賓州電力 (PPL) 2007 Q2 法說會逐字稿

Good day, everyone, and welcome to PPL Corporation's second quarter earnings release conference call.

Today's call is being recorded.

For opening remarks and introductions I would like to turn the call over to the Investor Relations Director, Mr.

Tim Paukovits.

Please go ahead, sir.

Thank you.

Good morning.

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

We are providing slides of this presentation on our website at www.PPLweb.com.

Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from such forward-looking statements.

A discussion of factors that could cause actual results and events, or events to vary is contained in the appendix to this presentation and in the Company's SEC filings.

At this time, I would like to turn the call over to Jim Miller, PPL's Chairman, and CEO.

Thanks, Tim, and good morning, everyone.

As always, we appreciate your time and participating in the call.

We'll get to the questions in a few minutes, but first, Paul Farr, our Chief Financial Officer and Bill Spence, Chief Operating Officer, and I will discuss the results we announced this morning.

The increase in our 2007 forecast and then a bit about our long-term view.

To begin, I would maybe like to provide a few observations on our second quarter results.

This morning we did report second quarter earnings of $0.88 a share and earnings that are 87% higher than the $0.47 per share reported the second quarter last year.

Pretty strong performance and driven by a gain on the successful sale of our electric delivery businesses in El Salvador.

A U.S.

income tax benefit associated with our international delivery segment, and higher realized wholesale energy margins and increased profitability from our company's energy marketing operations.

Also, I should add that the solid execution by our domestic and international wires businesses and very good availability for gen fleet was also a key driver for the quarter.

Now, excluding the special items, our earnings from ongoing operations in the quarter increased by 19%.

From a year to date perspective, which is another solid indicator, first half of the year, through the first half of the year, our reported earnings are about 18% higher than they were a year ago.

And earnings from ongoing operations are 6% higher than a year ago.

In addition to the encouraging first half results, we still remain highly confident that we'll achieve significant growth in the second half of the year over 2006, as well, mainly in the fourth quarter.

We continue to be pleased with the organization's ability to execute on the challenging business plan that we've put in place and Paul's going to provide more much detail on our second quarter results when he covers some of the financials.

Let's talk about 2007 and the long-term forecast.

As a result of our strong performance in the first half, and the income tax benefit that I talked about a moment ago, we're increasing the 2007 forecast of earnings from ongoing operations to $2.40 to $2.50 a share.

Now, the strong earnings growth we expect in the second half of 2007 is driven by the expiring supply obligations in our energy marketing business that will be replaced by higher margin contracts.

So achieving the $2.45 midpoint of this forecast would really translate into a 9% increase in earnings from ongoing operations over 2006.

We've not yet established definitive guidance for 2008 and we plan to do so later this fall when we revise our 2010 forecast, as we've mentioned earlier.

We are currently in the midst of our normal business planning process for 2008 and beyond.

As we mentioned before, we're continuing to examine that 2010 forecast and are planning to update the number before the end of this year.

And before that, we're going to be looking very carefully and evaluating the additional market information that will be provided in the PGM capacity auction in October.

And that's going to be a significant driver of our expected update.

I'm sure you noted that we recently announced the results of our Pennsylvania Electric Delivery company's first solicitation for 2010 supply for provider of last resort customers.

We separately announced that PPL Energy Plus was the successful bidder for 671 megawatts of that supply at an average price of $91.42 per megawatt hour.

Before we turn to Paul and Bill for more specifics on our 2007 results and the status of operations, I would like to bring you up to date on some items that are important elements in our effort to sharpen the focus on our core businesses and identify value-added growth opportunities.

As we've announced, we successfully closed on the sale of electricity delivery operations in both Bolivia and El Salvador.

Interest in our Chilian operation, the last of our Latin America assets, continues to be very high.

While the details of the process are obviously confidential, I can tell you that we remain very optimistic about the anticipated proceeds from this sale.

Even though Latin American operation was profitable and has shown significant improvement, we decided to sell those properties because they represented a relatively small part of our portfolio, and we really didn't intend to increase our investment there.

Similarly, regarding scale and our interest in additional investment led to our decision to seek a buyer for our relatively small natural gas and propane business based in Pennsylvania.

We expect the sale of the Chilian companies to be completed by the end of the year and the gas business to be completed by the end of the year as well.

As you know, we currently have an agreement of sale for our small telecom operations and we expect that sale to close within the next several weeks.

These asset sales really allow us to continue to improve our focus on the Company's core businesses.

Electricity generation, marketing and delivery.

We're also continuing to explore opportunities to -- for growth, especially in the gen business.

It's been part of our strategy to look at our key core areas of the business, divest areas that are not within our core, and drive the focus down to our generation business for the future.

We announced earlier this week that Bryce Shriver, President of our Generation Company, will lead the effort to develop a comprehensive nuclear strategy for PPL.

And among the items being assessed is the potential for building a third nuclear unit at our Susquehanna nuclear site in northeast Pennsylvania.

In light of the strong wholesale markets, our ability to capture value in these markets and our continuing operational performance, we have every reason to be optimistic about our future.

So I look forward to further discussion during the Q&A period, but let's go to Paul Farr, our CFO for some detailed financial information and then we'll -- Paul will turn it over to Bill Spence to give you a thorough operational update.

Paul?

Thanks, Jim, and good morning, everyone.

As you can see from the chart on Slide 6, our strong second quarter results compared to a year ago are the results of strong performance by our supply in international business segment.

Before reviewing second quarter key earnings factors, I would like to remind everyone that earnings from ongoing operations include the operating results of the Latin American delivery businesses, but exclude special items related to their divestiture.

Turning to Slide 7, I would like to review the key earnings drivers in the supply segment for the second quarter.

The supply segment earned $0.30 per share in the second quarter, a 20% increase over the prior year.

This increase was primarily driven by increased profitability associated with energy marketing operations, as Jim indicated.

Higher earnings energy margins in the east resulted primarily from higher realized margins earned on new and existing co-requirements supply contracts and higher capacity and ancillary revenues.

Partially offsetting these approved marketing results, however, were higher O&M expenses related to planned nuclear and coal-fired power plant outages in the east.

Turning to Slide 8, our Pennsylvania delivery business segment earned $0.07 per share in the second quarter, $0.01 below 2006.

Higher revenues and modest [mode] growth from our residential and commercial customers were more than offset by higher O&M and depreciation.

Moving to Slide 9, our international delivery segment earned $0.26 per share in the second quarter, a 30% increase over 2006.

As we've disclosed in our news release the main driver of the earnings growth was a U.S.

income tax reserve release related to our UK operations, which will likely not recur at similar levels in future periods.

This tax benefit amounted to $0.08 in the quarter.

Other positive factors in the quarter included higher operating earnings in our Latin American delivery businesses and the positive impact of currency exchange rates in the UK.

These positive earnings factors were partially offset by higher O&M in the UK.

As we highlighted at this time last year, the 2006 second quarter results included $0.06 of earnings benefit from the ongoing liquidation of certain non-core businesses in the UK.

Turning to Slide 10, and as Jim mentioned, we are now forecasting 2007 earnings from ongoing operations of $2.40 to $2.50 per share, a $0.10 increase over prior guidance.

The $2.45 per share midpoint of the range represents an 8.8% increase over our 2006 earnings from ongoing operations of $2.25 per share.

Let's move to Slide 11, which highlights the principal drivers of our increased forecast of 2007 earnings from ongoing operations.

As you can see, we've updated this slide to reflect the sale of our distribution companies in Latin America and the U.S.

income tax benefit associated with our international operations that I mentioned earlier.

We also modified the presentation of our international delivery business information to show the impact of currency variances as a separate item.

As we've discussed previously, we've -- we expect the supply segment will lead PPL's earnings growth for this year and for the foreseeable future.

We currently expect 57% of our 2007 earnings from ongoing operations to come from the supply segment compared with 52% in 2006.

We expect the international delivery segment will provide 27% of '07 ongoing earnings and that the Pennsylvania delivery segment will provide just 16% of 2007 ongoing earnings, with the lower earnings contribution coming in advance of a distribution rate case decision we expect later this year that would benefit future period earnings.

As shown on the earnings block, higher energy margins are expected to contribute $0.22 to the 2007 earnings growth.

We indicated earlier this year that substantially all of the growth in energy margins will be realized in the second half of the year and primarily in the fourth quarter.

The margin growth is expected to be driven by the replacement of expiring fixed price supply contracts and higher margin wholesale energy contracts, such as the northwestern energy contract in Montana.

New [fuller] requirements contracts in the Mid-Atlantic region also contribute, as does improved [knee port] capacity markets.

2007 energy margins also benefit from a 1.3% increase in sales prices under the fuller contract and higher expected generation output in 2007 as a result of improved plant performance.

The tax benefit we've already discussed in the 4 X benefit is pretty self explanatory.

The last major positive driver comes from higher expected Pennsylvania delivery margins for the year, mainly the result from the favorable weather that benefited the first half of '07 results, as well as higher load growth in our residential and commercial customer classes.

Partially offsetting these positive earnings drivers are significantly lower higher liquidation proceeds in '07 versus '06, higher O&M, primarily in our supply business segment as a result of the planned outage costs at our nuclear and coal-fired power plants and higher nuclear fuel disposal costs, lower operating earnings from Latin America, as we disposed of these investments, and higher income taxes and other, which is the net result of higher local taxes in the UK, lower delivery margins at WPDs due to lower sales volumes and higher synfuel earnings.

Moving to Slide 12, our forecast of free cash flow before dividends has been updated to reflect the sale of our El Salvador and Bolivian operations, but does not reflect any expected after tax sales proceeds from other businesses that we are in the process of divesting.

Additionally, the CapEx numbers have been updated to reflect the elimination of CapEx spend in our Latin American operations as well as telecom, and includes additional CapEx for PPL Electric Utility for the transmission line that has been improved by PGM as part of their [artech] process.

Also included in our life CapEx spend are amounts necessary for preparation of the [pull off] for a third unit at Susquehanna.

We have not adjusted the cash from operations numbers, as we expect to do that later this year when we provide definitive 2008 guidance, as well as update our 2010 earnings forecast.

We continue to expect that we will fund scrubber projects and other capital expenditures with cash from operations and the issuance of long-term debt and hybrid securities.

We have no plans to issue any common stock to fund our current capital expenditures program.

In fact, we are well under way with our previously announced program to repurchase up to $750 million of common stock.

As of July 31, we have repurchased approximately 3.6 million shares.

The current business plan continues to reflect $700 million of additional common stock repurchases beginning in 2009.

We view these stock buybacks as a place holder for other growth opportunities that have the ability to add greater shareholder value.

Moving to our dividend strategy, we continue to focus on dividend growth as an important component of growing shareholder value.

I'm sure you're all aware that we increased our annualized dividend rate by 11% from $1.10 to $1.22 per share effective with the [April] dividend, based on the midpoint of our increased 2007 earnings forecast, the current annualized dividend rate equates to a payout ratio of about 50%.

We do expect the dividend growth rate in 2008, 2009 will exceed the growth rate of per share earnings from ongoing operations, which should result in a payout ratio above 50% both years.

With that, I would like to turn the call over to Bill Spence, our Executive Vice President and Chief Operating Officer.

Thank you, Paul, and good morning, everyone.

I would like to give you a brief update on some of the major activities that we have underway at PPL.

First, I want to re-emphasize how very confident we are that the scrubber construction projects at our large eastern coal-fired plants will be completed on time and on budget in 2008 and early 2009.

The construction, for example, at Montour, is now nearly 70% complete and we're making exceptional progress at Bruner Island.

Second, we continue to execute on our plans to increase our generation capacity in Pennsylvania, Montana, by 355-megawatts through upgrades at our existing generating stations.

During the recently completed planned outage at our Susquehanna nuclear facility, we completed extensive work in preparation for the extended power up rate that will increase the capacity of that facility by 140-megawatts.

In addition, we continue to explore the possibility of adding a new coal-fired unit at our Montour station and a third nuclear unit, as Jim mentioned, at our Susquehanna site.

On the utility front, I'm happy to report that PPL electric utilities has completed its first solicitation for 1/6 of its expected default supply requirements for 2010, and I'll discuss that in more detail in a moment.

Additionally, we continue to work through PPL electric utilities request for a distribution revenue increase.

And as Jim discussed earlier, we're continuing with various divestitures of our non-core businesses.

Earlier this week we announced our intention to sell our natural gas distribution and propane businesses.

Turning to Slide 15, last week, PPL electric utilities concluded its first of six solicitations for general -- generation supply for 2010 for those customers who choose not to shop for an alternative supplier in 2010.

That solicitation was for 850-megawatts, or 1/6 of the 2010 load, and that was for residential and small commercial and small industrial customers.

On July 26, the Pennsylvania PUC approved this first solicitation.

If the prices achieved in this solicitation were to be the same for the five remaining purchases, total residential customer builds would increase by about 28% over 2009 levels, and that increase is well within the range that we had anticipated.

Actual 2010 prices will obviously not be known until all six supply purchases have been completed and we average those prices together.

The second solicitation will be conducted later this year, with bids due October 1st and PUC approval is expected on October the 4th.

PPL electric utilities will conduct two additional solicitations in each of the years 2008 and 2009.

Moving to the electric rate case, as I mentioned earlier we continue to work through the regulatory process of our request for a $77 million revenue increase.

I would like to point out that the increase requested was recently lowered slightly due to some adjustments to depreciation expense.

We've also included on this slide the intervenors who have filed testimony in the summary of the details for two of the key parties, just to show how they differ from our requested increase.

In the appendix, there's a timetable for you of the important steps in this proceeding.

Now, turning to PJM and our supply business, as you know, PJM is forecasting a drop below the crucial 15% reserve margin level in 2008, and as we've said in the past, we continue to see growing constraints in the region where our Pennsylvania generation is located.

PJM estimates include the PPL zone, which will likely be constrained by 2009, 2010 planning period.

The two lines on this slide show the current and projected PJM congestion areas.

By 2009, the projection for congestion includes all of PPL's power plants.

Looking at the RPM auction, the most recent results from the 2008, 2009 planning year, we show and expect capacity prices for 2010 to be higher than the $70 per megawatt day we assumed in our 2010 forecast.

In the most recent auction, the rest of the pool, which includes the PJM regions that are not currently constrained, they cleared at $112 per megawatt day, compared to $40 during the 2007, 2008 planning year auction that was held back in April.

All of PPL's generation in Pennsylvania is currently in the rest of, rest of pull zone.

If the max zone, which is where our generation is located, becomes constrained, as depicted on the previous slide, it would receive a separate clearing price for capacity, as the eastern mack and Southwest mack currently do, and PPL could receive higher capacity payments.

To give you an idea of our sensitivity to capacity prices, a $1 per megawatt day change would translate to about a $3 million per year change in gross margins post 2009, assuming no change in energy prices.

The 2009,10 auction will be completed on October the 12th.

As you can see from the table in the slide, most of our generation capacity is committed through 2009, largely to the PPL electric utilities POLR load, but for 2010, we have committed only 8% of our capacity.

The market fundamentals and summary continue to take shape, as we expected them to, and as both Jim and Paul have noted, we will be updating our 2010 forecast later this year.

At that time, I will be reviewing specific assumptions regarding capacity and energy prices, load volume prices and fuel costs, among other items.

At this point, I would like to turn the call back to Jim for the Q&A session.

Okay.

Thanks, Bill, and I guess at this point, Operator, we would like to open up the phone lines for Q&A.

(OPERATOR INSTRUCTIONS) And your first question will come from Paul Patterson from Glenrock Association.

Good morning, guys.

Good morning, Paul.

Just to sort of go over the 2010, I know that you guys are going to be giving us more detail later and sort of getting some more trend ideas, but if I heard you correctly, it was $75 a megawatt day that you guys have currently projected in the 2010 number that you guys currently have out there?

$70, Paul.

$70?

Yes.

You gave us the sensitivity, I guess, in 2010 of about 3 million for every $1 change?

Correct.

Okay.

And then, I was just wondering just in general, if there are any other trends we should be thinking about?

I know that you're going to give us more details but, in the future, but in terms of general trends we should be thinking about that might be a little bit different than you guys had before in terms of O&M or something else, fuel costs or something that perhaps we should be thinking about as well when we look at these numbers, or when we try to figure out what 2010 might look like?

I don't think that there's anything major that jumps out at us into that question.

I think we've pretty well defined our fuel costs.

They seem to be holding, the coal costs seem to be holding well within the numbers that we laid out over the last few years about 4 to 5% a year coal cost increases.

I don't, don't see anything that would jump out that would cause us to say here's, here's something that should be considered that we hadn't previously talked about.

Okay, great.

And then just, the slides moved a little quickly and I wasn't able to stop them.

I'm a little technically challenged perhaps, but there seemed to be an income tax benefit in international of $0.03, I thought I saw.

Is that part of the $0.08 or what did I actually see there, I guess?

Could you just elaborate a little bit more on that?

Yes, Paul, this is Paul.

The total tax benefit for the reserve release was $0.08.

Okay.

Was that $0.03 part of that?

Pardon?

Is that $0.03 part of the $0.08 or -- ?

Let me go back to the slide.

One second.

It just looked like there was a $0.02 benefit from currency I saw, I think.

And I thought there was a $0.03 income tax benefit, but unfortunately I wasn't able to freeze the slide, if you know what I mean.

Yes, sorry.

That's a blend.

That's income taxes and others, which includes the $0.08 reserve release in 2007, less the $0.06 higher benefit that we had, which is both tax and, tax-related item last year, as well as [header] liquidation proceeds from '06, so that was really the delta.

Okay.

It's an $0.08 gross benefit in '07, less benefits that we -- you could look at as potentially not ongoing or one-time in 2006.

That was an offset.

Okay.

During the period it's just the net change of $0.03.

Thanks a lot.

Yes.

And John Kiani with Deutsche Bank.

Good morning, Jim, Paul.

Good morning, John.

Can you talk a little bit about any legacy contracts that you might have, aside from the POLR contract that's expiring at the end of 2009, maybe a little bit farther out than that, that may have been signed back when gas prices were a little bit lower?

I don't think that there's any major contracts that would go back that far.

Most of the other -- there's the Northwestern contract, obviously, but that's not really driven as much high gas.

Most of the contracts are load-following related that roll over year to year, so there's really not a significant gas delta that would drive any type of enhanced margin.

It's really more the volume of those types of contracts than it is margin expansion from a contract to contract situation.

Got it.

And then can you also talk a little bit more about potential partners and any kind of in-kind contributions and things like that for the Susquehanna expansion option that you've been talking about a little bit?

Well, we can comment a little bit on that.

I mean I think we've, we've clearly said that, explained where we are in the process, that we are going to pursue a construction operating license.

That will involve selecting the technology, but we also have said, very clearly that we will pursue a plant only with the selected partnering, partner or partners.

Additionally, we are not excluding the possibility of becoming a partner with others in some of the other plants that may take life in MISO or PJM.

And I think that beyond that, at this point, I probably would just leave it at that.

We are going to pursue whenever and wherever possible discussions with others that are interested nuclear and I'm sure they will probably be doing the same.

Thanks.

That's helpful.

And just one last question.

Can you talk a little bit behind, about the rational behind keeping WPD, as you repositioned the international portfolio?

Yes, as we've said, we've looked at, we've looked at our core business and of course electric delivery will continue to be a major portion, or an important portion of our core business to distribute the megawatts that we generate and we market.

WPD is a sizable portion of our earning potential.

We absolutely love the regulatory system and we feel the Company has performed very well over the years.

It's been a good earner.

It throws off cash to us.

An it, very importantly, rewards good management and good performance by the Company and that increased the revenue stream in WPD repeatedly year in and year out, by their excellent performance.

Actually I think best in the UK.

So that is very much a business that we want to hold on to.

On the other hand, as you've heard me say before, it is -- any business in PPL, if at some point in time in the future that strategically it would look as though WPD, or PPL Montana, or any other aspect of our business, strategically needs to become part of a, a transaction or a move forward to bring significant shareholder value that's not currently on the table, we're not we weded to it.

But right now as we see it, it differs very much of our view of Latin America.

We were not going to invest.

We felt Latin America, our investor base, had better ways to invest in Latin America than through PPL Corporation.

We weren't going to expand, and it was a very, very small piece of our business, whereas WPD has become an important part and gives us geographical diversity, regulatory diversity, and as I said, it's a great performer.

Thanks, Jim.

And Greg Gordon from Citi, please go ahead.

Good morning, guys.

Good morning.

I won't try to get you to give me any earnings guidance through the back door.

I'll ask you a different question.

The, the Governor is, of Pennsylvania is, I think, going to have a special session on energy issues in November.

Correct.

Can us please review for us what your understanding is of what the agenda items are?

And if we should be watching for any attempt to rethink or change the evolution of the power market structure in Pennsylvania.

Sure, sure.

Well, I think, first of all, I would say that I have not seen the final agenda for that meeting yet.

I think it's still in the construction stages, if you will.

I think that from what we can gather from what went on in the sessions leading up to approval of the budget for the State of Pennsylvania, that there were some items put on hold.

I think there will be more discussion about the Governor's energy independence plan and opportunities, maybe just fleshing out how that funding may come to pass and how much funding will be available and what the Governor will choose to direct it towards.

I think that's going to be a discussion point.

I think as well, there may well be some discussion about how, how the utilities within Pennsylvania can aid and help in furthering demand side management and conservation.

I think, quite frankly, that we at PPL are working very hard to prepare ourselves to provide some, some potential recommendations and solutions and we want to play a proactive role in that discussion, in the session.

I think we can bring forth some real ideas that can help the consumers and give the consumers options and I think, that in fact is what the administration is looking for as well.

So I think that, a mutual kind of desire on both parts.

Long story short, I, I just currently don't have any reason to believe that there is any burning platform to change the regulatory structure or change the fact that, in 2010, electric utilities will be going to market for their power.

The first auction has occurred.

It went well, I think.

The second auction is almost upon us, and I think, from what we've seen so far, I think everybody in the administration understands and understands where we're going from a power purchase situation.

So I, I, never say never, but I don't see that tone of discussion currently.

So the major issue is renewables?

Well, I think it's one of the issues.

I think that there will be discussion of, again, I'm sure there will be a little more discussion of how can, how can the industrials, perhaps, find better long-term contracts and ways to keep their power costs down so that we can continue to keep as much industry in the State of Pennsylvania.

That's very important to all of us.

But from a pure massive change of the current structure and the direction we're headed, I, I just don't believe that the major are going to be an item -- major item of discussion.

I think that, quite frankly, I think that everyone does understand that this auction process that we've laid out and that was approved is clearly the best way to deliver the best prices from electric utilities, PPL electric utilities to its 1.3 million customers, is to buy that power over the next three years and do it in small increments in one thick increment as we are.

But we will keep you posted from call to call.

Thank you.

(OPERATOR INSTRUCTIONS) Scott Thomas with Lehman Brothers, please go ahead.

Thank you.

Good morning, folks.

Just a quick question to follow up on Greg's line of inquiry there.

Have you guys had discussions since the release of the POLR, this first tranche of the POLR auction with the stake holders like the commission or the consumer advocate and if so, could you characterize their response?

No, we have not had discussions at this point.

I -- right today, I don't anticipate any of those discussions taking place.

We have not, not been contacted, nor have we contacted the commission.

Okay.

If, just to imagine the path over the next few years, let's say for argument's sake the rates come in at or near where they came in for this last tranch, the rate increases, as you pointed out in your press release, are the 28, 29% total increase, do you folks see a need for a deferral of some sort?

And if so, how would that take shape over the discussions like around that?

We don't see a need for a deferral.

That's -- remember, that one of the positions that the Governor has laid out and suggested in some of the legislation is the option, the program for the customer to have an option to take the rate increase over a three-year period piece by piece.

They don't have to take the full rate increase in one year.

They can take it in, in pieces, and with slight interest charges.

Similar to what was offered in Maryland.

Now, that's going to be -- that gives the customer the choice, or -- but in Maryland, as you may well know, that not many people opted into that deferral program.

But that's clearly one of the Governor's options that he has laid out to people and was very adamant about having that choice for the customer to take the increase in smaller bites over three, I think a three-year period.

And the language as it stands now would keep you folks whole for the carry and what not?

Yes, it would keep electric utilities whole, yes, that's correct.

Great.

Thanks a lot.

Thank you.

Judd Arnold from King Street.

Hey, guys.

Good morning.

Could you just walk through, it looks like you raised your delivery CapEx guidance for 2009 and 2010 versus the previous lines?

Looks like 2009's up at 348 from 295 and then 2010's up to 409 from 304.

That's correct.

That includes partial construction costs related to the new 500 KV line that was announced by PJM as part of their regional transmission project and planning.

So that's, in total, through the construction that's around a 326 million total CapEx spend and that would go through basically 2012 when the project is planned to be brought online.

Do you expect -- that was sort of my second question, for 2011, '12 and beyond, so you expect sort of this $400 million CapEx number to continue, or do you think it will be more in line with 300?

No, I think it would fall back to the 300 range.

Okay.

Perfect.

Then with international CapEx, just to confirm, is it, the swing back, sort of over the last four sets of slides that we've seen since last October, sort of gone from this 300 million, then the 350, then back to 300 level, is that just changes in currency?

It's a combination in this last step down.

It's $170 million decrease, because of over the period, because of Latin America coming out because we don't -- we won't own those assets.

Net of the increase because of the stronger currency in the UK.

Okay, but the UK, I guess, the UK CapEx has stayed constant.

That's correct.

All of that's preagreed and preplanned as part of the normal five-year off gen cycle.

Perfect.

Thanks much.

Yes.

And Jeff Gildersleeve from Millennium Partners.

Good morning.

Good morning, Jeff.

And sorry if I missed the clarification, but when you talked about marketing contract rolling off and benefiting second half '07, is that something, are these one-year contracts?

How much, how much volume is on these contracts and should we expect to see sort of a stair step going forward for any part of your energy?

The contracts really vary anywhere from 12 months to, I believe the longest is our contract with ComEd, that goes out -- one of the tranches goes out 41 months.

The total is somewhere between 2500 and 3000-megawatts of load following deals that we've got outside of the PPL electric utilities POLR contract.

Outside of the affiliate contract.

Okay, great.

And so part of that is ending midyear here and repricing --

We did see some benefit in Q2, but most of the contracts that kicked in that were either new or that repriced did so in either May or June.

So as I kind of indicated in my comments, net of everything we see most of the margin growth that factors in all items.

We do see some benefit in Q2 and Q3, but the most substantial piece comes in Q4.

Great.

Of the $0.22 that was an add versus '06.

And does this -- do we see this in future years as well, or?

Yes, we have it in the plan to continue to try to max the value of that, that trading floor through -- this is one of the ways that we plan to do that.

Great.

Thank you very much.

Yes.

Daniele Seitz from Dahlman Rose.

Thank you.

I was wondering in the second half where the sale of Latin American properties will result in lower earnings.

I mean those earnings are going to disappear as the, as the sales are completed, is that the way to look at it?

Yes, Daniele, as we laid out on the earnings walk, I think on Slide 11, that, that $0.03 is really the loss of El Salvador and Bolivia.

We do plan on the Chile sale concluding by the end of the year, but those operating results would be in, incorporated into the ongoing forecast.

So it would contribute -- Chile would contribute for the full year.

Great, and the -- in terms of long term construction, how do you visualize your decision to start counting on building a coal plant and nuclear plants?

I mean when do you feel that first, always the process going, do you have to go to, do you decide that, and do you start seeing some additional CapEx around 2009, '10?

Well, Daniele, let's, let's take the, let's take it one piece at a time.

The nuclear side, we anticipate filing, and are working towards filing a construction operating license by the end of 2008, and it's important that that is filed by that time and accepted by the NRC.

That is the gate that we would want to go through because it keeps us in, in the hunt for tax benefits.

Right.

For the first 6000-megawatts of plants that actually lay safety-related concrete.

But as I always mention, we're preserving the option and we're preserving the option by filing the license by the end of 2008, and it would take three to four years for the NRC to approve that.

During that time, we would then pursue the work necessary to determine if we would find an appropriate joint venture partner or partners.

We would continue to assess the state of the industry, state of the nuclear industry.

We also have to see very clearly that there are acceptable resolution of the loan guarantees that are currently being talked about in Washington.

That is something that we absolutely require.

If in fact at the end of that four-year period the COL was issued to PPL, if we chose to go forward at that time, you could be looking at five to six years of construction.

So we would not see, if, if we made the decision to go forward, we would not see a plan until 2018, and from a CapEx perspective, if we chose to go forward, sometime during that four-year COL review period by the NRC, we could proceed with spending on reserving space or actually purchasing forgings for some of the heavy components.

But we're not at that point yet.

We've got at least several years to go before we would before making those types of decisions.

Okay.

On the coal side, Daniele, we are doing some obvious prep work at our site in Montour, air quality types of investigations, et cetera, but I think, truly the next step we need to work on is to work with the DET and have the necessary discussions to see if, if we can permit, or if we will be able to permit a plant, a coal plant in Pennsylvania and what we might need to do to accomplish that.

So I think we're eager at this point to get into some discussions and try to work our way through that to see if that's the right thing to do, and of course to continue to watch the market to see that that's the right decision for the shareholder.

So you don't anticipate, in this case, the [DTC], actually the timing factor at this point, see if what type of technology you will use at that time.

Well, I think, if I understand you, I think that the type of technology is still open for discussion, but there's a broad range of technologies, including, we could also go to arrive at the decision to build gas.

But I think all of that, first and foremost, have to pass the test of, is it going to deliver shareholder value?

We will not go forward with the technology, or for that matter, any technology, for technology sake, if it doesn't deliver shareholder value.

Thank you.

Okay.

Thank you, Daniele.

And Shalini Mahajan with UBS.

You thank you.

I had a question on the earnings walk on Page 11.

I don't see any benefit from the 750 million share buyback here.

We don't expect to have that significantly completed by the end of the year.

We're making progress in those regards, as I kind of highlighted, that we've got 3.6 million bought in, but that's netted in the $0.03.

That shows the reduction for Latin America.

Okay.

So the earnings loss is actually higher than $0.03, but it nets with some level of benefit from the buyback as we proceed down that path.

Okay.

Fair enough.

And then would you share for the UK delivery business whether it's performing as per plan?

There seems to be quite a bit of sales from foreign currency movement.

Yes, even ex the foreign currency movement, that the property is performing on plan.

We're maintaining margins with higher unit prices on the delivered product to customers, which is being pressured by lower consumption in general because of both seasonal weather and customers reacting to in that local market fairly high prices for electricity.

So from a delivery volume perspective, volumes year to date are down around 5 to 6%.

So even in facing those reductions in deliveries, we're still on plan.

Okay, and could you update us on the discussions in Pennsylvania for POLR procurement beyond 2010?

Well, the -- I think the PUC has, basically, when they approved our transition plan, as you recall, we're out in the marketplace one year ahead of the other two delivery businesses in Pennsylvania, two major, Med Ed and Commonwealth -- Epsilon.

They did approve as well the longer-term auction plan.

So those discussions are completed.

They have approved the methodology by which all of us from 2011 and beyond will go forward, all of us meaning the delivery businesses in Pennsylvania will go forward and procure the power.

So those discussions are complete.

Okay, and then just on the new coal option that you're looking at, in terms of timing to decide whether to go ahead or not, do you know what that timing would be?

And would you wait for any kind of carbon legislation to take shape before you make that decision?

No, I -- talking about timing is a little difficult because there are a number of factors.

As we -- if we were to move forward on a coal facility, certainly one of the questions would be our ability to appropriately hedge some level of the output of the facility.

There's technology choices.

There's discussions with the state department of environmental protection on permitting and issues there, but I think from a carbon perspective, that would not be something necessarily that we would, that would delay the process.

Quite frankly, there is going to be carbon legislation.

We have a pretty good box that we see it being formulated in.

And I think that no matter what final shape or form it comes in, it will be an additional cost that ultimately will be reflected in market price in the deregulated areas, and in the regulated areas, companies will reflect that carbon cost in the rate base, to the rate payer.

So that's something that, that's approaching us as a cost adder.

And then the long-term question is when can the technology be developed such that technological approach is better than the continued approach of auctioning and buying allowances at auctions.

Technology for Co2 removal for coal, though, we all know is going to be at least 10 years off.

Okay.

Thank you so much.

(OPERATOR INSTRUCTIONS) Darin Conti with Wachovia Securities, please go ahead.

Good morning.

Good morning.

I apologize if I missed this, but can you clarify the share repurchase program?

I know you said you purchased 3.6 million shares, but will you kind of do gradual repurchases over the balance of the year, or are you going to keep your powder dry?

Can you just clarify that a bit?

I think we're trying to, trying to gauge timing and strategy still.

We, we have been out on the open market making purchases, and as you'll see in the 10-Q that's released this morning, through the end of July, that 3.6 million share total came in with around, I think 166 million in terms of the purchase price for that.

We'll monitor and look at options to, various types of structure programs, including accelerated.

But we weigh that as best we can in light of some other growth opportunities that we are looking at, that do have the potential to add more value than, than simply a share buyback.

So we're trying to be judicious, but at the same time, obviously, we believe that the share price is undervalued or we wouldn't be out purchasing, so it's really just trying to balance the growth opportunities and any capital that they might need with taking advantage of what we believe is a good share price.

Okay.

Thank you.

Yes.

And (inaudible) with Zimmer Lucas Partners.

Good morning.

Good morning.

I believe you said before that there has already been substantial progress in terms of the discussions with the PAPUC on what the auction process post 2010 would look like.

Can you give us more color on that?

For example, what style of auction it would be, is it going to be like a descending clock option, or otherwise?

Bill, do you want to chat about that?

Yes, let me first say that each utility under the proposed process will have to file their own plans for post-2010, as I understand it.

Those plans can vary, I would say by utility.

There is not a concept of a declining block clock auction as they have in New Jersey.

So it provides to the utilities more flexibility to go out with individual RFPs, but they are all needed to be structured within a construct that was outlined in a rule making that the PUC published, as Jim mentioned earlier, coincident with our first approval of our process for 2010.

That structure allows the utilities to go out on the market for long-term contracts, on a rolling basis, and long-term contracts in their definition is up to three years.

So it might look like, for most utilities that wind up filing, very similar in concept and construct to more a Delaware or Maryland type approach with RFPs than it would a state-wide auction.

So I'm not sure if that answers your question, but that's the basic structure, which does allow each individual utility some flexibility as to how they approach that.

But one of the key concepts that is embedded in there is full recovery of the POLR costs for the utilities and to the extent there are any phase-ins necessary, cost plus interest.

And I think it's worth saying that in retro suspect, when that decision came out, as we look back at it, I think it may prove to work very, very well versus a very tightly constructed approach that could have been the decisions.

I think it gives the utilities providing power, or serving the customers, it gives them the flexibility to, enough flexibility to address changing market conditions, for instance, throughout this period and ultimately works to serve, I think, serve the rate payer the best possible way.

Thank you.

That was a very clear answer.

Does PPL envision just simply continuing what it is doing for 2010 for 2011 and beyond?

Well, strategy is only as sound as your ability to move within it and outside of it, as the world changes, but I think you can hopefully see that we have really put a sharp focus on defining and redefining what our core business is in the sector as we see it today, defining our area of interest clearly in MISO and PJM area and also stepping back and divesting the assets that we don't feel are driving shareholder value.

Now, that being said, I think we feel very good about what we see in 2011 and '12 based on some of the forward numbers and the facts that are on the table today.

We also feel good about our current strategy as it fits with our continuously improving energy marketing business.

That's a real asset that will continue to grow value beyond where it is today.

So I think from a strategic standpoint, I think we're very well focused.

Our strategy is nailed down.

With everything that we see on the table today before us, that is not to say that the world can't change in 2015 or 2020, and that's why you constantly -- strategic thinking is just a constant process within the Company and you have to move with the change in the sector.

But I think our -- clearly what has evolved from our perspective is the clear need that, to prepare and preserve all options to add generation through a myriad of ways down the road.

My final question is just a clarification question regarding 2010 RFP.

Is this RFP for all, I guess customer classes, or is it just for residential or small commercial industrial?

That RFP was just for residential, small commercial, small industrial.

The auction for the large commercial, large industrial does not happen until, I believe 2009.

So it is, it is just a portion of the load.

Thank you very much.

Thank you.

And Ashar Khan with SAC Capital.

Good morning.

Paul, could you just a little bit elaborate on those growth opportunities?

And also could you just update -- you were investing in renewables, where those investments stand over the next horizon and whether those investments could be higher than contemplated?

Yes, that's, Ashar, I'll start with the last piece.

That's one area where we do expect that there will be some opportunities above the 100 million that we allocated in the five-year plan.

A lot of the projects that were in the development pipeline at the beginning of the year are making very solid progress.

We've got three projects, landfill, gas and biomass that are heading to either construction or, are in construction or very late stage development.

I want to say those are around 18-megawatts in total.

We are looking to try to find opportunities to grow additional scale in that business line.

So the team is working hard there.

As it relates to the other asset growth opportunities, there are, periodically and basically always assets that are available on the market that we review.

They are existing assets.

They are assets that are very advanced in development and looking to start construction.

They're portfolios of assets that -- that financial and other parties decide to put on the market when they no longer want to stay in certain business lines, that we evaluate.

So we're always evaluating opportunities, but, again, as Jim mentioned, it's always with an eye towards adding shareholder value, and if market prices or asset values that, those two seem to work against each other, don't align, then we've always got stock buyback as a way to add shareholder value.

We hope we can do better than that, but I would look at that as the minimum.

Then if I'm right, you guys were also trying to enlarging our presence on the wholesale sales front, are we going into some of these markets on full requirement contracts.

How does that business progressing?

Well, it's progressing very well, as Jim mentioned, and it it reflected in our second quarter results as it continues to expand.

So I think we're taking what we have been doing for the past several years, expanding upon it in a very disciplined and reasonable approach ,and I think as we look at 2010 and beyond, we recognize that having a very active presence in the key markets where we have assets is going to be required, not only to extract additional value and seek arbitrage opportunities, but also to really manage well the risk of a merchant portfolio the size that we're going to have once we come out from under the rate cap.

So, I think for all those reasons, we continue to expand the operation both in terms of scope and people to prepare ourselves well for the future.

So can that be in itself a separate profit center, which was not contemplated when the guidance was given a year and a half, two years ago?

Could it be in terms of what we report in the future, is that the question?

That's correct.

I don't think that we see it that way at the moment simply because the operation is so integral to the operation and the assets, and there are some difficulties associated with figuring out what incremental value is associated with the operation when it comes to dispatching units and so forth.

It would become a little bit of an art to try to pick apart the profitability of the individual segment there, not that we couldn't consider it, but I don't think we envision a pure -- certainly we don't envision a pure trading operation which would have very large positions at any one time.

That's not the model.

The model is really an asset-backed marketing company.

Okay.

I appreciate it.

Thank you very much.

Okay.

A follow-up from Greg Gordon with Citi.

Thanks.

Just a question regarding the comment you made on your view on the viability of carbon sequestration technology.

I was talking to the chair person of, one of the public service commissions out in the west yesterday, and she mentioned that the DOE recently released a statement saying they thought there could be a reasonably viable carbon sequestration technology available a lot sooner than that.

And now, I haven't been able to track down that document.

I was wondering if you knew what the DOE was referencing, or if you had even heard about that statement?

Well, I -- I'll -- let me give you my opinion, and my opinion is perhaps no better than anybody else's opinion.

If we're talking pure sequestration, I would probably agree that technically sequestration is not the big nut to be cracked technically versus Co2 removal from pulverized coal.

So that being said, I hesitate to predict how long it will take our country to, on a large scale, deal with sequestration and the legal and technical implications to pumping massive amounts of Co2 into ground structures under towns, near towns, et cetera.

We can all sort of debate that till the cows come home, but we do know that, we -- it's currently used in the oil business to extract product, but sequestration on the scale we're talking is much different than that.

So I hesitate to go much further than that.

But the real nut to be cracked is the process to remove Co2 from pulverized coal power plants.

And right now there is one project at We Energies, out in Wisconsin, it's a 5 megawatt pilot project, I believe it's using an aiming process.

Now, there are huge technical problems.

There are huge efficiency losses in dealing with this, and with 50% of the power in the U.S.

being supplied by pulverized coal plants, I submit that there's a long way from a 5-megawatt pilot to, on a large scale, dealing with capturing the Co2.

So I just -- my view is everything that I can read and be associated with, with [EPRI] Electric Power Research Institute and elsewhere, I think we realistically will not see that removal technology for at least 10 years.

On a large scale efficient basis.

Thank you very much.

All right there.

There are no further questions, so I'll turn it back over to you, Jim Miller.

All right.

Well, thank you very much for attending the call and hope we've answered all your questions, and, again, thanks for participating.

And that does conclude today's program.

Thank you for your participation, and have a great day.