賓州電力 (PPL) 2009 Q1 法說會逐字稿

Good morning.

My name is Rachel and I will be your conference call operator today.

At this time I would like to welcome everyone to the PPL Corporation first quarter conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions).

Thank you.

I would now like to turn the call over to Mr.

Tim Paukovits.

Sir, you may begin.

Thank you.

Good morning.

Thank you for joining us the PPL conference call on first 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 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 Chairman, President and CEO.

Good morning, everyone.

Thanks, Tim.

Just a not here to begin.

As many of you may be aware this is Tim's last call as he's leaving PPL to pursue opportunities in the non-profit sector and so I'd like to thank Tim for his significant contribution to the Company and we wish him the best in his new endeavors.

Joe Bergstein, who many of you already know, will be replacing Tim, and I know Joe and his team will continue our record to being responsive to your needs.

As usual we'll begin with a brief business update and first quarter results and then we'll take Q&A.

Joining me this morning are Bill Spence, our Chief Operating Officer, and Paul Farr, our Chief Financial Officer.

Today we're reporting first quarter GAAP earnings of $0.64 a share compared with $0.69 a share a year ago.

Our first quarter earnings from on-going operations, which exclude special items, were $0.60 a share, $0.01 per share lower than a year ago.

Primary drivers of our first quarter results compared to the first quarter of 2008 were less favorable currency exchange rates in the UK and lower wholesale energy margins in the US, offset by financing activity benefits and lower operating expenses in both the US and the UK.

Given the continued challenges in the energy and financial markets these first quarter results are very positive.

They put us solidly on track to achieve our earnings target for the year.

During the quarter we saw the benefits of reducing our capital and reducing our O&M spending.

We also took advantage of our strong liquidity position to repurchase some long-term debt, which will result in reductions in future interest expense.

A major focus for us continues to be the maintenance of a strong balance sheet, stable investment-grade credit ratings, which provide us to access with lower-cost funding.

Our credit rating and our strong dividend are cornerstones of preserving and growing shareowner value in these challenged economic environment that we're in.

On the asset front we're still pursuing selected growth opportunities, such as the expansion of our hydro capacity in Pennsylvania and in Montana.

These initiatives, which are largely driven by the availability of federal economic stimulus incentives, will further enhance our already diverse generation portfolio as the nation moves towards limits on carbon emissions.

As you may know about 40% of our current production capability is from noncarbon sources, and once completed these expansions, combined with several smaller investments in renewable projects, will further strengthen that position.

Now let's talk about our forecast for 2009 and '10, which we're reaffirming today.

As I mentioned earlier the actions we've taken over the last six months, combined with our solid first quarter results, make us confident in our ability to achieve our forecast of $1.60 to $1.90 per share for 2009 earnings from ongoing operations.

For 2009 we're continuing to project higher earnings from our supply business, driven by higher energy margins that will be partially offset by higher O&M and depreciation expense.

We expect modestly lower earnings from our Pennsylvania delivery segment for 2009 because of the 2008 divestiture of our gas delivery businesses and higher O&M expenses.

We're projecting lower 2009 earnings from our international delivery segment due to the weakened pound sterling.

Now turning to 2010, we're now expecting our results to be at the low end of our $3.60 to $4.20 range due to lower wholesale electricity prices that are affecting the value of our unhedged generation, and Bill Spence will discuss later in the call concerning our move towards further increasing the amount of power hedged for 2010.

Following our normal practice we'll provide a full review of our 2010 forecast in the fall.

Before we move on to Paul I'll give you a brief update regarding the transition to wholesale markets in Pennsylvania.

PPL Electric Utilities generation rate cap expires at the end of this year and we're continuing to provide customers with options to manage the price increase that will result when caps expire.

About 10% of our customers are participating in a prepayment program for 2010, and more than 200,000 customers have now visited a wise energy use website that we've established.

Another option we're pursuing to help customers has been filed with the Pennsylvania PUC.

If approved this post-cap phase-in program would give customers the option to defer 2010 rate increases in excess of 25%.

We're awaiting PUC action on this plan, which would allow us to collect the deferred amounts plus carrying charges over a period of two years.

Our filing is similar to plans already approved by the PUC for some other Pennsylvania utilities.

As a result of lower wholesale electricity prices we're currently project that the average residential bill would increase by about 30% on January 1, 2010.

Meanwhile, the Pennsylvania legislature is considering legislation that would mandate that utilities offer deferral programs for customers.

Last week, the Pennsylvania House Consumer Affairs committee approved legislation that would require utilities to offer a deferral option for customers, under which a customer's bill could increase by no more than 20% in any year during a three-year phase-in period.

This bill includes provisions for full recovery of carrying charges.

The timing of the full house vote on the legislation is uncertain at this time.

Also uncertain is what would happen to such legislation if it were to pass and be sent to the senate.

While PPL is not opposing the legislation, we continue to believe that the plan we filed with the PUC is in the long-term best interest to the customers and that decisions regarding such plans are best left to the PUC, which already has the authority to implement such phase ins.

Now we'll turn the call over to Paul for more details on our strong first quarter results.

Paul?

Thanks, Jim, and good morning, everyone.

Before I begin I'd like to remind everyone that prior-year 2008 earnings from ongoing operations include the operating results of the gas delivery business but exclude special items related to the divestiture that took place late last year.

As Jim mentioned, our first quarter earnings from ongoing operations were modestly lower last year, primarily driven by lower international segment earnings as a result of the weaker sterling, which was partially offset by benefits from a completed debt repurchase and lower operating costs in both the US and the UK.

Even excluding the debt repurchase benefit we are tracking well against our plan and are solid;u on track to achieve our 2009 ongoing earnings.forecast.

Turning to Slide 6, let's begin with the supply segment performance.

The supply segment earned $0.22 per share in the first quarter of 2009, a $0.03 increase compared with a year ago.

The increase was driven by higher west energy margins on higher wholesale volumes and increased hydro generation, lower nuclear O&M, primarily driven by the fact that the shift of this year's refueling outage was to April as compared to the 2008 refueling outage that started in March, combined with lower operating costs in our energy marketing center and lower financing cost, including a $0.05 per share gain on the completion of PPL Energy Supply debt tender offer, which will result in future reductions in interest expense, as well.

Partially offsetting the positive earnings drivers are lower east energy margins as a result of higher average coal prices and slightly lower marketing and trading margins.

Also impacting the first quarter were lower realized gains in the nuclear decommissioning trust and higher depreciation.

Moving to Slide 7, our Pennsylvania delivery segment earned $0.14 per share in the first quarter of 2009, a $0.02 decline compared with last year.

This decrease was the net result of the loss of earnings from the divestiture of our natural gas business in October, higher financing costs as a result of prefunding a portion of PPL Electric's 2009 debt maturity in October of 2008, and lower O&M.

Moving to Slide 8, our International Delivery Segment earned $0.24 per share in the first quarter of 2009, a decrease of $0.02 per share compared to a year ago.

The primary driver of the decline was currency translation, which resulted in a $0.09 per share decline in earnings compared to a year ago.

Partially offsetting the currency impact were lower interest expense on WPD's index-linked bonds driven by lower inflation, lower O&M and lower UK income taxes.

Turning to Slide 9, as Jim already mentioned we are reaffirming our 2009 forecast of ongoing earnings of $1.60 to $1.90 a share.

While we now expect earnings in 2010 to be at the low end of the $3.60 to $4.20 per share range due the lower 2010 wholesale power prices we will still experience a significant increase in earnings in 2010 over 2009.

The next comments we expect to have on 2010, as well as a formal update to the 2010 guidance, will be in the fall after we have completed our formal business planning process, which has just kicked off.

Slide 10 reflects he Supply Segment's 2010 open EBITDA based on forward prices as of March 31st.

You can see that the in-the-money value of our 2010 hedges is almost $800 million and our expected margin is approximately $60 million lower than it was December 31, 2008.

This is consistent with the sensitivity analysis we provided you to monitor our 2010 position last quarter.

Sensitivities to our 2009 and 2010 forecast are available in the appendix to today's presentation material.

The decline in expected margins causes us to be at the low end of the 2010 forecasted earnings range.

We removed the 2011 and 2012 detail due to market volatility and the near-term focus of investors in the ongoing business planning process, but our prior sensitivities we provided you should still hold.

On Slide 11 we have broken out free cash flow before dividends by segment.

We felt it was important to start to show this level of detail as PPL transitions from a period of heavy CapEx spending at the Supply segment for environmental control equipment and plant uprates to a period of rising CapEx expending in our regulated delivery businesses.

Bill will provide more detail about our CapEx plans in a moment.

The Supply business will obviously be providing significant positive cash flow as that business transitions to fully-competitive markets.

In February we decreased our common stock dividend by 3% to the current annualized level of $1.38 per share.

With this increase the dividend has risen 68% in the last five years.

While the payout ratio has increased to 79% based on the mid point of the 2009 earnings forecast, the dividend action was in consideration of the significant increase in earnings that we are forecasting for 2010.

On Slide 13 we provide detail on our credit facilities and collateral postings.

We remain highly focused on maintaining our strong credit profile and liquidity position.

During the first quarter a $300 million, 364-day facility at Energy Supply matured and we were able to replace it with a new $200 million, 360-day -- 364-day facility.

We continue to have more than $4.1 billion in credit facilities supporting the activities of our Supply business and our hedging strategy, with about $3 billion currently available.

The Supply segment has a diverse group of 23 banks providing credit with no bank having more than 14% of total committment.

Planning for our liquidity needs and sources is an ongoing process for us and we continue to look for the best and most cost-effective ways to address our future liquidity needs, and PPL Electric Utilities and WPD continue to maintain adequate liquidity positions for their respective businesses.

Slide 14 reflects an update to the level of collateral available and posted at PPL Energy Supply.

As we've said many times in the past these credit facilities and our BBB investment grade credit rating are extremely valuable to the Company as we look to further execute on our multi-year hedging strategy.

Finally, on Slide 15 we are providing an update to our debt maturity schedule.

As we mentioned last quarter, proceeds from the Electric Utility of issuance in October will be used to partially prefund this year's $486 million maturity, and we have no maturities in 2010.

We do expect a further $300 million debt issuance at EU later this year to fund strong growth at the utility -- CapEx growth at the utility.

In March we paid off the $201 million maturity at PPL Cap Funding.

With that I'd like to turn the call over to Bill of an update on operations.

Bill?

Thanks Paul, and good morning, everybody.

Let's turn to Slide 16.

I'm going to start with an operational update on our delivery businesses.

During the first quarter PPL Electric Utility successfully completed another round of solicitations for its 2010 default service load.

With five of the six RFP's now completed Electric Utilities has over 80% of its expected default supply needs for residential and small commercial customers under contract.

In September Electric Utilities will begin the final solicitation.

Bids for the sixth installment, which includes residential, small C&I and the only solicitation for large C&I customers are due October 5th and PUC approval is expected October 8th.

If prices in the last round of purchases match the lower prices we received in the fifth round, we would estimate the average residential customer bill would increase by about 30% in 2010.

Regarding the plan filed with the PUC to purchase supply needs for 2011 to mid 2013 an administrative law judge has found the purchase plan to be in the public interest and has recommended PUC approval of this plan.

It now goes to PUC commissioners for final consideration.

We're continuing to evaluate the impact of Pennsylvania's Act 129 and we're on target for the July 1st deadline to file a compliance plan.

The plan will include details on how we will comply with the Act's load reduction requirements of 1% by mid 2011, 3% by mid 2013 (sic.) and a peak demand reduction of 4.5% by mid 2013.

These reductions are to be achieved within a cost cap equal to 2% of 2006 annual revenues, which is approximately $60 million per year.

As Jim mentioned, PPL Electric Utilities continues its commitment to helping customers mitigate rising electricity cost.

Customers have responded well for the prepay plan that was implemented in 2008, with 10% signed up for the program, and PPL Electric Utilities filed a second option with the PUC recently.

If approved by the PUC this rate deferral plan will provide customers another way to spread out the expected increase in electricity prices.

One final note on Electric Utilities.

Demand at the Utility in the first quarter was 1% higher than the first quarter of 2008.

This was driven by higher residential and commercial unit sales as a result of the colder weather compared to first quarter sales in 2008, offset by lower industrial sales.

For the year we continue to forecast flat sales with limited residential and commercial sales growth roughly offsetting declines in industrial sales.

On the international front, the UK's fifth distribution price control review is in process and moving along smoothly.

Ofgem, the UK regulator, is expected to publish its initial proposals in July of 2009 with final proposals in December.

The new rates would take effect April 1, 2010.

We saw about a 2% decline at WPD in the first quarter driven by the soft economy in the UK, and we're forecasting slightly lower demand in 2009 compared to 2008 at WPD.

Now moving on to Supply, I'm pleased to report we had a very strong overall plant performance in the first quarter.

Colstrip Unit 4 in Montana set a continuous run record of 174 days, and Susquehanna Unit 2 set a nuclear plant generation record on April 7th when it started its refueling outage.

Susquehanna Unit 2 generated electricity for 723 consecutive days.

That is not only a record for the Susquehanna plants, but it's the second longest run ever by a nuclear unit in the US.

With respect to for the Susquehanna Unit 2 outage, we'd originally planned to complete all the necessary modifications to achieve an extended power of 72-megawatts.

However, we decided to defer a digital control system upgrade and because of this decision we'll not realize the full increase in generation from Unit 2 until early 2011.

However we do expect to realize a 45-megawatt increase, or about 60% of that increase this year at Unit 2.

This deferral will not have a significant effect on earnings.

While I'm on the topic of capacity expansion I want to mention we've reapplied with the FERC for our expansion project at the Holtwood hydroelectric plant in Pennsylvania.

The expansion project will add 125-megawatts of clean, renewable electric generating capacity by spring of 2013.

We reconsidered this project as a result of the tax incentives and potential for loan guarantees now available under the federal economic stimulus package.

These stimulus package benefits are expected to improve project economics, offsetting the factors that cause us to withdrawal our original application in December and offsetting the further decline of future prices since that time.

As a final comment on the operational update, our scrubber projects are expected to be completed later this year on budget and on schedule.

On Slide 18 we've updated our hedge positions for electricity and fuel as of March 31st.

I'd like to remind you this slide represents all projected economic generation, not just baseload.

I will address baseload in a moment.

Our current electricity hedge position for 2010 is 86%; that's an increase of 7% over the previous quarter.

We've continued to hedge 2011 and 2012, as well, with 55% hedged in '11 and 34% hedged in '12.

On the fuel side we've contracted for 100% of the coal tonnage needed for 2009 and our wholly-owned plants are fully hedged 2010, with only a small open position related to our interest at Keystone and Conemaugh.

We remain well hedged through 2012.

As was evident when Paul discussed our 2010 open EBITDA position, our average hedge fuel prices are well below current forward market prices and should provide significant value as we move into 2010.

Turning to Slide 19, our coal supply portfolio incorporates a mix of short and long-term contracts and spot purchases, as well as coal source from a diverse group of suppliers and markets.

We've not experience any significant coal supply issues to date.

We also utilized a mix of fixed price contracts and contracts subject to price collars.

Those contracts subject to the collar specify max and min prices that limit our exposure to rising prices but also provide some opportunity for lower prices when market prices decline.

The solid line on this chart shows the estimated weighted average price of the coal that's contracted at predetermined fixed prices.

The dotted lines represent the estimated range of max and min prices for the tons under contracts that are subject to collar pricing..

Individual contracts have tighter ranges than shown here, but this gives you the totality of the estimated range for all contracts subject to collars.

Given current forward prices and the terms of our supply contracts current earnings forecasts assume the max price will be paid for coal subject to these collars.

If this proves not to be true then additional value could be realized.

We're exposed to diesel surcharges in all of our rail transportation agreement and a few of of the coal supply contracts also include diesel surcharges for the suppliers' use of diesel fuel at the mine.

We use [oil] hedges to manage some of this variable component.

Moving on to Slide 20, we've updated our baseload generation hedge percentages.

For 2009 essentially all of our expected baseload generation output is committed.

For '10 we've hedged over 90% of our baseload generation.

That's an increase from our last quarter.

This provides the Company with a solid base in supporting the earnings growth we're forecasting.

For 2011 and '12 you can see we've also hedged some significant portions of our baseload generation and the hedge prices are favorable to current market forwards.

I'd also like to note that substantially all of our capacity has been hedged, primarily through selling forward capacity in RPM auctions.

Starting Monday, May 4th, and running through Friday, May 8th, the next RPM auction will be held for the period June, 2012 through May, 2013.

This will complete the implementation of the three-year forward capacity market and PJM.

Slide 21 provides a breakdown of capital expenditures by the three segment; Supply, PA Delivery and International Delivery.

As you may recall we took significant steps to reduce 2009 CapEx spending by $200 million in light of the economic conditions and we remain vigilant in that effort.

Starting with Supply, our substance CapEx runs about $500 million a year.

Expenditures beyond that level in 2009 primarily reflect the completion of scrubbers and increases in 2010 through 2013 are due primarily to the scheduled uprate projects at Susquehanna, our Holtwood hydro in Pennsylvania and Rainbow hydro in Montana.

For Pennsylvania Delivery 2010 to 2012 CapEx above the $300 million annual substance level is driven primarily by the Susquehanna/Roseland transmission line.

This 500 KB line is part of PJM's [RTEP] program and is needed for system reliability in the region.

Electric Utilities portion of the line is expected to cost about $500 million and we will receive incentivized equity returns for that project.

Additional CapEx in 2013 is for smaller transmission projects.

CapEx for International Delivery increases in 2010 through 2013 due to system reliability upgrades is expected to be approved by Ofgem as part of the on-going rate review process.

This spend will only be made at levels if the program is ultimately approved by Ofgem.

And it's important to note that WPD earns real-time returns on CapEx as part of the regulatory structure in the UK.

Slide 22 illustrates the substantial rate base growth for our Pennsylvania Delivery business due to the significant CapEx program the business is about to undertake.

We expect a 9.3% compound annual growth rate in a rate base from 2008 to 2013.

The transmission rate base almost doubles from 2009 to 2013 due to transmission projects, such as the Susquehanna/Roseland line.

We're in the final settlement discussions regarding the formula base rates for the PPL Electric Utilities transmission business.

I think it's important to highlight that although the Supply business will be the driver of earnings as we move from 2009 to 2010 we do expect to see some rebalancing of our earnings as we move beyond 2010.

We believe this rebalancing will have a positive impact,not only on our earnings,but also on our ratings, with more earnings predictability.

Now I'd like to turn the call back to Jim Miller for the Q&A.

Okay, operator, let's open for question-and-answer session.

(Operator Instructions).

Your first question comes from the line of [Anit Dacar] with Deutsche Bank.

Good morning, guys.

Good morning.

Congratulations on a good quarter.

Thanks.

Had a quick question on Slide 20 regarding the hedged baseload electric sales and the average sales price, can you guys remind us, does that include any things like beyond energy to the extent you guys participated in any of the polar supply auctions that you've held and have incremental margin from [shape], et cetera, or is this just a pure energy price?

It would just be the pure energy sales against our baseload generation, not including any incremental polar deals we do outside our asset base.

So for example, when we participate in a BGS auction in New Jersey in 2009 that would not be included.

All right, great.

thank you very much.

Sure.

Your next question comes from the line of Kit Konolige with Soleil.

Hi, good morning guys.

Good morning, Kit.

Can you bring us up to date on the proposal to tax earnings from overseas operations?

Is that -- I don't recall noting that that'as been moving, but there's a lot of moving parts in the federal government.

And if -- just if you could give us some sense of where you think that might end up and what kind of exposures you might have and so on?

Yes, Kit, you're probably as knowledgeable about that as we are simply because there's not a lot of definition yet to what the administration is attempting to do there.

With the --

(inaudible) generally.

Well, with the US being the second-most high -- the second-highest corporate tax rate in the OECD no other precedent worldwide effectively for a deemed repatriation like that, which would significantly harm US companies, both in country as well as export and foreign investment enterprises, I think there's a long way to go on that.

If there would be an implementation on that, given that the UK statutory rate at 28% is substantially below the US rate, there would likely be a negative impact on the Company.

We, basically other than the dividends, permanently reinvest the profits that we make in hard physical assets.

It's not a foreign sales entity that's got no material presence, if you will, it's all physical asset and plant.

So we're extremely hopeful that saner minds will prevail and they'll back off that proposal, but there's just not enough definition right now to be able to provide a lot of comment.

Fair enough.

Your next question comes from the line of Danielle Seitz with Dudack Research.

Hi, thanks.

I was wondering how much did you assume for the currency impact in the UK for 2009 in your assumption?

The budget assumption with $1.50.

With the earnings that we've realized to date that include the impact of hedges, as well as what was unhedged, and what we have for the balance and what we're looking at in hedges for the balance of the year we're greater than 90% hedged for the total year 2009.

The hedged value is at a level below the $1.50, but fully contemplated.

It's not significantly below that and it's fully contemplated in where we think we're going to come out from a forecast range perspective.

And you used the same number in 2010?

I mean you didn't project.

2010 was originally at $1.75.

Again we used an average of bank forecasts at that time.

The forecasts are off of what that original assumption was, but again, the current assumption reflects current forwards and being at the bottom end of that range, as Jim and I both talked to.

Okay, great, thanks a lot.

Sure.

Your next question comes from the like of [Alex Pena] with Merrill Lynch.

Hey, good morning.

Morning.

Two quick questions.

The first is just -- I guess it's Slide A-5 on the Pennsylvania Delivery cash flows I want to make sure I'm thinking about it right.

The decline from 2009 to 2010 is that related to the transition bond, your getting cash on the bonds for 2009 of a couple hundred million dollars, I believe, and you're not repaying them since they're more or less paid off?

Is that right?

That's correct.

It's about $200 million after tax.

Great.

And the second question is just again with International segment, just looking at what the guidance is for the year of about $0.50 at the mid point and where you're at through the first quarter, I just wanted to think about how we -- should we really see drastically lower earnings over the rest of the year of $0.08 or so on average, or is there -- do you think that there's cause for the Internationally to be a little bit better than where that point guidance is right now, just given how strong the first quarter was?

I guess the best way to approach that is, we had a very good first quarter.

It is only the first quarter.

We're not -- we didn't adjust guidance.

We feel extremely comfortable with where we're at.

The winter is a seasonally more peaky period for WPD's earnings and with the the one-month lag what gets picked up in the calendar year is effectively December 1, '08 through 11/30 '09 so some of that upside from the winter peakiness is reflected in the number.

We could see some additional benefits from the year.

but that's probably all we have to say at this point in time.

Thanks.

Yes.

Your next question comes from the line of Neil Kalton with Wachovia .

Good morning everyone.

Morning, Neil.

First, congrats to Tim and thank you for all your help over the years.

And then second, just a question question Slide A-1 and the market prices, specifically on capacity prices for 2012.

That $119 number, that is a market price and is that indicative on how we should be thinking on the upcoming RPM auction?

That is the market price but it is the mid-point of a very wide range.

I believe 12, 13 prices were trading in a range of $90 to $150, so whether it's indicative of the auction that's going to come off next week or not remains to be seen but at least that's what the market is thinking.

Okay, thanks.

Sure.

Your next question comes from the line of Paul Ridzon with KeyBanc.

What was the impact of the lower taxes in the UK and what drove that?

It was around a positive $0.02 and that was a net of a favorable ruling that we got from the UK tax authorities related to the sale of our supply business going back several years.

Which was a positive about $0.05, but it was offset by a $0.03 2008 benefit that we got related to hydro-related tax activities.

Okay, thank you.

Sure.

(Operator Instructions).

Your next question comes from the line of Paul Patterson with Glenrock Associates.

Good morning, guys.

Morning.

Congratulations, Tim, once again.

Thank you, Paul.

Just to -- and I'm sorry, but I had to jump off a little bit.

The trading margin in your guidance for 2009, 2010 it's still $85 million for 2009 and $125 million for 2010?

That's correct.

Okay.

And then the ROE at the distribution company, what do you see it as being in 2010, just roughly speaking?

Or when do you think you're going to have to go in for rate relief?

Yes, we do have in the plan an expectation that we'll be making a filing in '10.

The current plan has a filing in March of '10 for new rates that would be effective in 1/1/11.

'10 is the trough year in domestic utility earnings.

If we look at where the earnings will be and if you look at our original /10 guidance, it 's in the lower range, $0.30 range, $030 to $0.32 in that ballpark.

The earnings of the utility with the combination of getting that rate -- more timely rate relief and the CapEx that we're spending virtually doubles by the time we hit 2013 but does trough in '10.

I want to say that the last set of numbers that I looked at showed in the low 8% range by the end of 2009, 8.3%, 8.4% in that kind of ballpark range so there would be further deterioration.

'10 would be the future test year for the new rates in '11.

Okay, and then bonus depreciation.

How is that benefiting you guys this year, and just how should we think about the cash flow impact associated with that in the next few years?

I don't have a number -- an exact number but it's all factored into the cash flows from the cash flow by segment slide that we provided.

We wouldn't see any, I'll call it more permanent benefits from the ITC side of things until we start spending the dollars around the hydro projects, so that ends up in deferred tax liability land on the bonus depreciation.

But it's all factored into the guidance -- the cash flow guidance.

Okay, great.

Thanks a lot, guys.

Sure.

Your next question comes from the line of Travis Miller with Morningstar.

Hello, how are you?

Morning, Travis.

Question on the Supply segment, how many megawatt hours did the east portion and the west portion each produce this quarter?

One second.

Trying to get the number for you.

Just a moment.

Okay, sure.

As you're looking for it, too, a question on that production.

How much is that being affected by the dispatch change we've seen here recently, especially the [coversive] gas version in some places?

Yes, I can generally speak to that.

We have seen more runtime on our gas units at Martins Creek, but I would say in the grand scheme of things it's not been material from a margin contribution side because when we have been dispatched it's many times at fairly low margins, as you can imagine, looking at the fairly low power prices we saw in the first quarter.

And the fact that we're fully hedged doesn't provide a lot of upside for us as it relates to how the dispatch goes.

The total east generation was 11.2 million megawatt hours and the total west generation was 2.2 million megawatt hours.

Okay, remind me how that compares to a year ago.

It is in the west up around 85,000 megawatt hours and in the east down about 150,000 megawatt hours.

Okay.

And is that east number what you're talking about mostly due to that dispatch difference or is it other factors?

No, I think it would be other factors, not only how the units are dispatched based on market prices, but also, for example, we started an outage at Brunner Island 3 so we have -- you have to look year over year at where our outages are scheduled and so forth.

Okay.

Was that the only major difference in outages?

That would be the primary driver, I believe.

Okay.

Yes, and weather.

Yes, the weather.

Yes.

The gas net of -- east gas net of east oil is not a significant number at all, so I think Bill's right.

The dispatch is not causing that great an impact on the portfolio.

Okay, thanks a lot for your help.

You're welcome.

Your next question comes from the line of Nathan judge with Atlantic Equities.

Good morning.

Morning.

Wanted to inquire into your domestic retail delivered megawatt hours.

I think you posted a 1% increase year on year, which is quite a bit better than some of the peers.

Could you just break that out of what the weather impact on that was and what you're seeing on the underlying usage basis?

Generally I think weather contributed about one -- really makes up the bulk of that 1% year-over-year increase.

If you adjust it for weather I think we'd be pretty much flat and as I mentioned in my portion of the discussion we're still expecting flat sales for 2009.

And now were there any -- sorry, if could you break that out further into residential usage versus industrial and what you're just generally seeing as far as the economy --?

Of the 36 million or 37 million megawatt hours at the utility, about 14 million -- a little more than 14 million residential, a little more than 14 small CNI, and about nine millionish -- eight to nine millionish from large industrial.

So large industrial, even though we're reflecting it to be down a little south of 10% on the year, the couple percent growth that we expected in residential and small CNI on a total volume basis are basically offsetting each other.

So, it's a bigger percentage down in industrial, but industrial only makes up around 25% of the utility load -- the large industrial.

And that is tracking in the first quarter so far?

Yes

Actually a little better than the plan.

Just on -- slide 21, the CapEx by segment, there is -- I just want to confirm that the increase in Supply CapEx was related to a hydro plant that you're now expecting to build?

Yes, beginning in '11 and '12, and then completing in '13.

What would be the driver for the increased CapEx in '10?

That would be the completion of -- we have a cooling tower project at Brunner Island and it also begins the project at Holtwood, as well as Rainbow.

If I'm not mistaken that's gone up from $752 million, your forecast as of the fourth quarter.

Is that just -- are those costs higher than expected or is there something else driving that?

There's been some increase on the Rainbow project.

The more significant impact there would likely be on '11, virtually all coming from the Holtwood -- the additional of Holtwood.

Yes.

Yes, I think Holtwood would explain the major difference between year end and now.

Okay.

Recall that we had postponed or backed away from Holtwood prior in 2008, and with the on-set of the tax credits we've Reapplied for the expansion of that facility so you're seeing that jump now and increase.

Yes, Holtwood's around $117 million in '10 so that's virtually all of the increase versus the 752-ish number that you mentioned.

Do you have any forecast expenditures in your budget for the new nuclear plant proposal?

We have -- what we have in the plan is simply the cost necessary to complete the permitting process that's underway with the NRC.

There are now long lead-time material commitments that we have made or that we plan to make currently and simply reflects getting a permitted site.

So we've got --

Thank you very much.

-- (inaudible) capitalized and there's around $20 million to $30 million remaining to be spent to complete the NRC cola process and that's reflected in the numbers.

Thank you very much.

Yes.

Your next question is a follow up from the line of Danielle Seitz with Dudack Research.

Thanks.

I just was looking at the trend in O&M, basically flat, do you think you can keep that or the fact that it was very low in the first quarter comes from just the timing of the refueling?

The refueling was -- was contributory but the benefits that we expect to get from the cost reduction initiative, both on an employee base -- employee-affected basis, as well as the contractors and other costs that we're trying to rein in will -- we clearly think that we can hold it for 2009.

There will be continuing benefits into '10 and '11.

At the Utility levels, though, as WPD completes its rate review process later this year and the Electric Utility will be going in for rate relief in '10, effective '11, whatever gains that we would get would be relatively short lived if we used that as a strategy.

So we're most focused on Supply and corporate over head.

So in 2009 you still expect it to be relatively flat, but 2010 and '11, you could see a resumption of some uptick?

Correct.

Not as high as we had originally planned, but some resumption of uptick.

And going to the Delivery O& -- construction expenditures, you are looking at most of the transmission, the expansion need and (inaudible0, is it a state expansion or is it -- would it be interstate and would you get some additional return, or is it all regulated under PA delivery?

On the transmission?

The transmission, yes.

On the transmission side it would be regulated under FERC under the formula rates that we're in the midst of settling and we would get incentive adders for being in the RTO, as well as for the characteristics of the transmission line.

So we're looking at 12.5% to 13% return on equity in total under the formula rates.

And you anticipate this decision to come --?

It would -- yes, we would expect to file a settlement with the FERC shortly amongst the parties and then the FERC would hopefully take it under consideration probably in early June.

Okay, great.

Thanks a lot.

Danielle, it is an interstate line, but PPL is only constructing the Pennsylvania portion while PSEG would be constructing the New Jersey side.

Right, thanks.

Yes.

Sure.

There are no further questions at this time.

I would now like to turn the call back over to management.

All right, well thank you all for attending, and we'll continue on our push for meeting or beating our numbers this year and everyone have a good weekend, Thank you for attending.

This concludes the PPL Corporation first quarter conference call.

You may now disconnect.