available energy it would have to be a net number, but all those megawatt-hours aren't going to fetch the same price.

So I -- we -- we can't give you that breakdown and if we were to give it to you, you would have to -- to -- to assess its valuation, you'd have to model it hour by hour at different prices.

Well, maybe -- maybe try to simplify if we just thought about off peak, can you tell us how much, you know, off peak prices have moved from your base level that you --

Well, off peak -- off peak prices now in -- in PJM are around -- are around, around $40, at least the first half of '05.

They've been around 40 bucks.

That's about 5 bucks higher than they were in '04, but we also in looking at the forwards off peak, we see that back -- backing off to the $40 range.

So that gives you an idea of what the offpeak market looks -- seems to look like in PJM.

But again, that's an annual average for many different months.

You can look at off peak in spring and fall and it's quite a low value to say what off peak could be in the summer.

So these average prices can be very misleading is what we're trying to caution you about.

Okay.

Okay?

Thank you very much.

Sure

And we'll hear from Steve Fleishman, Merrill Lynch.

Hi there.

Hi, Steve.

Bill, I couldn't recall what your views were on the potential RPM changes in PJM, and also just generally what -- what that might mean to your kind of forecast period?

The capacity value changes?

We haven't built into our forecast any substantial change in capacity values in PJM.

It -- it may well be that over the forecast period, we'll see a couple different approaches evolve toward handling capacity in each of the pools.

You know, when you look at the industry, and each of the pools in the -- in the east, in the northeast, PJM and New York and new England, are struggling with how to use some kind of capacity price to reflect scarcity in the market to stimulate new construction when it's needed and nobody has really settled in on an approach that they're comfortable is the right one that will work.

So we haven't assumed any significant impact oven our earnings from that.

Okay.

Do you -- do you have a sense of whether it be positive or negative?

It should be positive.

Even though you have a polar load to serve?

Oh, yeah.

It should be positive to us.

And then finally, I'm not sure if you have this handy but can you just remind us what your current polar rate is and, and where it goes to by 2009?

It will take us just a second but we can get it.

Okay.

Hold on a second, Steve.

Current, Steve is -- current polar rate 2005 is 4410.

Okay.

And in 2006, it goes to 4780.

That's about an 8.4% increase.

All right.

And then by 2009 you just grow it by one half point a year.

About.

It's out to -- the last year is 5020.

Okay.

And if you had a rough guess of what the market price of this kind of service is in your part of PJM, I guess the recent BGS was about 65 bucks but that's with eastern PJM.

That's eastern PJM, you really can't --

Well, I can give you this kind of a number, Steve.

The polar contract is of course, profitable to us.

It's above our blended costs.

Right.

But it is below the current market probably by several hundred million dollars.

Right.

Okay.

So that neighborhood if the price is -- you know, forecasts are just forecasts, you know, that's all they are is extrapolations, but when they go out past 2009 when the contract expires we've got a new world that has, you know, clearly should have significant upside in some fashion.

Right.

We can -- if we knew the market and we don't know it, we just have forwards, but if we knew the market, that would give us a ballpark, then we'd still have to work with exactly how we wanted to hedge in that market.

Okay.

Okay?

Thank you very much.

I'd say it's several hundred million dollars below the market.

I guess since I'm asking that question and if you'll -- if you'll look at where eastern PJM prices is because you have this like BGS, is there certain price differential you guys kind of think about versus that market where it's a pretty identifiable number?

Well, it -- I -- instead of looking at an proximate price differential, Steve, we look at the availability of transmission and transmission congestion charges.

Right.

Because, when transmission is available, then we can take some of our generation into eastern PJM, particularly the Martin's Creek stuff and lower Mount Bethel stuff, you know, there -- there are a lot of moving parts.

First of all, the prices of course are hourly and when we talk about prices on these calls we typically look at some kind of a -- a weighted average over a year, even when we give an on peak number it's still a weighted average over the year.

Also not -- not clear to anyone yet is the upward pressure of -- on eastern PJM prices of things like the Neptune Project.

Right.

And so I -- I'm not -- I apologize if that isn't as direct -- isn't as direct a quantitative answer as you might prefer, but I'd prefer to give you the straight story than -- than kind of try to -- try to guess for you.

No, that's very helpful.

Thank you.

Thanks a lot, Steve.

And there are no further questions at this time.

I'll turn it back over to our speakers for any additional closing comments.

Okay, thank you all very much for your participation this morning.

We appreciate your questions.

We hope we've been able to answer them.

Thank you very much and we'll talk to you in the future.

That does conclude today's conference call.

We thank you for your participation you may now disconnect at this time.