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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934
Check the appropriate box:
o | Preliminary Information Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) | |
þ | Definitive Information Statement. | |
PPL Electric Utilities Corporation
Payment of Filing Fee (Check the appropriate box):
þ | No fee required. | |
o | Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11 |
(1) | Title of each class of securities to which transaction applies: | ||
(2) | Aggregate number of securities to which transaction applies: | ||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): | ||
(4) | Proposed maximum aggregate value of transaction: | ||
(5) | Total fee paid: |
o | Fee paid previously with preliminary materials. | |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: | ||||||
(2) | Form, Schedule or Registration Statement No.: | ||||||
(3) | Filing Party: | ||||||
(4) | Date Filed: | ||||||
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May 22, 2008
and
Information Statement
(including appended
2007 Financial Statements)
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Two North Ninth Street
Allentown, Pennsylvania 18101
Time and Date | 9:00 a.m., Eastern Daylight Time, on Thursday, May 22, 2008. |
Place | Offices of PPL Electric Utilities Corporation Two North Ninth Street Allentown, Pennsylvania |
Items of Business | To elect directors |
Record Date | You can vote if you are a shareowner of record on February 29, 2008. |
Proxy Voting | Proxies are not being solicited from shareowners because a quorum exists for the Annual Meeting based on the PPL Electric Utilities Corporation stock held by its parent, PPL Corporation. PPL Corporation owns all of the outstanding shares of common stock and as a result 99% of the voting shares of PPL Electric Utilities Corporation. PPL Corporation intends to vote all of these shares in favor of the election of PPL Electric Utilities Corporation’s nominees as directors. |
for the Shareowner Meeting to Be Held on May 22, 2008:
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2007 FINANCIAL STATEMENTS | Schedule A |
(i)
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Two North Ninth Street
Allentown, Pennsylvania 18101
Annual Meeting of Shareowners
May 22, 2008
9:00 a.m. (Eastern Daylight Time)
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recommends that shareowners vote FOR this Proposal
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c/o Corporate Secretary’s Office
PPL Electric Utilities Corporation
Two North Ninth Street
Allentown, Pennsylvania 18101
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Dean A. Christiansen |
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• | Expertise and experience through competitive salaries; | |
• | Short-term financial and operational performance through annual cash incentive awards, which are tied to specific, measurable goals; | |
• | Achievement of annual strategic objectives through performance-based restricted stock and stock unit awards; | |
• | Long-term financial and operational performance through performance-based restricted stock or stock unit awards; and | |
• | Stock price growth through awards of stock options. |
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Percentage of Total Direct Compensation | ||||||||||||||||||||
Former | ||||||||||||||||||||
Senior Vice | Treasurer and VP & | |||||||||||||||||||
Former | President- | Controller | ||||||||||||||||||
Direct Compensation Element | President | President | Financial | (average) | ||||||||||||||||
Salary | 33.9 | % | 23.0 | % | 25.3 | % | 40.8 | % | ||||||||||||
Target Annual Cash Incentive Award | 16.9 | % | 19.5 | % | 19.0 | % | 16.3 | % | ||||||||||||
Target Long-term Incentive Awards | 49.2 | % | 57.5 | % | 55.7 | % | 42.9 | % | ||||||||||||
* | Percentages based on target award levels as a percentage of total direct compensation. Values of restricted stock unit and stock option awards shown in the Summary Compensation Table in this Information Statement reflect compensation expense recognized in 2007 for financial reporting purposes rather than fair market values calculated using the number of shares or options actually awarded in 2007. See “— Tax and Accounting Considerations—SFAS 123(R)” at the end of this CD&A at page 25 for further details on how equity awards are expensed. |
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PPL Competitive | ||||||||||||||||||||||
Name and Position | Prior Salary | Range | 2007 Salary | % Change | ||||||||||||||||||
D. G. DeCampli(1) | ||||||||||||||||||||||
—Senior Vice President-T&D Engineering and Operations | $ | 265,000 | $221,000-$299,000 | $ | 265,000 | 0 | % | |||||||||||||||
—President | 265,000 | $323,000-$437,000 | 305,000 | 15.1 | % | |||||||||||||||||
W. H. Spence(2) | ||||||||||||||||||||||
—Former President | 525,000 | $561,000-$759,000 | 600,000 | 14.3 | % | |||||||||||||||||
P. A. Farr(2)(3) | ||||||||||||||||||||||
—Former Senior Vice President-Financial | 390,000 | $353,000-$477,000 | 409,900 | 5.1 | % | |||||||||||||||||
—Executive Vice President and Chief Financial Officer of PPL Corporation | 409,900 | $438,000-$592,000 | 450,000 | 9.8 | % | |||||||||||||||||
J. E. Abel(2) | ||||||||||||||||||||||
—Treasurer | 265,773 | $221,000-$299,000 | 275,100 | 3.5 | % | |||||||||||||||||
J. M. Simmons, Jr.(2) | ||||||||||||||||||||||
—Vice President & Controller | 225,000 | $238,000-$322,000 | 250,000 | 11.1 | % | |||||||||||||||||
(1) | Mr. DeCampli served as Senior Vice President-Transmission and Distribution Engineering and Operations until his election as President as of April 1, 2007. Mr. DeCampli joined the company on December 4, 2006, at the salary noted for Senior Vice President. At the time of his election as president, the Committee re-evaluated his salary for the new position and increased it as shown. | |
(2) | Messrs. Spence, Farr, Abel and Simmons are compensated for their positions served at PPL Corporation, and not as officers of the company. | |
(3) | Mr. Farr served as Senior Vice President-Financial until his election as Executive Vice President and Chief Financial Officer for PPL Corporation as of April 1, 2007, at which time he resigned as an officer of the company. At the time of his election, the Committee re-evaluated his salary for the new position with PPL Corporation and increased it as shown. |
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Targets as % | |||||
Position | of Salary | ||||
President | 50 | % | |||
Former President* | 85 | % | |||
Former Senior Vice President-Financial* | 75 | % | |||
Treasurer and Vice President & Controller* | 40 | % | |||
* | Targets for these positions based on positions served at PPL Corporation. |
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Former | |||||||||||||||
President and | Treasurer and | ||||||||||||||
SVP- | VP & | ||||||||||||||
Category | President | Financial | Controller | ||||||||||||
Financial Results | 40 | % | 60 | % | 40 | % | |||||||||
Operational Results | |||||||||||||||
PPL Generation | 9 | % | 9 | % | |||||||||||
PPL EnergyPlus | 10 | % | 9 | % | 9 | % | |||||||||
Utility Operations: | |||||||||||||||
PPL Electric Utilities | 38 | % | 9 | % | |||||||||||
PPL Gas Utilities | 2 | % | 9 | % | |||||||||||
PPL Global | 10 | % | 9 | % | 9 | % | |||||||||
PPL Energy Services Group | 4 | % | 4 | % | |||||||||||
Individual Results | * | * | 20 | % | |||||||||||
* | Annual cash incentive awards for these executive officers are based on the financial and operational results for the year and are not further adjusted for individual performance. |
results | X | weights (Table 4) | X | target award % (Table 3) | X | year-end salary (Table 2) | = | annual cash incentive award |
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Salary Basis for | Total Goal | 2007 Annual Cash | |||||||||||||||
Name | Award | Results | Award(1) | ||||||||||||||
D. G. DeCampli | $ | 305,000 | 123.4% | $ | 188,200 | ||||||||||||
W. H. Spence(2) | 600,000 | 139.6% | 712,000 | ||||||||||||||
P. A. Farr(2) | 450,000 | 139.6% | 471,200 | ||||||||||||||
J. E. Abel(2) | 275,000 | 133.0% | (3) | 146,400 | |||||||||||||
J. M. Simmons, Jr.(2) | 250,000 | 135.0% | (4) | 135,000 | |||||||||||||
(1) | Total award amounts may differ from the amounts included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table due to amounts exchanged under the Premium Exchange Program, which is described on page 23 of this CD&A under “— Ownership Guidelines.” | |
(2) | Paid by an affiliate of the company for positions served at PPL Corporation. | |
(3) | Includes individual results achieved at 120% of target performance. | |
(4) | Includes individual results achieved at 130% of target performance. |
Results | Weight | Attainment | ||||||||||
PPL Corporation EPS (40% weight) | 150.0% | 40% | 60.00% | |||||||||
Operational: | ||||||||||||
PPL EnergyPlus (10% weight) | ||||||||||||
EnergyPlus Energy Marketing Center | 147.2% | 10% | 14.7% | |||||||||
Utility Operations (40% weight) | ||||||||||||
PPL Electric Utilities (95%) | 82.6% | 38% | 31.4% | |||||||||
PPL Gas Utilities (5%) | 120.1% | 2% | 2.4% | |||||||||
PPL Global (10% weight) | ||||||||||||
Global | 148.7% | 10% | 14.9% | |||||||||
Total Weight & Attainment | 100.0% | 123.4% |
* | Not applicable to Mr. Spence, as he is compensated by an affiliate of PPL Corporation as an executive officer of PPL Corporation. |
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Results | Weight | Attainment | ||||||||||
PPL Corporation EPS (60% weight) | 150.0% | 60% | 90.0% | |||||||||
Operational: | ||||||||||||
PPL Generation (9% weight) | ||||||||||||
Generation East Fossil/Hydro (50%) | 124.2% | 4.5% | 5.6% | |||||||||
Susquehanna (30%) | 110.5% | 2.7% | 3.0% | |||||||||
Generation West Fossil/Hydro (20%) | 123.5% | 1.8% | 2.2% | |||||||||
PPL EnergyPlus (9% weight) | ||||||||||||
EnergyPlus Energy Marketing Center | 147.2% | 9.0% | 13.2% | |||||||||
Utility Operations (9% weight) | ||||||||||||
PPL Electric Utilities (95%) | 82.6% | 8.6% | 7.1% | |||||||||
PPL Gas Utilities (5%) | 120.1% | 0.5% | 0.5% | |||||||||
PPL Global (9% weight) | ||||||||||||
Global | 148.7% | 9.0% | 13.4% | |||||||||
PPL Energy Services Group (4% weight) | ||||||||||||
Energy Services (30%) | 133.3% | 1.2% | 1.6% | |||||||||
Synfuels (20%) | 80.0% | 0.8% | 0.6% | |||||||||
Telcom (15%) | 141.3% | 0.6% | 0.8% | |||||||||
PPLSolutions (15%) | 117.8% | 0.6% | 0.7% | |||||||||
Development (20%) | 100.8% | 0.8% | 0.8% | |||||||||
Total Weight & Attainment | 100.0% | 139.6% |
• | Any impact from changes in accounting resulting from FASB or SEC determinations that, as of January 31, 2007, were not scheduled to become applicable to current year financial statements, or if the financial statement impact was not determinable based on the issued or proposed guidance. | |
• | Costs associated with the refinancing of debt or senior equity securities where refinancing results in a positive net present value. | |
• | Asset impairments related to or resulting from a decision to sell assets or discontinue operations where such sale or discontinued operations results in a positive net present value. | |
• | Gains related to or resulting from the sale of an asset or an affiliated company that are treated as unusual credits to income. Any income (or loss) included in the 2007 business plan for such asset or affiliated company for the balance of the year following the closing date for such sale will be included in the calculation of the 2007 corporate financial goal. |
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• | Any mark-to-market (MTM) impact on earnings from energy marketing and trading activities. The MTM changes of forward commitments are not reflective of the ultimate profitability of the MTM transactions. The ultimate financial impact of MTM transactions, as well as related transactions that do not receive MTM accounting, will be reflected in earnings as contracted products and services are delivered. | |
• | “Other-than temporary impairments” of available-for-sale investment securities held in the Nuclear Decommissioning Trust Fund, as provided in the SEC’s Staff Accounting Bulletin topic 5.m. | |
• | The outcome of the legal proceedings relating to a PJM billing dispute at the Federal Energy Regulatory Commission. PJM, or PJM Interconnection, L.L.C., is the independent operator of the electric transmission network for the region in which PPL Electric Utilities Corporation provides transmission service. |
• | Safety goals (limits on Occupational Safety and Health Administration reportable events and motor vehicle accidents) are included in all business units. | |
• | Gross margin, net income or net operating profit after tax (NOPAT) goals are included in each business line’s goals. Gross margin is a goal for PPL Generation and PPL EnergyPlus. Net income is a goal for the delivery companies—PPL Electric Utilities and PPL Global—and PPL’s smaller business lines. NOPAT is used by PPL Energy Services Group. PPL Global has a free cash flow goal for international operations. PPL Generation, PPL Electric Utilities and PPL Gas Utilities also have specific operations and maintenance and capital expenditure goals that support their margin or income goals. | |
• | Station generation goals are included for PPL Generation units, including specific commercial availability and system-wide, fleet initiative goals. | |
• | PPL Generation has specific goals pertaining to the Montour and Brunner Island scrubber projects. | |
• | PPL Generation’s nuclear unit has specific goals pertaining to outage refueling metrics. | |
• | PPL Energy Services Group’s business development unit has goals pertaining to asset growth. | |
• | Environmental compliance goals are included for the fossil and hydro generating units. Nuclear Regulatory Commission Performance Indicators and Inspector Findings and Institute of Nuclear Power Operations rating goals are included for our nuclear unit. | |
• | Customer service goals are included for the delivery companies—PPL Electric Utilities, PPL Gas Utilities and PPL Global’s subsidiaries—taking the form of customer satisfaction surveys, interruption limits, lost minute limits and non-storm lost minute measures. | |
• | Community impact goals are included for our fossil and hydro units in the form of a favorable public perception evaluation. |
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• | Restricted stock unit awards for sustained financial and operational performance; | |
• | Restricted stock unit awards for performance on specific, strategic goals; and | |
• | Stock option awards for stock price growth. |
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Restricted Stock Units | Stock Options | |||||||||||||||||||
(Targets as % of Salary) | ||||||||||||||||||||
Sustained | ||||||||||||||||||||
Financial and | Strategic | |||||||||||||||||||
Operational | Objective | Stock Price | ||||||||||||||||||
Position | Results | Results | Performance | Total | ||||||||||||||||
President | 47.125 | % | 47.125 | % | 50.75 | % | 145% | |||||||||||||
Former President* | 81.250 | % | 81.250 | % | 87.50 | % | 250% | |||||||||||||
Former Senior Vice President-Financial* | 71.500 | % | 71.500 | % | 77.00 | % | 220% | |||||||||||||
Treasurer and Vice President & Controller* | 34.125 | % | 34.125 | % | 36.75 | % | 105% | |||||||||||||
* | Based on positions served at PPL Corporation. |
target award % | X | salary | X | 3-year average result | ¸ | market price of PPL Corporation stock as of award date | = | number of units granted |
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target award % | X | salary | X | strategic objective goal result | ¸ | market price of PPL Corporation stock as of award date | = | number of units granted |
• | Proactively influence federal and state policies regarding continued transition to competitive markets and responsible environmental regulation: |
• | Promote PPL’s position on the benefits of competitive markets in the regulatory arenas by active involvement in the federal and state regulatory process. | |
• | Effectively respond to any state-level efforts to re-regulate generation or wholesale markets or otherwise impede the transition to competitive markets, through our legislative and regulatory relations efforts and in cooperation with industry associations and other groups. | |
• | Effectively promote PPL’s principles for climate change legislation or regulations, with specific focus on achievingcap-and-trade programs or other mechanisms that provide cost-effective options for compliance. |
• | Establish and begin implementation of a comprehensive energy supply hedge strategy. | |
• | Complete a strategic review of PPL with input from the Board, senior management and outside advisors. |
target award % | X | salary | ¸ | option value as of award date | = | number of options granted |
• | Restricted stock unit award for sustained financial and operational results: the 2007 annual cash incentive results for executives were averaged with similar results for 2006 and 2005 and formed the basis for the award made in 2008 for performance over the preceding three years. The average results were 126.9%, which represent the average of 2007-(139.6%), 2006-(131.3%) and 2005-(109.9%). |
• | The restricted stock unit award for strategic goal attainment: goal attained at 100%. |
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Restricted Stock Units | Stock Options | ||||||||||||||||
(Awards in Dollars) | |||||||||||||||||
Sustained | |||||||||||||||||
Financial and | Strategic | ||||||||||||||||
Operational | Objective | Stock Price | |||||||||||||||
Name | Results | Results | Performance | ||||||||||||||
D. G. DeCampli | $ | 182,443 | $ | 143,732 | $ | 139,100 | |||||||||||
W. H. Spence* | 618,801 | 487,501 | 630,000 | ||||||||||||||
P. A. Farr* | 408,410 | 321,751 | 312,000 | ||||||||||||||
J. E. Abel* | 119,163 | 93,878 | 139,531 | ||||||||||||||
J. M. Simmons, Jr.* | 108,291 | 85,313 | 118,125 | ||||||||||||||
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Restricted Stock Units | Performance Units | Stock Options | ||||||||||||||||||
(Targets as % of Salary) | ||||||||||||||||||||
Sustained | Relative | |||||||||||||||||||
Financial and | Total | |||||||||||||||||||
Operational | Shareowner | Stock Price | ||||||||||||||||||
Position | Results | Return | Performance | Total | ||||||||||||||||
President | 58% | 29% | 58% | 145% | ||||||||||||||||
Former President* | 100% | 50% | 100% | 250% | ||||||||||||||||
Former Senior Vice President-Financial* | 88% | 44% | 88% | 220% | ||||||||||||||||
Treasurer and Vice President & Controller* | 42% | 21% | 42% | 105% | ||||||||||||||||
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• | accelerated vesting of outstanding equity awards in order to protect executives’ equity-based award value from an unfriendly acquirer; | |
• | severance benefits; and | |
• | trusts to fund promised obligations in order to protect executive compensation from an unfriendly acquirer. |
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Multiple of | ||||
Base | ||||
Executive Officer | Salary | |||
Chairman, President and CEO of PPL Corporation | 5 | x | ||
Executive Vice Presidents of PPL Corporation (including Messrs. Spence and Farr) | 3 | x | ||
Senior Vice Presidents of PPL Corporation | 2 | x | ||
Presidents of major operating subsidiaries (including Mr. DeCampli) | 2 | x | ||
Vice Presidents of PPL companies (including Messrs. Abel and Simmons) | 1 | x |
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Change in | |||||||||||||||||||||||||||||||||||||||||||||
Pension Value | |||||||||||||||||||||||||||||||||||||||||||||
and | |||||||||||||||||||||||||||||||||||||||||||||
Nonqualified | |||||||||||||||||||||||||||||||||||||||||||||
Non-Equity | Deferred | ||||||||||||||||||||||||||||||||||||||||||||
Name and Principal | Stock | Option | Incentive Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||||||||||
Position | Year | Salary(2) | Bonus(3) | Awards(4) | Awards(5) | Compensation(6) | Earnings(7) | Compensation(8) | Total | ||||||||||||||||||||||||||||||||||||
David G. DeCampli | 2007 | $ | 293,462 | — | $ | 79,571 | $ | 54,321 | $ | 188,200 | $ | 48,283 | $ | 196,436 | $ | 860,274 | |||||||||||||||||||||||||||||
President | 2006 | 10,192 | $ | 225,000 | 5,546 | — | 117,000 | — | 24,699 | 382,437 | |||||||||||||||||||||||||||||||||||
William H. Spence | 2007 | 597,116 | — | 127,877 | 246,014 | 712,000 | 287,172 | 39,877 | 2,010,057 | ||||||||||||||||||||||||||||||||||||
Former President | |||||||||||||||||||||||||||||||||||||||||||||
Paul A. Farr | 2007 | 437,669 | — | 266,182 | 289,422 | 471,200 | 124,790 | 16,562 | 1,605,825 | ||||||||||||||||||||||||||||||||||||
Former Senior Vice President—Financial | 2006 | 388,462 | — | 265,027 | 209,167 | 256,000 | 76,291 | 10,063 | 1,205,010 | ||||||||||||||||||||||||||||||||||||
James E. Abel | 2007 | 274,742 | — | 153,826 | 178,345 | 146,400 | 238,601 | 10,158 | 1,002,072 | ||||||||||||||||||||||||||||||||||||
Treasurer | 2006 | 263,466 | — | 152,819 | 141,426 | 135,100 | 206,408 | 8,465 | 907,683 | ||||||||||||||||||||||||||||||||||||
J. Matt Simmons, Jr. | 2007 | 249,040 | — | 78,281 | 88,420 | 135,000 | 29,333 | 14,949 | 595,023 | ||||||||||||||||||||||||||||||||||||
Vice President and Controller | 2006 | 199,040 | 100,000 | 38,402 | 38,773 | 107,500 | 24,886 | 171,434 | 680,035 | ||||||||||||||||||||||||||||||||||||
(1) | Salary includes cash compensation deferred to the PPL Officers Deferred Compensation Plan. The following officers deferred salary in the amounts and years indicated: Mr. DeCampli ($28,327 in 2007); Mr. Spence ($17,914 in 2007); Mr. Farr ($43,767 in 2007 and $30,831 in 2006); and Mr. Abel ($8,242 in 2007). | |
(2) | Reflects one-time cash sign-on bonuses for Mr. DeCampli when he joined the company on December 4, 2006 and Mr. Simmons when he joined PPL Corporation as Vice President and Controller on January 30, 2006. | |
(3) | This column represents the compensation expense recognized for financial statement reporting purposes on shares of restricted stock and restricted stock units in accordance with SFAS 123(R), other than restricted stock unit awards granted in lieu of the annual cash incentive award foregone by the named executive officer. See Note 6 below. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. No forfeitures of restricted stock or restricted stock units actually occurred during 2007 or 2006. Because Mr. Abel was eligible for retirement, the fair value of his awards has been fully expensed. This column also includes the value of the premium restricted stock units granted in January 2007 and January 2006 and the restricted stock units granted as part of the exchanges made by Messrs. DeCampli, Spence and Farr of their cash incentive compensation awarded in January 2008 for 2007 performance under the Premium Exchange Program and by Mr. Farr of his cash incentive compensation awarded in January 2007 for 2006 performance under the Premium Exchange Program. See description of the Premium Exchange Program in “CD&A—Ownership Guidelines.” For shares of restricted stock and restricted stock units granted in 2006 and earlier years, fair value is calculated using the average of the high and low sale prices of PPL Corporation’s common stock on the date of grant. Beginning in 2007, fair value is calculated using the closing sale price on the date of grant. For additional information, refer to Note 12 to the company’s financial statements in the Annual Report onForm 10-K for the year ended December 31, 2007, as filed with the SEC. See the “Grants of Plan-Based Awards During 2007” table below for information on awards made in 2007. These amounts reflect PPL’s accounting expense for these restricted stock and restricted stock unit awards and do not correspond to the actual value that will be recognized by the named executive officers. | |
(4) | This column represents the dollar amount recognized for financial statement reporting purposes for stock options granted to each of the named executive officers in the indicated year as well as, in most cases, prior fiscal years, |
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in accordance with SFAS 123(R). Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. No forfeitures of any stock options actually occurred during 2007 or 2006. As Mr. Abel was eligible for retirement, the fair value of his stock option awards has been fully expensed. For additional information on the valuation assumptions with respect to the 2007 stock option grants, refer to Note 12 to the company’s financial statements in the Annual Report onForm 10-K for the year ended December 31, 2007, as filed with the SEC. For information on the valuation assumptions with respect to option grants made prior to 2007, refer to the Note entitled “Stock-Based Compensation” in the company’s financial statements in the Annual Report onForm 10-K for the respective year-end. See the “Grants of Plan-Based Awards During 2007” table for information on options granted in 2007. These amounts reflect the accounting expense for these stock option awards and do not correspond to the actual value that will be recognized by the named executive officers. | ||
(5) | This column represents annual cash incentive awards granted in January 2008 and 2007 under PPL’s Short-term Incentive Plan for performance in 2007 and 2006, respectively. The following named executive officers elected to exchange a portion of their cash awarded in January 2008, for 2007 performance, for restricted stock units under the Premium Exchange Program: DeCampli ($188,200); Spence ($712,000); and Farr ($424,080). Mr. Farr elected to exchange $166,400 of his cash awarded in January 2007, for 2006 performance, for restricted stock units under the Premium Exchange Program. See description of the Premium Exchange Program in “CD&A—Ownership Guidelines.” The values of these awards are included in this column and not in the “Stock Awards” column. The grants of restricted stock units under the Premium Exchange Program for the cash award foregone by these executive officers in 2008 will be reflected in next year’s Grants of Plan-Based Awards table and the value of such grants will be reflected in the “Stock Awards” column beginning in next year’s Summary Compensation Table. | |
(6) | This column represents the sum of the changes in value in the Retirement Plan and Supplemental Executive Retirement Plan during 2007 and 2006, as applicable, for each of the named executive officers. No change in value is shown for Mr. DeCampli in 2006 because he was not eligible to participate in these plans until January 1, 2007. See the “Pension Benefits in 2007” table on page 32 for additional information. No above-market earnings under the PPL Officers Deferred Compensation Plan are reportable for 2007 or 2006. See the “Nonqualified Deferred Compensation in 2007” table on page 36 for additional information. | |
(7) | The table below reflects the components of this column for 2007, which include PPL’s matching contribution for each individual’s 401(k) plan contributions under the PPL Deferred Savings Plan, annual allocations under the Employee Stock Ownership Plan, and perquisites, including financial planning and tax preparation services and relocation reimbursements. |
ODCP | ||||||||||||||||||||||||||||||||||||||||
401(k) | Employer | ESOP | Financial | PGG | Benefits | |||||||||||||||||||||||||||||||||||
Name | Match | Contributions | Allocation | Planning | Relocation | Gift(b) | Paid | Total | ||||||||||||||||||||||||||||||||
D. G. DeCampli | $ | 6,750 | $ | 1,748 | $ | 328 | $ | 9,600 | $ | 177,904 | (a) | $ | 57 | $ | 50 | (c) | $ | 196,436 | ||||||||||||||||||||||
W. H. Spence | 6,750 | 10,697 | 334 | 10,500 | — | 57 | 11,538 | (d) | 39,877 | |||||||||||||||||||||||||||||||
P. A. Farr | 6,750 | 6,403 | 352 | 3,000 | — | 57 | — | 16,562 | ||||||||||||||||||||||||||||||||
J. E. Abel | 6,750 | 1,426 | 1,926 | — | — | 57 | — | 10,158 | ||||||||||||||||||||||||||||||||
J. M. Simmons, Jr. | 6,750 | — | 334 | 3,000 | — | 57 | 4,808 | (d) | 14,949 | |||||||||||||||||||||||||||||||
(a) | The relocation expenses listed for Mr. DeCampli include taxgross-up payments of $546. The relocation expenses are computed on the basis of the amounts of reimbursements to him for costs of movement and storage of household goods; house hunting costs; temporary living costs; costs associated with the purchase of a home in the new location; costs associated with the sale of his former residence; relocation company administrative costs; home sale incentives; and other miscellaneous fees. | |
(b) | Reflects cost of thank-you gift received from People for Good Government, PPL Corporation’s Political Action Committee. | |
(c) | One-time safety team award. | |
(d) | Payments for vacation earned but not taken. |
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All Other | All Other | |||||||||||||||||||||||||||||||||||||||
Stock | Option | |||||||||||||||||||||||||||||||||||||||
Estimated Possible Payouts | Awards: | Awards: | Exercise or | |||||||||||||||||||||||||||||||||||||
Under Non-Equity Incentive | Number of | Number of | Base Price of | Grant Date Fair | ||||||||||||||||||||||||||||||||||||
Plan Awards(1) | Shares of | Securities | Option | Value of Stock | ||||||||||||||||||||||||||||||||||||
Grant | Stock or | Underlying | Awards(4) | and Option | ||||||||||||||||||||||||||||||||||||
Name | Date | Threshold | Target | Maximum | Units(2) | Options(3) | ($/Sh) | Awards(5) | ||||||||||||||||||||||||||||||||
D. G. DeCampli | 3/23/2007 | $ | 76,250 | $ | 152,500 | $ | 228,750 | |||||||||||||||||||||||||||||||||
1/25/2007 | 25,110 | $ | 35.12 | $ | 177,779 | |||||||||||||||||||||||||||||||||||
3/01/2007 | 4,370 | 167.939 | ||||||||||||||||||||||||||||||||||||||
W. H. Spence | 3/23/2007 | 255,000 | 510,000 | 765,000 | ||||||||||||||||||||||||||||||||||||
1/25/2007 | 40,390 | 1,418,497 | ||||||||||||||||||||||||||||||||||||||
1/25/2007 | 113,720 | 35.12 | 805,138 | |||||||||||||||||||||||||||||||||||||
P. A. Farr | 3/23/2007 | 168,750 | 337,500 | 506,250 | ||||||||||||||||||||||||||||||||||||
1/25/2007 | 16,430 | 577,022 | ||||||||||||||||||||||||||||||||||||||
1/25/2007 | 56,320 | 35.12 | 398,746 | |||||||||||||||||||||||||||||||||||||
J. E. Abel | 3/23/2007 | 55,020 | 110,040 | 165,060 | ||||||||||||||||||||||||||||||||||||
1/25/2007 | 4,380 | 153,826 | ||||||||||||||||||||||||||||||||||||||
1/25/2007 | 25,190 | 35.12 | 178,345 | |||||||||||||||||||||||||||||||||||||
J. M. Simmons, Jr. | 3/23/2007 | 50,000 | 100,000 | 150,000 | ||||||||||||||||||||||||||||||||||||
1/25/2007 | 3,390 | 119,057 | ||||||||||||||||||||||||||||||||||||||
1/25/2007 | 21,320 | 35.12 | 150,946 | |||||||||||||||||||||||||||||||||||||
(1) | This column shows the potential payout range under the 2007 annual cash incentive award program. For additional information, see “CD&A—Compensation Elements—Direct Compensation—Annual Cash Incentive Awards” at page 11. The cash incentive payout range is from 50% to 150%, however, if the performance falls below the 50% level, the payout would be zero. The actual payout for 2007 is found in the Summary Compensation Table on page 26 in the column entitled “Non-Equity Incentive Plan Compensation.” | |
(2) | This column shows the total number of restricted stock units granted in 2007 to the named executive officers. In general, restrictions will lapse three years from the date of grant (on January 24, 2010 for the awards granted on January 25, 2007; and on February 28, 2010 for the awards granted on March 1, 2007 to Mr. DeCampli). During the restricted period, each restricted stock unit entitles the individual to receive quarterly payments from PPL Corporation equal to the quarterly dividends on one share of PPL Corporation stock. | |
This column also shows the number of restricted stock units granted to the following named executive officers who exchanged a portion of their cash incentive compensation awarded in January 2007 for 2006 performance under the Premium Exchange Program (called Exchanged Units) and the number of premium restricted stock units granted in January 2007 as result of the Exchanges made (called Premium Units): Spence (14,720 Exchanged Units and 5,890 Premium Units) and Farr (4,740 Exchanged Units and 1,900 Premium Units). The Exchanged Units are not included in the “Stock Awards” column of the Summary Compensation Table because they would have been required to be reported as cash incentive awards for 2006. The Premium Units are included in this year’s Summary Compensation Table to the extent they were expensed during 2007. | ||
(3) | This column shows the number of stock options granted in 2007 to the named executive officers. These options vest and become exercisable in three equal annual installments, beginning on January 25, 2008, which is one year after the grant date. | |
(4) | This column shows the exercise price for the stock options granted in 2007, which was the closing sale price of PPL Corporation common stock on the date that the options were granted. |
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(5) | This column shows the full grant date fair value of restricted stock units and stock options granted to the named executive officers in 2007 under SFAS 123(R). Generally, the full grant date fair value is the amount that PPL would expense in its financial statements over the award’s vesting schedule. Because Mr. Abel was eligible for retirement, the full grant date fair value of his stock awards was expensed in 2007. For restricted stock units, fair value was calculated using the closing sale price of PPL Corporation stock on the grant date, as follows: $35.12 for the grants made on January 25, 2007 and $38.43 for the grant made on March 1, 2007 to Mr. DeCampli. For stock options, fair value was calculated using the Black-Scholes value on the grant date of $7.08. For additional information on the valuation assumptions for stock options, see Note 12 to the company’s financial statements in the Annual Report onForm 10-K for the year ended December 31, 2007, as filed with the SEC. These amounts reflect the accounting expense, and do not correspond to the actual value that will be recognized by the named executive officers when restrictions lapse on the restricted stock units or when the options are exercised. |
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Option Awards | ||||||||||||||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||||||||||||
Incentive | Stock Awards | |||||||||||||||||||||||||||||||||||||||
Number of | Number of | Plan Awards: | ||||||||||||||||||||||||||||||||||||||
Securities | Securities | Number of | Number of | Market Value | ||||||||||||||||||||||||||||||||||||
Underlying | Underlying | Securities | Shares or | of Shares or | ||||||||||||||||||||||||||||||||||||
Unexercised | Unexercised | Underlying | Units of | Units of | ||||||||||||||||||||||||||||||||||||
Options | Options | Unexercised | Option | Option | Stock That | Stock That | ||||||||||||||||||||||||||||||||||
Grant | (#) | (#) | Unearned | Exercise | Expiration | Have Not | Have Not | |||||||||||||||||||||||||||||||||
Name | Date(1) | Exercisable(2) | Unexercisable(2) | Options | Price | Date | Vested(3) | Vested | ||||||||||||||||||||||||||||||||
D. G. DeCampli | 1/25/07 | 25,110 | $ | 35.12 | 1/24/2017 | |||||||||||||||||||||||||||||||||||
10,430 | $ | 543,299 | ||||||||||||||||||||||||||||||||||||||
W. H. Spence | 1/25/07 | 113,720 | 35.12 | 1/24/2017 | ||||||||||||||||||||||||||||||||||||
49,920 | 2,600,333 | |||||||||||||||||||||||||||||||||||||||
P. A. Farr | 1/27/05 | 16,987 | 16,993 | 26.66 | 1/26/2015 | |||||||||||||||||||||||||||||||||||
1/26/06 | 20,630 | 41,260 | 30.14 | 1/25/2016 | ||||||||||||||||||||||||||||||||||||
1/25/07 | 56,320 | 35.12 | 1/24/2017 | |||||||||||||||||||||||||||||||||||||
83,360 | 4,342,222 | |||||||||||||||||||||||||||||||||||||||
J. E. Abel | 1/27/05 | 10,060 | 26.66 | 1/26/2015 | ||||||||||||||||||||||||||||||||||||
1/26/06 | 19,400 | 30.14 | 1/25/2016 | |||||||||||||||||||||||||||||||||||||
1/25/07 | 25,190 | 35.12 | 1/24/2017 | |||||||||||||||||||||||||||||||||||||
14,970 | 779,787 | |||||||||||||||||||||||||||||||||||||||
J. M. Simmons, Jr. | 1/26/06 | 8,704 | 17,406 | 30.14 | 1/25/2016 | |||||||||||||||||||||||||||||||||||
1/25/07 | 21,320 | 35.12 | 1/24/2017 | |||||||||||||||||||||||||||||||||||||
7,510 | 391,196 | |||||||||||||||||||||||||||||||||||||||
(1) | For a better understanding of this table, we have included an additional column showing the grant date of the stock options. | |
(2) | All stock options for the named executive officers vest, or become exercisable, over three years—one-third at the end of each year following grant. |
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Vesting Dates | |||||||||||||||||||||||||||||||||||
2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||||
Grant | |||||||||||||||||||||||||||||||||||
Officer | Date | 1/25 | 1/26 | 1/27 | 1/25 | 1/26 | 1/25 | ||||||||||||||||||||||||||||
D. G. DeCampli | 1/25/07 | 8,370 | 8,370 | 8,370 | |||||||||||||||||||||||||||||||
W. H. Spence | 1/25/07 | 37,907 | 37,906 | 37,907 | |||||||||||||||||||||||||||||||
P. A. Farr | 1/27/05 | 16,993 | |||||||||||||||||||||||||||||||||
1/26/06 | 20,630 | 20,630 | |||||||||||||||||||||||||||||||||
1/25/07 | 18,774 | 18,773 | 18,773 | ||||||||||||||||||||||||||||||||
J. E. Abel | 1/27/05 | 10,060 | |||||||||||||||||||||||||||||||||
1/26/06 | 9,700 | 9,700 | |||||||||||||||||||||||||||||||||
1/25/07 | 8,397 | 8,396 | 8,397 | ||||||||||||||||||||||||||||||||
J. M. Simmons, Jr. | 1/26/06 | 8,703 | 8,703 | ||||||||||||||||||||||||||||||||
1/25/07 | 7,107 | 7,106 | 7,107 | ||||||||||||||||||||||||||||||||
(3) | The dates that restrictions lapse for each restricted stock or unit award granted to the named executive officers are as follows: |
2008 | 2009 | 2010 | 2027 | |||||||||||||||||||||||||||||||||||||||||||||||
Grant | ||||||||||||||||||||||||||||||||||||||||||||||||||
Officer | Date | 1/27 | 3/1 | 1/26 | 3/1 | 6/26 | 12/4 | 1/25 | 3/1 | 4/27 | ||||||||||||||||||||||||||||||||||||||||
D. G. DeCampli | 12/4/06 | 6,060 | ||||||||||||||||||||||||||||||||||||||||||||||||
3/01/07 | 4,370 | |||||||||||||||||||||||||||||||||||||||||||||||||
W. H. Spence | 6/26/06 | 9,530 | ||||||||||||||||||||||||||||||||||||||||||||||||
1/25/07 | 40,390 | |||||||||||||||||||||||||||||||||||||||||||||||||
P. A. Farr | 4/22/02 | 24,600 | ||||||||||||||||||||||||||||||||||||||||||||||||
1/27/05 | 8,420 | |||||||||||||||||||||||||||||||||||||||||||||||||
3/01/05 | 4,280 | |||||||||||||||||||||||||||||||||||||||||||||||||
1/26/06 | 14,230 | |||||||||||||||||||||||||||||||||||||||||||||||||
1/27/06 | 15,400 | |||||||||||||||||||||||||||||||||||||||||||||||||
1/25/07 | 16,430 | |||||||||||||||||||||||||||||||||||||||||||||||||
J. E. Abel | 1/27/05 | 4,980 | ||||||||||||||||||||||||||||||||||||||||||||||||
1/26/06 | 4,590 | |||||||||||||||||||||||||||||||||||||||||||||||||
3/01/06 | 1,020 | |||||||||||||||||||||||||||||||||||||||||||||||||
1/25/07 | 4,380 | |||||||||||||||||||||||||||||||||||||||||||||||||
J. M. Simmons, Jr. | 1/26/06 | 4,120 | ||||||||||||||||||||||||||||||||||||||||||||||||
1/25/07 | 3,390 | |||||||||||||||||||||||||||||||||||||||||||||||||
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Option Awards | Stock Awards | |||||||||||||||||||
Number of Shares | ||||||||||||||||||||
Number of Shares | Value Realized | Acquired | Value Realized | |||||||||||||||||
Name | Acquired on Exercise | on Exercise(1) | on Vesting | on Vesting(2) | ||||||||||||||||
D. G. DeCampli | — | — | — | — | ||||||||||||||||
W. H. Spence | — | — | — | — | ||||||||||||||||
P. A. Farr | 24,427 | $ | 598,156 | 5,200 | $ | 199,836 | ||||||||||||||
J. E. Abel | 50,860 | 953,696 | 5,860 | 213,718 | ||||||||||||||||
J. M. Simmons, Jr. | — | — | — | — | ||||||||||||||||
(1) | Amounts reflect the difference between the exercise price of the stock option and the market price at the time of exercise. | |
(2) | Amounts reflect the market value of the restricted stock units on the day the restrictions lapsed. |
• | PPL Retirement Plan.The PPL Retirement Plan is a funded and tax-qualified defined benefit retirement plan that covers approximately 5,822 active employees as of December 31, 2007. As applicable to the named executive officers, the plan provides benefits based primarily on a formula that takes into account the executive’s earnings for each fiscal year. Benefits under the PPL Retirement Plan for eligible employees are determined as the greater of the following two formulas: |
• | The first is a “career average pay formula” of 2.25% of annual earnings for each year of credited service under the plan. | |
• | The second is a “final average pay formula” as follows: |
1.7% of final average earnings in excess of the average Social Security Wage Base
the sum of years of credited service (up to a maximum of 40 years).
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• | PPL Supplemental Executive Retirement Plan. PPL Corporation offers the PPL Supplemental Executive Retirement Plan, or SERP, to approximately 24 active officers as of December 31, 2007 in order to provide for retirement benefits above amounts available under the PPL Retirement Plan described above. The SERP is unfunded and is not qualified for tax purposes. Accrued benefits under the SERP are subject to claims of PPL Corporation’s creditors in the event of bankruptcy. |
• | PPL Subsidiary Retirement Plan. The PPL Subsidiary Retirement Plan, under which Mr. Farr became a participant before he became an officer of PPL Corporation, is a defined benefit plan that utilizes a hypothetical account balance to determine a monthly retirement annuity when an individual retires (known as a “cash balance plan”). Age 65 is the normal retirement age, but an individual may receive a reduced benefit as early as age 50 if the participant has at least five years of service. |
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Present Value of | ||||||||||||||||||||
Number of Years | Accumulated | Payments During | ||||||||||||||||||
Name | Plan Name | Credited Service(1) | Benefit(2)(3) | Last Fiscal Year | ||||||||||||||||
D. G. DeCampli | PPL Retirement Plan | 1.1 | $ | 22,272 | — | |||||||||||||||
SERP | 1.1 | 29,186 | — | |||||||||||||||||
W. H. Spence | PPL Retirement Plan | 1.5 | 32,131 | — | ||||||||||||||||
SERP | 2.5 | (4) | 387,736 | — | ||||||||||||||||
P. A. Farr | PPL Retirement Plan | 3.3 | 56,368 | — | ||||||||||||||||
PPL Subsidiary Plan | 4.8 | 18,971 | ||||||||||||||||||
SERP | 9.6 | 298,086 | — | |||||||||||||||||
J. E. Abel | PPL Retirement Plan | 33.3 | 1,070,850 | — | ||||||||||||||||
SERP | 26.9 | 790,409 | — | |||||||||||||||||
J. M. Simmons, Jr. | PPL Retirement Plan | 1.9 | 35,876 | — | ||||||||||||||||
SERP | 1.9 | 18,343 | — | |||||||||||||||||
(1) | See “PPL Supplemental Executive Retirement Plan” above for a description of the years of service that have been granted under the SERP. | |
(2) | The accumulated benefit is based on service and earnings (base salary and annual cash incentive award) considered by the plans for the period through December 31, 2007. The present value has been calculated assuming that the named executive officers will remain in service until age 60, the age at which retirement may occur without any reduction in benefits, provided that, for the PPL Retirement Plan, the employee has at least 20 years of service, and the benefit is payable under the available forms of annuity consistent with the assumptions as described in Note 13 to the financial statements in the company’s Annual Report on Form10-K for the year ended December 31, 2007. As described in such Note, the interest assumption is 6.39%. The post-retirement mortality assumption is based on the most recently available retirement plan table published by the Society of Actuaries, known as RP 2000, which is a widely used table for determining accounting obligations of pension plans. Only Mr. Abel is vested in the SERP as of December 31, 2007. | |
(3) | The present values in the table are theoretical figures prescribed by the SEC for disclosure and comparison. The table below illustrates the actual benefits payable under the SERP for the listed events assuming termination of employment occurred as of December 31, 2007. |
SERP Payments upon Termination | |||||||||||||||
as of December 31, 2007(a) | |||||||||||||||
Named | |||||||||||||||
Executive Officer | Retirement | Death | Disability | ||||||||||||
D. G. DeCampli(b) | — | — | — | ||||||||||||
W. H. Spence(b) | — | — | — | ||||||||||||
P. A. Farr(b) | — | — | — | ||||||||||||
J. E. Abel | $ | 1,064,932 | $ | 425,235 | $ | 1,064,932 | |||||||||
J. M. Simmons, Jr.(b) | — | — | — | ||||||||||||
(a) | Each named executive officer has elected to receive benefits payable under the SERP as a lump-sum payment, subject to applicable law. The amounts shown in this table represent the values that would have become payable based on a December 31, 2007 termination of employment. Actual payment would be made following December 31, subject to plan rules and in compliance with Section 409A of the Internal Revenue Code. |
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(b) | Messrs. DeCampli, Spence, Farr and Simmons are not eligible to retire and are not vested under the SERP. Messrs. DeCampli, Spence and Simmons are also not vested in the PPL Retirement Plan, meaning that, if they left the company on December 31, 2007 under any circumstance, they would not be eligible for any benefit. If Mr. Farr had left the company on December 31, 2007, voluntarily or as a result of a disability or death, he or his spouse would have been vested in a deferred benefit under the PPL Retirement Plan and PPL Subsidiary Retirement Plan. The PPL Retirement Plan benefit is first payable at age 55 on a reduced basis. The PPL Subsidiary Retirement Plan is first payable at age 50 on a reduced basis, but the death benefit is payable at the surviving spouse’s chosen date of commencement. |
(4) | Includes one additional year of service provided to Mr. Spence. The years of credited service in excess of actual years of service provided to PPL resulted in an increase to the present value of accumulated benefits under the SERP for Mr. Spence as of December 31, 2007 of $176,931. |
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Executive | Registrant | Aggregate | Aggregate | ||||||||||||||||||||||
Contributions in | Contributions in | Earnings in | Withdrawals/ | Aggregate Balance | |||||||||||||||||||||
Name | Last FY(1) | Last FY(2) | Last FY(3) | Distribution | at Last FYE(4) | ||||||||||||||||||||
D. G. DeCampli | $ | 28,327 | $ | 1,748 | $ | 152 | — | $ | 30,227 | ||||||||||||||||
W. H. Spence | 17,914 | 10,697 | 1,251 | — | 29,861 | ||||||||||||||||||||
P. A. Farr | 43,767 | 6,403 | 20,508 | — | 260,012 | ||||||||||||||||||||
J. E. Abel | 8,242 | 1,503 | 2,071 | — | 38,929 | ||||||||||||||||||||
J. M. Simmons, Jr. | — | — | — | — | — | ||||||||||||||||||||
(1) | All amounts deferred by Messrs. DeCampli, Spence, Farr and Abel during 2007 are included in the “Salary” column of the Summary Compensation Table. | |
(2) | Amounts in this column are PPL matching contributions during 2007 and are included in the Summary Compensation Table under the heading “All Other Compensation.” | |
(3) | Aggregate earnings for 2007 are not reflected in the Summary Compensation Table because such earnings are not deemed to be “above-market” earnings. | |
(4) | Represents the total balance of each named executive officer’s account as of December 31, 2007. Of the totals in this column, the following amounts have been reported in the Summary Compensation Table for this year and for 2006, if applicable. |
Executive | Registrant | |||||||||||||||||||
Name | Fiscal Year | Contributions | Contributions | Total | ||||||||||||||||
D. G. DeCampli | 2007 | $ | 28,327 | $ | 1,748 | $ | 30,075 | |||||||||||||
2006 | 0 | — | 0 | |||||||||||||||||
W. H. Spence | 2007 | 17,914 | 10,697 | 28,611 | ||||||||||||||||
P. A. Farr | 2007 | 43,767 | 6,403 | 50,170 | ||||||||||||||||
2006 | 30,831 | — | 30,831 | |||||||||||||||||
J. E. Abel | 2007 | 8,242 | 1,503 | 9,745 | ||||||||||||||||
2006 | 0 | — | 0 | |||||||||||||||||
J. M. Simmons, Jr. | 2007 | 0 | — | 0 | ||||||||||||||||
2006 | 0 | — | 0 | |||||||||||||||||
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• | a change in the majority of the members of the PPL Corporation Board of Directors occurs through contested elections; | |
• | an investor or group acquires 20% or more of PPL Corporation’s common stock; | |
• | a merger occurs that results in less than 60% control of PPL Corporation or surviving entity by the current shareowners; | |
• | shareowner approval of the liquidation or dissolution of PPL Corporation; or | |
• | the Board of Directors of PPL Corporation declares that a change in control is anticipated to occur or has occurred. |
• | a lump-sum payment equal to three times (for Messrs. DeCampli, Spence, Farr and Abel) or two times (Mr. Simmons) the sum of (1) the named executive officer’s base salary in effect immediately prior to the date of termination, or if higher, immediately prior to the first occurrence of an event or circumstance constituting “good reason,” and (2) the highest annual bonus in respect of the last three fiscal years ending immediately prior to the fiscal year in which the change in control occurs, or if higher, the fiscal year immediately prior to the fiscal year in which first occurs an event or circumstance constituting “good reason”; | |
• | a lump-sum payment having an actuarial present value equal to the additional pension benefits the officer would have received had the officer continued to be employed by the company for an additional 36 months (for Messrs. DeCampli, Spence, Farr and Abel) or 24 months (for Mr. Simmons); | |
• | the continuation of welfare benefits for the officer and his or her dependents for the36-month or24-month period following separation (reduced to the extent the officer receives comparable benefits from another employer); | |
• | unpaid incentive compensation that has been allocated or awarded for a previous performance period; | |
• | all contingent incentive compensation awards for all then uncompleted periods, calculated on a prorated basis of months of completed service, assuming performance achievement at 100% of the target level; | |
• | outplacement services for up to three years; |
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• | for Messrs. DeCampli, Spence and Farr only, agross-up payment for any excise tax imposed under the golden parachute provisions of the Internal Revenue Code; and | |
• | post-retirement health care and life insurance benefits to officers who would have become eligible for such benefits within the applicable36-month or24-month period following the change in control. |
• | the restriction period applicable to any outstanding restricted stock or restricted stock unit awards lapses for those awards granted as part of PPL’s compensation program (excluding restricted stock granted under any retention agreements); | |
• | all restrictions on the exercise of any outstanding stock options lapse; | |
• | all participants in the SERP immediately vest in their accrued benefit, even if not yet vested due to age and service; and | |
• | upon a qualifying termination, the SERP benefit improves by a pro rata portion of the additional years of service granted to the officer, if any, that otherwise would not be earned until a specified period of years had elapsed or the officer had reached a specified age. |
• | PPL Corporation enters into an agreement that would result in a change in control; | |
• | PPL Corporation or any investor announces an intention to enter into a change in control; | |
• | the Board of Directors of PPL Corporation declares that a potential change in control has occurred; or | |
• | an investor obtains 5% or more of PPL Corporation’s common stock and intends to control or influence management (requiring a Schedule 13D to be filed by the investor with the SEC). |
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CHANGE IN CONTROL OF PPL CORPORATION
Retirement or | Involuntary | Change in | ||||||||||||||||||
Voluntary | Termination | Control | ||||||||||||||||||
Executive Name | Termination | Death | Disability | Not for Cause | Termination | |||||||||||||||
D. G. DeCampli | ||||||||||||||||||||
Severance payable in cash(1) | $ | 0 | $ | 0 | $ | 0 | $ | 305,000 | $ | 1,479,600 | ||||||||||
Other separation benefits(2) | 0 | 0 | 0 | 15,000 | (7) | 123,347 | ||||||||||||||
Taxgross-up amount payable(3) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
SERP(4) | 0 | 0 | 0 | 0 | 309,000 | |||||||||||||||
Restricted stock/units(5) | 0 | 543,299 | 543,299 | (8) | 543,299 | |||||||||||||||
Stock options(6) | 0 | 0 | 0 | (8) | 426,117 | |||||||||||||||
W. H. Spence | ||||||||||||||||||||
Severance payable in cash(1) | 0 | 0 | 0 | 1,200,000 | 3,936,000 | |||||||||||||||
Other separation benefits(2) | 0 | 0 | 0 | (7) | 146,078 | |||||||||||||||
Taxgross-up amount payable(3) | 0 | 0 | 0 | 0 | 4,104,320 | |||||||||||||||
SERP(4) | 0 | 0 | 0 | 0 | 930,000 | |||||||||||||||
Restricted stock/units(5) | 0 | 2,600,333 | 2,600,333 | 496,418 | (9) | 2,600,333 | ||||||||||||||
Stock options(6) | 0 | 0 | 0 | (8) | 1,929,828 | |||||||||||||||
P. A. Farr | ||||||||||||||||||||
Severance payable in cash(1) | 0 | 0 | 0 | (7) | 2,763,605 | |||||||||||||||
Other separation benefits(2) | 0 | 0 | 0 | (7) | 138,989 | |||||||||||||||
Taxgross-up amount payable(3) | 0 | 0 | 0 | 0 | 4,686,942 | |||||||||||||||
SERP(4) | 0 | 0 | 0 | 0 | 990,000 | |||||||||||||||
Restricted stock/units(5) | 0 | 4,342,222 | 4,342,222 | 2,083,600 | (8) | 4,342,222 | ||||||||||||||
Stock options(6) | 0 | 0 | 0 | (8) | 2,292,014 | |||||||||||||||
J. E. Abel | ||||||||||||||||||||
Severance payable in cash(1) | 0 | 0 | 0 | (7) | 1,254,602 | |||||||||||||||
Other separation benefits(2) | 0 | 0 | 0 | (7) | 126,464 | |||||||||||||||
Taxgross-up amount payable(3) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
SERP(4) | 0 | 0 | 0 | 0 | 1,010,000 | |||||||||||||||
Restricted stock/units(5) | 774,057 | 779,787 | 779,787 | 774,057 | 779,787 | |||||||||||||||
Stock options(6) | 681,656 | 0 | 0 | 681,656 | 1,109,130 | |||||||||||||||
J. M. Simmons, Jr. | ||||||||||||||||||||
Severance payable in cash(1) | 0 | 0 | 0 | 250,000 | 760,003 | |||||||||||||||
Other separation benefits(2) | 0 | 0 | 0 | (7) | 118,818 | |||||||||||||||
Taxgross-up amount payable(3) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
SERP(4) | 0 | 0 | 0 | 0 | 190,000 | |||||||||||||||
Restricted stock/units(5) | 0 | 391,196 | 391,196 | (8) | 391,196 | |||||||||||||||
Stock options(6) | 0 | 0 | 0 | (8) | 743,884 |
(1) | Messrs. DeCampli and Simmons have an agreement to provide up to 52 weeks of pay following involuntary termination for reasons other than cause. The full 52 weeks of pay are illustrated as “Severance payable in cash” under the “Involuntary Termination Not for Cause” column. Mr. Spence also has an agreement to provide up to 24 months of pay following involuntary termination for reasons other than cause. The full 24 months of pay are illustrated as “Severance payable in cash” under the “Involuntary Termination Not for Cause” column. | |
The named executive officers are eligible for severance benefits if termination occurs within 36 months of a change in control (a) due to termination by the company for reasons other than cause or (b) by the executive on the basis of “good reason” as that term is defined in the severance agreement. | ||
For purposes of the illustration, we have assumed executives are eligible for benefits under the severance agreements. Amounts illustrated as “Severance payable in cash” under the “Change in Control Termination” column are three times (for Messrs. DeCampli, Spence, Farr and Abel) and two times (for Mr. Simmons) the sum of (a) the executive’s annual salary as of the termination date plus (b) the highest annual cash incentive payment made in the last three years as provided under the agreements. | ||
(2) | Mr. DeCampli has an agreement to provide up to 52 weeks of continued health, dental and life insurance benefits following involuntary termination for reasons other than cause. The estimated cost of coverage for the full 52 weeks is illustrated under the “Other separation benefits” under the “Involuntary Termination Not for Cause” column. | |
Under the terms of each named executive officer’s severance agreement, if termination occurs within 36 months of a change in control, the executive is eligible for continued medical and dental benefits, life |
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insurance and disability protection for the period equal to the severance benefit, and outplacement benefits. The amounts illustrated as “Other separation benefits” are the estimated present values of these benefits. | ||
(3) | In the event excise taxes become payable under Section 280G and Section 4999 of the Internal Revenue Code as a result of any “excess parachute payments,” as that phrase is defined by the Internal Revenue Service, the severance agreements for Messrs. DeCampli, Spence and Farr provide that PPL will pay the excise tax as well asgross-up the executive for the impact of the excise tax payment. (The tax payment andgross-up does not extend to normal income taxes due on any separation payments.) The amounts illustrated as “Taxgross-up amount payable” include the company’s best estimate of the excise tax andgross-up payments that would be made if each named executive officer had been terminated on December 31, 2007, under the terms of the severance agreement. Potential payments to Mr. DeCampli did not trigger any excise taxes under the current estimate. | |
(4) | Amounts illustrated as “SERP” under the “Change in Control Termination” column include the value of the incremental benefits payable under the terms of the severance agreements—each named executive officer is eligible for a severance payment equal to the value of the SERP benefit that would be determined by adding an additional three years of service (for Messrs. DeCampli, Spence, Farr and Abel) and two years (for Mr. Simmons). Under the SERP, upon a change in control, benefits vest immediately. | |
(5) | Total outstanding restricted stock and restricted stock unit awards are illustrated in the “Outstanding Equity Awards at Fiscal-Year End 2007” table above at page 30. The table above illustrates the value of the restricted stock and restricted stock units that would become payable as a result of each event as of December 31, 2007. In the table below, the number of units accelerated and payable as of the event, as well as the number forfeited, is illustrated. The gross value in the above table would be reduced by the amount of taxes required to be withheld; and the net shares, determined based on the stock price as of December 31, 2007, would be distributed based on a PPL Corporation stock price of $52.09. For purposes of the table below, the total number of shares is illustrated without regard for the tax impact. | |
For Mr. Farr, the totals shown below for death, disability, involuntary termination not for cause and change in control termination include the acceleration of outstanding retention shares. |
(#)
Retirement or | Involuntary | Change in | ||||||||||||||||||
Voluntary | Termination | Control | ||||||||||||||||||
Named Executive Officer | Termination | Death | Disability | Not for Cause | Termination | |||||||||||||||
D. G. DeCampli | ||||||||||||||||||||
accelerated | 0 | 10,430 | 10,430 | (8) | 10,430 | |||||||||||||||
forfeited | 10,430 | 0 | 0 | (8) | 0 | |||||||||||||||
W. H. Spence | ||||||||||||||||||||
accelerated | 0 | 49,920 | 49,920 | 9,530 | (9) | 49,920 | ||||||||||||||
forfeited | 49,920 | 0 | 0 | 40,390 | (8) | 0 | ||||||||||||||
P. A. Farr | ||||||||||||||||||||
accelerated | 0 | 83,360 | 83,360 | 40,000 | (8) | 83,360 | ||||||||||||||
forfeited | 83,360 | 0 | 0 | 43,360 | (8) | 0 | ||||||||||||||
J. E. Abel | ||||||||||||||||||||
accelerated | 14,860 | 14,970 | 14,970 | 14,860 | 14,970 | |||||||||||||||
forfeited | 110 | 0 | 0 | 110 | 0 | |||||||||||||||
J. M. Simmons, Jr. | ||||||||||||||||||||
accelerated | 0 | 7,510 | 7,510 | (8) | 7,510 | |||||||||||||||
forfeited | 7,510 | 0 | 0 | (8) | 0 |
(6) | Total outstanding stock options are illustrated in the “Outstanding Equity Awards at Fiscal-Year End 2007” table. The principal table above illustrates the value of the options not yet exercisable that would become exercisable as a result of each event as of December 31, 2007. Exercisable options as of December 31, 2007 and options that will become exercisable in accordance with their normal terms are excluded from this table. The table below details the number of options that accelerate and become exercisable as of the termination event, the number of options that become exercisable in the future in the events of death or disability and the number forfeited. | |
For illustrative purposes, it is assumed that all options not yet exercisable that become exercisable as of the event are exercised as of December 31, 2007, based on a PPL Corporation stock price of $52.09. |
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(#)
Retirement or | Involuntary | Change in | ||||||||||||||||||
Voluntary | Termination | Control | ||||||||||||||||||
Named Executive Officer | Termination | Death | Disability | Not for Cause | Termination | |||||||||||||||
D. G. DeCampli | ||||||||||||||||||||
Accelerated | 0 | 0 | 0 | (8) | 25,110 | |||||||||||||||
Forfeited | 25,110 | 0 | 0 | (8) | 0 | |||||||||||||||
Become exercisable over next 36 months | 0 | 25,110 | 25,110 | 0 | 0 | |||||||||||||||
W. H. Spence | ||||||||||||||||||||
Accelerated | 0 | 0 | 0 | (8) | 113,720 | |||||||||||||||
Forfeited | 113,720 | 0 | 0 | (8) | 0 | |||||||||||||||
Become exercisable over next 36 months | 0 | 113,720 | 113,720 | 0 | 0 | |||||||||||||||
P. A. Farr | ||||||||||||||||||||
Accelerated | 0 | 0 | 0 | (8) | 114,513 | |||||||||||||||
Forfeited | 114,513 | 0 | 0 | (8) | 0 | |||||||||||||||
Become exercisable over next 36 months | 0 | 114,513 | 114,513 | 0 | 0 | |||||||||||||||
J. E. Abel | ||||||||||||||||||||
Accelerated | 29,460 | 0 | 0 | 29,460 | 54,650 | |||||||||||||||
Forfeited | 25,190 | 0 | 0 | 25,190 | 0 | |||||||||||||||
Become exercisable over next 36 months | 0 | 54,650 | 54,650 | 0 | 0 | |||||||||||||||
J. M. Simmons, Jr. | ||||||||||||||||||||
Accelerated | 0 | 0 | 0 | (8) | 38,727 | |||||||||||||||
Forfeited | 38,727 | 0 | 0 | (8) | 0 | |||||||||||||||
Become exercisable over next 36 months | 0 | 38,727 | 38,727 | 0 | 0 |
(7) | In the event of involuntary termination for reasons other than for cause, any severance payable in cash (except for Messrs. DeCampli, Spence and Simmons) and/or other separation benefits, if any, would be determined as of the date of termination and would require the approval of PPL Corporation’s Compensation, Governance and Nominating Committee. | |
(8) | In the event of involuntary termination for reasons other than for cause, Messrs. DeCampli, Spence, Farr and Simmons would forfeit all outstanding restricted stock units (except as noted for Mr. Spence in footnote 9 below) and stock options because they are not eligible to retire. Any exceptions to the automatic forfeitures would require the approval of PPL Corporation’s Compensation, Governance and Nominating Committee. The exception for Mr. Farr would be the 40,000 shares of restricted stock that he holds under his retention agreement. | |
(9) | In the event of involuntary termination for reasons other than cause, per the terms of Mr. Spence’s employment offer, the restrictions on restricted stock units granted upon hire would lapse, subject to compliance with any legal requirements. |
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2007 | 2006 | |||||||
(In thousands) | ||||||||
Audit fees(a) | $ | 908 | $ | 725 | ||||
Audit-related fees(b) | 47 | 27 | ||||||
Tax fees(c) | — | — | ||||||
All other fees(d) | 6 | 4 |
(a) | Includes audit of annual financial statements and review of financial statements included in our company’s Quarterly Reports onForm 10-Q and services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC. Additionally, 2006 includes $6,000 of PricewaterhouseCoopers LLP fees incurred for completion of the 2005 financial audit, the last year for which they served as independent auditor. | |
(b) | Fees for performance of specificagreed-upon procedures. | |
(c) | The independent auditor does not provide tax consulting and advisory services to the company or any of its affiliates. | |
(d) | Fees relating to access to an E&Y online accounting research tool. |
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• | market demand and prices for energy, capacity and fuel; |
• | weather conditions affecting customer energy use and operating costs; |
• | the effect of any business or industry restructuring; |
• | PPL Electric’s profitability and liquidity, including access to capital markets and credit facilities; |
• | new accounting requirements or new interpretations or applications of existing requirements; |
• | transmission and distribution system conditions and operating costs; |
• | current and future environmental conditions and requirements and the related costs of compliance, including environmental capital expenditures and other expenses; |
• | market prices of commodity inputs for ongoing capital expenditures; |
• | collective labor bargaining negotiations; |
• | development of new markets and technologies; |
• | political, regulatory or economic conditions in regions where PPL Electric conducts business; |
• | any impact of hurricanes or other severe weather on PPL Electric; |
• | receipt of necessary governmental permits, approvals and rate relief; |
• | new state or federal legislation, including new tax legislation; |
• | state and federal regulatory developments; |
• | the impact of any state or federal investigations applicable to PPL Electric and the energy industry; |
• | capital market conditions, including changes in interest rates, and decisions regarding capital structure; |
• | the market prices of equity securities and the impact on pension costs and resultant cash funding requirements for defined benefit pension plans; |
• | securities and credit ratings; |
• | the outcome of litigation against PPL Electric; |
• | potential effects of threatened or actual terrorism or war or other hostilities; and |
• | PPL Electric’s commitments and liabilities. |
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• | “Results of Operations” provides an overview of PPL Electric’s operating results in 2007, 2006 and 2005, including a review of earnings. It also provides a brief outlook for 2008. |
• | “Financial Condition—Liquidity and Capital Resources” provides an analysis of PPL Electric’s liquidity position and credit profile, including its sources of cash (including bank credit facilities and sources of operating cash flow) and uses of cash (including contractual commitments and capital expenditure requirements) and the key risks and uncertainties that impact PPL Electric’s past and future liquidity position and financial condition. This subsection also includes a listing of PPL Electric’s current credit ratings. |
• | “Financial Condition—Risk Management” includes an explanation of PPL Electric’s risk management activities regarding commodity price risk and interest rate risk. |
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• | “Application of Critical Accounting Policies” provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of PPL Electric and that require its management to make significant estimates, assumptions and other judgments. |
2007 | 2006 | 2005 | ||||||||
$ | 145 | $ | 180 | $ | 145 |
2007 vs. 2006 | 2006 vs. 2005 | |||||||
Delivery revenues (net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges) | $ | 15 | $ | (6 | ) | |||
Other operation and maintenance | (4 | ) | (13 | ) | ||||
Depreciation | (8 | ) | (4 | ) | ||||
Interest income on loans to affiliates | (1 | ) | 4 | |||||
Financing costs (excluding transition bond interest expense) | (3 | ) | (6 | ) | ||||
Income tax adjustments | (2 | ) | (5 | ) | ||||
Other | 4 | 1 | ||||||
Special items | (36 | ) | 64 | |||||
$ | (35 | ) | $ | 35 | ||||
• | Delivery revenues increased in 2007 compared with 2006, primarily due to a 4% increase in sales volume. This increase was primarily due to the impact of favorable weather in 2007 on residential and commercial sales and normal load growth. Delivery revenues decreased in 2006 compared with 2005 primarily due to milder weather in 2006. |
• | Operation and maintenance expenses increased in 2007 compared with 2006, primarily due to increased tree trimming, defined benefit and consumer education expenses. Operation and maintenance expenses increased in 2006 compared with 2005, primarily due to increased tree trimming costs, a union contract ratification bonus and storm restoration costs. |
• | Depreciation expense was higher in both periods primarily due to PP&E additions. |
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2007 | 2006 | 2005 | ||||||||||
Workforce reduction | $ | (1 | ) | |||||||||
Realization of benefits related to Black Lung Trust assets (Note 9) | $ | 21 | ||||||||||
PJM billing dispute (Note 10) | 21 | $ | (27 | ) | ||||||||
Reversal of cost recovery—Hurricane Isabel (Note 1) | (7 | ) | ||||||||||
Acceleration of stock-based compensation expense for periods prior to 2005 (Note 1) | (2 | ) | ||||||||||
Total | $ | (1 | ) | $ | 35 | $ | (29 | ) | ||||
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2007 vs. 2006 | 2006 vs. 2005 | |||||||
PLR electric delivery | $ | 109 | $ | 127 | ||||
Electric delivery | 43 | (38 | ) | |||||
Other | (2 | ) | ||||||
$ | 152 | $ | 87 | |||||
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2007 vs. 2006 | 2006 vs. 2005 | |||||||
Realization of benefits related to Black Lung Trust assets in 2006 (Note 9) | $ | 36 | $ | (36 | ) | |||
PUC-reportable storm costs | 6 | 9 | ||||||
Distribution system reliability work, including tree trimming | 6 | 19 | ||||||
Defined benefit costs (Note 9) | 3 | 4 | ||||||
Consumer education | 3 | |||||||
Insurance premiums | 3 | 3 | ||||||
Allocation of certain corporate service costs (Note 11) | (2 | ) | 2 | |||||
Union contract ratification bonus | 3 | |||||||
Accelerated amortization of stock-based compensation (Note 1) | (5 | ) | ||||||
PJM system control and dispatch services | (2 | ) | ||||||
Retired miners’ medical benefits | (7 | ) | ||||||
Costs associated with severe ice storms in January 2005 (Note 1) | (16 | ) | ||||||
Subsequent deferral of a portion of costs associated with January 2005 ice storms (Note 1) | 12 | |||||||
Hurricane Isabel (Note 1) | (11 | ) | 11 | |||||
Insurance recovery of storm costs | (11 | ) | ||||||
Other | (3 | ) | ||||||
$ | 33 | $ | (6 | ) | ||||
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2007 vs. 2006 | 2006 vs. 2005 | |||||||
Interest accrued for PJM billing dispute (Note 10) | $ | 7 | $ | (15 | ) | |||
Dividends on 6.25% Series Preference Stock issued in April 2006 (Note 4) | 4 | 12 | ||||||
Interest on PLR contract collateral (Note 11) | 5 | |||||||
Long-term debt interest expense primarily due to the repayment of transition bonds | (22 | ) | (20 | ) | ||||
Other | (1 | ) | (1 | ) | ||||
$ | (12 | ) | $ | (19 | ) | |||
2007 vs. 2006 | 2006 vs. 2005 | |||||||
Tax reserve adjustments (Note 2) | $ | 5 | ||||||
Tax return adjustments (Note 2) | (5 | ) | $ | 4 | ||||
(Lower) higher pre-tax book income | (23 | ) | 30 | |||||
Other | 2 | 1 | ||||||
$ | (21 | ) | $ | 35 | ||||
• | unusual or extreme weather that may damage PPL Electric’s transmission and distribution facilities or affect energy sales to customers; |
• | the ability to recover and the timeliness and adequacy of recovery of costs associated with regulated utility businesses; |
• | any adverse outcome of legal proceedings and investigations with respect to PPL Electric’s current and past business activities; and |
• | a downgrade in PPL Electric’s or its subsidiary’s credit ratings that could adversely affect their ability to access capital and increase the cost of maintaining credit facilities and any new debt. |
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2007 | 2006 | 2005 | ||||||||||
Cash and cash equivalents | $ | 33 | $ | 150 | $ | 298 | ||||||
Short-term investments | 26 | 25 | ||||||||||
$ | 33 | $ | 176 | $ | 323 | |||||||
Short-term debt | $ | 41 | $ | 42 | $ | 42 | ||||||
2007 | 2006 | 2005 | ||||||||||
Net Cash Provided by Operating Activities | $ | 568 | $ | 578 | $ | 580 | ||||||
Net Cash Used in Investing Activities | (239 | ) | (287 | ) | (193 | ) | ||||||
Net Cash Used in Financing Activities | (446 | ) | (439 | ) | (240 | ) | ||||||
Net (Decrease) Increase in Cash and Cash Equivalents | $ | (117 | ) | $ | (148 | ) | $ | 147 | ||||
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Issuances | Retirements | |||||||
PPL Electric Senior Secured Bonds | $ | 250 | $ | (255 | ) | |||
PPL Transition Bond Company Transition Bonds | (300 | ) | ||||||
PPL Electric short-term debt (net change) | (1 | ) | ||||||
Total | $ | 250 | $ | (556 | ) | |||
Net decrease | $ | (306 | ) | |||||
Letters | ||||||||||||||||
Committed | of Credit | Available | ||||||||||||||
Capacity | Borrowed | Issued (b) | Capacity | |||||||||||||
PPL Electric Credit Facility (a) | $ | 200 | $ | 200 |
(a) | Borrowings under PPL Electric’s credit facility generally bear interest at LIBOR-based rates plus a spread, depending upon the company’s public debt rating. PPL Electric also has the capability to cause the lenders to issue up to $200 million of letters of credit under this facility, which issuances reduce available borrowing capacity. Under certain conditions, PPL Electric may request that the facility’s capacity be increased by up to $100 million. |
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(b) | PPL Electric has a reimbursement obligation to the extent any letters of credit are drawn upon. |
Actual | Projected | |||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | 2011 | 2012 | |||||||||||||||||||
Construction expenditures (a) | ||||||||||||||||||||||||
Transmission and distribution facilities | $256 | $ | 239 | $ | 281 | $ | 377 | $ | 500 | $ | 488 | |||||||||||||
Other | 30 | 25 | 24 | 27 | 21 | 23 | ||||||||||||||||||
Total Capital Expenditures | $286 | $ | 264 | $ | 305 | $ | 404 | $ | 521 | $ | 511 | |||||||||||||
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(a) | Construction expenditures include AFUDC, which is expected to be approximately $26 million for the2008-2012 period. |
Less | ||||||||||||||||||||
Than | 1-3 | 4-5 | After 5 | |||||||||||||||||
Contractual Cash Obligations | Total | 1 Year | Years | Years | Years | |||||||||||||||
Long-term Debt (a) | $ | 1,674 | $ | 395 | $ | 486 | $ | 793 | ||||||||||||
Interest on Long-term Debt (b) | 925 | 89 | 115 | $ | 84 | 637 | ||||||||||||||
Capital Lease Obligations | ||||||||||||||||||||
Operating Leases | ||||||||||||||||||||
Purchase Obligations (c) | 4,710 | 1,921 | 2,779 | 5 | 5 | |||||||||||||||
Other Long-term Liabilities Reflected on the Balance Sheets under GAAP (d) | ||||||||||||||||||||
Total Contractual Cash Obligations | $ | 7,309 | $ | 2,405 | $ | 3,380 | $ | 89 | $ | 1,435 | ||||||||||
(a) | Reflects principal maturities only. Includes $305 million of transition bonds issued by PPL Transition Bond Company in 1999 to securitize a portion of PPL Electric’s stranded costs. This debt is non-recourse to PPL Electric. | |
(b) | Assumes interest payments through maturity. The payments herein are subject to change, as payments for variable-rate debt have been estimated. | |
(c) | The payments reflected herein are subject to change, as the purchase obligation reflected is an estimate based on projected obligated quantities and projected pricing under the contract. Purchase orders made in the ordinary course of business are excluded from the amounts presented. | |
(d) | At December 31, 2007, total unrecognized tax benefits of $68 million were excluded from this table as PPL Electric cannot reasonably estimate the amount and period of future payments. See Note 2 to the Financial Statements for additional information. |
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Moody’s | S&P | Fitch (a) | ||||
PPL Electric(b) | ||||||
Senior Unsecured/Issuer Rating | Baa1 | A- | BBB | |||
First Mortgage Bonds | A3 | A- | A- | |||
Senior Secured Bonds | A3 | A- | A- | |||
Commercial Paper | P-2 | A-2 | F2 | |||
Preferred Stock | Baa3 | BBB | BBB+ | |||
Preference Stock | Baa3 | BBB | BBB | |||
Outlook | STABLE | STABLE | STABLE | |||
PPL Transition Bond Company | ||||||
Transition Bonds | Aaa | AAA | AAA |
(a) | Issuer Rating for Fitch is an “Issuer Default Rating.” | |
(b) | Excludes Pollution Control Revenue Bonds issued by the Lehigh County Industrial Development Authority on behalf of PPL Electric, which are insured and are currently rated on the basis of the relevant insurer’s ratings. |
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• | Discount Rate—The discount rate is used in calculating the present value of benefits, which are based on projections of benefit payments to be made in the future. The objective in selecting the discount rate is to measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments, would provide the necessary future cash flows to pay the accumulated benefits when due. |
• | Expected Return on Plan Assets—Management projects the future return on plan assets considering prior performance, but primarily based upon the plans’ mix of assets and expectations for the long-term returns on those asset classes. These projected returns reduce the net benefit costs PPL Electric records currently. |
• | Rate of Compensation Increase—Management projects employees’ annual pay increases, which are used to project employees’ pension benefits at retirement. |
• | Health Care Cost Trend Rate—Management projects the expected increases in the cost of health care. |
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Pension assets | $ | 12 | ||
Pension liabilities | 5 | |||
Other postretirement benefit liabilities | 91 |
Increase (Decrease) | ||||||||||||||||||||
Impact on | Impact on | Impact on | ||||||||||||||||||
Change in | Impact on | Pension | Postretirement | Regulatory | ||||||||||||||||
Actuarial Assumption | Assumption | Obligations | Assets | Liabilities | Assets | |||||||||||||||
Discount Rate | (0.25 | )% | $ | 29 | $ | (24 | ) | $ | 5 | $ | (29 | ) | ||||||||
Rate of Compensation Increase | 0.25 | % | 5 | (5 | ) | (5 | ) | |||||||||||||
Health Care Cost Trend Rate (a) | 1.0 | % | 8 | N/A | 8 | (8 | ) |
(a) | Only impacts other postretirement benefits. |
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Change in | Impact on Defined | |||||||||||||||
Actuarial Assumption | Assumption | Benefit Costs | ||||||||||||||
Discount Rate | (0.25 | )% | $ | 1 | ||||||||||||
Expected Return on Plan Assets | (0.25 | )% | 2 | |||||||||||||
Rate of Compensation Increase | 0.25 | % | 1 | |||||||||||||
Health Care Cost Trend Rate (a) | 1.0 | % | 1 |
(a) | Only impacts other postretirement benefits. |
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• | Allowances for uncollectible accounts are reduced when accounts are written off after prescribed collection procedures have been exhausted, a better estimate of the allowance is determined or underlying amounts are ultimately collected. |
• | Environmental and other litigation contingencies are reduced when the contingency is resolved and PPL Electric makes actual payments, a better estimate of the loss is determined or the loss is no longer considered probable. |
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2007 | 2006 | 2005 | ||||||||||
Operating Revenues | ||||||||||||
Retail electric | $ | 3,254 | $ | 3,102 | $ | 3,015 | ||||||
Wholesale electric to affiliate (Note 11) | 156 | 157 | 148 | |||||||||
Total | 3,410 | 3,259 | 3,163 | |||||||||
Operating Expenses | ||||||||||||
Operation | ||||||||||||
Energy purchases | 206 | 175 | 256 | |||||||||
Energy purchases from affiliate (Note 11) | 1,810 | 1,708 | 1,590 | |||||||||
Other operation and maintenance | 402 | 369 | 375 | |||||||||
Amortization of recoverable transition costs | 310 | 282 | 268 | |||||||||
Depreciation (Note 1) | 132 | 118 | 112 | |||||||||
Taxes, other than income (Note 2) | 200 | 189 | 185 | |||||||||
Total | 3,060 | 2,841 | 2,786 | |||||||||
Operating Income | 350 | 418 | 377 | |||||||||
Other Income—net (Note 12) | 31 | 31 | 21 | |||||||||
Interest Expense | 118 | 134 | 170 | |||||||||
Interest Expense with Affiliate (Note 11) | 17 | 17 | 12 | |||||||||
Income Before Income Taxes | 246 | 298 | 216 | |||||||||
Income Taxes (Note 2) | 83 | 104 | 69 | |||||||||
Net Income | 163 | 194 | 147 | |||||||||
Dividends on Preferred Securities | 18 | 14 | 2 | |||||||||
Income Available to PPL | $ | 145 | $ | 180 | $ | 145 | ||||||
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YEARS ENDED DECEMBER 31,
(Millions of Dollars)
2007 | 2006 | 2005 | ||||||||||
Cash Flows from Operating Activities | ||||||||||||
Net income | $ | 163 | $ | 194 | $ | 147 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||||
Depreciation | 132 | 118 | 112 | |||||||||
Amortizations—recoverable transition costs and other | 326 | 303 | 289 | |||||||||
Realization of benefits related to Black Lung Trust assets | (36 | ) | ||||||||||
Accrual for PJM billing dispute | (35 | ) | 47 | |||||||||
Write-off (deferral) of storm-related costs | 11 | (12 | ) | |||||||||
Other | 22 | 21 | 16 | |||||||||
Change in current assets and current liabilities | ||||||||||||
Accounts receivable | (5 | ) | 11 | (38 | ) | |||||||
Accounts payable | 29 | 22 | 11 | |||||||||
Prepayments | (13 | ) | 1 | 2 | ||||||||
Other | (87 | ) | (19 | ) | ||||||||
Other operating activities | ||||||||||||
Other assets | 19 | (1 | ) | (6 | ) | |||||||
Other liabilities | (18 | ) | (12 | ) | 12 | |||||||
Net cash provided by operating activities | 568 | 578 | 580 | |||||||||
Cash Flows from Investing Activities | ||||||||||||
Expenditures for property, plant and equipment | (286 | ) | (289 | ) | (174 | ) | ||||||
Purchases of short-term investments | (32 | ) | (143 | ) | (32 | ) | ||||||
Proceeds from the sale of short-term investments | 57 | 143 | 17 | |||||||||
Net decrease in notes receivable from affiliate | 23 | |||||||||||
Net increase in restricted cash and cash equivalents | (8 | ) | (2 | ) | (10 | ) | ||||||
Other investing activities | 7 | 4 | 6 | |||||||||
Net cash used in investing activities | (239 | ) | (287 | ) | (193 | ) | ||||||
Cash Flows from Financing Activities | ||||||||||||
Issuance of preference stock, net of issuance costs | 245 | |||||||||||
Issuance of long-term debt | 250 | 424 | ||||||||||
Retirement of long-term debt | (555 | ) | (433 | ) | (559 | ) | ||||||
Contribution from PPL | 75 | |||||||||||
Repurchase of common stock from PPL | (200 | ) | ||||||||||
Payment of common stock dividends to PPL | (119 | ) | (116 | ) | (93 | ) | ||||||
Net decrease in short-term debt | (1 | ) | ||||||||||
Other financing activities | (21 | ) | (10 | ) | (12 | ) | ||||||
Net cash used in financing activities | (446 | ) | (439 | ) | (240 | ) | ||||||
Net (Decrease) Increase in Cash and Cash Equivalents | (117 | ) | (148 | ) | 147 | |||||||
Cash and Cash Equivalents at Beginning of Period | 150 | 298 | 151 | |||||||||
Cash and Cash Equivalents at End of Period | $ | 33 | $ | 150 | $ | 298 | ||||||
Supplemental Disclosures of Cash Flow Information | ||||||||||||
Cash paid during the period for: | ||||||||||||
Interest | $ | 78 | $ | 137 | $ | 156 | ||||||
Income taxes—net | $ | 87 | $ | 122 | $ | 21 |
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PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
2007 | 2006 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 33 | $ | 150 | ||||
Restricted cash and cash equivalents (Note 14) | 42 | 43 | ||||||
Accounts receivable (less reserve: 2007, $18; 2006, $19) | ||||||||
Customer | 197 | 202 | ||||||
Other | 17 | 17 | ||||||
Unbilled revenues | 192 | 163 | ||||||
Accounts receivable from affiliates | 16 | 6 | ||||||
Note receivable from affiliate (Note 11) | 277 | 300 | ||||||
Prepayments | 16 | 3 | ||||||
Prepayment on PLR energy supply from affiliate (Note 11) | 12 | 12 | ||||||
Other | 53 | 101 | ||||||
Total Current Assets | 855 | 997 | ||||||
Property, Plant and Equipment (Note 1) | ||||||||
Electric plant in service | ||||||||
Transmission and distribution | 4,316 | 4,163 | ||||||
General | 443 | 412 | ||||||
4,759 | 4,575 | |||||||
Construction work in progress | 114 | 95 | ||||||
Electric plant | 4,873 | 4,670 | ||||||
Other property | 2 | 3 | ||||||
4,875 | 4,673 | |||||||
Less: accumulated depreciation | 1,854 | 1,793 | ||||||
Total Property, Plant and Equipment | 3,021 | 2,880 | ||||||
Regulatory and Other Noncurrent Assets (Note 1) | ||||||||
Recoverable transition costs | 574 | 884 | ||||||
Intangibles (Note 15) | 121 | 118 | ||||||
Prepayment on PLR energy supply from affiliate (Note 11) | 12 | 23 | ||||||
Taxes recoverable through future rates | 245 | 256 | ||||||
Other | 158 | 157 | ||||||
Total Regulatory and Other Noncurrent Assets | 1,110 | 1,438 | ||||||
Total Assets | $ | 4,986 | $ | 5,315 | ||||
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PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
2007 | 2006 | |||||||
Liabilities and Equity | ||||||||
Current Liabilities | ||||||||
Short-term debt (Note 5) | $ | 41 | $ | 42 | ||||
Long-term debt | 395 | 555 | ||||||
Accounts payable | 59 | 53 | ||||||
Accounts payable to affiliates | 192 | 164 | ||||||
Taxes | 44 | 58 | ||||||
Collateral on PLR energy supply from affiliate (Note 11) | 300 | 300 | ||||||
Other | 107 | 141 | ||||||
Total Current Liabilities | 1,138 | 1,313 | ||||||
Long-term Debt | 1,279 | 1,423 | ||||||
Deferred Credits and Other Noncurrent Liabilities | ||||||||
Deferred income taxes and investment tax credits (Note 2) | 763 | 814 | ||||||
Other | 220 | 206 | ||||||
Total Deferred Credits and Other Noncurrent Liabilities | 983 | 1,020 | ||||||
Commitments and Contingent Liabilities (Note 10) | ||||||||
Shareowners’ Equity | ||||||||
Preferred securities (Note 4) | 301 | 301 | ||||||
Common stock—no par value (a) | 364 | 364 | ||||||
Additional paid-in capital | 424 | 424 | ||||||
Earnings reinvested | 497 | 470 | ||||||
Total Shareowners’ Equity | 1,586 | 1,559 | ||||||
Total Liabilities and Equity | $ | 4,986 | $ | 5,315 | ||||
(a) | 170 million shares authorized; 66 million shares outstanding at December 31, 2007 and 2006. |
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FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars, except share amounts)
2007 | 2006 | 2005 | ||||||||||
Preferred securities at beginning of year | $ | 301 | $ | 51 | $ | 51 | ||||||
Issuance of preference stock (Note 4) | 250 | |||||||||||
Preferred securities at end of year | 301 | 301 | 51 | |||||||||
Common stock at beginning of year | 364 | 1,476 | 1,476 | |||||||||
Retirement of treasury stock (Note 1) | (1,112 | ) | ||||||||||
Common stock at end of year | 364 | 364 | 1,476 | |||||||||
Additional paid-in capital at beginning of year | 424 | 354 | 354 | |||||||||
Capital contribution from PPL | 75 | |||||||||||
Capital stock expense | (5 | ) | ||||||||||
Additional paid-in capital at end of year | 424 | 424 | 354 | |||||||||
Treasury stock at beginning of year | (912 | ) | (912 | ) | ||||||||
Treasury stock purchased | (200 | ) | ||||||||||
Retirement of treasury stock (Note 1) | 1,112 | |||||||||||
Treasury stock at end of year | (912 | ) | ||||||||||
Earnings reinvested at beginning of year | 470 | 406 | 354 | |||||||||
Net income (a) | 163 | 194 | 147 | |||||||||
Adjustments to initially adopt FIN 48 (Note 2) | 1 | |||||||||||
Cash dividends declared on preferred securities | (18 | ) | (14 | ) | (2 | ) | ||||||
Cash dividends declared on common stock | (119 | ) | (116 | ) | (93 | ) | ||||||
Earnings reinvested at end of year | 497 | 470 | 406 | |||||||||
Total Shareowners’ Equity | $ | 1,586 | $ | 1,559 | $ | 1,375 | ||||||
Common stock shares outstanding at beginning of year (b) | 66,368 | 78,030 | 78,030 | |||||||||
Treasury stock shares purchased | (11,662 | ) | ||||||||||
Common stock shares outstanding at end of year | 66,368 | 66,368 | 78,030 | |||||||||
(a) | PPL Electric’s net income approximates comprehensive income. | |
(b) | Shares in thousands. All common shares of PPL Electric stock are owned by PPL. |
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PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
Outstanding | ||||||||||||
2007 | 2006 | Maturity(a) | ||||||||||
First Mortgage Bonds(b) | ||||||||||||
7.375% | $ | 10 | $ | 10 | March 1, 2014 | |||||||
10 | 10 | |||||||||||
Senior Secured Bonds(b) | ||||||||||||
57/8% | 255 | August 15, 2007 | ||||||||||
61/4% | 486 | 486 | August 15, 2009 | |||||||||
4.30% | 100 | 100 | June 1, 2013 | |||||||||
4.95% | 100 | 100 | December 15, 2015 | |||||||||
5.15% | 100 | 100 | December 15, 2020 | |||||||||
6.45% | 250 | August 15, 2037 | ||||||||||
1,036 | 1,041 | |||||||||||
Senior Secured Bonds (Pollution Control Series)(c) | ||||||||||||
3.125% Series | 90 | 90 | November 1, 2008 | |||||||||
4.75% Series (d) | 108 | 108 | February 15, 2027 | |||||||||
4.70% Series (e) | 116 | 116 | September 1, 2029 | |||||||||
314 | 314 | |||||||||||
Series 1999-1 Transition Bonds | ||||||||||||
7.05%—7.15% | 305 | 605 | 2007-2008 | |||||||||
Floating Rate Pollution Control Facilities Note (f) | 9 | 9 | June 1, 2027 | |||||||||
1,674 | 1,979 | |||||||||||
Unamortized discount | (1 | ) | ||||||||||
1,674 | 1,978 | |||||||||||
Less amount due within one year | (395 | ) | (555 | ) | ||||||||
Total Long-term Debt | $ | 1,279 | $ | 1,423 | ||||||||
(a) | Aggregate maturities of long-term debt are (millions of dollars): 2008, $395; 2009, $486; 2010, 2011 and 2012, $0; and $793 thereafter. There are no bonds outstanding that have sinking fund requirements. | |
(b) | The First Mortgage Bonds were issued under, and are secured by, the lien of the 1945 First Mortgage Bond Indenture. The lien of the 1945 First Mortgage Bond Indenture covers substantially all electric distribution plant and certain transmission plant owned by PPL Electric. The Senior Secured Bonds were issued under the 2001 Senior Secured Bond Indenture. The Senior Secured Bonds are secured by (i) an equal principal amount of First Mortgage Bonds issued under the 1945 First Mortgage Bond Indenture and (ii) the lien of the 2001 Senior Secured Bond Indenture, which covers substantially all electric distribution plant and certain transmission plant owned by PPL Electric and which is junior to the lien of the 1945 First Mortgage Bond Indenture. | |
(c) | PPL Electric issued a series of its Senior Secured Bonds to secure its obligations to make payments with respect to each series of Pollution Control Bonds that were issued by the Lehigh County Industrial Development Authority (LCIDA) on behalf of PPL Electric. These Senior Secured Bonds were issued in the same principal amount and bear the same interest rate as such Pollution Control Bonds. These Senior Secured Bonds were issued under the 2001 Senior Secured Bond Indenture and are secured as noted in (b) above. | |
(d) | May be redeemed at par on or after February 15, 2015. | |
(e) | May be redeemed at par on or after March 1, 2015. | |
(f) | Rate was 4.923% at December 31, 2007, and 3.97% at December 31, 2006. |
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1. | Summary of Significant Accounting Policies |
2007 | 2006 | |||||||
Recoverable transition costs (a) | $ | 574 | $ | 884 | ||||
Taxes recoverable through future rates | 245 | 256 | ||||||
Recoverable costs of defined benefit plans | 61 | |||||||
Costs associated with severe ice storms—January 2005 | 12 | 12 | ||||||
Other | 6 | 3 | ||||||
$ | 837 | $ | 1,216 | |||||
(a) | Earn a current return. |
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2007 | 2006 | |||||||
Transition obligation | $ | 14 | $ | 16 | ||||
Prior service cost | 82 | 87 | ||||||
Net actuarial gain | (96 | ) | (42 | ) | ||||
Recoverable costs of defined benefit plans | $ | $ | 61 | |||||
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2007 | 2006 | |||||||
Transmission and distribution | 2.29 | % | 2.29 | % | ||||
General | 5.19 | % | 3.35 | % |
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2. | Income and Other Taxes |
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2007 | 2006 | |||||||
Deferred Tax Assets | ||||||||
Deferred investment tax credits | $ | 5 | $ | 6 | ||||
Accrued pension costs | 40 | 56 | ||||||
Contributions in aid of construction | 88 | 80 | ||||||
Other | 47 | 41 | ||||||
180 | 183 | |||||||
Deferred Tax Liabilities | ||||||||
Electric utility plant—net | 646 | 648 | ||||||
Recoverable transition costs | 146 | 145 | ||||||
Taxes recoverable through future rates | 102 | 106 | ||||||
Reacquired debt costs | 12 | 14 | ||||||
Other | 21 | 36 | ||||||
927 | 949 | |||||||
Net deferred tax liability | $ | 747 | $ | 766 | ||||
2007 | 2006 | 2005 | ||||||||||
Income Tax Expense | ||||||||||||
Current—Federal | $ | 72 | $ | 85 | $ | 66 | ||||||
Current—State | (7 | ) | 1 | (5 | ) | |||||||
65 | 86 | 61 | ||||||||||
Deferred—Federal | 24 | 19 | 12 | |||||||||
Deferred—State | (4 | ) | 1 | (1 | ) | |||||||
20 | 20 | 11 | ||||||||||
Investment tax credit, net—Federal | (2 | ) | (2 | ) | (3 | ) | ||||||
Total | $ | 83 | $ | 104 | $ | 69 | ||||||
Total income tax expense—Federal | $ | 94 | $ | 102 | $ | 75 | ||||||
Total income tax expense—State | (11 | ) | 2 | (6 | ) | |||||||
Total | $ | 83 | $ | 104 | $ | 69 | ||||||
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2007 | 2006 | 2005 | ||||||||||
Reconciliation of Income Tax Expense | ||||||||||||
Federal income tax on Income Before Income Taxes at statutory tax rate—35% | $ | 86 | $ | 104 | $ | 76 | ||||||
Increase (decrease) due to: | ||||||||||||
State income taxes (a)(b)(c) | 2 | 12 | 4 | |||||||||
Stranded costs securitization (a)(b)(c) | (7 | ) | (7 | ) | (7 | ) | ||||||
Amortization of investment tax credit | (2 | ) | (2 | ) | (2 | ) | ||||||
Other (a)(b)(c) | 4 | (3 | ) | (2 | ) | |||||||
(3 | ) | (7 | ) | |||||||||
Total income tax expense | $ | 83 | $ | 104 | $ | 69 | ||||||
Effective income tax rate | 33.7 | % | 34.9 | % | 31.9 | % |
(a) | During 2007, PPL Electric recorded a $1 million benefit in state and federal income tax expense from filing the 2006 income tax returns, which consisted of a $4 million state benefit reflected in “State income taxes,” offset by a $3 million federal expense reflected in “Other.” | |
During 2007, PPL Electric recorded a $4 million benefit related to federal and state income tax reserves, which consisted of a $7 million benefit reflected in “Stranded costs securitization,” offset by a $1 million state expense reflected in “State income taxes” and a $2 million federal expense reflected in “Other.” | ||
(b) | During 2006, PPL Electric recorded $4 million in state and federal income tax expense from filing the 2005 income tax returns, which consisted of a $1 million federal expense reflected in “Other” and a $3 million state expense reflected in “State income taxes.” | |
During 2006, PPL Electric recorded a $9 million benefit related to federal and state income tax reserves, which consisted of a $7 million benefit reflected in “Stranded costs securitization” and a $2 million federal benefit reflected in “Other.” | ||
(c) | During 2005, PPL Electric recorded a $10 million benefit related to federal and state income tax reserves, which consisted of a $7 million benefit reflected in “Stranded costs securitization,” a $2 million state benefit reflected in “State income taxes” and a $1 million federal benefit reflected in “Other.” |
2007 | 2006 | 2005 | ||||||||||
Taxes, other than income | ||||||||||||
State gross receipts | $ | 193 | $ | 181 | $ | 174 | ||||||
State utility realty | 5 | 4 | 6 | |||||||||
State capital stock | 3 | 4 | 5 | |||||||||
Property and other | (1 | ) | ||||||||||
$ | 200 | $ | 189 | $ | 185 | |||||||
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Current Liabilities—Taxes | $ | (21 | ) | |
Deferred Credits and Other Noncurrent Liabilities—Deferred income taxes and investment tax credits | 2 | |||
Regulatory and Other Noncurrent Assets—Other | (5 | ) | ||
Deferred Credits and Other Noncurrent Liabilities—Other | 13 | |||
Equity—Earnings reinvested (cumulative effect) (a) | 1 |
(a) | Recorded as an adjustment to the opening balances. |
Balance at January 1, 2007 | $ | 78 | ||
Additions for tax positions of prior years | (1 | ) | ||
Lapse of applicable statutes of limitations | (9 | ) | ||
Balance at December 31, 2007 | $ | 68 | ||
Total unrecognized tax benefits | $ | 68 | ||
Unrecognized tax benefits associated with taxable or deductible temporary differences | (10 | ) | ||
Total indirect effect of unrecognized tax benefits on other tax jurisdictions | (29 | ) | ||
Total unrecognized tax benefits and related indirect effects that if recognized would decrease the effective tax rate | $ | 29 | ||
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3. | Financial Instruments |
December 31, | December 31, | |||||||||||||||
2007 | 2006 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Long-term debt | $ | 1,674 | $ | 1,717 | $ | 1,978 | $ | 2,023 |
4. | Preferred Securities |
Optional | ||||||||||||||||
Issued and | Redemption | |||||||||||||||
Outstanding | Shares | Price per Share | ||||||||||||||
Amount | Shares | Authorized | at 12/31/07 | |||||||||||||
41/2% Preferred Stock (a) | $ | 25 | 247,524 | 629,936 | $ | 110.00 | ||||||||||
Series Preferred Stock (a) | ||||||||||||||||
3.35% | 2 | 20,605 | 103.50 | |||||||||||||
4.40% | 12 | 117,676 | 102.00 | |||||||||||||
4.60% | 3 | 28,614 | 103.00 | |||||||||||||
6.75% | 9 | 90,770 | 102.03 | |||||||||||||
Total Series Preferred Stock | 26 | 257,665 | 10,000,000 | |||||||||||||
6.25% Series Preference Stock (b) | 250 | 2,500,000 | 10,000,000 | (c | ) | |||||||||||
Total Preferred Securities | $ | 301 | 3,005,189 | |||||||||||||
(a) | During 2007, 2006 and 2005, there were no changes in the number of shares of Preferred Stock outstanding. | |
(b) | During 2006, 2.5 million shares were issued for $250 million in connection with the sale of 10 million depositary shares, each representing a quarter interest in a share of PPL Electric’s 6.25% Series Preference Stock. | |
(c) | Redeemable on or after April 6, 2011 for $100 per share (equivalent to $25 per depositary share). |
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5. | Credit Arrangements and Financing Activities |
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• | obtained long-term electric supply contracts to meet its PLR obligations (with its affiliate PPL EnergyPlus) through 2009, as further described in Note 11 under “PLR Contracts”; |
• | agreed to limit its businesses to electric transmission and distribution and related activities; |
• | adopted amendments to its Articles of Incorporation and Bylaws containing corporate governance and operating provisions designed to clarify and reinforce its legal and corporate separateness from PPL and its other affiliated companies; |
• | appointed an independent director to its Board of Directors and required the unanimous approval of the Board of Directors, including the consent of the independent director, to amendments to these corporate governance and operating provisions or to the commencement of any insolvency proceedings, including any filing of a voluntary petition in bankruptcy or other similar actions; and |
• | appointed an independent compliance administrator to review, on a semi-annual basis, its compliance with the corporate governance and operating requirements contained in its Articles of Incorporation and Bylaws. |
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6. | Development |
7. | Leases |
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8. | Stock-Based Compensation |
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Weighted- | ||||||||
Average | ||||||||
Restricted | Grant Date | |||||||
Shares/Units | Fair Value | |||||||
Nonvested at January 1, 2007 | 147,530 | $ | 28.12 | |||||
Granted | 51,430 | 37.95 | ||||||
Vested | (83,770 | ) | 26.96 | |||||
Forfeited | (2,600 | ) | 29.10 | |||||
Nonvested at December 31, 2007 | 112,590 | 33.45 |
Weighted-Average | Aggregate | |||||||||||||||
Number of | Weighted-Average | Remaining | Total Intrinsic | |||||||||||||
Options | Exercise Price | Contractual Term | Value | |||||||||||||
Outstanding at January 1, 2007 | 359,036 | $ | 24.53 | |||||||||||||
Granted | 56,410 | 35.12 | ||||||||||||||
Exercised | (174,946 | ) | 21.92 | |||||||||||||
Forfeited | (57,470 | ) | 30.14 | |||||||||||||
Outstanding at December 31, 2007 | 183,030 | 28.52 | 7.5 years | $ | 4 | |||||||||||
Options exercisable at December 31, 2007 | 102,060 | 24.77 | 6.6 years | 3 | ||||||||||||
Weighted-average fair value of options granted | $ | 7.08 |
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2007 | 2006 | 2005 | ||||||||||
Risk-free interest rate | 4.85% | 4.06% | 4.09% | |||||||||
Expected option life | 6.00 yrs. | 6.25 yrs. | 7.00 yrs. | |||||||||
Expected stock volatility | 21.61% | 19.86% | 18.09% | |||||||||
Dividend yield | 3.31% | 3.76% | 3.88% |
2007 | 2006 | 2005 (b) | ||||||||||
Compensation costs (a) | $ | 5 | $ | 4 | $ | 7 |
(a) | Income tax benefits of $2 million, $2 million and $3 million. | |
(b) | Compensation costs for 2005 included an adjustment to record accelerated recognition of expense for employees at or near retirement age. See Note 1 for additional information. |
9. | Retirement and Postemployment Benefits |
2007 | 2006 | 2005 | ||||||||||
Pension benefits (a) | $ | 7 | $ | 6 | $ | 4 | ||||||
Other postretirement benefits (a) | 10 | 9 | 7 |
(a) | PPL Electric does not directly sponsor any defined benefit plans. PPL Electric is allocated a portion of the costs of defined benefit plans sponsored by PPL Services, based on its participation in those plans. |
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10. | Commitments and Contingencies |
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• | The Public Utility Holding Company Act of 1935 was repealed. PUHCA significantly restricted mergers and acquisitions in the electric utility sector. |
• | The FERC has appointed the NERC as the organization to establish and enforce mandatory reliability standards (Reliability Standards) regarding the bulk power system, and the FERC will oversee this process and independently enforce the Reliability Standards, as further described below. |
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• | The FERC will establish incentives for transmission companies, such as performance-based rates, recovery of the costs to comply with reliability rules and accelerated depreciation for investments in transmission infrastructure. |
• | The Price-Anderson Amendments Act of 1988, which provides the framework for nuclear liability protection, was extended to 2025. |
• | Federal support will be available for certain clean coal power initiatives, nuclear power projects and renewable energy technologies. |
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• | In connection with its issuances of securities, PPL Electric engages underwriters, purchasers and purchasing agents to whom it provides indemnification for damages incurred by such parties arising from PPL Electric’s material misstatements or omissions in the related offering documents. In |
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addition, in connection with these securities offerings and other financing transactions, PPL Electric also engages trustees or custodial, escrow or other agents to act for the benefit of investors or to provide other agency services. PPL Electric typically provides indemnification to these agents for liabilities or expenses incurred by them in performing their obligations. |
• | In connection with certain of its credit arrangements, PPL Electric provides the creditors or credit arrangers with indemnification that is standard for each particular type of transaction. For instance, under the credit agreement for the asset-backed commercial paper program, PPL Electric and its special purpose subsidiary have agreed to indemnify the commercial paper conduit, the sponsoring financial institution and the liquidity banks for damages incurred by such parties arising from, among other things, a breach by PPL Electric or the subsidiary of their various representations, warranties and covenants in the credit agreement, PPL Electric’s activities as servicer with respect to the pledged accounts receivable and any dispute by PPL Electric’s customers with respect to payment of the accounts receivable. |
• | As a participant in the PJM, PPL Electric has exposure to other participants’ failure to pay under the indemnification provision of PPL Electric’s agreement with PJM, which allocates the loss to other participants. |
11. | Related Party Transactions |
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2007 | 2006 | 2005 | ||||||||||
Direct/Allocated Costs | $ | 112 | $ | 130 | $ | 121 |
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12. | Other Income—Net |
2007 | 2006 | 2005 | ||||||||||
Other Income | ||||||||||||
Affiliated interest income (Note 11) | $ | 19 | $ | 20 | $ | 14 | ||||||
Interest income | 9 | 12 | 7 | |||||||||
Gain on sale of real estate | 4 | |||||||||||
Miscellaneous | 1 | 1 | 2 | |||||||||
Total | 33 | 33 | 23 | |||||||||
Other Deductions | 2 | 2 | 2 | |||||||||
Other Income—net | $ | 31 | $ | 31 | $ | 21 | ||||||
13. | Credit Concentration |
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14. | Restricted Cash and Cash Equivalents |
December 31, | ||||||||
2007 | 2006 | |||||||
Current: | ||||||||
Collateral for letters of credit (a) | $ | 41 | $ | 42 | ||||
Miscellaneous | 1 | 1 | ||||||
Total current | 42 | 43 | ||||||
Noncurrent: | ||||||||
PPL Transition Bond Company Indenture reserves (b) | 42 | 33 | ||||||
$ | 84 | $ | 76 | |||||
(a) | A deposit with a financial institution of funds from the asset-backed commercial paper program to fully collateralize $41 million and $42 million of letters of credit at December 31, 2007 and 2006. See Note 5 for further discussion on the asset-backed commercial paper program. | |
(b) | Credit enhancement for PPL Transition Bond Company’s $2.4 billionSeries 1999-1 Bonds to protect against losses or delays in scheduled payments. |
15. | Intangible Assets |
December 31, 2007 | December 31, 2006 | |||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Subject to amortization | $ | 192 | $ | 86 | $ | 185 | $ | 84 | ||||||||
Not subject to amortization due to indefinite life | 15 | 17 | ||||||||||||||
$ | 207 | $ | 86 | $ | 202 | $ | 84 | |||||||||
16. | Asset Retirement Obligations |
17. | New Accounting Standards |
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• | recognize with certain exceptions, 100% of the fair values of assets acquired, liabilities assumed, and noncontrolling interests in acquisitions of less than a 100% controlling interest when the acquisition constitutes a change in control of the acquired entity; |
• | measure acquirer shares issued in consideration for a business combination at fair value on the acquisition date; |
• | recognize contingent consideration arrangements at the acquisition-date fair values, with subsequent changes in fair value generally reflected through earnings; |
• | recognize pre-acquisition loss and gain contingencies at their acquisition-date fair values, with certain exceptions; |
• | capitalize in-process research and development assets acquired; |
• | expense, as incurred, acquisition-related transaction costs; |
• | capitalize acquisition-related restructuring costs only if the criteria in SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities,” are met as of the acquisition date; |
• | recognize changes that result from a business combination transaction in an acquirer’s existing income tax valuation allowances and tax uncertainty accruals as adjustments to income tax expense; |
• | recognize changes in unrecognized tax benefits acquired in a business combination, including business combinations that have occurred prior to January 1, 2009, in income tax expense rather than in goodwill; and |
• | provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. |
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• | The ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity. |
• | The amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income. |
• | Changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. A parent’s ownership interest in a subsidiary changes if the parent purchases additional ownership interests in its subsidiary or if the parent sells some of its ownership interests in its subsidiary. It also changes if the subsidiary reacquires some of its ownership interests or the subsidiary issues additional ownership interests. All of those transactions are economically similar, and SFAS 160 requires that they be accounted for similarly, as equity transactions. |
• | When a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. The gain or loss on the deconsolidation of the |
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subsidiary is measured using the fair value of any noncontrolling equity investment rather than the carrying amount of that retained investment. |
• | Entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. |
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PPL Electric Utilities Corporation (a)
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
Income Items- millions | ||||||||||||||||||||
Operating revenues | $ | 3,410 | $ | 3,259 | $ | 3,163 | $ | 2,847 | $ | 2,788 | ||||||||||
Operating income | 350 | 418 | 377 | 259 | 251 | |||||||||||||||
Net income | 163 | 194 | 147 | 76 | 28 | |||||||||||||||
Income available to PPL | 145 | 180 | 145 | 74 | 25 | |||||||||||||||
Balance Sheet Items- millions (b) | ||||||||||||||||||||
Property, plant and equipment—net | 3,021 | 2,880 | 2,716 | 2,657 | 2,589 | |||||||||||||||
Recoverable transition costs | 574 | 884 | 1,165 | 1,431 | 1,687 | |||||||||||||||
Total assets | 4,986 | 5,315 | 5,537 | 5,526 | 5,469 | |||||||||||||||
Long-term debt | 1,674 | 1,978 | 2,411 | 2,544 | 2,937 | |||||||||||||||
Shareowners’ equity | 1,586 | 1,559 | 1,375 | 1,323 | 1,273 | |||||||||||||||
Short-term debt | 41 | 42 | 42 | 42 | ||||||||||||||||
Total capital provided by investors | 3,301 | 3,579 | 3,828 | 3,909 | 4,210 | |||||||||||||||
Financial Ratios | ||||||||||||||||||||
Return on average common equity—% | 11.35 | 14.33 | 11.20 | 5.95 | 2.08 | |||||||||||||||
Embedded cost rates (b) | ||||||||||||||||||||
Long-term debt—% | 6.01 | 6.46 | 6.56 | 6.86 | 6.61 | |||||||||||||||
Preferred securities—% | 6.18 | 6.18 | 5.14 | 5.14 | 5.14 | |||||||||||||||
Times interest earned before income taxes | 2.77 | 2.96 | 2.19 | 1.45 | 1.22 | |||||||||||||||
Ratio of earnings to fixed charges (c) | 2.7 | 2.9 | 2.1 | 1.4 | 1.2 | |||||||||||||||
Ratio of earnings to combined fixed | ||||||||||||||||||||
charges and preferred stock dividends (d) | 2.3 | 2.5 | 2.1 | 1.4 | 1.2 | |||||||||||||||
Sales Data | ||||||||||||||||||||
Customers (thousands) (b) | 1,387 | 1,377 | 1,365 | 1,351 | 1,330 | |||||||||||||||
Electric energy delivered—millions of kWh | ||||||||||||||||||||
Residential | 14,411 | 13,714 | 14,218 | 13,441 | 13,266 | |||||||||||||||
Commercial | 13,801 | 13,174 | 13,196 | 12,610 | 12,388 | |||||||||||||||
Industrial | 9,547 | 9,638 | 9,777 | 9,620 | 9,599 | |||||||||||||||
Other | 191 | 157 | 167 | 163 | 154 | |||||||||||||||
Retail electric sales | 37,950 | 36,683 | 37,358 | 35,834 | 35,407 | |||||||||||||||
Wholesale electric sales (e) | 72 | 676 | ||||||||||||||||||
Total electric energy delivered | 37,950 | 36,683 | 37,358 | 35,906 | 36,083 | |||||||||||||||
Electric energy supplied as a PLR—millions of kWh | 37,919 | 36,577 | 36,917 | 34,841 | 33,627 |
(a) | The earnings for each year other than 2004 were affected by several special items that management considers significant. See “Earnings” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for a description of special items in 2007, 2006 and 2005. | |
(b) | As of each respective year-end. | |
(c) | Computed using earnings and fixed charges of PPL Electric and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges and the estimated interest component of other rentals. | |
(d) | Computed using earnings and fixed charges of PPL Electric and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges; the estimated interest component of other rentals and preferred dividends. | |
(e) | The contracts for wholesale sales to municipalities expired in January 2004. |
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PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
For the Quarters Ended (a) | ||||||||||||||||
March 31 | June 30 | Sept. 30 | Dec. 31 | |||||||||||||
2007 | ||||||||||||||||
Operating revenues | $ | 902 | $ | 798 | $ | 855 | $ | 855 | ||||||||
Operating income | 111 | 78 | 82 | 79 | ||||||||||||
Net income | 57 | 34 | 40 | 32 | ||||||||||||
Income available to PPL | 52 | 30 | 35 | 28 | ||||||||||||
2006 | ||||||||||||||||
Operating revenues | $ | 852 | $ | 759 | $ | 841 | $ | 807 | ||||||||
Operating income | 114 | 83 | 109 | 112 | ||||||||||||
Net income | 52 | 34 | 55 | 53 | ||||||||||||
Income available to PPL | 51 | 30 | 50 | 49 |
(a) | PPL Electric’s business is seasonal in nature, with peak sales periods generally occurring in the winter and summer months. In addition, earnings in 2007 and 2006 were affected by special items. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations. |
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Name | Age | Positions Held During the Past Five Years | Dates | |||
David G. DeCampli (a) | 50 | President | April 2007—present | |||
Senior Vice President-Transmission and Distribution Engineering and Operations | December 2006—April 2007 | |||||
Vice President-Asset Investment Strategy and Development-Exelon Energy Delivery-Exelon Corp. | April 2004—December 2006 | |||||
Vice President and Chief Integration Officer-Exelon Energy Delivery-Exelon Corp. | June 2003—March 2004 | |||||
Vice President Distribution Operations- Exelon Energy Delivery-Exelon Corp. | April 2002—June 2003 | |||||
James E. Abel | 56 | Treasurer | July 2000—present | |||
J. Matt Simmons, Jr. | 42 | Vice President and Controller | January 2006—present | |||
Vice President-Finance and Controller-Duke Energy Americas | October 2003—January 2006 | |||||
Chief Risk and Chief Accounting Officer-Reliant Energy Europe | February 2000—October 2003 |
(a) | On March 31, 2007, William H. Spence resigned as President of PPL Electric. Mr. DeCampli was elected as President of PPL Electric as of April 1, 2007. |
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Bond Interest Checks
Direct Deposit of Dividends
Bondholder Information
Two North Ninth Street (GENTW8)
Allentown, PA 18101
FAX:610-774-5106
Viae-mail: invserv@pplweb.com
Stock Transfers
Lost Stock Certificates
Certificate Safekeeping
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Shareowner Servicessm
161 North Concord Exchange
South St. Paul, MN55075-1139
Listed Securities: New York Stock Exchange PPL Corporation: Common Stock (Code: PPL) PPL Electric Utilities Corporation: 41/2% Preferred Stock (Code: PPLPRB) 4.40% Series Preferred Stock (Code: PPLPRA) Philadelphia Stock Exchange PPL Corporation: Common Stock (Code: PPL) | Fiscal Agents: Stock Transfer Agent and Registrar; Dividend Reinvestment Plan Agent Wells Fargo Bank, N.A. Shareowner Servicessm 161 North Concord Exchange South St. Paul, MN55075-1139 Toll Free: 1-866-280-0245 Outside U.S.:651-453-2129 Dividend Disbursing Office PPL Investor Services Two North Ninth Street (GENTW8) Allentown, PA 18101 Toll Free:1-800-345-3085 FAX:610-774-5106 Mortgage Bond Trustee and Transfer Agent Deutsche Bank Trust Company Americas Attn: Security Transfer Unit 648 Grassmere Park Road Nashville, TN 37211 Toll Free:1-800-735-7777 FAX:615-835-2727 Bond Interest Paying Agent PPL Investor Services Two North Ninth Street (GENTW8) Allentown, PA 18101 Toll Free:1-800-345-3085 FAX:610-774-5106 Indenture Trustee The Bank of New York Mellon 101 Barclay Street New York, NY 10286 |
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