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PPL 10-K 2009 Documents found in this filing:
Indicate
by check mark whether the Registrants are well-known seasoned issuers, as
defined in Rule 405 of the Securities Act.
Indicate
by check mark if the Registrants are not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Indicate
by check mark whether the Registrants (1) have filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrants were
required to file such reports), and (2) have been subject to such filing
requirements for the past 90 days.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate
by check mark whether the Registrants are large accelerated filers, accelerated
filers, non-accelerated filers, or a smaller reporting company. See
definition of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check
one):
Indicate
by check mark whether the Registrants are shell companies (as defined in Rule
12b-2 of the Act).
As of
June 30, 2008, PPL Corporation had 374,519,298 shares of its $.01 par value
Common Stock outstanding. The aggregate market value of these common
shares (based upon the closing price of these shares on the New York Stock
Exchange on that date) held by non-affiliates was $19,576,123,706. As
of January 30, 2009, PPL Corporation had 375,316,846 shares of its $.01 par
value Common Stock outstanding.
As of
January 30, 2009, PPL Corporation held all 66,368,056 outstanding common shares,
no par value, of PPL Electric Utilities Corporation.
PPL
Corporation indirectly holds all of the membership interests in PPL Energy
Supply, LLC.
PPL
Energy Supply, LLC meets the conditions set forth in General Instructions
(I)(1)(a) and (b) of Form 10-K and is therefore filing this form with the
reduced disclosure format.
Documents
incorporated by reference:
PPL
Corporation and PPL Electric Utilities Corporation have incorporated herein by
reference certain sections of PPL Corporation's 2009 Notice of Annual Meeting
and Proxy Statement, and PPL Electric Utilities Corporation's 2009 Notice of
Annual Meeting and Information Statement, which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
2008. Such Statements will provide the information required by Part
III of this Report.
PPL
CORPORATION
PPL
ENERGY SUPPLY, LLC
PPL
ELECTRIC UTILITIES CORPORATION
FORM 10-K
ANNUAL REPORT TO
THE
SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER
31, 2008
TABLE OF
CONTENTS
This
combined Form 10-K is separately filed by PPL Corporation, PPL Energy Supply,
LLC and PPL Electric Utilities Corporation. Information contained
herein relating to PPL Energy Supply, LLC and PPL Electric Utilities Corporation
is filed by PPL Corporation and separately by PPL Energy Supply, LLC and PPL
Electric Utilities Corporation on their own behalf. No registrant
makes any representation as to information relating to any other registrant,
except that information relating to the two PPL Corporation subsidiaries is also
attributed to PPL Corporation.
PPL Corporation and its
current and former subsidiaries
Emel>
- Empresas Emel S.A., a Chilean electric distribution holding company in which
PPL Global had a majority ownership interest until its sale in November
2007.
PPL
Capital Funding - PPL Capital Funding, Inc., a wholly-owned financing
subsidiary of PPL.
PPL
Susquehanna - PPL Susquehanna, LLC, the nuclear generating subsidiary of
PPL Generation.
WPD
- refers collectively to WPDH Limited and WPDL.
Other terms and
abbreviations
£ - British
pounds sterling.
AOCI
- accumulated other comprehensive income or loss.
APB
- Accounting Principles Board.
ARB
-
Accounting Research Bulletin.
ARO
- asset retirement obligation.
Bcf
- billion cubic feet.
CAIR
- the
EPA's Clean Air Interstate Rule.
DEP
- Department of Environmental Protection, a state government
agency.
DOE
- Department of Energy, a U.S. government agency.
EMF
- electric and magnetic fields.
EPA
- Environmental Protection Agency, a U.S. government agency.
EPS
- earnings per share.
ESOP
- Employee Stock Ownership Plan.
EWG
- exempt wholesale generator.
FIN
- FASB Interpretation.
Fitch
- Fitch, Inc.
FSP - FASB Staff
Position.
GAAP
- generally accepted accounting principles in the U.S.
GWh
- gigawatt-hour, one million kilowatt-hours.
IBEW
- International Brotherhood of Electrical Workers.
ICP
- Incentive Compensation Plan.
ICPKE
- Incentive Compensation Plan for Key Employees.
Ironwood> - a natural
gas-fired power plant in Lebanon, Pennsylvania with a winter rating of 759
MW.
IRS -
Internal Revenue Service, a U.S. government agency.
ISO
- Independent System Operator.
kVA -
kilovolt-ampere.
kWh
- kilowatt-hour, basic unit of electrical energy.
LCIDA - Lehigh County
Industrial Development Authority.
LIBOR - London Interbank Offered
Rate.
MACT
- maximum achievable control technology.
Moody's
- Moody's Investors Service, Inc.
MTM
- mark-to-market.
MVA
-
megavolt-ampere.
MW
- megawatt, one thousand kilowatts.
MWh
- megawatt-hour, one thousand kilowatt-hours.
NERC
- North American Electric Reliability Corporation.
NPDES
- National Pollutant Discharge Elimination System.
NYMEX - New York
Mercantile Exchange.
OCI
- other comprehensive income or loss.
OSM
- Office of Surface Mining, a U.S. government agency.
PEDFA
-
Pennsylvania Economic Development Financing Authority.
PP&E -
property, plant and equipment.
RMC
- Risk Management Committee.
RTO
- Regional Transmission Organization.
SAB
- Staff Accounting Bulletin.
SCR
- selective catalytic reduction, a pollution control
process. S&P
- Standard & Poor's Ratings Services.
Smart
meter -
an electric meter that utilizes smart metering technology.
VaR
- value-at-risk.
Accounting
Pronouncements
APB
Opinion No. 23 - Accounting for Income Taxes-Special Areas.
EITF
87-24 - Allocation of Interest to Discontinued Operations.
EITF
93-7 - Uncertainties Related to Income Taxes in a Purchase Business
Combination.
EITF
01-8 - Determining Whether an Arrangement Contains a Lease.
FIN
46(R) - Consolidation of Variable Interest Entities, an Interpretation of
ARB No. 51.
FSP
FAS 132(R)-1 - Employers' Disclosures about Postretirement Benefit Plan
Assets.
FSP
FAS 157-2 - Effective Date of FASB Statement No. 157.
SFAS
5 - Accounting for Contingencies.
SFAS
13 - Accounting for Leases and its interpretations.
SFAS
34 - Capitalization of Interest Cost.
SFAS
71 - Accounting for the Effects of Certain Types of
Regulation.
SFAS
87 -
Employers' Accounting for Pensions.
SFAS
106 -
Employers' Accounting for Postretirement Benefits Other than
Pensions.
SFAS
109 - Accounting for Income Taxes.
SFAS
123(R) - Share-Based Payment.
SFAS
128 - Earnings per Share.
SFAS
132(R) - Employers' Disclosures about Pensions and Other Postretirement
Benefits.
SFAS
141 - Business Combinations.
SFAS
141(R) - Business Combinations (revised 2007).
SFAS
142 - Goodwill and Other Intangible Assets.
SFAS
143 -
Accounting for Asset Retirement Obligations.
SFAS
146 - Accounting for Costs Associated with Exit or Disposal
Activities.
SFAS
153 -
Exchanges of Nonmonetary Assets - an amendment of APB Opinion No.
29.
SFAS
157 - Fair Value Measurements, as amended.
FORWARD-LOOKING INFORMATION
Statements
contained in this Form 10-K concerning expectations, beliefs, plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements which are other than statements of historical facts are
"forward-looking statements" within the meaning of the federal securities
laws. Although PPL, PPL Energy Supply and PPL Electric believe that
the expectations and assumptions reflected in these statements are reasonable,
there can be no assurance that these expectations will prove to be
correct. Forward-looking statements involve a number of risks and
uncertainties, and actual results may differ materially from the results
discussed in forward-looking statements. In addition to the specific
factors discussed in "Item 1A. Risk Factors" and in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
following are among the important factors that could cause actual results to
differ materially from the forward-looking statements.
Any such
forward-looking statements should be considered in light of such important
factors and in conjunction with other documents of PPL, PPL Energy Supply and
PPL Electric on file with the SEC.
New
factors that could cause actual results to differ materially from those
described in forward-looking statements emerge from time to time, and it is not
possible for PPL, PPL Energy Supply or PPL Electric to predict all of such
factors, or the extent to which any such factor or combination of factors may
cause actual results to differ from those contained in any forward-looking
statement. Any forward-looking statement speaks only as of the date
on which such statement is made, and PPL, PPL Energy Supply and PPL Electric
undertake no obligation to update the information contained in such statement to
reflect subsequent developments or information.
PART I
BACKGROUND
PPL Corporation,
headquartered in Allentown, PA, is an energy and utility holding company that
was incorporated in 1994. Through its subsidiaries, PPL generates
electricity from power plants in the northeastern and western U.S., markets
wholesale or retail energy primarily in the northeastern and western portions of
the U.S. and delivers electricity to approximately 4 million customers in
Pennsylvania and the U.K. PPL's significant subsidiaries are shown
below:
 In
addition to PPL Corporation, the other SEC registrants included in this filing
are:
PPL Energy Supply, LLC, an
indirect wholly-owned subsidiary of PPL formed in 2000, is an energy company
engaged through its subsidiaries in the generation and marketing of power,
primarily in the northeastern and western power markets of the U.S. and in the
delivery of electricity in the U.K. PPL Energy Supply's major
operating subsidiaries are PPL Generation, PPL EnergyPlus and PPL
Global. At December 31, 2008, PPL Energy Supply owned or controlled
12,002 MW of electric power generation capacity and has current plans to
implement capital projects primarily at certain of its existing generation
facilities in Pennsylvania and Montana to provide 148 MW of additional
generating capacity by 2013.
PPL Electric Utilities
Corporation, incorporated in 1920, is a direct subsidiary of PPL and a
regulated public utility. PPL Electric provides electricity delivery
service in its service territory in Pennsylvania and provides electricity supply
to retail customers in that territory as a PLR under the Customer Choice
Act.
Segment
Information
PPL is
organized into segments consisting of Supply, Pennsylvania Delivery and
International Delivery. PPL Energy Supply's segments consist of
Supply and International Delivery. PPL Electric operates in a single
business segment. See Note 2 to the Financial Statements for
financial information about the segments and geographic financial
data.
PPL
Energy Supply has generation assets that are located in the eastern and western
U.S. markets. The eastern generation assets are located in the
Northeast/Mid-Atlantic energy markets - including PJM, the New York ISO, ISO New
England and the Mid-American Interconnection Network. PPL Energy
Supply's western generating capacity is located in the markets within the
Western Electricity Coordinating Council.
PPL Energy
Supply owned or controlled generating capacity of 12,002 MW at December 31,
2008. Through subsidiaries, PPL Generation owns and operates power
plants in Pennsylvania, Montana, Illinois, Connecticut, New York and
Maine. The total owned or controlled generating capacity includes
power obtained through PPL EnergyPlus's tolling or power purchase agreements
(including Ironwood and other facilities that consist of NUGs, wind farms and
landfill facilities). See "Item 2. Properties" for a complete listing
of PPL Energy Supply's generating capacity.
Pennsylvania
generation had a total capacity of 9,785 MW at December 31,
2008. These plants are fueled by uranium, coal, natural gas, oil,
water and other fuels. The electricity from these plants is sold to
PPL EnergyPlus under FERC-jurisdictional power purchase agreements.
PPL
Energy Supply's U.S. generation subsidiaries are EWGs, which sell electricity
into the wholesale market. PPL Energy Supply's EWGs are subject to
regulation by the FERC, which has authorized these EWGs to sell generation from
their facilities at market-based prices.
PPL
Susquehanna, a subsidiary of PPL Generation, owns a 90% undivided interest in
each of the two nuclear-fueled generating units at its Susquehanna station;
Allegheny Electric Cooperative, Inc. owns the remaining 10% undivided
interest. PPL's 90% share of Susquehanna's generating capacity was
2,165 MW at December 31, 2008.
PPL
Generation operates its Pennsylvania, New Jersey and Illinois power plants in
conjunction with PJM. PPL Generation's Pennsylvania power plants, PPL
Generation's Illinois 574 MW natural gas-fired generating station and PPL
EnergyPlus are members of the RFC. Refer to "Pennsylvania Delivery
Segment" for information regarding PJM's operations and functions and the
RFC.
The
Montana coal-fired and hydroelectric-powered stations have a capacity of 1,287
MW. PPL Montana's power plants are parties to the Western Electricity
Coordinating Council Agreement.
The Maine
oil-fired and hydroelectric-powered stations have a total capacity of 102
MW. The Maine generating assets are operated in conjunction with ISO
New England and are parties to the Northeast Power Coordinating Council
Agreement. See Note 9 for information on the possible sale of three
hydroelectric dams.
The
Connecticut natural gas-fired station has a total capacity of 252 MW, is
operated in conjunction with ISO New England and is party to the Northeast Power
Coordinating Council Agreement.
The New
York natural gas-fired generating stations have a combined capacity of 159
MW. These generating stations are operated in connection with the New
York ISO and are parties to the Northeast Power Coordinating Council
Agreement. Tolling agreements are in place for 100% of the capacity
and output of these stations.
PPL
Generation has current plans to implement capital projects at certain of its
generation facilities in Pennsylvania, Maine and Montana that would provide
148 MW of additional generation capacity for its use by
2013. See "Item 2. Properties" for additional information regarding
these capital projects.
Refer to
the "Power Supply" section for additional information regarding electricity
generated by the various power plants operated by PPL Generation and to the
"Fuel Supply" section for a discussion of fuel requirements and contractual
arrangements for fuel.
A
subsidiary of PPL Energy Supply develops renewable energy plants on various
sites using technologies such as small turbines, reciprocating engines and
photovoltaic solar panels. As of December 31, 2008, another
subsidiary of PPL Energy Supply owned approximately 32 MW of installed
capacity from these projects, serving commercial and industrial
customers.
PPL
Generation's subsidiaries are subject to the jurisdiction of certain federal,
regional, state and local regulatory agencies with respect to air and water
quality, land use and other environmental matters. PPL Susquehanna is
subject to the jurisdiction of the NRC in connection with the operation of the
Susquehanna units. Certain of PPL Generation's other subsidiaries,
including PPL Montana, are subject to the jurisdiction of the NRC in connection
with the operation of their fossil plants with respect to certain level and
density monitoring devices.
Certain
operations of PPL Generation's subsidiaries are subject to the Occupational
Safety and Health Act of 1970 and comparable state statutes.
PPL
EnergyPlus markets or brokers the electricity produced by PPL Generation
subsidiaries, along with purchased power, FTRs, natural gas, oil, emission
allowances and renewable energy credits in competitive wholesale and deregulated
retail markets in order to take advantage of opportunities in the competitive
energy marketplace.
PPL
EnergyPlus purchases and sells electric capacity and energy at the wholesale
level at competitive prices under FERC market-based prices. PPL
EnergyPlus enters into these agreements to market available energy and capacity
from PPL Generation's assets and to profit from market price
fluctuations. PPL EnergyPlus actively manages its portfolios to
maximize the value of PPL's generating assets and to limit exposure to price
fluctuations. PPL EnergyPlus also purchases and sells energy forward
and futures contracts as well as other commodity-based financial instruments in
accordance with PPL's risk management policies, objectives and
strategies.
PPL
EnergyPlus has executed contracts to provide electricity to PPL Electric
sufficient for it to meet its PLR obligation through 2009, at the predetermined
capped rates PPL Electric is entitled to charge its customers during this
period. This arrangement with PPL Electric accounted for 28% of PPL
Energy Supply's operating revenues in 2008. See Note 16 to the
Financial Statements for more information concerning these
contracts.
PPL
EnergyPlus currently is licensed to provide retail electric supply to customers
in Delaware, Maine, Massachusetts, Maryland, Montana, New Jersey and
Pennsylvania. In 2008, PPL EnergyPlus provided energy to industrial
customers in Montana. PPL EnergyPlus serves natural gas customers in
Pennsylvania, New Jersey and Delaware and is licensed to do so in
Maryland.
An
indirect subsidiary of PPL EnergyPlus owned two production facilities that,
until December 31, 2007, manufactured synthetic fuel from coal or coal
byproducts. PPL received federal tax credits for these qualified
manufactured solid synthetic fuel products. PPL retired these
facilities in 2008. See Note 15 to the Financial Statements for
additional information.
In 2007,
PPL sold PPL Telcom, LLC, an indirect subsidiary of PPL EnergyPlus, which
offered fiber optic capacity to telecommunication companies and enterprise
customers. See Note 9 to the Financial Statements for additional
information.
PPL
Electric delivers electricity to approximately 1.4 million customers in a
10,000-square mile territory in 29 counties of eastern and central
Pennsylvania. The largest cities in this territory are Allentown,
Bethlehem, Harrisburg, Hazleton, Lancaster, Scranton, Wilkes-Barre and
Williamsport.
In
addition to delivering electricity in its service territory in Pennsylvania, PPL
Electric also provides electricity supply to retail customers in that territory
as a PLR. As part of the PUC Final Order, PPL Electric agreed to
supply this electricity at predetermined capped rates through
2009. PPL Electric has executed two contracts to purchase electricity
from PPL EnergyPlus sufficient for PPL Electric to meet its PLR obligation
through 2009, at the predetermined capped rates. PPL Electric's PLR
obligation after 2009 will be determined by the PUC pursuant to PLR regulations
and a policy statement regarding interpretation and implementation of those
regulations. Both the regulations and the policy statement became
effective in September 2007. Refer to "Power Supply" for additional
information, as well as Notes 15 and 16 to the Financial
Statements.
During
2008, about 97% of PPL Electric's operating revenues were derived from regulated
electricity delivery and supply as a PLR. About 3% of 2008 operating
revenues were from wholesale revenues, primarily the sale to PPL EnergyPlus of
power purchased from NUGs. During 2008, about 45% of electricity
delivery and PLR revenues were from residential customers, 36% from commercial
customers, 18% from industrial customers and 1% from other customer
classes.
PPL
Electric's transmission facilities are operated as part of PJM, which operates
the electric transmission network and electric energy market in the mid-Atlantic
and Midwest regions of the U.S. Bulk electricity is transmitted to
wholesale users throughout a geographic area including all or part of Delaware,
Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina,
Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of
Columbia. As of January 1, 2006, PPL Electric became a member of the
RFC. The purpose of the RFC is to preserve and enhance electric
service reliability and security for the interconnected electric systems within
its territory and to be a regional entity under the framework of the
NERC. The RFC's key functions are the development of regional
standards for reliable planning and operation of the bulk electric system and
non-discriminatory compliance monitoring and enforcement of both NERC and
regional standards.
PJM
serves as a FERC-approved RTO in order to accommodate greater competition and
broader participation in the region. An RTO, like an ISO, is a
designation provided by the FERC to a FERC-approved independent entity that
operates the transmission system and typically administers a competitive power
market. PJM also administers regional markets for energy, capacity
and ancillary services. A primary purpose of the RTO/ISO is to
separate the operation of, and access to, the transmission grid from market
participants that buy or sell electricity in the same
markets. Electric utilities continue to own the transmission assets,
but the RTO/ISO directs the control and operation of the transmission
facilities. PPL Electric is entitled to fully recover from retail
customers the charges that it pays to PJM for transmission-related
services. PJM imposes these charges pursuant to its FERC-approved
Open Access Transmission Tariff.
PPL
Electric is subject to regulation as a public utility by the PUC, and certain of
its activities are subject to the jurisdiction of the FERC under the Federal
Power Act.
PPL
Electric also is subject to the jurisdiction of certain federal, regional, state
and local regulatory agencies with respect to land use and other environmental
matters. Certain operations of PPL Electric are subject to the
Occupational Safety and Health Act of 1970 and comparable state
statutes.
In
November 2004, Pennsylvania enacted the Alternative Energy Portfolio Standard
(the AEPS) legislation, which requires electric distribution companies, such as
PPL Electric, and retail electric suppliers serving retail load to ultimately
provide 18% of the electricity sold to retail customers in Pennsylvania from
alternative sources by 2020. Under this state legislation,
alternative sources include hydro, wind, solar, waste coal, landfill methane and
fuel cells. An electric distribution company will pay an alternative
compliance payment of $45 for each MWh that it is short of its required
alternative energy supply percentage. Since PPL Electric's PLR
generation rates are capped through 2009 as described above and the legislation
allows for a cost recovery exemption period, PPL Electric will not be subject to
the requirements of this legislation until 2010. In that year, PPL
Electric will have to supply about 9% of the total amount of electricity it
delivers to its PLR customers from alternative energy sources. PPL
Electric is purchasing all of the supply required to meet its 2010 default
service obligations pursuant to a PUC approved Competitive Bridge Plan (the
Plan). Under the Plan, PPL Electric is obtaining full requirements
service which includes the generation or credits that PPL Electric will need to
comply with the AEPS Act in 2010. At this time, PPL Electric cannot
predict the impact of this legislation on its future results of operations
because the impact will depend on a number of factors that will not be known
until 2010, including customer load requirements, PLR contract terms and
available alternative energy sources in the market.
The
General Assembly passed and the Governor signed into law Act 129 in October
2008. The law creates an energy efficiency and conservation program
and smart metering technology requirements, adopts new PLR electricity supply
procurement rules, provides remedies for market misconduct, and makes changes to
the existing Alternative Energy Portfolio Standard.
See
"Regulatory Issues - Pennsylvania Activities" in Note 15 to the Financial
Statements for additional information regarding Act 129, other legislative
and regulatory impacts and PPL Electric's efforts to provide default electricity
supply for periods after 2009.
Until its
sale in October 2008, PPL Gas Utilities operated a natural gas distribution and
propane business which provided natural gas and propane services to
approximately 110,000 customers in various counties throughout Pennsylvania, as
well as in a small area of Maryland and Delaware. See Note 10 to the
Financial Statements for information on the sale of PPL Gas
Utilities.
WPD,
through indirect wholly-owned subsidiaries, operates two of the 15 distribution
networks providing electricity service in the U.K. The WPD
subsidiaries together serve approximately 2.6 million end-users in the
U.K. WPD (South West) serves 1.5 million customers in a 5,560 square
mile area of southwest England. WPD (South Wales) serves an area of
Wales opposite the Bristol Channel from WPD (South West)'s
territory. Its 1.1 million customers occupy 4,550 square miles of
Wales. WPD is headquartered in Bristol, England. See
"Franchise and Licenses" for additional information about WPD's regulator,
Ofgem, which sets price controls and grants distribution licenses.
PPL
Global had controlling interests in electric transmission and distribution
companies serving customers in Chile, El Salvador and Bolivia until their
respective sales in 2007. See Note 10 to the Financial Statements for
additional information on these sales.
Seasonality
Demand
for and market prices of electricity are affected by weather. As a
result, PPL's overall operating results in the future may fluctuate
substantially on a seasonal basis, especially when more severe weather
conditions such as heat waves or winter storms make such fluctuations more
pronounced. The pattern of this fluctuation may change depending on
the nature and location of the facilities PPL owns and the terms of the
contracts to purchase or sell electricity.
FINANCIAL
CONDITION
See
PPL's, PPL Energy Supply's and PPL Electric's "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" for this
information.
CAPITAL
EXPENDITURE REQUIREMENTS
See
"Financial Condition - Liquidity and Capital Resources" in PPL's, PPL Energy
Supply's and PPL Electric's "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for information concerning
estimated capital expenditure requirements for the years
2009-2013. See Note 15 to the Financial Statements for additional
information concerning expected capital expenditures for environmental
matters.
COMPETITION
The
unregulated businesses and markets in which PPL and its subsidiaries participate
are highly competitive. Since the early 1990s, there has been
increased competition in U.S. energy markets because of federal and state
deregulation initiatives. For instance, in 1992 the Energy Act
amended the Federal Power Act to provide open access to electric transmission
systems for wholesale transactions. In 1996, the Customer Choice Act
was enacted in Pennsylvania to restructure the state's electric utility industry
to create a competitive market for electricity generation. Certain
other states in which PPL's subsidiaries operate have also adopted "customer
choice" plans to allow customers to choose their electricity
supplier. PPL and its subsidiaries believe that competition in
deregulated energy markets will continue to be intense. See "Item 1A.
Risk Factors" for more information concerning the risks PPL faces with respect
to competition in the deregulated energy markets.
Pursuant
to PPL Electric's authorizations from the Commonwealth of Pennsylvania and the
PUC, PPL Electric operates a regulated distribution monopoly in its service
area. Accordingly, PPL Electric does not face competition in its
electricity distribution business. Although WPD operates in
non-exclusive concession areas in the U.K., it currently faces little
competition with respect to residential customers. See "Franchises
and Licenses" for more information.
POWER
SUPPLY
PPL
Energy Supply's owned or controlled system capacity (winter rating) at
December 31, 2008 was 12,002 MW. The capacity of generating
units is based upon a number of factors, including the operating experience and
physical condition of the units, and may be revised periodically to reflect
changed circumstances. See "Item 2. Properties" for a description of
PPL Energy Supply's plants at December 31, 2008.
During
2008, PPL Generation's plants generated the following amounts of
electricity.
Of this
generation, 52% of the energy was from coal-fired stations, 32% from nuclear
operations at the Susquehanna station, 8% from hydroelectric stations and 8%
from oil/gas-fired stations.
PPL
Energy Supply estimates that, on average, approximately 95% of its expected
annual generation output for 2009 will be used to meet:
PPL
Energy Supply is continuing to enter into new power sales contracts to obtain
firm commitments for a portion of the output of its generating facilities in
advance of the expiration of the PLR contracts at the end of
2009. PPL Energy Supply has already entered into commitments of
varying quantities and terms for the years 2010 and beyond. Based on
developments in the wholesale markets over the last several years, PPL Energy
Supply expects that new baseload output contracts are likely to continue to be
of a shorter duration than the PLR contracts which, at inception, had terms of
approximately nine years.
These
contractual arrangements are consistent with, and are integral to, PPL Energy
Supply's supply business strategy to capture profits while managing exposure to
adverse movements in energy and fuel prices and counterparty credit
risk. This strategy includes matching PPL Energy Supply's anticipated
energy supply (including generation as well as purchase commitments) with load,
or customer demand, under contracts of varying lengths with creditworthy
counterparties. See Note 15 to the Financial Statements for more
information regarding PPL Energy Supply's wholesale energy commitments and Note
16 for more information regarding the PLR contracts.
A
subsidiary of PPL Energy Supply funds, develops, constructs, owns and operates
plants that produce renewable energy. PPL EnergyPlus markets the
energy produced by these plants and renewable energy credits to commercial,
industrial and institutional customers. Another subsidiary of PPL
Energy Supply has existing renewable energy projects throughout Pennsylvania,
New York, New Jersey and Connecticut, with capacity of
32 MW. During 2008, these projects generated 62 million
kWh.
PPL
EnergyPlus purchases the output from two wind farms in Pennsylvania with a
combined capacity of 50 MW.
FUEL
SUPPLY
Coal
Pennsylvania
PPL
Generation, by and through its agent PPL EnergyPlus, actively manages PPL's coal
requirements by purchasing coal principally from mines located in central and
northern Appalachia.
During
2008, PPL Generation, by and through its agent PPL EnergyPlus, purchased about
95% of the coal delivered to PPL Generation's wholly-owned Pennsylvania stations
under short-term and long-term contracts and obtained 5% through spot market
purchases. These contracts provided PPL Generation 6.9 million tons
of coal. Contracts currently in place are expected to provide 7.5
million tons in 2009. At December 31, 2008, the wholly-owned
Pennsylvania plants had sufficient supply for approximately 39 days of
operations. The amount of coal in inventory varies from time to time
depending on market conditions and plant operations.
In 2006,
PPL Generation, by and through its agent PPL EnergyPlus, entered into a
long-term coal purchase agreement with CONSOL Energy Inc. The
contract will provide more than one-third of PPL Generation's projected annual
coal needs for the Pennsylvania power plants from 2010 through
2018. PPL Generation has other contracts that, in total, will provide
additional coal supply for PPL's projected annual needs from 2009 through
2012.
Also at
December 31, 2008, a PPL Generation subsidiary owned a 12.34% interest in the
Keystone station and a 16.25% interest in the Conemaugh station. The
Keystone station contracts with Keystone Fuels, LLC for its coal
requirements. In 2008, Keystone Fuels, LLC provided 5.3 million tons
of coal to the Keystone station. The Conemaugh station requirements
are purchased under contract from Conemaugh Fuels, LLC. In 2008,
Conemaugh Fuels, LLC provided 4.7 million tons of coal to the Conemaugh
station.
Initial
deliveries of limestone in preparation for startup of the scrubbers that were
being installed at the Montour power plant began in October 2007. The
Montour scrubber project was completed in May 2008. Contracts are in
place for all the limestone requirements for the three remaining planned
scrubbers at PPL Generation's wholly-owned Pennsylvania stations through
2010. When all four scrubbers are fully operational, it is projected
that annual limestone requirements will be approximately 700,000
tons. During 2008, approximately 350,000 tons of limestone was
delivered to PPL Generation's wholly-owned Pennsylvania stations under long-term
contracts.
Montana
PPL
Montana has a 50% leasehold interest in Colstrip Units 1 and 2, and a 30%
leasehold interest in Colstrip Unit 3. PPL Montana, along with the
other owners, is party to contracts to purchase 100% of its coal requirements
with defined quality characteristics and specifications. The current
coal supply contract for Units 1 and 2 is in effect through December 31,
2009. In 2007, PPL Montana entered into a new long-term purchase and
supply agreement with the current supplier for Units 1 and 2 that will begin
January 1, 2010. The new contract will provide these units with 100%
of the coal requirements through December 31, 2014, and at least 85% of such
requirements from January 1, 2015 through December 31, 2019. The coal
supply contract for Unit 3 is in effect through December 31, 2019, and will
provide 100% of the coal requirements of this unit.
Coal
supply contracts are in place to purchase low-sulfur coal with defined quality
characteristics and specifications for PPL Montana's Corette
station. The contracts supplied 100% of the plant coal requirements
in 2008. Similar contracts are currently in place to supply 100% of
the expected coal requirements through 2010.
Oil and Natural
Gas
PPL
Generation's Martins Creek Units 3 and 4 burn both oil and natural
gas. PPL EnergyPlus is responsible for procuring the oil and natural
gas supply for all PPL Generation operations. During 2008, 100% of
the physical oil and gas requirements for the Martins Creek units were purchased
on the spot market. At December 31, 2008, PPL EnergyPlus had no
long-term agreements for these oil requirements.
At
December 31, 2008, there were no long-term delivery or supply agreements to
purchase natural gas for the University Park facility in Illinois.
PPL
EnergyPlus has a long-term contract for approximately 40% of the expected
pipeline transportation requirements of the Wallingford facility in Connecticut,
but has no long-term physical supply agreement to purchase natural
gas.
PPL
EnergyPlus has a short-term and long-term gas transportation contract in place
for approximately 30% of the maximum daily requirements of the Lower Mt. Bethel
facility in Pennsylvania, but has no long-term physical supply agreement to
purchase natural gas.
In June
2008, PPL EnergyPlus executed an agreement to acquire the rights to an existing
long-term tolling agreement associated with the capacity and energy of the
Ironwood facility. PPL EnergyPlus has a short-term transportation
contract in place for approximately 10% of the maximum daily requirements of the
Ironwood facility for natural gas and has signed "precedent agreements" for
long-term transportation contracts to serve approximately 25% of Ironwood's
maximum daily requirements. PPL EnergyPlus currently has no long-term
physical supply agreements to purchase natural gas for Ironwood.
Nuclear
The
nuclear fuel cycle consists of several material and service
components: the mining and milling of uranium ore to produce uranium
concentrates; the conversion of these concentrates into uranium hexafluoride, a
gas component; the enrichment of the hexafluoride gas; the fabrication of fuel
assemblies for insertion and use in the reactor core; and the temporary storage
and final disposal of spent nuclear fuel.
PPL
Susquehanna has a portfolio of supply contracts, with varying expiration dates,
for nuclear fuel materials and services. These contracts are expected
to provide sufficient fuel to permit Unit 1 to operate into the first quarter of
2016 and Unit 2 to operate into the first quarter of 2015. PPL
Susquehanna anticipates entering into additional contracts to ensure continued
operation of the nuclear units.
Federal
law requires the U.S. government to provide for the permanent disposal of
commercial spent nuclear fuel. Under the Nuclear Waste Policy Act
(NWPA), the DOE carried out an analysis of a site in Nevada for a permanent
nuclear waste repository. There is no definitive date by which this
repository will be operational. As a result, it was necessary to
expand Susquehanna's on-site spent fuel storage capacity. To support
this expansion, PPL Susquehanna contracted for the design and construction of a
spent fuel storage facility employing dry cask fuel storage
technology. The facility is modular, so that additional storage
capacity can be added as needed. The facility began receiving spent
nuclear fuel in 1999. PPL Susquehanna estimates that there is
sufficient storage capacity in the spent nuclear fuel pools and the on-site
spent fuel storage facility at Susquehanna to accommodate spent fuel discharged
through approximately 2017, under current operating conditions. If
necessary, the on-site spent fuel storage facility can be expanded, assuming
appropriate regulatory approvals are obtained, such that, together, the spent
fuel pools and the expanded dry fuel storage facility will accommodate all of
the spent fuel expected to be discharged through the current licensed life of
the plant.
In 2002,
the President approved the Congressional override of a veto by the State of
Nevada, designating Yucca Mountain, Nevada, as the site for development of a
permanent repository for high-level radioactive waste. In June 2008,
the DOE submitted a license application to the NRC, which the NRC docketed in
September 2008. The NRC staff review of the application is in
progress. Petitions for an NRC hearing on the application were filed
in December 2008.
In 1996,
the U.S. Court of Appeals for the District of Columbia Circuit ruled that the
NWPA imposed on the DOE an unconditional obligation to begin accepting spent
nuclear fuel on or before January 31, 1998. In 1997, the Court ruled
that the contracts between the utilities and the DOE provide a potentially
adequate remedy if the DOE failed to begin accepting spent nuclear fuel by
January 31, 1998. The DOE did not, in fact, begin to accept spent
nuclear fuel by that date. The DOE continues to contest claims that
its breach of contract resulted in recoverable damages. In January
2004, PPL Susquehanna filed suit in the U.S. Court of Federal Claims for
unspecified damages suffered as a result of the DOE's breach of its contract to
accept and dispose of spent nuclear fuel. PPL cannot predict the
outcome of these proceedings.
PROVIDER
OF LAST RESORT SUPPLY
The
Customer Choice Act requires electricity delivery companies, like PPL Electric,
to act as a PLR of electricity and provides that electricity supply costs will
be recovered by such companies pursuant to regulations to be established by the
PUC. In May 2007, the PUC approved PPL Electric's plan to procure
default electricity supply in 2010 -- after its current supply agreements with
PPL EnergyPlus expire -- for retail customers who do not choose an alternative
competitive supplier. Pursuant to this plan, PPL Electric has
completed four of six competitive supply solicitations and has contracted for
two-thirds of the 2010 electricity supply it expects to need for residential,
small commercial and small industrial customers. See "Regulatory
Issues - Pennsylvania Activities" in Note 15 to the Financial Statements for
additional information regarding PPL Electric's efforts to provide default
electricity supply for periods after 2010.
ENVIRONMENTAL
MATTERS
Certain
PPL subsidiaries, including PPL Electric and PPL Generation subsidiaries, are
subject to certain existing and developing federal, regional, state and local
laws and regulations with respect to air and water quality, land use and other
environmental matters. See PPL's and PPL Energy Supply's "Financial
Condition - Liquidity and Capital Resources" in "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" for information
concerning environmental expenditures during 2008 and estimated expenditures
during 2009-2013. Certain environmental laws, regulations and
developments that may have a substantial impact on PPL are discussed
below. See "Environmental Matters" in Note 15 to the Financial
Statements for information regarding these laws and regulations and the status
of PPL's and its subsidiaries compliance and remediation activities, as well as
legal and regulatory proceedings involving PPL and its
subsidiaries.
Air
The Clean
Air Act includes, among other things, provisions that: (a) restrict
the construction of, and revise the performance standards for, new and
substantially modified coal-fired and oil-fired generating stations; and (b)
authorize the EPA to impose substantial per day noncompliance penalties for each
facility found to be in violation of the requirements of an applicable state
implementation plan. State agencies administer the EPA's air quality
regulations through state implementation plans and have concurrent authority to
impose penalties for noncompliance.
In 2005,
the EPA finalized its CAIR requiring substantial reductions for sulfur dioxide
and nitrogen oxides emissions in 28 midwestern and eastern states, including
Pennsylvania. In July 2008, the United States Court of Appeals for
the D.C. Circuit (the U.S. Circuit Court) invalidated CAIR. In
December 2008, the U.S. Circuit Court remanded CAIR back to the EPA without
vacating the rule. As a result, CAIR was reinstated and there is once
again a reduction requirement. Pursuant to a separate rule finalized
in 2005, the EPA also required mercury reductions
nationwide. However, a federal appeals court has negated the EPA
mercury rule. The EPA is now developing a mercury MACT
standard. Based on the federal appeals court action and restrictions
on DEP's authority under Pennsylvania law, PPL challenged Pennsylvania's mercury
regulations. In January 2009, the Pennsylvania Commonwealth Court
(Commonwealth Court) issued its ruling concluding that the Pennsylvania mercury
rule was unlawful, invalid and unenforceable. The Pennsylvania DEP
has appealed this decision to the Pennsylvania Supreme Court and the
Commonwealth Court decision has been automatically stayed. PPL has
filed an application to lift the stay. PPL is evaluating its mercury
control plans and what steps it needs to take at this time.
Global Climate
Change
There is
concern nationally and internationally about global climate change and the
contribution of greenhouse gas emissions including, most significantly, carbon
dioxide. This concern has led to increased federal legislative
proposals, actions at regional, state or local levels, as well as litigation
relating to greenhouse gas emissions, including an April 2007 U.S. Supreme Court
decision holding that the EPA has the authority to regulate greenhouse gas
emissions from new motor vehicles under the Clean Air Act. In
addition, the Obama administration has reaffirmed its support for mandatory
regulation of greenhouse gas emissions, including a cap-and-trade
system. President Obama's appointee for Administrator of the EPA has
indicated that the EPA is moving forward with regulation of greenhouse gas
emissions under the CAIR, though the exact form of such regulation remains
unclear. The EPA has also agreed, following this decision, to a
remand of New Source Performance Standards (NSPS) applicable to stationary
sources to reconsider its approach to including greenhouse gases under such
rules. If the EPA concludes greenhouse gases from motor vehicles pose
an endangerment to public health or welfare, this could lead to regulation of
stationary source carbon dioxide emissions. The EPA might also
proceed to regulate greenhouse gases from stationary sources directly under the
NSPS or under the provisions of the Clean Air Act requiring Best Available
Control Technology to prevent significant deterioration of air quality in areas
currently in attainment of ambient air quality standards. Also,
increased pressure for carbon dioxide emissions reduction is being initiated by
investor and environmental organizations and the international
community. In addition, a nuisance claim brought by a number of
states against other large electric generating companies was dismissed by a
federal district court in New York, but remains pending on appeal in the U.S.
Court of Appeals for the Second Circuit.
PPL
believes that the regulation of greenhouse gas emissions may have a material
impact on its capital expenditures and operations, but the costs are not now
determinable. PPL also cannot predict the impact that any pending or
future federal or state legislation regarding more stringent environmental
standards could have on PPL or its subsidiaries.
Water
To
implement the requirements of the Federal Water Pollution Control Act of 1972,
as amended by the Clean Water Act of 1977 and the Water Quality Act of 1987, the
EPA has adopted regulations on effluent standards for steam electric
stations. The states administer the EPA's effluent standards through
state laws and regulations relating to, among other things, effluent discharges
and water quality. The standards adopted by the EPA pursuant to the
Clean Water Act may have a significant impact on existing facilities of certain
PPL subsidiaries, depending on the states' interpretation and future amendments
to regulations. The EPA released its 2008 Effluent Guidelines Plan
and has chosen not to revise the steam electric effluent
guidelines. Instead, the EPA plans to continue to study the
industry's wastewater discharges, with a focus on coal-fired plants and
"particular interest" in Flue Gas Desulfurization wastewater treatment, ash
sluice water management and water reuse opportunities. The EPA plans
to continue to study the industry through 2009 and 2010 annual reviews,
including sampling at selected plants.
The EPA
finalized requirements in 2004 for new or modified cooling water intake
structures. These requirements affect where generating facilities are
built, establish intake design standards, and could lead to requirements for
cooling towers at new and modified power plants. Another rule
finalized in 2004 that addressed existing structures has been withdrawn
following a January 2007 decision by the U.S. Court of Appeals for the Second
Circuit. In April 2008, the U.S. Supreme Court granted the petitions
for writs of certiorari filed by Utility Water Act Group, Public Service
Enterprise Group, Inc. and Entergy Corporation, limited to one
issue. The issue is whether Section 316(b) of the Clean Water Act
authorizes the EPA to compare costs with benefits in determining the "best
technology available for minimizing adverse environmental impact" at cooling
water intake structures. The Supreme Court heard oral arguments in
December 2008. Depending on the outcome of the U.S. Supreme Court
review and what changes the EPA makes to the rule in accordance with this
decision and the other issues raised by the Second Circuit Court (that will not
be reviewed by the U.S. Supreme Court), in addition to what actions the states
may take on their own, these actions could result in stricter standards for
existing structures that could impose significant costs on PPL
subsidiaries.
Pursuant
to the Surface Mining and Reclamation Act of 1977, the OSM has adopted effluent
guidelines which are applicable to PPL subsidiaries as a result of their past
coal mining and processing activities. The EPA and the OSM
limitations, guidelines and standards also are enforced through the issuance of
NPDES permits. In accordance with the provisions of the Clean Water
Act and the Reclamation Act of 1977, the EPA and the OSM have authorized the
states to implement the NPDES program. Compliance with applicable
water quality standards is assured by state imposition of NPDES permit
conditions and requirements to address acid mine drainage.
Solid and Hazardous
Waste
The
provisions of Superfund authorize the EPA to require past and present owners of
contaminated sites and generators of any hazardous substance found at a site to
clean-up the site or pay the EPA or the state for the costs of
cleanup. The generators and past owners can be liable even if the
generator contributed only a minute portion of the hazardous substances at the
site. Present owners can be liable even if they contributed no
hazardous substances to the site.
State
laws such as the Pennsylvania and Montana Superfund statutes and the
Pennsylvania Solid Waste Management Act also give state agencies broad authority
to identify contaminated sites or sites with waste that has been improperly
disposed of, and to order owners or responsible parties to clean-up the
sites. If responsible parties cannot or will not perform the
clean-up, the agency can hire contractors to clean-up the sites and then require
reimbursement from the responsible parties after the clean-up is
completed. Another Pennsylvania statute, the Land Recycling and
Environmental Remediation Standards, encourages voluntary clean-ups by allowing
responsible parties to choose from a menu of clean-up standards and providing
liability protection commensurate with the clean-up standard
chosen.
Furthermore,
the EPA and several states, including Montana, are considering establishing
regulations under the Resource Conservation and Recovery Act that could impact
the disposal and management of coal combustion products (CCPs), which include
ash and scrubber wastes and other by-products. The large ash
release at a
Tennessee Valley Authority site in Tennessee in December 2008 and
subsequent widespread media coverage has significantly increased the likelihood
of new federal regulatory requirements for CCPs. PPL cannot predict
at this time what impact, if any, such regulations would have on its operating
facilities.
Certain
federal and state statutes, including federal and state Superfund statutes, also
impose liability on the responsible parties for the lost value of damaged
natural resources.
Low-Level Radioactive
Waste
Under
federal law, each state is responsible for the disposal of low-level radioactive
waste generated in that state. States may join in regional compacts
to jointly fulfill their responsibilities. The states of
Pennsylvania, Maryland, Delaware and West Virginia are members of the
Appalachian States Low-Level Radioactive Waste Compact. Efforts to
develop a regional disposal facility in Pennsylvania were suspended by the
Pennsylvania DEP in 1998. The Commonwealth retains the legal
authority and may be required to resume the siting process should it be
necessary. In 2008, low-level radioactive waste from the Susquehanna
facility was sent to independently operated facilities in Barnwell, South
Carolina, and Clive, Utah for disposal. The Barnwell facility stopped
receiving waste from most states, including Pennsylvania, in June
2008. PPL will send most of its low-level radioactive waste to the
Clive, Utah facility and the remainder will be stored at the Susquehanna storage
facility. In the event the Clive site closes or other emergent
disposal options become unavailable or are no longer cost-effective, low-level
radioactive waste will be stored on-site at Susquehanna, in a facility licensed
for that purpose by the NRC. PPL Susquehanna cannot predict the
future availability of independently operated low-level waste disposal
facilities or the cost of disposal at such facilities. PPL believes
that its licensed storage facility located at Susquehanna is sufficient for the
foreseeable future to replace the portion of disposal capability at the Barnwell
facility that will not be shifted to the Clive site.
Electric and Magnetic
Fields
Concerns
have been expressed by some members of the public regarding potential health
effects of power frequency EMFs, which are emitted by all devices carrying
electricity, including electric transmission and distribution lines and
substation equipment. Government officials in the U.S. and the U.K.
have reviewed this issue. The U.S. National Institute of
Environmental Health Sciences concluded in 2002 that, for most health outcomes,
there is no evidence that EMFs cause adverse effects. The agency
further noted that there is some epidemiological evidence of an association with
childhood leukemia, but that the evidence is difficult to interpret without
supporting laboratory evidence. The U.K. National Radiological
Protection Board (part of the U.K. Health Protection Agency) concluded in 2004
that, while the research on EMFs does not provide a basis to find that EMFs
cause any illness, there is a basis to consider precautionary measures beyond
existing exposure guidelines. In April 2007, the Stakeholder Group on
Extremely Low Frequency EMF, set up by the U.K. Government, issued its interim
assessment, which describes a number of options for reducing public exposure to
EMFs. This assessment is being considered by the U.K.
Government. PPL and its subsidiaries believe the current efforts to
determine whether EMFs cause adverse health effects should continue and are
taking steps to reduce EMFs, where practical, in the design of new transmission
and distribution facilities. PPL and its subsidiaries are unable to
predict what effect, if any, the EMF issue might have on their operations and
facilities either in the U.S. or the U.K., and the associated cost, or what, if
any, liabilities they might incur related to the EMF issue.
General
PPL and
its subsidiaries are unable to predict the ultimate effect of evolving
environmental laws and regulations upon their existing and proposed facilities
and operations. In complying with statutes, regulations and actions
by regulatory bodies involving environmental matters, including the areas of
water and air quality, hazardous and solid waste handling and disposal and toxic
substances, PPL's subsidiaries may be required to modify, replace or cease
operating certain of their facilities. PPL's subsidiaries may also
incur significant capital expenditures and operating expenses in amounts which
are not now determinable, but could be significant.
FRANCHISES
AND LICENSES
PPL
Electric is authorized to provide electric public utility service throughout its
service area as a result of grants by the Commonwealth of Pennsylvania in
corporate charters to PPL Electric and companies to which it has succeeded and
as a result of certification by the PUC. PPL Electric is granted the
right to enter the streets and highways by the Commonwealth subject to certain
conditions. In general, such conditions have been met by ordinance,
resolution, permit, acquiescence or other action by an appropriate local
political subdivision or agency of the Commonwealth.
See
"Background - Supply Segment" for a discussion of PPL EnergyPlus's licenses in
various states. PPL EnergyPlus also has an export license from the
DOE to sell capacity and/or energy to electric utilities in Canada.
PPL
Susquehanna operates Units 1 and 2 pursuant to NRC operating
licenses. In September 2006, PPL Susquehanna applied to the NRC for
20-year license renewals for each of the Susquehanna units to extend their
expiration dates, from 2022 to 2042 for Unit 1 and from 2024 to 2044 for Unit
2. PPL cannot predict whether or when NRC approval will be
obtained. See Note
9 to the Financial Statements for additional information.
In
January 2008, PPL Susquehanna received NRC approval for its request to increase
the generation capacity of the Susquehanna nuclear plant. The total
expected capacity increase is 159 MW, of which PPL Susquehanna's share
would be 143 MW. The first uprate for Unit 1, totaling
50 MW, was completed in May 2008. The remaining total expected
capacity increase is 109 MW, of which PPL Susquehanna's share would be
98 MW. PPL Susquehanna's share of the expected capital cost for
this project is $345 million and PPL expects to achieve the full capacity
increase of 159 MW after the refueling outage in 2010 for
Unit 1.
In
October 2008, PPL Susquehanna submitted a COLA to the NRC for a new nuclear
generating unit (Bell Bend) to be built adjacent to the Susquehanna
plant. The COLA was accepted for review by the NRC in December
2008. See Note 9 to Financial Statements for additional
information.
PPL
Holtwood operates the Holtwood hydroelectric generating station pursuant to a
license renewed by the FERC in 1980 and expiring in 2014. PPL
Holtwood operates the Wallenpaupack hydroelectric generating station pursuant to
a license renewed by the FERC in 2005 and expiring in 2044. PPL
Holtwood also owns one-third of the capital stock of Safe Harbor Water Power
Corporation (Safe Harbor), which holds a project license that extends the
operation of its hydroelectric generating station until 2030. The
total capacity of the Safe Harbor generating station is 425 MW, and PPL Holtwood
is entitled by contract to one-third of the total capacity.
In
December 2007, PPL asked the FERC for approval to expand its Holtwood plant by
125 MW. In December 2008, PPL announced that it had withdrawn the
application in light of current economic conditions, including the high cost of
capital, and projections of future energy prices. See Note 9 to the
Financial Statements for additional information. The 11
hydroelectric facilities and one storage reservoir purchased from Montana Power
in 1999 are licensed by the FERC. These licenses expire periodically,
and the generating facilities must be relicensed at such times. The
current FERC license for the Mystic facility expires in 2009 but has been
extended, effective January 1, 2010, for an additional 40-year
term. The Thompson Falls and Kerr licenses expire in 2025 and 2035,
respectively; and the licenses for the nine Missouri-Madison facilities expire
in 2040.
In
connection with the relicensing of these generation facilities, the FERC may,
under applicable law, relicense the original licensee or license a new licensee,
or the U.S. government may take over the facility. If the original
licensee is not relicensed, it is compensated for its net investment in the
facility, not to exceed the fair value of the property taken, plus reasonable
damages to other property affected by the lack of relicensing.
WPD is
authorized by the U.K. government to provide electric distribution services
within its concession areas and service territories, subject to certain
conditions and obligations. For instance, WPD is subject to
governmental regulation of the prices it can charge and the quality of service
it must provide, and WPD can be fined or have its licenses revoked if it does
not meet the mandated standard of service.
WPD
operates under distribution licenses granted, and price controls set, by
Ofgem. The price control formula that governs WPD's allowed revenue
is normally determined every five years with the next review to be completed by
the end of 2009, effective April 1, 2010. Earnings in 2010 and beyond
may be affected by this rate review. WPD cannot predict the ultimate
outcome of the rate review.
EMPLOYEE
RELATIONS
As of
December 31, 2008, PPL and its subsidiaries had the following full-time
employees.
Approximately
5,000, or 60%, of PPL's domestic workforce are members of labor unions, with
four IBEW locals representing approximately 3,600 employees. The
other unions primarily represent employees of the mechanical
contractors. The bargaining agreement with the largest IBEW local was
negotiated in May 2006 and expires in 2010. This agreement covers
approximately 3,250 employees. The IBEW representing approximately
250 employees at the Montana Colstrip power plants are covered under a four-year
labor agreement expiring in April 2012. In January 2008, a
four-year contract was renegotiated with the IBEW local of Montana that
represents approximately 80 employees at the hydroelectric facilities and at the
Corette plant that expires in April 2012.
Approximately
1,870, or 82%, of PPL's U.K. workforce are members of labor
unions. WPD recognizes five unions, the largest of which represents
37% of its union workforce. WPD's Electricity Business Agreement
covers approximately 1,820 employees; it may be amended by agreement between WPD
and the unions and is terminable with 12 months notice by either
side.
See Note
26 to the Financial Statements for a cost reduction initiative announced in
February 2009, which resulted in the elimination of approximately 200 management
and staff positions at PPL.
AVAILABLE
INFORMATION
PPL's
Internet Web site is www.pplweb.com. On the Investor Center page of
that Web site, PPL provides access to all SEC filings of PPL registrants free of
charge, as soon as reasonably practicable after filing with the
SEC. Additionally, PPL registrants' filings are available at the
SEC's Web site (www.sec.gov) and at the SEC's Public Reference Room at 100 F
Street, NE, Washington, DC 20549, or by calling 1-800-SEC-0330.
ITEM 1A. RISK
FACTORS
PPL, PPL
Energy Supply and PPL Electric face various risks associated with our
businesses. While we have identified below the risks we currently
consider material, these risks are not the only risks that we
face. Additional risks not presently known to us or that we currently
deem immaterial may also impair our business operations. Our
businesses, financial condition, cash flows or results of operations could be
materially adversely affected by any of these risks. In addition,
this report also contains forward-looking and other statements about our
businesses that are subject to numerous risks and uncertainties. See
"Forward-Looking Information," "Item 1. Business," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 15 to the Financial Statements for more information concerning the risks
described below and for other risks, uncertainties and factors that could impact
our businesses and financial results.
As used
in this Item 1A., the terms "we," "our" and "us" generally refer to PPL and its
consolidated subsidiaries taken as a whole, or to PPL Energy Supply and its
consolidated subsidiaries taken as a whole within the Supply and International
Delivery segment discussions, or PPL Electric and its consolidated subsidiaries
taken as a whole within the Pennsylvania Delivery segment
discussion.
Risks
Related to Supply Segment
(PPL and PPL Energy
Supply)
We
are exposed to operational, price and credit risks associated with selling and
marketing products in the wholesale electricity markets.
We
purchase and sell electricity in wholesale markets under market-based tariffs
authorized by the FERC throughout the U.S. and also enter into short-term
agreements to market available electricity and capacity from our generation
assets with the expectation of profiting from market price
fluctuations. If we are unable to deliver firm capacity and
electricity under these agreements, we could be required to pay
damages. These damages would generally be based on the difference
between the market price to acquire replacement capacity or electricity and the
contract price of any undelivered capacity or electricity. Depending
on price volatility in the wholesale electricity markets, such damages could be
significant. Extreme weather conditions, unplanned generation
facility outages, environmental compliance costs, transmission disruptions, and
other factors could affect our ability to meet our obligations, or cause
significant increases in the market price of replacement capacity and
electricity.
In
addition, our power agreements typically include provisions requiring us to post
collateral for the benefit of the counterparties if the market price of energy
varies from the contract prices by certain thresholds. At
December 31, 2008, we posted $303 million of collateral, in the form of
letters of credit, under these contracts. Since 2006, we have
increased our available liquidity facilities to $4.2 billion, to provide for
these collateral obligations and to maintain our credit
ratings. These increases were needed, in significant part, to meet
potential collateral requirements under these contracts and to support contracts
that we expect to enter into as we seek to grow our wholesale energy
business. Although we currently believe that we have sufficient
liquidity facilities to fulfill our potential collateral obligations under these
contracts, we expect to continue to need to increase our credit facilities to
support our hedging program and collateral requirements and for other purposes,
and there is no certainty that such additional credit will be available when
needed due to the continued financial downturn or other
factors.
We also
face credit risk that parties with whom we contract will default in their
performance, in which case we may have to sell our electricity into a
lower-priced market or make purchases in a higher-priced market than existed at
the time of contract. Whenever feasible, we attempt to mitigate these
risks by various means, including agreements that require our counterparties to
post collateral for our benefit if the market price of energy varies from the
contract price beyond certain thresholds. However, there can be no
assurance that we will avoid counterparty nonperformance, which could adversely
impact our ability to fully meet our obligations to other parties, which could
in turn subject us to claims for damages.
Adverse
changes in commodity prices and related costs may decrease our future energy
margins, which could adversely affect our earnings and cash flows.
Our
energy margins, or the amount by which our revenues from the sale of power
exceed our costs to supply power, are impacted by changes in market prices for
electricity, fuel, fuel transportation, emission allowances, renewable energy
credits, electricity transmission and related congestion charges and other
costs. Unlike most commodities, the limited ability to store electric
power requires that it must be consumed at the time of production. As
a result, wholesale market prices for electricity may fluctuate substantially
over relatively short periods of time and can be unpredictable. Among
the factors that can influence such prices are:
See
Exhibit 99(a) for more information concerning the market fluctuations in
wholesale energy, fuel and emission allowance prices over the past five
years. The volatility of these business factors has increased
significantly with the current economic downturn.
Our
risk management policy and programs relating to electricity and fuel prices,
interest rates, foreign currency and counterparties, may not work as planned,
and we may suffer economic losses despite such programs.
We
actively manage the market risk inherent in our energy-related, debt, foreign
currency and counterparty credit positions. We have implemented
procedures to monitor compliance with our risk management policy and programs,
including validation of transaction and market prices, verification of risk and
transaction limits, sensitivity analyses and daily portfolio reporting of
various risk management metrics. Nonetheless, our risk management
programs may not work as planned. For instance, actual electricity
and fuel prices may be significantly different or more volatile than the
historical trends and assumptions upon which we based our risk management
positions. Similarly, interest rates or foreign currency exchange
rates could change in significant ways that our risk management procedures were
not designed to address. The volatility of these business factors has
increased significantly with the current economic downturn. As a
result, we cannot always predict the impact that our risk management decisions
may have on us if actual events result in greater losses or costs than our risk
models predict or greater volatility in our earnings and financial
position.
In
addition, our trading, marketing and risk management activities are exposed to
counterparty credit risk and market liquidity risk. We have adopted a
credit risk management policy and program to evaluate counterparty credit
risk. However, if counterparties fail to perform, which is more
likely given the continued economic downturn, we may be forced to enter into
alternative arrangements at then-current market prices. In that
event, our financial results are likely to be adversely affected. Our
market liquidity risk is discussed further below.
We
do not always hedge against risks associated with electricity and fuel price
volatility.
We
attempt to mitigate risks associated with satisfying our contractual electricity
sales arrangements by either reserving generation capacity to deliver
electricity or purchasing the necessary financial or physical products and
services through competitive markets to satisfy our net firm sales
contracts. We also routinely enter into contracts, such as fuel and
electricity purchase and sale commitments, to hedge our exposure to weather
conditions, fuel requirements and other electricity-related
commodities. However, based on economic and other considerations, we
may not hedge the entire exposure of our operations from commodity price
volatility. To the extent we do not hedge against commodity price
volatility, our results of operations and financial position may be adversely
affected. The risks associated with our unhedged positions have
increased significantly with the current economic and financial market
downturn.
We
face intense competition in our energy supply business, which may adversely
affect our ability to operate profitably.
Unlike
our regulated delivery businesses, our energy supply business is not assured of
any rate of return on our capital investments through a predetermined rate
structure, and our revenues and results of operations are dependent on our
ability to operate in a competitive environment. An important focus
of our supply business over the next several years will be the prudent execution
of our marketing strategy based on then prevailing market conditions, but we may
not be successful because of the intense competition that we face in the
deregulated electricity markets. Competition is impacted by
electricity and fuel prices, new market entrants, construction by others of
generating assets, technological advances in power generation, the actions of
regulatory authorities and other factors. These competitive factors
may negatively impact our ability to sell electricity and related products and
services, as well as the prices that we may charge for such products and
services, which could adversely affect our results of operations and our ability
to grow our business.
Following
the expiration of our existing power sales agreements, we currently expect to
sell our available energy and capacity into the competitive wholesale markets
through contracts of various durations. Competition in the wholesale
power markets will occur principally on the basis of the price of products and,
to a lesser extent, on the basis of reliability and availability. We
expect that the commencement of commercial operation of new electric facilities
in the regional markets where we own or control generation capacity will
continue to increase the competitiveness of the wholesale electricity market in
those regions, which could have a material adverse effect on the prices we
receive for electricity.
We also
face competition in the wholesale markets for electricity capacity and ancillary
services. We primarily compete with other electricity suppliers based
on our ability to aggregate supplies at competitive prices from different
sources and to efficiently utilize transportation from third-party pipelines and
transmission from electric utilities and ISOs. We also compete
against other energy marketers on the basis of relative financial condition and
access to credit sources, and our competitors may have greater financial
resources than we have.
Competitors
in the wholesale power markets in which PPL Generation subsidiaries and PPL
EnergyPlus operate include regulated utilities, industrial companies,
non-utility generators and unregulated subsidiaries of regulated
utilities. In the past, PUHCA significantly restricted mergers and
acquisitions and other investments in the electric utility
sector. Entirely new competitors, including financial institutions,
have entered the energy markets as a result of the repeal of
PUHCA. The repeal of PUHCA also may lead to consolidation in our
industry, resulting in competitors with significantly greater financial
resources than we have.
Disruptions
in our fuel supplies could occur, which could adversely affect our ability to
operate our generation facilities.
We
purchase fuel from a number of suppliers. Disruption in the delivery
of fuel and other products consumed during the production of electricity
(including lime, limestone, other chemicals), including disruptions as a result
of weather, transportation difficulties, global demand and supply dynamics,
labor relations, environmental regulations or the financial viability of our
fuel suppliers, could adversely affect our ability to operate our facilities,
which could result in lower sales and/or higher costs and thereby adversely
affect our results of operations.
Despite
federal and state deregulation initiatives, our supply business is still subject
to extensive regulation, which may increase our costs, reduce our revenues, or
prevent or delay operation of our facilities.
Our U.S.
generation subsidiaries sell electricity into the wholesale
market. Generally, our generation subsidiaries and our marketing
subsidiaries are subject to regulation by the FERC. The FERC has
authorized us to sell generation from our facilities and power from our
marketing subsidiaries at market-based prices. The FERC retains the
authority to modify or withdraw our market-based rate authority and to impose
"cost of service" rates if it determines that the market is not workably
competitive, that we possess market power or that we are not charging just and
reasonable rates. Any reduction by the FERC in the rates we may
receive or any unfavorable regulation of our business by state regulators could
materially adversely affect our results of operations. See "FERC
Market-Based Rate Authority" in Note 15 to the Financial Statements for
information regarding recent court decisions that could impact the FERC's
market-based rate authority program, and "PJM RPM Litigation" in Note 15 to the
Financial Statements for information regarding FERC proceedings that could
impact PJM's capacity pricing model.
In
addition, the acquisition, construction, ownership and operation of electricity
generation facilities require numerous permits, approvals, licenses and
certificates from federal, state and local governmental agencies. We
may not be able to obtain or maintain all required regulatory
approvals. If there is a delay in obtaining any required regulatory
approvals or if we fail to obtain or maintain any required approval or fail to
comply with any applicable law or regulation, the operation of our assets and
our sales of electricity could be prevented or delayed or become subject to
additional costs.
Our
generation facilities may not operate as planned, which may increase our
expenses or decrease our revenues and, thus, have an adverse effect on our
financial performance.
Our
ability to manage operational risk with respect to our generation plants is
critical to our financial performance. Operation of our power plants
at expected capacity levels involves many risks, including the breakdown or
failure of equipment or processes, accidents, labor disputes and fuel
interruption. In addition, weather and natural disasters can disrupt
our generation plants. Weather conditions also have a direct impact
on the river flows required to operate our hydroelectric plants at expected
capacity levels. Depending on the timing and duration of both planned
and unplanned complete or partial outages at our power plants (in particular, if
such outages are during peak periods or during periods of, or caused by, severe
weather), our revenues from energy sales could significantly decrease and our
expenses significantly increase, and we could be required to purchase power at
then-current market prices to satisfy our energy sales commitments or, in the
alternative, pay penalties and damages for failure to satisfy
them. Many of our generating units are reaching mid-life, and we are
faced with the potential for more frequent unplanned outages and the possibility
of planned outages of longer duration to accommodate significant investments in
major component replacements at these facilities.
We
will selectively continue to pursue growth of generation capacity, which
involves a number of uncertainties and may not achieve the desired financial
results.
Although
our generation expansion program has been substantially scaled back due to the
current economic conditions, on a selective basis, we will continue to pursue
expansion of our generation capacity over the next several years through power
uprates at certain of our existing power plants, the potential construction of
new power plants and the potential acquisition of existing
plants. Because of the current adverse conditions in the U.S. economy
and financial markets, any undertaking to expand our generating capability will
be rigorously scrutinized on an ongoing basis and will be subject to
change. Nevertheless, the acquisition, development and construction
of additional generation capacity involves numerous risks. Any
planned power uprates could result in cost overruns, reduced plant efficiency
and higher operating and other costs. With respect to the
construction of new plants or the acquisition of existing plants, we may be
required to expend significant sums for preliminary engineering, permitting,
resource exploration, legal and other expenses in preparation for competitive
bids that we may not win or before it can be established whether a project is
feasible, economically attractive or capable of being financed. The
success of both a new project and a newly-acquired plant would likely be
contingent upon, among other things, the negotiation of satisfactory fuel supply
and power sales contracts, as well as acceptable financing
conditions. Our success in developing a new plant or expanding
existing generation capacity would likely be contingent upon, among other
things, negotiating satisfactory engineering and construction contracts, receipt
of required and appropriate governmental approvals and satisfactory completion
of construction. If we were unable to complete construction or
expansion of a facility, we would generally be unable to recover our investment
in the project. Furthermore, we might be unable to run any new or
acquired plants as efficiently as projected, which could result in higher than
projected operating and other costs and reduced earnings.
For
example, as discussed in more detail in Note 9 to the Financial Statements, in
October 2008, we filed a COLA with the NRC to construct a new nuclear unit which
is technology specific. We have made substantial COLA expenditures,
but we have not yet committed to construction of this new nuclear unit as such
construction is subject to numerous uncertainties. In addition to the
general uncertainties discussed above for our generation expansion plans, these
uncertainties include NRC and other governmental approvals, potential public
opposition, continuing NRC review of the Evolutionary Power Reactor technology
involved, the cost and availability of acceptable financing, including under the
DOE's loan guarantee and other governmental programs, acceptable arrangements
with project partners and vendors, rating agency concerns, schedule delays,
legislative and regulatory changes, competitive market structure and the
prospect for cost recovery, among other factors.
Changes
in technology may negatively impact the value of our power plants.
A basic
premise of our business is that generating electricity at central power plants
achieves economies of scale and produces electricity at a relatively low
price. There are alternate technologies to produce electricity, most
notably fuel cells, microturbines, windmills and photovoltaic (solar)
cells. Research and development activities are ongoing to seek
improvements in alternate technologies. It is possible that advances
will reduce the cost of alternate methods of electricity production to a level
that is equal to or below that of most central station
production. Also, as new technologies are developed and become
available, the quantity and pattern of electricity usage (the "demand") by
customers could decline, with a corresponding decline in revenues derived by
generators. In addition, the new presidential administration and the
new U.S. Congress have voiced strong support for such alternative energy
sources. As a result of these factors, the value of our generation
facilities could be significantly reduced.
On
February 17, 2009, President Obama signed into law the $787 billion American
Recovery and Reinvestment Act of 2009 (the "2009 Stimulus Act") to provide
incentives and financial support to the U.S. economy. Among other
things, the 2009 Stimulus Act specifically provides a total of $58 billion to be
available for energy-related initiatives, primarily $20 billion in renewable
energy tax credits to encourage development of wind, solar and other renewable
energy sources, and $32 billion for development of a "smart grid" in the U.S.
(the term smart grid, generally, means computer-based and other enhancements to
the electricity distribution and transmission system that will both (i) make
consumption of electricity more efficient, thereby requiring lower generation
and achieving corresponding reductions in greenhouse gas emissions, and (ii)
better enable alternative sources of generated electricity, like that from solar
and wind sources, to be introduced into the national and regional electricity
grids in the U.S). It is uncertain at this time to what extent these
initiatives may impact our businesses, except that little impact is expected in
the short term. The 2009 Stimulus Act does not address issues related
to nuclear generation or what action, if any, may be taken to increase the $18.5
billion in federal loans or guarantees to support construction of new nuclear
facilities that was contained in the Energy Policy Act of 2005. In
addition, it does not appear that the 2009 Stimulus Act is intended to provide
incentives for the development of "clean coal" technology. Obama
administration designees have stated that the administration favors
"cap-and-trade" programs to control carbon emissions, but it is uncertain at the
present time what effects such programs are likely to have on our
businesses.
Marketing
energy for the period after expiration of the PLR contracts poses other risks to
the Supply segment.
The
existing full requirements PLR contracts between PPL EnergyPlus and PPL Electric
expire at the end of 2009. In connection with PPL Electric's
PUC-approved procurement plan for default electricity supply in 2010 for retail
customers who do not choose an alternative competitive supplier, PPL EnergyPlus
was one of the successful bidders in the first competitive solicitation process
and in July 2007, entered into an agreement with PPL Electric to supply up to
671 MW of total peak load in 2010, at an average price of $91.42 per
MWh. At this time, we cannot predict the extent to which PPL
EnergyPlus will sell additional power to PPL Electric after 2009. In
anticipation of the expiration of the PLR contracts at the end of 2009, our
energy marketing and trading operation continues to enter into other new supply
contracts for the post-2009 period, including bilateral and load-following
contracts with new counterparties at market prices. The electricity
supply obligations under these new contracts will be met by generation we own
and electricity and other energy-related products purchased from other
parties. In connection with these activities, we hedge the future
energy production capability of our generation facilities and the related fuel
costs by buying and selling energy, capacity, fuel, transmission and other
products in the wholesale energy markets and entering into various forms of
financial and physical contracts to capture additional energy margins and
generally manage risk. These activities may cause volatility in
future cash flows and results of operations.
Whether
we decide to, or are able to, continue to enter into or renew long-term power
sale, fuel purchase and fuel transportation agreements to mitigate market price
and supply risk may affect our earnings.
As a
result of the PLR contracts and certain other agreements, a substantial portion
of our anticipated generation production and capacity value is currently
committed through 2009 under power sales agreements of various terms that
include fixed prices for electric power. In addition, we are actively
pursuing other load-following or full requirements contracts with other parties
in energy market auctions and elsewhere. In connection with such
agreements, we have entered into longer-term fuel purchase and fuel
transportation agreements that include fixed prices for a significant portion of
our forecasted needs. Whether we decide to, or are able to continue
to enter into such agreements or renew existing agreements, the market
conditions at that time, will affect our financial performance. For
instance, in the absence of long-term power sales agreements, we would sell the
energy, capacity and other products from our facilities in the competitive
wholesale power markets under contracts of shorter duration at then-current
market prices. Although the current
forward prices for electricity are less than the prices available under some of
our existing power sales agreements, this situation may not
continue. In addition, if we do not secure or maintain favorable fuel
purchase and fuel transportation agreements for our power generation facilities,
our fuel costs (and associated fuel transportation costs) could exceed the
revenues we derive from our energy sales. Given the volatility and
potential for material differences between actual electricity prices and fuel
and other costs, if we do not secure or maintain long-term electricity sales and
fuel purchase and fuel transportation agreements, our margins will be subject to
increased volatility and, depending on future electricity and fuel costs (and
associated fuel transportation costs), our financial results may be materially
adversely affected.
The
PLR contracts do not provide for a specific level of supply and demand and
actual activity significantly below or above our forecasts could adversely
affect our energy margins.
PPL
Electric is obligated to provide electricity supply to its PLR customers at
predetermined capped rates through 2009 and has entered into PUC-approved, full
requirements energy supply agreements with PPL EnergyPlus at the rates PPL
Electric is entitled to charge its PLR customers to fulfill its PLR
obligation. If PPL Electric's customers obtain electricity from
alternate suppliers, which they are entitled to do at any time, PPL EnergyPlus's
sales of electricity under the PLR contracts could decrease.
Alternatively,
demand that we satisfy pursuant to the PLR contracts could increase as a result
of severe weather conditions, economic developments or other reasons over which
we have no control. We satisfy our electricity supply obligations
through a portfolio approach of providing electricity from our generation
assets, contractual relationships and market purchases. At December
31, 2008, the PLR requirements required about 86% of the normal operating
capacity of our existing Pennsylvania generation assets. A
significant increase in demand would adversely affect our energy margins because
we are required under the terms of the PLR contracts to provide the energy
necessary to fulfill increased demand at the capped rates, which we expect to
remain below the wholesale prices at which we would have to purchase additional
supply if needed or, if we had available capacity, the prices at which we could
otherwise sell the additional supply. Accordingly, any significant
increase in demand could have a material adverse effect on our results of
operations or financial position.
We have
other load-following or full requirements contracts with other counterparties
and are actively pursuing other similar contracts. These contracts
present the same general risks surrounding variability of demand as those noted
above under the existing PLR contracts, which has been partially mitigated
through our hedging activities.
If
market deregulation is reversed, discontinued or delayed, our business prospects
and financial condition could be materially adversely affected.
Some
deregulated electricity markets have experienced supply problems and price
volatility. In some of these markets, state legislators, government
agencies and other interested parties have made proposals to delay market
restructuring, change the use of market-based pricing, re-regulate areas of
these markets that have previously been deregulated or permit electricity
delivery companies to construct or acquire generating facilities. In
certain states, elements and implications of the electricity market
restructurings are being investigated by legislators and regulators or are the
subject of ongoing litigation. In addition, the ISOs that oversee the
transmission systems in certain wholesale electricity markets have from time to
time been authorized to impose price limitations and other mechanisms to address
volatility in the power markets. These types of price limitations and
other mechanisms may reduce profits that our wholesale power marketing and
trading business would have realized based on competitive market conditions
absent such limitations and mechanisms. Although we generally expect
electricity markets to continue to be competitive, other proposals to
re-regulate our industry may be made, and legislative or other action affecting
the electric power restructuring process may cause the process to be delayed,
discontinued or reversed in states in which we currently, or may in the future,
operate.
At this
time, there are various ongoing regulatory and legislative activities in
Pennsylvania regarding PLR supply after 2009. We cannot predict the
final outcome of these regulatory and legislative activities or their ultimate
impact on PPL and PPL Energy Supply, or PPL Electric. For additional
information on PLR issues after 2009, see "Conditions affecting PPL Electric's
PLR supply after 2009 are currently uncertain" under the "Risks Related
to Pennsylvania Delivery Segment" discussion.
We
rely on transmission and distribution assets that we do not own or control to
deliver our wholesale electricity and natural gas. If transmission is
disrupted, or not operated efficiently, or if capacity is inadequate, our
ability to sell and deliver power may be hindered.
We depend
on transmission and distribution facilities owned and operated by utilities and
other energy companies to deliver the electricity and natural gas we sell to the
wholesale market, as well as the natural gas we purchase for use in our electric
generation facilities. If transmission is disrupted (as a result of
weather, natural disasters or other reasons) or not operated efficiently by
ISOs, in applicable markets, or if capacity is inadequate, our ability to sell
and deliver products and satisfy our contractual obligations may be hindered, or
we may be unable to sell products on the most favorable terms.
The FERC
has issued regulations that require wholesale electric transmission services to
be offered on an open-access, non-discriminatory basis. Although
these regulations are designed to encourage competition in wholesale market
transactions for electricity, there is the potential that fair and equal access
to transmission systems will not be available or that sufficient transmission
capacity will not be available to transmit electricity as we
desire. We cannot predict the timing of industry changes as a result
of these initiatives or the adequacy of transmission facilities in specific
markets or whether ISOs in applicable markets will operate the transmission
networks, and provide related services, efficiently.
Our
costs to comply with existing and new environmental laws are expected to
continue to be significant, and we plan to incur significant capital
expenditures on pollution control measures that, if delayed, would adversely
affect our profitability and liquidity.
Our
business is subject to extensive federal, state and local statutes, rules and
regulations relating to environmental protection. To comply with
existing and future environmental requirements and as a result of voluntary
pollution control measures we may take, we have spent and expect to spend
substantial amounts in the future on environmental control and
compliance.
In order
to comply with existing and recently-enacted federal environmental laws and
regulations primarily governing air emissions from coal-fired plants, in 2005
PPL began a program to install scrubbers and other pollution control equipment
(primarily aimed at sulfur dioxide, particulate and nitrogen oxides with
co-benefits for mercury emissions reduction). The estimated cost to
install this equipment is approximately $1.6 billion, of which $1.3 billion has
already been spent. The remaining unspent balance is included in the
2009 through 2013 capital budget. The scrubbers at our Montour plant
are now in service. We are continuing with installation of scrubbers
at our Brunner Island plant. Delays in such installation could
require us to purchase additional pollution control emission allowances at
market prices or decrease the expected value of excess emission allowances that
we could sell at market prices as a result of the scheduled installation of this
equipment. Such a delay also could require us to burn higher-cost,
lower-sulfur coal at these facilities. In addition, many states and
environmental groups have challenged certain federal laws and regulations
relating to air emissions as not being sufficiently strict. As a
result, it is possible that state and federal regulations will be developed that
will impose more stringent restrictions than are currently in effect, which
could require us to increase capital expenditures for pollution control
equipment significantly.
We may
not be able to obtain or maintain all environmental regulatory approvals
necessary for our planned capital projects or which are otherwise necessary to
our business. If there is a delay in obtaining any required
environmental regulatory approval or if we fail to obtain, maintain or comply
with any such approval, operations at our affected facilities could be halted or
subjected to additional costs. Furthermore, at some of our older
generating facilities it may be uneconomic for us to install necessary
equipment, which could cause us to shut down those units.
There
also is growing concern nationally and internationally about carbon dioxide and
other greenhouse gas emissions (including concern about global
warming). Various legislative proposals are being considered in
Congress, and several states already have passed legislation capping carbon
dioxide emissions. The new presidential administration has stated
that it intends to make the control of air emissions, including the global
warming issue, a major initiative. This, combined with the changes in
the U.S. Congress as a result of the last national election, may make the risks
identified above more likely to occur.
For more
information regarding environmental matters, including existing and proposed
federal, state and local statutes, rules and regulations to which we are
subject, see "Environmental Matters - Domestic" in Note 15 to the Financial
Statements.
We
are subject to the risks of nuclear generation, including the risk that our
Susquehanna nuclear plant could become subject to revised security or safety
requirements that would increase our capital and operating expenditures, and
uncertainties associated with decommissioning our plant at the end of its
licensed life.
Nuclear
generation accounted for about 32% of our 2008 generation output. The
risks of nuclear generation generally include:
The NRC
has broad authority under federal law to impose licensing requirements, as well
as security-related, safety-related, and employee-related requirements for the
operation of nuclear generation facilities. In the event of
noncompliance, the NRC has authority to impose fines or shut down a unit, or
both, depending upon its assessment of the severity of the situation, until
compliance is achieved. In addition, revised security or safety
requirements promulgated by the NRC could necessitate substantial capital or
operating expenditures at our Susquehanna nuclear plant. In addition,
although we have no reason to anticipate a serious nuclear incident at our
Susquehanna plant, if an incident did occur, any resulting operational loss,
damages and injuries could have a material adverse effect on our results of
operations, cash flows or financial condition.
Risks
Related to International Delivery Segment
(PPL and PPL Energy
Supply)
Our
U.K. delivery business is also subject to risks with respect to rate regulation
and operational performance.
Our U.K.
delivery business is rate
regulated and operates under an incentive-based regulatory
framework. In addition, its ability to manage operational risk is
critical to its financial performance. Accordingly, with the
exception of those risks relating to energy supply, this business is subject to
the same general risks as those described below under "Risks Related to
Pennsylvania Delivery Segment."
Our
U.K. delivery business exposes us to risks related to U.K. laws, taxes, economic
conditions, fluctuations in foreign currency exchange rates, political and
regulatory conditions and policies of the U.K. government. These
risks may reduce the results of operations from our U.K. delivery
business.
The
acquisition, financing, development and operation of projects in the U.K. entail
significant financial risks including:
Risks
Related to Pennsylvania Delivery Segment
(PPL and PPL
Electric)
Regulators
may not approve the rates we request.
Our
Pennsylvania delivery business is rate-regulated. While such
regulation is generally premised on the recovery of prudently incurred costs,
including energy supply costs for customers, and a reasonable rate of return on
invested capital, the rates that we may charge our delivery customers are
subject to authorization of the applicable regulatory
authorities. Our Pennsylvania delivery business is subject to
substantial capital expenditure requirements over the next several years, which
will require rate increase requests to the regulators. There is no
guarantee that the rates authorized by regulators will match our actual costs or
provide a particular return on invested capital at any given time.
Our
transmission and distribution facilities may not operate as planned, which may
increase our expenses or decrease our revenues and, thus, have an adverse effect
on our financial performance.
Our
ability to manage operational risk with respect to our transmission and
distribution systems is critical to the financial performance of our delivery
business. Our delivery business also faces several risks, including
the breakdown or failure of or damage to equipment or processes (especially due
to severe weather or natural disasters), accidents and labor disputes and other
factors. Operation of our delivery systems below our expectations may
result in lost revenues or increased expenses, including higher maintenance
costs.
We
may be subject to higher transmission costs and other risks as a result of PJM's
regional transmission expansion plan (RTEP) process.
PJM and
the FERC have the authority to require upgrades or expansion of the regional
transmission grid, which can result in substantial expenditures for transmission
owners. As discussed in Note 9 to the Financial Statements, we will
make substantial expenditures to construct the Susquehanna-Roseland transmission
line that PJM has determined is necessary for the reliability of the regional
transmission grid. Although the FERC has granted our request for
incentive rate treatment of such facilities we cannot predict the date when
these facilities will be in service or whether delays may occur due to public
opposition and other factors. Delays could result in significant cost
increases for these facilities and decreased reliability of the regional
transmission grid. As a result, we cannot predict the ultimate
financial or operational impact of this project or other RTEP projects on PPL
Electric.
We
could be subject to higher costs and/or penalties related to mandatory
reliability standards.
Under the
Energy Policy Act, owners and operators of the bulk power transmission system
are now subject to mandatory reliability standards promulgated by the NERC and
enforced by the FERC. Compliance with new reliability standards may
subject us to higher operating costs and/or increased capital expenditures, and
violations of these standards could result in substantial
penalties. As discussed in Note 15 to the Financial Statements, as a
result of its self-reporting to the RFC of a potential violation of certain
reliability standards, PPL Electric could be subject to substantial penalties
for such violation.
PPL
Electric generally bears the risk, through 2009, that it will not be able to
obtain adequate energy supply at the predetermined capped rates it may charge to
its PLR customers.
In order
to mitigate the risk that we will not be able to obtain adequate energy supply
through 2009 at the predetermined capped rates we may charge our PLR customers,
we have entered into PUC-approved, full requirements energy supply agreements
with PPL EnergyPlus at these capped rates. Under one of the PLR
contracts, we are required to make performance assurance deposits to PPL
EnergyPlus when the market price of electricity is less than the contract price
by more than our contract collateral threshold. Conversely, PPL
EnergyPlus is required to make performance assurance deposits to us when the
market price of electricity is greater than the contract price by more than its
contract collateral threshold. Over the past few years, market prices
for electricity have exceeded the contract price, and we estimated that, at
December 31, 2008, the fair value of the PLR contract was approximately $917
million. Accordingly, at December 31, 2008, PPL EnergyPlus was
required to provide us performance assurance of $300 million, the maximum amount
required under the contract. If PPL EnergyPlus is unable to satisfy
its energy supply obligations to us under the PLR contracts, we would be
required to obtain energy supply in the wholesale market at then-current market
rates to meet our PLR obligation. While the Customer Choice Act
provides generally for PLR costs to be borne by customers, it is not clear
whether we would be able to pass on to our customers any costs of this
replacement energy supply that exceed the predetermined capped
rates.
Conditions
affecting PPL Electric's PLR supply after 2009 are currently
uncertain.
Uncertainty
driven by potential changes in the regulatory treatment of PPL Electric's PLR
obligation after 2009 when its full requirements contracts with PPL EnergyPlus
expire presents a risk for the electricity delivery business. The
Customer Choice Act requires electricity delivery companies, like PPL Electric,
to act as a PLR of electricity and provides that electricity supply costs will
be recovered by such companies pursuant to regulations to be established by the
PUC. In May 2007, the PUC approved PPL Electric's plan to procure default
electricity supply in 2007 through 2009 for retail customers who do not choose
an alternative competitive supplier in 2010. Pursuant to this plan,
PPL Electric has contracted for two-thirds of the 2010 default electricity
supply it expects to need for residential and small commercial and industrial
customers. The PUC has approved a plan filed by PPL Electric under
which the Company's residential and small commercial and industrial customers,
beginning in 2008, could begin to pay in advance to smooth the impact of price
increases when generation rate caps expire in 2010. In
February 2009, PPL Electric asked the PUC for permission to offer customers a
second option for reducing the potential initial impact of higher electricity
prices resulting from expiration of the generation rate caps. If
approved by the PUC, this option would enable eligible residential and eligible
small-business customers to defer payment of any increase greater than 25% in
their 2010 electric bills. The 25% will be calculated on an average
rate schedule usage basis, and will be based on a comparison of currently
estimated 2009 bills to currently estimated 2010 bills. In
addition, in September 2007, PUC regulations became effective requiring
Pennsylvania electric utilities to provide default electricity supply in 2011
and beyond. In 2008, PPL Electric filed for PUC approval of its 2011
through May 2014 supply procurement plan under these regulations. PPL
Electric subsequently amended the termination date of the plan to 2013,
consistent with provisions of Act 129, discussed below.
In
addition to this regulatory activity, in June 2008, the Pennsylvania General
Assembly (General Assembly) passed, and the Governor signed, a bill that would
create a $650 million fund for clean energy projects, conservation and energy
efficiency initiatives and pollution control projects to be funded through
revenue bonds and gross receipts tax revenue, which will increase as rate caps
expire. In October 2008 the General Assembly passed and the Governor
signed into law Act 129. The law creates an energy efficiency and
conservation program and smart metering technology requirements, adopts new PLR
electricity supply procurement rules, provides remedies for market misconduct,
and makes changes to the existing Alternative Energy Portfolio
Standard. The law also requires electric utilities to meet specified
goals for reduction in customer electricity usage and peak demand by specified
dates. Utilities not meeting the requirements of Act 129 are subject
to significant penalties. Although we expect to meet these
requirements, numerous factors outside of our control could prevent compliance
with these requirements and result in penalties on us.
The
Pennsylvania Governor recently publicly stated that he expects some form of rate
mitigation to be passed by the state legislature. We have continued
to work with elected officials and regulators on constructive ways to achieve
rate mitigation. However, in the last legislative session, certain
Pennsylvania legislators introduced legislation to extend generation rate caps
or otherwise limit cost recovery through rates for Pennsylvania utilities beyond
the end of their transition periods, which in PPL Electric's case is December
31, 2009. PPL and PPL Electric have expressed strong concern
regarding the severe potential consequences of such rate caps or legislation on
customer service, system reliability, adequate future generation supply and PPL
Electric's financial viability. It is possible that similar
legislation could be reintroduced. If such legislation were
introduced and ultimately enacted, PPL Electric could face severe financial
consequences including operating losses and significant cash flow
shortfalls. In addition, continuing uncertainty regarding PPL
Electric's ability to recover its market supply and other costs of operating its
business after 2009 could adversely affect its credit quality, financing costs
and availability of credit facilities necessary to operate its
business. Whether
we decide to, or are able to, continue to enter into power purchase contracts to
mitigate market price and delivery risk, and our ability to recover costs
associated with such contracts, may affect our earnings.
In order
to mitigate the risk that we will not be able to obtain adequate energy supply
after 2009 when our full requirements energy supply agreements with PPL
EnergyPlus expire, we have entered into power purchase agreements that include
fixed prices. Whether we decide or are able to continue to enter into
such agreements, and the market conditions at that time, will affect our
financial performance. For instance, in the absence of power purchase
agreements, we would purchase energy, capacity and other products in the
competitive wholesale power markets at then-current market
prices. The current forward prices for electricity exceed the prices
available under some of our current power sales agreements, and our financial
performance will be affected by our ability to enter into new supply contracts,
the duration and pricing of such contracts relative to prevailing market
conditions, and the regulatory treatment for such contracts and the associated
recovery of our supply costs. Depending on these factors, our
financial results may be materially adversely affected.
Other
Risks Related to All Segments
(PPL, PPL Energy Supply and PPL
Electric)
The
current economic and financial market downturn could continue to adversely
affect our financial condition and results of operations.
Our
business has been impacted by the current recession in the U.S. and related
market factors, along with the economic downturn world-wide. The
breadth and depth of these negative economic conditions have had a wide-ranging
impact on the U.S. and international business environment, including our
business, and the adverse effects on our financial condition and results of
operations may continue. As a result of the economic downturn,
economic activity has declined significantly, along with demand for electric
power. This reduced demand will continue to impact the key domestic
wholesale energy markets we serve (such as PJM) and our Pennsylvania and U.K.
delivery businesses, especially industrial customer demand. The
combination of lower demand for power and decreased natural gas prices has put
downward price pressure on the wholesale energy market in general, further
impacting our energy marketing results. In general, market volatility
in energy and fuel prices is expected to continue, decreasing the predictability
regarding our unhedged future energy margins, liquidity and general financial
condition.
Our
businesses are heavily dependent on credit and capital for, among other things,
funding our need for collateral to support hedging in our energy marketing
business. Global bank credit capacity has been reduced dramatically
and the cost of renewing or establishing new credit facilities has increased
significantly. New bank credit facilities generally are being
restricted to less than one-year terms, thereby introducing uncertainties as to
businesses' ability to enter into long-term energy commitments or reliably
estimate the longer-term cost and availability of credit.
In
addition, although we have reduced our planned capital expenditures, we still
have substantial financing requirements over the next several
years. We expect to have adequate access to needed credit and capital
for these purposes; however, our financing costs are expected to increase and
the continued financial market downturn could adversely affect our financial
condition and liquidity. The
current economic and financial market downturn is expected to continue to
adversely impact numerous other factors in our business operations discussed
elsewhere in this Risk Factor section.
Our
operating results could fluctuate on a seasonal basis, especially as a result of
severe weather conditions.
Our
businesses are seasonal. For example, in some markets demand for, and
market prices of, electricity peak during the hot summer months, while in other
markets such peaks occur in the cold winter months. As a result, our
overall operating results in the future may fluctuate substantially on a
seasonal basis, especially when severe weather conditions such as heat waves,
extreme cold weather or storms make such fluctuations more
pronounced. The pattern of this fluctuation may change depending on
the nature and location of the facilities we acquire or develop and the terms of
our contracts to sell electricity.
We
cannot predict the outcome of the legal proceedings and investigations currently
being conducted with respect to our current and past business
activities. An adverse determination could have a material adverse
effect on our financial condition, results of operations or cash
flows.
We are
involved in legal proceedings, claims and litigation and subject to ongoing
state and federal investigations arising out of our business operations, the
most significant of which are summarized in "Legal Matters," "Regulatory Issues"
and in "Environmental Matters - Domestic" in Note 15 to the Financial
Statements. We cannot predict the ultimate outcome of these matters,
nor can we reasonably estimate the costs or liability that could potentially
result from a negative outcome in each case.
We
may need significant additional financing to pursue growth
opportunities.
We
continually review potential acquisitions and development projects and may enter
into significant acquisition agreements or development commitments in the
future. An acquisition agreement or development commitment may
require access to substantial capital from outside sources on acceptable
terms. We also may need external financing to fund capital
expenditures, including capital expenditures necessary to comply with
environmental regulations or other regulatory requirements. Our
ability to arrange financing and our cost of capital are dependent on numerous
factors, including general economic conditions, credit availability and our
financial performance. Arranging such financing is difficult as a
result of the current financial market downturn. The inability to
obtain sufficient financing on terms that are acceptable to us could adversely
affect our ability to pursue acquisition and development opportunities and fund
capital expenditures.
A
downgrade in our credit ratings could negatively affect our ability to access
capital and increase the cost of maintaining our credit facilities and any new
debt.
Our
current credit ratings by Moody's, Fitch and S&P, including a January 2009
review by S&P that resulted in a negative outlook for us, are listed in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Financial Condition - Liquidity and Capital
Resources." While we do not expect these ratings to limit our ability
to fund short-term liquidity needs and/or access any new long-term debt, any
ratings downgrades could increase our short-term borrowing costs and negatively
affect our ability to fund our short-term liquidity needs and access new
long-term debt.
Significant
increases in our operation and maintenance expenses, including health care and
pension costs, could adversely affect our future earnings and
liquidity.
We
continually focus on limiting, and reducing where possible, our operation and
maintenance expenses. However, we expect to continue to face
increased cost pressures in our operations. The cost of materials and labor
result from general inflation, increased nationwide plant construction and other
factors. In addition, pursuant to collective bargaining agreements,
we are contractually committed to provide specified levels of health care and
pension benefits to current employees and retirees covered by the
contracts. We provide a similar level of benefits to our management
employees. These benefits give rise to significant
expenses. Due to general inflation with respect to such costs, the
aging demographics of our workforce and other factors, we have experienced
significant health care cost inflation in recent years, and we expect our health
care costs, including prescription drug coverage, to continue to increase
despite measures that we have taken and expect to take to require employees and
retirees to bear a higher portion of the costs of their health care
benefits. In addition, we expect to continue to incur significant
costs with respect to the defined benefit pension plans for our employees and
retirees. The measurement of our expected future health care and
pension obligations, costs and liabilities is highly dependent on a variety of
assumptions, most of which relate to factors beyond our
control. These assumptions include investment returns, interest
rates, health care cost trends, benefit improvements, salary increases and the
demographics of plan participants. For example, our projected pension
costs have increased significantly as a result of the decreased investment
returns and interest rates due to the economic downturn in the U.S. and
world-wide. If our assumptions prove to be inaccurate, our future
costs could increase significantly.
There
is a risk that we may be required to record impairment charges in the future for
certain of our investments, which could adversely affect our
earnings.
Under
GAAP, we are required to test our recorded goodwill for impairment on an annual
basis, or more frequently if events or circumstances indicate that these assets
may be impaired. While no goodwill impairments were recorded based on
our annual review in the fourth quarter of 2008, we are unable to predict
whether any impairment charges may be necessary in the future.
We also
review our long-lived assets for impairment when events or circumstances
indicate that the carrying value of these assets may not be
recoverable. During 2008, PPL recorded an impairment charge related
to a cancelled hydroelectric expansion project and certain emission allowances
and recorded an additional impairment charge related to its natural gas
distribution and propane businesses that were sold in October. During
2007, PPL impaired certain transmission rights, certain domestic
telecommunications assets, certain assets of the natural gas distribution and
propane businesses, and the net assets of our Bolivian businesses prior to their
sale in July 2007. During 2006, PPL recorded a loss on the sale of
our interest in the Griffith plant and fully impaired our synfuel-related
assets. See Notes 9, 10 and 15 to the Financial
Statements. We are unable to predict whether impairment charges, or
other losses on sales of other assets or businesses, may occur in future
years.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
PPL
Corporation, PPL Energy Supply, LLC and PPL Electric Utilities
Corporation
None.
Supply
Segment
PPL
Energy Supply's system capacity (winter rating) at December 31, 2008,
was:
PPL
Energy Supply continuously reexamines development projects based on market
conditions and other factors to determine whether to proceed with the projects,
sell, cancel or expand them, execute tolling agreements or pursue other
options. At December 31, 2008, PPL Generation planned to implement
the following incremental capacity increases.
Pennsylvania Delivery
Segment
For a
description of PPL Electric's service territory, see "Item 1. Business -
Background." At December 31, 2008, PPL Electric had electric
transmission and distribution lines in public streets and highways pursuant to
franchises and rights-of-way secured from property owners. PPL
Electric's system included 367 substations with a total capacity of 30 million
kVA, 33,011 circuit miles of overhead lines and 7,227 cable miles of underground
conductors. All of PPL Electric's facilities are located in
Pennsylvania. Substantially all of PPL Electric's distribution
properties and certain transmission properties are subject to the lien of PPL
Electric's 2001 Senior Secured Bond Indenture.
See Note
9 to the Financial Statements for information on the construction of a new
transmission line.
International Delivery
Segment
For a
description of WPD's service territory, see "Item 1. Business -
Background." WPD has a 100% ownership interest in electricity
distribution companies headquartered in Bristol, England that serve
approximately 2.6 million delivery customers in the U.K. In 2008,
electricity distributed totaled 27,724 GWh based on operating revenues recorded
by WPD. WPD's distribution system in the U.K. includes 646
substations with a total capacity of 24,752 MVA, 28,913 miles of overhead lines
and 23,625 cable miles of underground conductors.
See Note
15 to the Financial Statements for information regarding legal, regulatory and
environmental proceedings and matters.
There
were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of
2008.
Officers
of PPL, PPL Energy Supply and PPL Electric are elected annually by their Boards
of Directors (or Board of Managers for PPL Energy Supply) to serve at the
pleasure of the respective Boards. There are no family relationships
among any of the executive officers, nor is there any arrangement or
understanding between any executive officer and any other person pursuant to
which the officer was selected.
There
have been no events under any bankruptcy act, no criminal proceedings and no
judgments or injunctions material to the evaluation of the ability and integrity
of any executive officer during the past five years.
Listed
below are the executive officers at December 31, 2008.
Item 4 is
omitted as PPL Energy Supply meets the conditions set forth in General
Instruction (I)(1)(a) and (b) of Form 10-K.
PART II
RELATED
STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY
SECURITIES
PPL
Corporation
Additional
information for this item is set forth in the sections entitled "Quarterly
Financial, Common Stock Price and Dividend Data," "Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matters" and
"Shareowner and Investor Information" of this report. The number of
common shareowners is set forth in "Item 6. Selected Financial and Operating
Data."
Issuer Purchases of Equity
Securities during the Fourth Quarter of 2008:
PPL
Energy Supply, LLC
There is
no established public trading market for PPL Energy Supply's membership
interests. PPL Energy Funding, a direct wholly-owned subsidiary of
PPL, owns all of PPL Energy Supply's outstanding membership
interests. Distributions on the membership interests will be paid as
determined by PPL Energy Supply's Board of Managers. PPL Energy
Supply made cash distributions to PPL Energy Funding of $750 million in 2008 and
$1.5 billion in 2007.
PPL
Electric Utilities Corporation
There is
no established public trading market for PPL Electric's common stock, as PPL
owns 100% of the outstanding common shares. Dividends paid to PPL on
those common shares are determined by PPL Electric's Board of
Directors. PPL Electric paid common stock dividends to PPL of $98
million in 2008 and $119 million in 2007.
PPL
Energy Supply, LLC
Item 6 is
omitted as PPL Energy Supply meets the conditions set forth in General
Instructions (I)(1)(a) and (b) of Form 10-K.
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