PPL Corp Earnings Call Insights: Hedging Program, Equity

On Friday, PPL Corp (NYSE:PPL) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Hedging Program

Dan Eggers – Credit Suisse: Bill, you’re (certainly messaging) a pretty constructive or more constructive than market view on 2014 power markets. How long do you guys feel comfortable not getting more active in the hedging program as you look out that far I guess is question number one?

William H. Spence – Chairman, President and CEO: Sure. Well, as I mentioned in the opening remarks, we are thinking that at least at this point the MATS and CSAPR impacts are not appropriately reflected. I think we’ll probably learn a lot, Dan, potentially from the capacity auction when the results come out and see what units are actually going to be retired. But beyond that, there is a point at which we’re going to begin to hedge in. We won’t leave it completely open until we get to 2014. So I think, as we’ve done in the past, we have a fairly disciplined hedging program. We have plenty of time at the moment to make those decisions and pick our spots when we hedge in, and I think in the past we’ve done a really great job of picking those times to hedge in. So, I think we’re going to have an opportunity and if it gets too late in the process, we’ll begin to selectively hedge in.

Dan Eggers – Credit Suisse: And I guess, in Pennsylvania with the rate case, can you just remind on thought process not necessarily for this case but for next cases as far as when you’re going to file again, since you’re not going to get the mechanism this time through. Does it mean that there is going be another case shortly thereafter (seeking it to) DSIC in place after this case gets done?

William H. Spence – Chairman, President and CEO: Yeah, Dan, we would expect that once this case is completed we would file for the DSIC and then probably in future rate cases we would use the future test period.

Dan Eggers – Credit Suisse: And so you think you’re going to file that in ’13 at some point in time then?

William H. Spence – Chairman, President and CEO: For the DSIC, yes. I think for the rate case itself that’s yet to be determined.

Dan Eggers – Credit Suisse: Okay, got it. Then I guess just comprehensively on weather for the quarter, how much was the overall drag, Paul, if you would add up all the pieces between supply and the U.S. utilities?

Paul A. Farr – EVP and CFO: If I took the $0.03 in Kentucky plus the extra penny of office and sales, which also there is just outright demand destruction across many systems, it was about $0.04 in Kentucky and then $0.02 in EU, so a total of $0.06.

Equity

Kit Konolige – Konolige Research: So, on the question of equity Paul, you were pretty clear that you’re not going to need additional equity related to any cash shortfall that might be arising from low commodity prices, what’s the outlook over the next several years, you have a significant structural free cash flow deficit, what’s the schedule for funding math with equity and how should we view it overall on how equity fits into your cash needs over the next few years?

Paul A. Farr – EVP and CFO: Okay. I really break it into two component pieces (Keith). We will be getting incremental cash of roughly $2 billion over the next two years from the conversion, from the conversion of the converts. So that equity will provide a meaningful delevering of supply and result in incremental cash to the Company. On top of that we think we’ll still need the roughly $350 million per year for the next several years as we make our way especially through the large rate based build in Kentucky, and after that program is complete the cash flows are relatively robust there. The CapEx programs, I would look at kind of projecting forward the levels of spend that we’ve got in both EU and in WPD. There’s strong opportunities and needs to put capital to work there, but the big build in Kentucky does have some finite into it. So I think we got plenty of equity opportunity just given how we financed the two acquisitions and then layer in that 350 per year that we’ve talked about at least for the next several years.

Kit Konolige – Konolige Research: So we should think in terms of sometime in ’13 you would logically be raising equity again in an offering similar to this one?

Paul A. Farr – EVP and CFO: That’s correct and I would be looking late in the year like we were this year.

Kit Konolige – Konolige Research: Okay. One other question on the Pennsylvania segment. What’s the kind of run rate of your actual return on equity at this point?

William H. Spence – Chairman, President and CEO: Yeah, I’ll ask Greg Dudkin, the President of our Electric Utilities to answer that.

Gregory N. Dudkin – President, PPL Electric Utilities: We’re running about mid-single digits on our ROE for distribution at this point.