Exhibit 99.2
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Fourth Quarter Earnings Call January 31, 2008
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Cautionary Statements And Factors That May Affect Future Results Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the Appendix to this presentation and in the Company’s SEC filings. 1
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Agenda • 2007 Earnings and Review of 2010 Earnings Forecast and Outlook • Fourth Quarter and Year-End Segment Results and Financial Overview • Operational Review • Q&A J. H. Miller P. A. Farr W. H. Spence 2
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Strong Fourth Quarter Results Earnings from Ongoing Operations Per share $0.46 $0.60 $0.00 $0.50 $1.00 4Q 2006 4Q 2007 3 Note: See Appendix for the reconciliation of reported earnings and earnings from ongoing operations. Per share $0.46 $1.17 $0.00 $0.50 $1.00 $1.50 4Q 2006 4Q 2007 Reported Earnings
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Outstanding 2007 Results Earnings from Ongoing Operations Per share $2.25 $2.60 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 2006 2007 4 Note: See Appendix for the reconciliation of reported earnings and earnings from ongoing operations. Per share $2.24 $3.40 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 2006 2007 Reported Earnings
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$2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 2007A* 2008 2010 Strong Long-Term Earnings Growth Forecast 5 *Earnings from ongoing operations – See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. $2.60 $2.35 $2.45 $4.00 $4.60 Per Share
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Ongoing Earnings Overview $0.14$0.46$0.60Total 0.090.130.22International Delivery 0.020.070.09Pennsylvania Delivery $ 0.03$0.26$0.29Supply Change Q4 2006 Q4 2007 6 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. $0.35$2.25$2.60Total 0.090.690.78International Delivery 0.020.380.40Pennsylvania Delivery $ 0.24$1.18$1.42Supply Change20062007
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Supply Segment Earnings Drivers (0.05)O&M 0.06Synfuel 0.01Income taxes and other $1.422007 EPS – Ongoing Earnings 0.24Total 0.02Margins – West $0.20Margins – East $1.182006 EPS – Ongoing Earnings 2007 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. 7
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Pennsylvania Delivery Segment Earnings Drivers 0.02Discontinued Operations $0.402007 EPS – Ongoing Earnings 0.02Total (0.03)Income Taxes & Other (0.01)O&M $0.04Delivery Margins $0.382006 EPS – Ongoing Earnings 2007 8 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations.
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International Delivery Segment Earnings Drivers 0.02Depreciation (0.01)Latin American Operations 0.06Foreign currency translation $0.782007 EPS – Ongoing Earnings 0.09Total 0.03Income Taxes & Other (0.04)O&M 0.03Delivery Margins $0.692006 EPS – Ongoing Earnings 2007 9 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations.
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2007 Ongoing Earnings Contributions 10 Note: See Appendix for the reconciliation of reported earnings and earnings from ongoing operations. $2.00 $2.25 $2.50 $2.75 $3.00 2006A 2007A $2.25 Energy Margins $0.22 U.K. Liquidations ($0.07) O&M ($0.10) Int’l Tax Benefit $0.08 $2.60 Foreign Currency Translation $0.06 PA Delivery Margins $0.04 Income Taxes & Other $0.03 Int’l Delivery Margins $0.03Synfuel Earnings $0.06 Per Share
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$2.00 $2.25 $2.50 $2.75 2006A* 2007A* 2008E 2008 Earnings Forecast 11 *Earnings from ongoing operations – See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. $2.25 $2.60 $2.35 $2.45 Per Share
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Expected 2008 Earnings Contributions 12 * Earnings from ongoing operations – See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. **Midpoint of forecast $2.00 $2.25 $2.50 $2.75 2007A* $2.60 Energy Margins $0.06 Net Impact of Asset Divestiture ($0.08) O&M $0.06 International Tax Benefit ($0.08) $2.40** Depreciation ($0.05) PA Delivery Margins $0.02 Synfuels ($0.14) Other $0.01 Per Share 2008E
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Expected 2010 Earnings Contributions 13 *Midpoint of forecast $2.00 $3.00 $4.00 $5.00 2008E 2010E $2.40* Increased Energy Margins $2.28 $4.30* Increased O&M $(0.15) Increased Interest $(0.10) Increased Depreciation $(0.07) Other $(0.06) Per Share
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Cash Flow Forecast Millions ($200) $0 $200 $400 $600 $800 $1,000 2006A 2007A 2008E 2009E 2010E Free cash flow before dividends 14 Note: See Appendix for the reconciliation of cash flow measures.
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Operational Update • PUC approved distribution rate increase effective January 1, 2008 • Bids for third PPL Electric Utilities solicitation for 2010 POLR supply due March 24, 2008; PUC approval expected March 27, 2008 • Scrubbers expected to be completed on schedule and on budget 15
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Operational Update (cont.) • Generation uprates continue to progress • Selected UniStar Nuclear Energy to prepare COLA application based on AREVA reactor design • 2010/2011 RPM auction results due February 1, 2008 • Asset expansion plan 16
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Scrubbers Expected to be Completed on Budget and on Schedule 17 Q2-09Brunner Island 1 & 2 Q4-08Brunner Island 3 Q2-08Montour 1 Q1-08Montour 2 Scheduled In-Service Dates December, 2006 December, 2007 Montour Scrubber Construction
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Growing Constrained Region in PJM Increases Value of PPL Generation Source: PJM web site. 18
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Expected Changes in Margins -2007 to 2008 *Includes power price and spark spread changes as well as value from portfolio management. 1700 1800 1900 2000 2007A 2008E $/Million $1,824 $1,866 Improved Power Value* $95 Higher Nuclear Generation $26 Higher Coal Generation $18 Higher Hydro Generation $9 Higher Fuel Costs ($74) Loss of MC 1&2 Energy Value ($32) 19
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Key Driver of Fleet Value: Open EBITDA 20 2010E Generation Output -millions of MWh 56.2 Unhedged Gross Margin -millions * 3,712 $ O&M -millions (814) $ Open EBITDA -millions 2,898$ Market value of Hedges -millions * (254) $ * Based on forward market prices as of December 31, 2007
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2010 Margin Sensitivities • PJM electricity price change of $1/MWh = ±$19M (Based on average ATC price of $64/MWh) • PJM capacity price change of $1/MWD = ±$1.7M (Based on PJM capacity price of $191/MWD) • Baseload generation availability change of 1% = ±$20M (Based on an EQA of 91%) 21
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PPL
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Market Prices EAST PJM On-Peak Off-Peak ATC (3) WEST Mid-Columbia On-Peak Off-Peak ATC (3) GAS (4) NYMEX TZ6NNY PJM MARKET HEAT RATE (5) Actual Forward (1) At 10/2007(2) 2007 2008 2009 2010 2010 9.4 $7.78 $6.86 $51 $45 $57 $57 $43 $73 8.8 $9.04 $8.08 $60 $53 $67 $64 $51 $79 8.98.88.9 $9.56$9.52$8.82 $8.59$8.52$7.81 $64$62$56 $56$54$48 $71$69$61 $69$68$63 $54$53$50 $85$84$78 (1) Market prices based on the average of broker quotes as of 12/31/2007. (2) Prices at 10/2007 when 2010 earnings forecast of $4.00-$4.60 was developed. (3) 24-hour average. (4) NYMEX and TZ6NNY forward gas prices on 12/31/2007. (5) Market Heat Rate = PJM on-peak power price divided by TZ6NNY gas price. A-1
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Current Hedge Positions -Electricity and Fuel A-2 2008 2009 2010 Electricity Sales East 96% 94% 61% West 100% 80% 64% Total 96% 92% 62% Coal East 94% 76% 70% West 100% 100% 100% Total 95% 82% 78%
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PPL Supply Business Overview 2008E Production GWh A-3 Gas/Oil 33% Coal 37% Nuclear 19% Hydro8% QFs 3% 2008E Installed Capacity MW Gas/ Oil 8% Coal 54% Nuclear 31% Hydro 7%
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Proactive Coal Supply Management Supports Growth in Margins Projected 2008 Coal Supply • Supply region diversity • Fleet trains (1600 cars) • Average delivered costs – 4% to 5% annual increase from 2007 to 2010 A-4 Central PA 20% PRB 6% Montana Mine-mouth 20% Central Appalachia 13% Southwest PA 41%
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Key Drivers/Challenges Through 2010 and Beyond • Increased prices for POLR sales • Expiration of supply contracts remarketed at current forward prices • Power plant uprates and planned levels of equivalent availability of generation • Net economic benefits from the installation of scrubbers at the Montour and Brunner Island coal-fired power plants • Continued growth of marketing and trading activities • Increased fuel and O&M costs • Cost of compliance with evolving environmental regulation • Stable electricity regulatory environment at Federal and State levels A-5
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$188.54 $111.92 $111.92 $148.80 $210.11 $40.80 $40.80 $197.67 $191.32 $191.32 $102.04 $0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 $160.00 $180.00 $200.00 $220.00 $240.00 $260.00 Rest of Pool MAAC/APS Eastern MAAC Southwest MAAC April 2007 Auction Results - 07/08 Planning Year July 2007 Auction Results - 08/09 Planning Year October 2007 Auction Results - 09/10 Planning Year RPM Auction Continues to Provide Robust Prices A-6 PJM RPM Auction Results 10/11 Auction results – Feb. 1, 2008 PPL Capacity Hedge Position 46%100%97% 97% 2010200920082007 $/MWD $237.33
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0 20 40 60 80 100 120 2009 2009 2010 $/MWh Shaped Energy & Capacity Including Congestion Other Adders Line Losses GRT Load-following Components Example A-7 Total $105 $82.00* $45.47 Total $51.23 * Shaped price based on $63/MWh ATC energy price, $150/MW-Day capacity price, and congestion. $48.29 Total $54.41 Residential and Small C&I Residential and Small C&I All Customers 50.20 $10 Volumetric Risk Credit Ancillary Green $8 $5
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Expected 2008 to 2010 Margin Walk A-8 1700 2100 2500 2900 3300 3700 2008E 2010E $1,866 $3,307 Improved Power Value* $969 Higher Capacity Value $540 Higher Nuclear Generation $61 Higher Fuel Costs ($80) Increased Environmental Costs ($49) *Includes power prices and spark spread changes as well as value from portfolio management. $/Million
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Shrinking Reserve Margins Create Potential Value for PPL 5% 10% 15% 20% 2007 2008 2009 2010 PJM Mid-Atlantic Expected Reserve Margin PJM Required 15% Reserve Margin A-9
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PPL’s Generation Portfolio Total Domestic Generation: 11,279 MW Planned Uprate Projects: 328 MW *Reflects reduction of 60 MW expected loss due to increased plant usage during scrubber operation. A-10 Coal 3,468* Nuclear 2,117 Oil 1,715 Gas 1,548 Hydro 337 CTs 446 QFs 347 East 9,978 MW* Nuclear Uprate (2008-2010) 143 Hydro Uprate (2011) 125 Coal Uprate (2008-2009) 26 Coal 697 Hydro 604 West 1,301 MW Coal Uprate (2008) 6 Hydro Uprate (2011) 28
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$0.82 $0.92 $1.00 $1.10 $1.22 $0.00 $0.25 $0.50 $0.75 $1.00 $1.25 2004 April 2005 October 2005 April 2006 April 2007 $/share Annualized Continued Dividend Growth A-11
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PPL Electric Utilities Phase-in Plan Proposal A-12 54-Month Phase-In Plan Average Residential Customer - 1,000 kWh per month $1,000.00 $1,100.00 $1,200.00 $1,300.00 $1,400.00 $1,500.00 $1,600.00 $1,700.00 $1,800.00 1/1/2008 7/1/2008 2009 2010 2011 2012 Annualized Electric Cost ~6% ~7% ~7% ~6% ~6%
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Reconciliation of Cash from Operations to Free Cash Flow before Dividends (Millions of Dollars) A-13 $994$154($100)$513$167Free Cash Flow before Dividends (15)101493785Other Investing Activities-net (1,490)(1,456)(1,609)(1,685)(1,394)Capital Expenditures --(310)(310)(282)Transition Bond Repayment Increase/(Decrease) in cash due to: $2,499$1,509$1,815$1,571$1,758Cash from Operations 20102009200820072006 Note: 2007 free cash flow before dividends includes the net proceeds from the disposition of Latin American and domestic telecommunication operations. 2008 forecast excludes expected net proceeds from the disposition of gas and propane businesses.
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Millions $1,043 $1,030 $824 $750 $692 $514 $302 $281 $305 $404 $521 $511 $340 $298 $327 $336 $343 $351 $0 $400 $800 $1,200 $1,600 $2,000 2007A 2008E 2009E 2010E 2011E 2012E Supply PA Delivery International Delivery $1,685 $1,556 $1,376 $1,490$1,456 $1,609 Capital Expenditures by Segment A-14
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Pennsylvania International Supply Delivery Delivery Total Qtr. Ending December 31, 2007 Reported earnings $116 $34 $289 $439 Special Items: MTM adj's from energy-related, nontrading economic hedges 12 12 Divestiture of Latin American businesses 211 211 Impairment of certain transmission rights (1) (1) Workforce reductions (4) (1) (4) (9) 7 (1) 207 213 Earnings from ongoing operations $109 $35 $82 $226 Qtr. Ending December 31, 2006 Reported earnings $79 $50 $49 $178 Special Items: MTM adj's from energy-related, nontrading economic hedges 3 3 PJM billing dispute (18) 21 3 Sale of interest in Griffith 1 1 Susquehanna workforce reduction (3) (3) Impairment of nuclear decom. trust investments (3) (3) (20) 21 0 1 Earnings from ongoing operations $99 $29 $49 $177 Change excluding special items $10 $6 $33 $49 Reconciliation of Fourth Quarter Reported Earnings and Earnings from Ongoing Operations A-15 (Millions of Dollars)
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Pennsylvania International Supply Delivery Delivery Total Qtr. Ending December 31, 2007 Reported earnings $0.31 $0.09 $0.77 $1.17 Special Items: MTM adj's from energy-related, nontrading economic hedges 0.03 0.03 Divestiture of Latin American businesses 0.56 0.56 Workforce reductions (0.01) (0.01) (0.02) 0.02 0.00 0.55 0.57 Earnings from ongoing operations $0.29 $0.09 $0.22 $0.60 Qtr. Ending December 31, 2006 Reported earnings $0.20 $0.13 $0.13 $0.46 Special Items: MTM adj's from energy-related, nontrading economic hedges 0.01 0.01 PJM billing dispute (0.05) 0.06 0.01 Susquehanna workforce reduction (0.01) (0.01) Impairment of nuclear decom. trust investments (0.01) (0.01) (0.06) 0.06 0.00 0.00 Earnings from ongoing operations $0.26 $0.07 $0.13 $0.46 Change excluding special items $0.03 $0.02 $0.09 $0.14 Reconciliation of Fourth Quarter Reported Earnings and Earnings from Ongoing Operations A-16 (Dollars Per Share)
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Reconciliation of Year-to-Date Reported Earnings and Earnings from Ongoing Operations A-17 (Millions of Dollars) Pennsylvania International Supply Delivery Delivery Total Year-to-Date December 31, 2007 Reported earnings $570 $131 $608 $1,309 Special Items: MTM adj's from energy-related, nontrading economic hedges 32 32 PJM billing dispute (1) (1) Divestiture of Latin American businesses 257 257 Sale of telecommunication operations (23) (23) Sale of gas and propane businesses (23) (23) Settlement of Wallingford cost-based rates 33 33 Impairment of certain transmission rights (13) (13) Change in U.K. tax rate 54 54 Workforce reductions (4) (1) (4) (9) 24 (24) 307 307 Earnings from ongoing operations $546 $155 $301 $1,002 Year-to-Date December 31, 2006 Reported earnings $416 $181 $268 $865 Special Items: MTM adj's from energy-related, nontrading economic hedges (11) (11) PJM billing dispute (18) 21 3 Off-site remediation of ash basin leak 6 6 Enron reserve adjustment 11 1 12 Sale of interest in Griffith (16) (16) Synfuels impairment (6) (6) Write-off of Hurricane Isabel regulatory assets (7) (7) Realization of benefits related to Black Lung Trust assets 21 21 Susquehanna workforce reduction (3) (3) Impairment of nuclear decom. trust investments (3) (3) (40) 35 1 (4) Earnings from ongoing operations $456 $146 $267 $869 Change excluding special items $90 $9 $34 $133
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Reconciliation of Year-to-Date Reported Earnings and Earnings from Ongoing Operations A-18 Pennsylvania International Supply Delivery Delivery Total Year-to-Date December 31, 2007 Reported earnings $1.48 $0.34 $1.58 $3.40 Special Items: MTM adj's from energy-related, nontrading economic hedges 0.08 0.08 Divestiture of Latin American businesses 0.67 0.67 Sale of telecommunication operations (0.06) (0.06) Sale of gas and propane businesses (0.06) (0.06) Settlement of Wallingford cost-based rates 0.09 0.09 Impairment of certain transmission rights (0.04) (0.04) Change in U.K. tax rate 0.14 0.14 Workforce reductions (0.01) (0.01) (0.02) 0.06 (0.06) 0.80 0.80 Earnings from ongoing operations $1.42 $0.40 $0.78 $2.60 Year-to-Date December 31, 2006 Reported earnings $1.08 $0.47 $0.69 $2.24 Special Items: MTM adj's from energy-related, nontrading economic hedges (0.03) (0.03) PJM billing dispute (0.05) 0.06 0.01 Off-site remediation of ash basin leak 0.02 0.02 Enron reserve adjustment 0.03 0.03 Sale of interest in Griffith (0.04) (0.04) Synfuels impairment (0.01) (0.01) Write-off of Hurricane Isabel regulatory assets (0.02) (0.02) Realization of benefits related to Black Lung Trust assets 0.05 0.05 Susquehanna workforce reduction (0.01) (0.01) Impairment of nuclear decom. trust investments (0.01) (0.01) (0.10) 0.09 0.00 (0.01) Earnings from ongoing operations $1.18 $0.38 $0.69 $2.25 Change excluding special items $0.24 $0.02 $0.09 $0.35 (Dollars Per Share)
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Reconciliation of PPL’s Reported Earnings and Earnings from Ongoing Operations Actual High Low 2008 2008 2007 2006 2005 Per Share Earnings from Ongoing Operations $2.45 $2.35 $2.60 $2.25 $2.08 Special items (net of taxes): economic hedges 0.08 (0.03) Write-off of Hurricane Isabel regulatory assets (0.02) Synfuels impairment (0.01) Sale of interest in Griffith (0.04) Enron reserve adjustment 0.03 Stock-based compensation adjustment (0.01) Conditional asset retirement obligation (0.02) Off-site remediation of ash basin leak 0.02 (0.07) Sale of Sundance (0.12) PJM billing dispute 0.01 (0.07) NorthWestern litigation (0.02) Realization of benefits related to Black Lung Trust assets 0.05 Susquehanna workforce reduction (0.01) Impairment of nuclear decom. trust investments (0.01) Divestiture of Latin American businesses 0.67 Sale of telecommunication operations (0.06) Sale of gas and propane businesses (0.06) Settlement of Wallingford cost-based rates 0.09 Impairment of certain transmission rights (0.04) Change in U.K. tax rate 0.14 Workforce reductions (0.02) 0.00 0.00 0.80 (0.01) (0.31) Reported Earnings Per Share $2.45 $2.35 $3.40 $2.24 $1.77 Note: Per share amounts are based on diluted shares outstanding. Forecast MTM adj's from energy-related, non-trading A-19
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Credit Ratings A-20 BBB Issuer Rating AAAAaa Tax-Exempt Bonds* STABLE STABLE STABLE Outlook AAA3Senior Secured Debt F-2A-2P-2Commercial Paper BBB+ BBBBaa3Preferred Stock BBBABaa1Issuer Rating AAA3First Mortgage Bonds AAAAaa Tax-Exempt Bonds** BBBBBBBaa3Preference Stock PPL Electric Utilities BBBBBBBaa2Senior Unsecured Debt BBBBB+ Baa3Subordinated Debt STABLE STABLE STABLE Outlook PPL Capital Funding BBBBBB Issuer Rating BBB+ BBBBaa2Senior Notes F-2A-2P-2Commercial paper STABLE STABLE STABLE Outlook PPL Energy Supply STABLE STABLE STABLE Outlook BBBBBBBaa2Issuer Rating PPL Corporation Fitch Standard & Poor’s Moody’s *Letter of Credit-Backed Security **Insured Security
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Credit Ratings (cont.) A-21 A-3Commercial Paper ABBB+ Baa1Senior Unsecured Debt F2A-2P-2Commercial Paper STABLE STABLE STABLE Outlook BBB+ BBB+ Baa1Issuer Rating ABBB+ Baa1Senior Unsecured Debt F2A-2Commercial Paper STABLE STABLE STABLE Outlook Western Power Distribution (South West) PLC BBB+ BBB+ Issuer Rating Western Power Distribution (South Wales) PLC STABLE STABLE STABLE Outlook STABLE STABLE STABLE Outlook BBBBBB-Issuer Rating WPD Holdings LLP BBBBBBBaa3Issuer Rating BBBBBBBaa3Senior Unsecured Debt A-3Commercial Paper WPD Holdings Limited BBBBBBBaa3Pass- Through Certificates STABLE STABLE Outlook PPL Montana AAAAAAAaa Transition Bonds PPL Transition Bond Co. Fitch Standard & Poor’s Moody’s
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Forward-Looking Information Statement Statements contained in this news release, including statements with respect to future earnings, energy prices, margins, sales and supply, marketing performance, growth, revenues, expenses, rates, regulation, cash flows, credit profile, financing, dividends, business disposition, corporate strategy, capital additions and expenditures, and generating capacity and performance, are “forward-looking statements” within the meaning of the federal securities laws. Although PPL Corporation believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, these statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in the statements. The following are among the important factors that could cause actual results to differ materially from the forward-looking statements: market demand and prices for energy, capacity and fuel; market prices for crude oil and the potential impact on the phaseout of synthetic fuel tax credits and synthetic fuel operations; weather conditions affecting generation production, customer energy usage and operating costs; competition in retail and wholesale power markets; liquidity of wholesale power markets; the effect of any business or industry restructuring; the profitability and liquidity, including access to capital markets and credit facilities of PPL Corporation and its subsidiaries; new accounting requirements or new interpretations or applications of existing requirements; operation and availability of existing generation facilities and operating costs; 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 emission allowance and other expenses; significant delays in the planned installation of pollution control equipment at certain coal-fired generating units in Pennsylvania due to weather conditions, contractor performance or other reasons; development of new projects, markets and technologies; performance of new ventures; asset acquisitions and dispositions; political, regulatory or economic conditions in states, regions or countries where PPL Corporation or its subsidiaries conduct business; any impact of hurricanes or other severe weather on PPL and its subsidiaries, including any impact on fuel prices; receipt of necessary governmental permits, approvals and rate relief; new state, federal or foreign legislation, including new tax legislation; state, federal and foreign regulatory developments; any impact of state, federal or foreign investigations applicable to PPL Corporation and its subsidiaries and the energy industry; capital markets conditions, including changes in interest rates, and decisions regarding capital structure; stock price performance of PPL Corporation; 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; disposition proceeds; foreign currency exchange rates; the outcome of litigation against PPL Corporation and its subsidiaries; potential effects of threatened or actual terrorism or war or other hostilities; and the commitments and liabilities of PPL Corporation and its subsidiaries. Any such forward-looking statements should be considered in light of such important factors and in conjunction with PPL Corporation’s Form 10-K and other reports on file with the Securities and Exchange Commission. A-22
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Definitions of Financial Measures A-23 “Earnings from ongoing operations” excludes the impact of special items. Special items include charges, credits or gains that are unusual or non-recurring and the mark-to-market impact of energy-related, non-trading economic hedges. The mark-to-market impact of these hedges is economically neutral to the company in that offsetting gains or losses on underlying accrual positions will be recognized as energy is delivered over the terms of the contracts. Earnings from ongoing operations should not be considered as an alternative to reported earnings, or net income, which is an indicator of operating performance determined in accordance with generally accepted accounting principles (GAAP). PPL believes that earnings from ongoing operations, although a non-GAAP measure, is also useful and meaningful to investors because it provides them with PPL’s underlying earnings performance as another criterion in making their investment decisions. PPL’s management also uses earnings from ongoing operations in measuring certain corporate performance goals. Other companies may use different measures to present financial performance. “Free cash flow before dividends” is derived by deducting capital expenditures and other investing activities-net, as well as the repayment of transition bonds, from cash flow from operations. Free cash flow before dividends should not be considered as an alternative to cash flow from operations, which is determined in accordance with GAAP. PPL believes that free cash flow before dividends, although a non-GAAP measure, is an important measure to both management and investors since it is an indicator of the company’s ability to sustain operations and growth without additional outside financing beyond the requirement to fund maturing debt obligations. Other companies may calculate free cash flow before dividends in a different manner.