PPL Earnings Call Nuggets: MATS Impact and Capital Reduction Programs
Justin McCann – S&P Capital IQ: I have two questions for Paul and one for Bill. For Paul, what’s the effective tax rate for the U.K. is expected to be 22% what would it be for the consolidated?
Paul A. Farr – EVP and CFO: On the consolidated basis for ’13 between 27% and 28% for 2013.
Justin McCann – S&P Capital IQ: After the exchange of the 2025 8.857, or the 2021 4.6 what is your current weighted average cost of capital and where are you targeting for by the end of ’13?
Paul A. Farr – EVP and CFO: From an interest expense level, we’ll basically end up with the same level P&L interest expense on the converted notes at the higher part of balance than we were sitting on with the notes that were on Ironwood. Your question on weighted average cost of capital is that what segment or what, but we’re at corp or at?
Justin McCann – S&P Capital IQ: Yeah, corp?
Paul A. Farr – EVP and CFO: I don’t have that number off the top of my head right now.
Justin McCann – S&P Capital IQ: Okay.
Paul A. Farr – EVP and CFO: Using a market implied rate across all of the segments and blending that and looking at the average debt levels, especially with the holdco leverage that we’ve got in the U.K. and in Kentucky and the bit that we have at cap funding that includes the convertible securities, it’s going to be in the 7% to 8% range.
Justin McCann – S&P Capital IQ: For Bill, what kind of impact do you now see the MATS related planned retirement by 2015 having on forward power prices and when do you see this taking place?
William H. Spence – Chairman, President and CEO: Sure, I would say in terms of forward prices, we haven’t yet fully seen the MATS impact reflected. We do believe that that impact should be in the range of $3 to $5 per megawatt hour in addition to where forward prices are today. From an overall coal plant retirement perspective, we would expect based on the MATS as well as the CAIR and CSAPR EPA rules that you may get up to the 60,000 to 70,000 gigawatt retirement levels overall. So, I believe that’s about 20%, a little over 20% of the U.S. coal fleet could be impacted ultimately by MATS. I think the real question is one of timing. We would expect somewhere between the 2015 to 2017 timeframe that all those units that would ultimately would be impacted would announce retirement in that range.
Capital Reduction Programs
Daniel Eggers – Credit Suisse: Paul, can you just give an update on where you guys are standing on the good cost reduction and the capital reduction programs and then you kind of – how that’s fitting the plan and what are kind of major buckets you are seeing benefiting right now?
Paul A. Farr – EVP and CFO: I think when you look at the CapEx chart that we included in the presentation that we’ve reflected, its’ about $250 million of reduction, so the supply segment most, all of the major projects that are sitting in Kentucky have been fully contracted at this point in time. So, I would not expect that we would see much variability in that forecast. The U.K. is always pretty right on. Greg and his team at EU are always pretty right on. So, it would really take another downward movement in power prices before we would have to address CapEx in an even more significant way than we’ve already taken over the last two or three planning cycles to cause that to go down. On the O&M front, as Bill mentioned in upfront remarks where we’ve included in the plan a $0.05 roughly for extra outages and extended outage and the refuel of Unit 2 at Susquehanna, a planned outage now for Unit 1 as well. We had said that back in fall that the combination of potential additional outages plus the Fukushima related work is really going to absorb some of the cost reduction measures that we had already been putting in place at our shared service unit. Some of the spending increase that you are seeing coming through the plan this year, as I indicated for the EU was being driven by really trying to continue the outperformance on the customer service metrics and to get the condition of the network back to the level that it should have been at, had the prior owner been spending where they should have been spending. In addition, Vic and his team cut somewhere around $50 million or O&M last year just to respond to what we were seeing from really bad weather at the frontend of the year. So, there is a restoration of some level of spend there as well. So, in the very short term in 2013, I think there are some things that happened in ’12 and that are going to continue into ’13 that will have impact. We’re always focused on trying to operate the business in the most cost efficient manner that we can and we’ll continue to strive to find ways to do that. I don’t think that I would expect – that you should expect to hear from us a large scale O&M reduction downsizing effort at least as we look at our business prospects right now.
Daniel Eggers – Credit Suisse: Then I guess just on Susquehanna if you guys look at the two outages planned for this year is this – what is your level of confidence this will kind of fix the ongoing issues and kind of get this plan back to a normal operating level going forward?
Paul A. Farr – EVP and CFO: I think we’re highly confident we have a very detailed root cause analysis that we’ve worked on for the last year in conjunction with the vendor. We believe the equipment changes we’re making will in fact fix this for the long term so we’re very optimistic that this can be put in place in the spring outage and take care of us on a go forward basis.
Daniel Eggers – Credit Suisse: Just one last question just on demand growth trends on what you guys are seeing power demand weather normalize is down in part last year where do you guys expecting kind of end guidance in looking forward against the CapEx program for volume gains for ’13 or maybe long term outlook?
Paul A. Farr – EVP and CFO: Sure. For the plan in 2013 in the Kentucky Utility business on a weather normalize basis we’re looking at a little more than 0.5% growth, 0.7% growth in Pennsylvania because of energy efficiency requirements in the state we’re actually looking at a decrease of about 0.5% on a volume metric basis again weather normalized. So that’s for 2013. On a longer term we would expect growth in about the 1% range on a year-over-year basis on go forward basis.
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