賓州電力 (PPL) 2014 Q1 法說會逐字稿

Good morning.

Welcome to the PPL Corporation First-Quarter 2014 Earnings conference call.

(Operator Instructions)

Please note this event is being recorded.

I would like to turn the conference over to Joe Bergstein.

Please go ahead.

Thank you, Amy.

Good morning, everyone.

Thank you for joining 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 different 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 Bill Spence, PPL Chairman, President and CEO.

Thanks, Joe.

Good morning, everyone.

We are glad you are able to join us today.

On the call with me are Paul Farr, PPL's Executive Vice President and Chief Financial Officer, and the presidents of our four business segments.

Moving to slide 3, the agenda will start with an overview of quarterly earnings and operational results and a discussion of the 2014 earnings forecast, which we raised this morning.

After my remarks, Paul will review segments' financial results.

When Paul has concluded his remarks, we will open the phone lines to your questions.

Turning to slide 4, today we announced reported earnings of $0.49 per share for the first quarter, a decrease from $0.65 per share in the first quarter of 2013.

Adjusting for special items, our earnings from ongoing operations were $0.80 per share, an increase of 13% over last year's first-quarter ongoing earnings of $0.71 per share.

Each of our three regulated segments outperformed first quarter 2013 results, and supply segment earnings were the same as the first quarter of 2013.

These strong results show the value of our ongoing investments in regulated infrastructure, and the strong performance of our competitive generating plants during the unusually cold weather we experienced this winter.

Moving to slide 5, today we updated our 2014 ongoing earnings forecast to $2.15 to $2.30 per share, with a midpoint of $2.23 per share.

As reflected in the table, our strong first quarter enabled us to increase the guidance range for each of our four business segments from the original forecast.

Slide 6 identifies some of the Q1 operational highlights of our regulated business segments.

We received confirmation in late February that all four of our Western Power Distribution subsidiaries in the United Kingdom were accepted for fast-tracking of their eight-year business plans by the Office of Gas and Electricity Markets, or OFGEM.

Our subsidiaries were the only four distribution network operators whose plans were deemed suitable for accelerated consideration.

We are very pleased with the great work of our UK team, which worked extremely hard to produce high-quality plans acceptable for Fast-Tracking.

We appreciate OFGEM's confidence in our ability to provide cost-effective operations while providing frontier performance in customer service and reliability.

In Pennsylvania, we made further progress on PPL's portion of the Susquehanna to Roseland transmission line, and remain on track for our June 2015 in-service date, despite the difficult weather conditions this winter.

In late February, we energized a new 230 kV section of the line through the Delaware Water Gap.

And we finished our overhead work in the national park in March.

With the milestones that have been being completed in the first quarter, PPL's portion of the project is now about 75% complete.

On slide 7, you will see that our domestic utility sales benefited significantly from the unusually cold weather.

On a weather-normalized basis, sales were essentially flat in Kentucky quarter over quarter, as lower commercial sales were offset by higher residential and industrial sales.

Kentucky commercial sales declined in the Louisville Metro Area and KU's eastern Kentucky region.

Small businesses in the eastern part of Kentucky have been hit especially hard by the challenges facing the coal mining industry.

Industrial sales in Kentucky increased slightly, as some of our larger customers maintain higher production levels with shorter maintenance outages in some expansions.

Weather-normalized sales in Pennsylvania were higher across all three primary customer segments, with industrial volumes experiencing the greatest improvement, continuing an upward trend we have experienced over the last 12 months.

The cement and steel sectors reflected the highest growth at a positive 16% and 8%, respectively; and we saw modest growth among most other sectors except mining.

Moving to slide 8, our Supply segment performed very well operationally in the first quarter.

Our flexible, intermediate and peaking units delivered excellent results in the quarter due to the high prices experienced in the PJM region, despite running at lower capacity factors than a year ago.

The lower-capacity factors were driven by planned outages at our Ironwood and Lower Mount Bethel plants and higher natural gas prices which impacted plant dispatch.

Our baseload coal units also provided some upside on high-demand days by operating at capacity factors that exceeded our expectations.

At our Susquehanna Nuclear plant, we completed a turbine inspection outage on Unit 2 in March, and installed modifications that are designed to reduce blade vibration and minimize the potential for blade cracking.

We are currently in a planned refueling outage on Unit 1 that began on April 12th, and are making similar modifications to those turbines.

We believe these modifications will enable the units to run for their full two-year operating cycles.

Finally, the announced sale of the PPL Montana hydroelectric assets to NorthWestern Energy continues to be reviewed by regulators.

In March, the Federal Energy Regulatory Commission approved the transfer of operating licenses to NorthWestern, with the exception of the Kerr project which is still pending.

The separate FERC application for the disposition of the assets is also still pending.

We did, just this week, receive FTC approval for the Montana asset sale.

The Montana Public Service Commission continues its review and remains on schedule to issue a final order in the fall of this year.

Overall, we had a great first quarter and start to 2014, providing us with the confidence to increase our guidance range for the year.

We are executing at a very high level on all objectives we set out at the beginning of the year, and we expect to continue that momentum heading into the summer.

Finally, we continue to believe the value of our supply business is understated in our share price.

We are committed to realizing appropriate value from that business and are continuing to focus on this objective.

I look forward to your questions, and then I will turn the call over to Paul Farr.

Paul?

Thank you, Bill.

Good morning, everyone.

Let us move to slide 9.

Our strong first-quarter results reflect higher earnings from each of our three Regulated segments, and flat earnings from our Supply business compared to the first quarter of 2013.

Now we'll start with a detailed review of Q1 segment earnings drivers starting with the UK on slide 10.

UK Regulated earned $0.41 per share in the first quarter, a $0.04 increase over last year.

This increase was primarily due to higher utility revenues driven by the April 1, 2013, price increase, partially offset by lower volume due to weather and lower pension expense.

These positive drivers were partially offset by higher depreciation.

Moving now to slide 11, Kentucky earned $0.16 per share in the quarter, a $0.02 increase compared to last year.

This increase was due to higher gross margins, primarily due to higher retail and off-system sales volumes driven by the unusually cold weather Bill mentioned, and higher earnings from an environmental CapEx, partially offset by higher O&M.

Turning to slide 12, our Pennsylvania Regulated segment earned $0.13 per share in the first quarter, a $0.03 increase versus last year.

This increase was due to higher-distribution margins, driven by higher sales volumes due to the cold weather and the benefit from a change in estimate of the regulatory liability, as well as higher transmission margins.

Finishing with Supply on slide 13, this segment earned $0.11 per share in the quarter compared to last year.

This result was primarily due to higher Eastern energy margins driven by higher capacity prices and a net benefit from colder weather, partially offset by lower hedge baseload energy prices and lower nuclear generation output due to the timing of planned outages and lower financing costs.

This was offset by lower Western energy margins driven by lower coal and hydro unit availability, and higher income taxes.

That is the end of my prepared remarks.

I will turn the call back over to Bill for the Q&A period.

Thank you, Paul.

Operator, we are now ready for questions.

Thank you.

(Operator Instructions)

Our first question comes from Dan Eggers at Credit Suisse.

Good morning, guys.

Good morning, Dan.

There has been a lot of press commentary in the last few days, in particular about supply and, maybe, where that is headed.

I know you guys are trying to find the best way to extract value for that business, or show the value of it.

Do you have a view, maybe, on timing of when we will know more, or when you guys will come to a reasonable conclusion of how that fits into PPL on a long-run basis?

Dan, there is no specific timeline.

But I would say it continues to be a key priority of the Company.

Okay.

Then on -- in Kentucky, I guess, these [the muni's] stepping back on the renewal of their contracts and the reevaluation of Muhlenberg.

Can you just talk about what that process looks like, and maybe thought process around that plant?

Sure, I will ask Vic Staffieri to answer that.

We received notification from nine of our municipals, so, about 300 megawatts or so that they would like to get out of their contracts in about five years.

That has led us to rethink what -- the timing on a new combined cycle plant at Green River.

We filed with the Public Service Commission to put that in advance.

We are talking to the municipals, and that will play out over time.

The only impact, frankly, would be, perhaps, a delay in the in-service date of the next combined cycle plant.

Vic, to put that in context, a delay by -- is that a two-year delay, three-year delay?

How long will you guys fill it in?

It could be.

There are other things that could compel us to keep it.

It may not just be load that makes us decide to move that plant back.

We might want to move it, for load purposes, back two to three years.

We might decide to keep it maybe only one year, depending upon some of the environmental concerns.

Remember: That gives us a nice diversification opportunity, and we want to be mindful of the environmental requirement, particularly the pressure on coal.

You could say, from a load perspective, it could move back as far as three years; but there might be other considerations that allow us to move it up.

We are looking at that right now, which is why we made a filing with the Public Service Commission to put that proceeding in advance for 90 days, as we think through the implications.

Okay, and one last question.

There has been some issues in the quarter around coal ash and coal ash remediation in the region.

Can you just give us an update where you guys are, both at Supply and then in Kentucky, as far as compliance plans and your prospective spending to make sure you don't have any issues.

Sure.

On the competitive coal front in Pennsylvania, the majority -- actually all of our plants at this point are all dry ash facilities, and they are all beneficially using the dry ash.

So, we have really essentially closed all of our wet ash compounds -- quite some time ago.

Most of those have been remediated.

When we look at, on a go-forward basis, our major concern, as with the entire industry, is ensuring that coal ash does not become deemed a hazardous waste.

And that is our number-one priority, I think, as a Company and as an industry.

And we think that that can be avoided and should be avoided.

And that when you drop back to the additional oversight that we may see, I think it is just a question of degree and how much more would we have to do at some of the facilities, particularly those that are wet ash facilities.

And then in Kentucky, what does that look like?

In Kentucky, we do still have some wet ash ponds.

We are moving towards landfills.

We are in licensing proceedings at Trumbull County and [at gent] and other places, Brown, to remove our ponds over time.

We are confident we have done the kinds of analysis that need to be done to ensure that we, hopefully, don't have the problems that have plagued others with respect to these ponds.

We are moving towards landfills in almost every case now.

Do you have a ballpark on how much money that is going to require, and, maybe, timing to get that resolved?

It will be over the next decade or so.

Remember: Part of the problem is we don't have the final regulations yet out of EPA.

Once we get those, we will be in a better position.

But we do have some money in our budgets over time.

I think it is in the order of $300 million to $400 million, probably, in our long-term capital budgets to reflect that.

Okay, great, thank you, guys.

You are welcome.

The next question comes from Kit Konolige at BGC.

Close enough.

Sorry.

That is okay.

So, a couple of different areas.

First of all, should we be projecting anything forward in earnings level for the Company from the increase in 2014?

In other words, is this all due to weather at Supply -- basically at Supply and the distribution companies, or is there stronger earning power than we had thought so far?

I think, when we look at our business plan, Kit, clearly, weather in the first quarter was a significant factor.

I will let Paul comment on the details of how much of the outperformance was weather-driven.

But fundamentally, we had very good performance as well from all the regulated segments.

I think, what I would say is that we are very well on track with our regulated business on a weather-adjusted basis.

We continue to perform at a high level.

Maybe, Paul, you can comment on the specific numbers for the quarter.

Kit, we were -- weather, in total, was only about half of the [$0.08] increase to the midpoint of the forecast.

We were significantly ahead.

We were about $0.04 in total for the Supply business ahead of plan and forecast; and then the utilities were kind of a push.

We were $0.03 positive domestically, offset by $0.03 negative in weather in the UK.

When you look at that, a big component of the increase was weather, but that only made up about half of the total.

Okay, that is great.

How about in the UK?

What can you tell us about FX effects compared to what we might have thought before, and about the cash repatriation process?

Are you on track with all of those compared to prior guidance?

Kit, we are.

Obviously, the currency has been a little bit stronger, but, as you may recall, we were fully hedged -- nearly fully hedged coming into this year.

Really, net effect is that we are on plan.

In terms of repatriation, I don't think there is any new news there.

Again, it is on track as we would expect.

So, again, we are right on plan, right where we would like to be at this point in the year.

Okay.

And last area -- on the future of Supply.

Are you or potential counterparties waiting for any further news on the market front, in particular on the RPM auction coming up?

And in general, can you tell us anything about your perception of how higher prices in PJM this year have affected the value of Supply?

I would say, generally speaking, neither the capacity auction nor the price action that we have seen, based on the significant increase that we saw in power prices in PJM in the Winter, would impact our strategic thinking around the Supply business.

We continue to have as our number-one priority, the aggressive cost control and optimizing the dispatch of our plants, while, of course, maintaining safe and reliable operations.

At the same time, we do continue to consider other options that could enhance value.

There is no particular data point or viewpoint of forward prices that we are waiting for, or that would substantially impact our thought process around strategic options for that business.

Okay, that is great.

Thanks, Bill.

Our next question comes from Julien Dumoulin-Smith at UBS.

Good morning.

Good morning.

So, quick question, if you can talk about the Supply side a little bit more.

As you think about strategic options, how important is control of any eventual structure that you might conceive of?

Well, as I mentioned, we are considering other options that could enhance value or remain committed to creating value from the Supply business for shareowners, and we are going to keep focused on this effort.

There is not a particular structure, or ownership, or objective that we have along those lines that would be off the table.

I think, we are looking for the best opportunity we have to create shareowner value.

So, whatever form that may come in, we are considering.

So, as I mentioned, we don't have a specific timeline.

We are being disciplined about the process, and it is a key priority of ours.

Excellent.

Then looking at the Supply side, I suppose we have seen some recent regs in Maryland around NOx.

I would be curious: As you think about your Pennsylvania portfolios -- Brunner Island doesn't have an SCR.

Is that something that you guys are thinking about down the line?

How are you thinking about environmental CapEx just from a conventional perspective?

I think at this juncture, we don't see a lot of incremental CapEx required on the environmental front for either Brunner Island or our Montour stations in Pennsylvania.

I think we are in fairly decent shape.

There are some related to the MATS, really focused more around mercury control than it is around SOx or NOx.

At this point, I don't see any significant addition that we would need to make.

Great.

Lastly, on the 2016 outlook, I know you haven't talked about it, but we have obviously seen a pretty big move in the supply mark to market.

Are we talking about still targeting break-even or positive EPS, or are we better than that in the long term here in thinking about 2015 and 2016?

When we think about the forward curve and looking at our Supply business, we expect it will continue to be in positive EPS territory.

I think our comments in the past were that we would do everything that we could to ensure that it stayed in positive territory.

With the cost cutting that Dave DeCampli and his team have already embarked on, and where we see forward prices, we would expect that it will continue to be in positive EPS territory.

Excellent.

Lastly, if you don't mind, on the RPM side, I know you just got a question there, but, expectations on that.

And then also, just with regards to new gas generation entrants, if you will.

Sure.

I think, as we look at this RPM in particular, a lot of moving parts, a lot of modifications have been made.

There is a lot of noise out there around the residual auctions and so forth.

So, I think, for this year at least, we are not going to put out an expectation around where we expect RPM prices to settle out, because there is a lot more uncertainty, in our view, coming into this auction than we have seen in past auctions.

I think it is just really difficult to nail this one down in any precise manner.

So, we are going to really avoid making any prediction at this point.

Great.

Thank you very much.

Sure.

The next question comes from Paul Patterson at Glenrock Associates.

Good morning, how are you?

Good morning, Paul.

Just to follow up on that last question, do you want to talk at all about, maybe, directionally where you think RPM might be going with respect to last year's auction?

I hear you on the substantial modifications.

But when you are adding them all up, and subtracting whatever, any thoughts there?

No, I think, again, it is -- it could be significantly volatile.

So, I think it is really difficult to know.

I think, based on upcoming retirements, other factors, I think the bidding strategies of companies could be substantially different this time than last time.

I think that could influence the outcome more so than, maybe, some of the planning parameters that have influenced prior outcomes.

So, I think for that reason, we are really having a difficult time, even directionally, predicting where we think this could turn out.

Okay, great.

On the WPD line loss, what was that exactly?

I am sorry to be so slow on it.

What caused that?

No problem.

Let me ask Rick Klingensmith to comment on that.

Sure.

Good morning, Paul.

On the line loss aspect that we had, where we increased the liability for this quarter related to that activity, the line loss aspect was one that was in the regulatory period in the 2005 to 2010 time frame.

The regulatory structure was such that there was incentives and penalties that OFGEM had established around electricity line losses for that period of time.

As we went through the process, there were certain incentives that had been earned, and certain penalties that had been incurred by the distribution network operators.

But there was not a significant amount of accuracy in the metering and the data that was being received that ultimately calculated what the line losses were.

So, OFGEM has been working since the end of that rate-review period to determine a formulaic approach to how best to address that data issue, and determine what would be the appropriate formulas to determine incentives and penalties.

We had, up to this quarter, assumed that anything that we had received as incentives would ultimately be given back to customers and suppliers.

And as the ultimate final determination came out of OFGEM this quarter was actually an increase in our liability -- a penalty that was to be assessed.

And so, we needed to increase that liability by $65 million in the quarter.

It was an item that was treated as a special item in the quarter, because it primarily related to the Midlands businesses prior to our acquisition of those in 2011.

So, going forward though, you would not expect this to be an item we should be thinking about?

That is correct.

Okay.

Then, I think it was Kit who asked this -- I'm sorry if I missed it.

What would you say was the total weather impact across the Company?

The total net weather impact, Paul, was $0.04 for the first quarter.

Thanks again.

You are welcome.

Our next question comes from Neel Mitra at Tudor Pickering.

I was wondering if you could tell us, roughly, where your hedge percentages are for Supply in 2016, and where that is tracking versus rateable?

Dave DeCampli, do you want to comment on that?

We haven't published those in the past.

We are still in that band of 0% to 30% for year three.

Until we -- historically, until we have gotten those hedge levels up to something that is more meaningful, we haven't provided those.

So, we are in the band, and we are cognisant of the benefit that we have seen in the first quarter from rising prices.

Some of the things that we had been forecasting to happen around higher heat rates, rises in gas prices, the incremental volatility that is showing up as a result of the Winter weather -- in certain instances, we are probably more at the lower end of our ranges, given some of the fundamentals actually starting to come through now.

But we are sticking to the three-year strategy at this point.

We will provide that on the Q3 call, for sure.

Got it.

Thank you.

And then, the expected generation from the base load fleet for 2014 has gone up roughly -- a little bit over 3 [terawatt] hours since the last call.

How much of that is due to -- this quarter, Q1, and can you comment on how the coal fleet ran in general?

And then, how much of that 3-terawatt hour increase is due to the rest of the year and the forward prices?

Sure.

Dave?

The majority of the increase is actually in the balance of the year; not much of it was in the first quarter.

The coal units were expected to run a good part of the Winter.

So, what you are seeing is the majority of that in the second half of the year.

Dark spreads have improved.

Most of that is going to be in the off-peak and the shoulder months, where we hadn't originally planned to run those units.

So, with pricing as we are seeing it, we expect that generation to occur shoulder month and off-peak, primarily.

What was the other part of your question; there were two parts to it?

In capacity factors, how did the coal fleet run in the first quarter versus the first quarter of last year?

Yes, yes, the fleet ran very well.

We had just one outage in the -- one forced outage back in early January that lasted for 24 or 26 hours.

Beyond that, the coal fleet ran at capacity through all the periods it was called for.

Got it.

To add to the questions about looking at the options on Supply, maybe I can ask it a different way.

It seems like a lot of the value which you could receive from a third party would be from, possibly, synergies or cutting O&M costs.

When you look at the various options, do you prefer a spin or a partnership versus an outright sale?

What is the best way to actually participate in some of the synergies or O&M cuts which could potentially add value to Supply?

My only preference is to seek the highest value for the shareowners; and whatever form that comes in, it would be our objective.

So, I am reluctant to comment on any particular type or style of objective there, because there are various options, and we are open to considering the ones that are going to create the highest value.

Okay.

Thank you very much.

Sure.

Next question comes from Paul Ridzon at KeyBanc.

This is a real small question.

What was the impact in Pennsylvania of the change in estimate?

Paul, the change in estimate was a reversal of a storm cost accrual that we put on the books last year that we got positive results from, from the commission.

11 of the 12 months we had accrued last year, we were not required to refund to consumers.

So, it was just adjusting that liability down.

Can you quantify it?

$0.01.

Okay, thank you very much.

You are welcome.

You are welcome.

The next question comes from Michael Lapides at Goldman Sachs.

Congrats on a good quarter.

Two questions, a little bit unrelated.

I will start with the more complex one first.

I want to pay you a compliment, in that you were one of the only companies back in the 2010, 2011 time frame who made, via corporate actions, meaning via M&A, a call on your view of at least a three- to five-year view on merchant power, when you bought both the Kentucky businesses and you bought the UK business.

In other words, kudos for making that call.

It showed insight that I think a lot of other folks didn't show, in terms of a three- to five-year view on merchant power, in general.

I want to ask: If you look three to five years, and then look longer term, in general, what is your near-term or medium-term view on merchant power, and then long-term view?

Sure.

On the near-term view -- near- to mid-term view, I think it is more or less unchanged from what we've said on prior quarters, which is that we did not believe the forward prices were truly reflective of the supply and demand fundamentals, and the looming coal retirements that we had anticipated.

And I think this Winter highlighted how tight the supply and demand could be, when you remove some of that coal from the dispatch stack.

So, the movements that we have seen in power prices in the forwards now, essentially reflect our fundamental view that we've held for quite a while now.

If you look longer term, I think, strategically, you still are going to have a fairly volatile complex in the power and natural gas sectors.

So, I think, as you know, natural gas is a significant driver to the power markets, and we continue to see a lot of uncertainty in the gas markets, which will drive uncertainty in the power market.

I think our view, while it has improved, it has improved towards our fundamental view, A. And, B, perhaps it has improved even beyond that, and maybe things will be significantly better than we are all anticipating in the longer term.

However, it is still going to be, I think, a volatile ride, in our view, and one that you just have to ensure that you are prepared to survive.

Okay.

Do you guys have a view, whether it is for purchasing gas -- do you have a view on gas-basis differentials in and around your part of PJM?

I am just looking at what has happened at TETCO-M3 versus NYMEX over the last -- really, over the last six or nine months, both in the spot market and in the forward markets, where TETCO or Marcellus gas had been in a sizable discount, it's now actually trading a little bit above Henry Hub.

Yes, I think our view would be shaped by the timing of a lot of the pipeline expansion projects that are attempting to deliver the Marcellus shale and the other eastern shale into the key markets, namely the Mid-Atlantic and northeast markets.

In terms of a specific view on MMBtu, in basis, we don't really have a particular viewpoint -- strong viewpoint, I should say, on that.

Okay.

Last one, unrelated to the merchant markets.

When you look across your businesses, which ones do you think have the greatest opportunities over a multi-year period for O&M cost management, and which ones will it be a little harder to implement O&M cost savings?

I think there is opportunities across the board.

I don't know that any particular group is easier or more difficult than another.

We attempt to be as efficient as we can across the board.

So, I don't know that I can specifically say that there is one group or another that is any more equipped or better prepared to embark on significant cost cutting.

I think our number-one priority in terms of aggressive control of costs is really around the Supply business, as it needs to be.

Got it.

Okay, thanks.

Congrats on a good quarter.

Thank you.

The next question comes from Gregg Orrill at Barclays.

Thank you.

I was wondering if you could touch base on Kentucky, and what your thoughts there are in terms of the timing of a rate case filing?

Okay, sure, Gregg.

Vic, why don't you -- ?

It is likely that we will make a rate case filing by the end of the year.

Okay.

Thank you.

The next question comes from Steve Fleishman at Wolfe Research.

Hi, good morning.

Good morning, Steve.

Hey, Bill.

Just a question on hedging.

It looked like you added a decent amount of hedging for 2015.

The average hedge price in the east came down a decent amount.

Is that just the prices you hedged and maybe did early in the year, or is there something else that occurred that would explain that?

Dave can provide some color around that.

Steve, it is primarily -- the focus of our hedging, recently, has been on the off-peak hour.

We got aggressive there.

That is why you see the pull down in price.

Got you.

So, would you say that the 30% that is still open for 2015 is very weighted toward peak?

Actually, it has gotten fairly close to even at this point.

Okay.

Okay.

And then, sorry to ask a PJM question.

But, one of the things this year is there is a PPL zone that has been created.

Do you think that there is a decent chance that that zone separates?

Why was it created?

Well, I think it was probably created around the challenges that coal plants, in particular, face; and looking at the region around our Brunner Island station, I think PJM felt that, maybe, there was a need there to send a price signal.

It is really hard to judge, Steve, whether that zone will break out in this auction or not.

So, we don't really have an expectation, necessarily, that it will.

But, again, a lot of volatility in the parameters coming into this auction compared to others.

And then, as I mentioned on an earlier question, the bidding behavior, we are expecting to be, probably, different than it probably has been in the past.

Okay.

Great, thank you very much.

Sure, Steve.

The next question comes from Rajeev Lalwani at Morgan Stanley.

Thanks for taking my question.

Can you just talk about the excess leverage and investment capacity you have today?

And, hypothetically, if you were to exit the merchant power business, what that does to that capacity, just given lower business risk?

Paul, why don't you -- ?

Rajeev, this is Paul.

I guess, the way I would think about things is: We are at our targeted credit metrics across the complex.

The internal cash flow that we generate is basically going to -- from all of the business -- Supply is, obviously, a cash flow-positive contributor -- is going towards rate-based growth and maintaining equity ratios at the utilities, as they deploy that significant amount of CapEx that we have in the schedules and the appendix, and going to pay the dividend, which we recently announced an increase on.

So, I don't feel uncomfortable with where we are at from a balance sheet perspective in any way.

If there was a structural separation of the Supply business, I don't want to pre-judge what the rating agencies would do as they evaluate that.

But clearly, to Bill's earlier comment, you would be taking out the most volatile, risky component of the Enterprise, and the remaining pieces that are left should be able to live with lower, at that point, consolidated FFO-to-debt metrics.

Obviously, the Supply business's is higher for a reason; it reflects that volatility.

So, in pre- or post-, some type of structural event, if you will, I think the Company is in very good shape.

Okay.

And then, a follow-up on the UK side.

Can you just talk about some of the pluses and minuses around your guidance that you provided before?

I think it was for 2015 and 2016, and maybe where you are within those ranges, or even outside of them?

Rick?

Sure.

Good morning.

We had provided, back July 1 of last year, when we submitted our business plans into the [REO] EB-1 process, some outlooks associated with 2015 and 2016 ranges.

And as we went through the REO process and gotten through the final determination, got through the effects of the cost-of-equity changes, incorporated the fast-track benefits that we are getting from that, and updated our spending and our pension expense and currency hedging programs.

We expect that the earnings are within the ranges that we had provided; but likely at the higher end of the ranges in 2015 and 2016.

Great.

That was it.

Thank you.

Thanks.

The next question comes from Greg Gordon at ISI Group.

My question was just asked and answered, thank you.

Great.

Amy, I think we have time for one more question.

Okay.

Then, our last question will come from Brian Chin at Merrill Lynch.

Hi.

Good morning.

Good morning.

Just a minor one.

On slide 16, the projected CapEx, there is a small uptick in corporate CapEx versus the last set of slides.

Just what is that?

Rounding.

It is just extremely minor.

Typically, in that bucket is primarily IT expenditures for corporate platforms that get spread across the Enterprise.

So, just, very small modifications to how we see the timing of certain projects.

Got you, great.

That is it.

Thank you very much.

Thank you.

Okay, operator.

Thank you very much.

And PPL, as we just talked about, had a very strong quarter.

We continue to execute on all fronts.

We thank you for joining us today, and look forward to talking to you on our Q2 earnings call.

The conference is now concluded.

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