Fourth Quarter Earnings Call February 4, 2009 Exhibit 99.2
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
Agenda • 2008 Earnings, 2009 and 2010 Earnings Forecast and Outlook • Segment Results and Financial Overview • Operational Review • Q&A J. H. Miller P. A. Farr W. H. Spence 2
Reported Earnings Per share $1.11 $0.74 $0.00 $0.50 $1.00 $1.50 4Q 2007 4Q 2008 3 Note: See Appendix for the reconciliation of reported earnings and earnings from ongoing operations. Per share $3.35 $2.47 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 2007 2008
Earnings From Ongoing Operations Per share $0.60 $0.46 $0.00 $0.50 $1.00 4Q 2007 4Q 2008 4 Note: See Appendix for the reconciliation of reported earnings and earnings from ongoing operations. Per share $2.60 $2.02 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 2007 2008
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 2007A* 2008A* 2009 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 $2.02 $4.20 Per Share $1.90 $1.60 $3.60
Ongoing Earnings Overview $(0.14) $0.60$0.46Total (0.07)0.220.15International Delivery 0.010.090.10Pennsylvania Delivery $ (0.08) $0.29$0.21Supply Change Q4 2007 Q4 2008 6 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. $(0.58) $2.60$2.02Total (0.01)0.780.77International Delivery 0.040.400.44Pennsylvania Delivery $ (0.61) $1.42$0.81Supply Change20072008
Supply Segment Earnings Drivers 0.04O&M 0.01Energy Margins - -West (0.01)Other (0.18)Synfuel (0.09)Financing $0.812008 EPS – Ongoing Earnings (0.61)Total $(0.38) Energy Margins - -East $1.422007 EPS – Ongoing Earnings 2008 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations, and per share reconciliation of operating income and energy margins. 7
Pennsylvania Delivery Segment Earnings Drivers (0.02)O&M (0.03)Income taxes and other $0.442008 EPS – Ongoing Earnings 0.04 Total $ 0.09 Delivery Margins (a) $0.402007 EPS – Ongoing Earnings 2008 8 (a) Net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges. Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations.
International Delivery Segment Earnings Drivers (0.02) Effect of Exchange Rates $0.03 Delivery Margins (0.11) Latin American Operations $0.772008 EPS – Ongoing Earnings (0.01) Total 0.02 Income taxes & other 0.07 O&M $0.782007 EPS – Ongoing Earnings 2008 9 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations.
2008 Earnings Contributions $1.00 $1.25 $1.50 $1.75 $2.00 $2.25 $2.50 $2.75 2008A $2.60* Net Impact of Asset Divestiture ($0.09) $2.02* Depreciation ($0.03) Energy Margins ($0.37) Synfuels ($0.18) O&M $0.09 2007A 10 *Earnings from ongoing operations – See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. Per Share
Expected 2009 Earnings Contributions 11 * Earnings from ongoing operations – See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. **Midpoint of forecast Per Share $1.00 $1.25 $1.50 $1.75 $2.00 $2.25 $2.50 $2.75 2008A* $2.02* Financing Costs ($0.07) Depreciation ($0.04) $1.75** US Tax Benefits ($0.07) Energy Margins $0.27 O&M ($0.10) Currency ($0.17) Other ($0.05) Delivery Margins ($0.04) 2009E
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 2007A* 2008A* 2009 2010 Strong Long-Term Earnings Growth Forecast 12 * Earnings from ongoing operations – See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. $2.60 $2.02 $4.20 Per Share $1.90 $1.60 $3.60
Cash Flow Forecast Millions ($300) ($100) $100 $300 $500 $700 2007A 2008A 2009E 2010E Free cash flow before dividends 13 Note: See Appendix for the reconciliation of cash flow measures.
Liquidity Profile (1) Reported as of 12/31/2008 Diverse bank group consisting of 23 banks committed under domestic facilities, with no bank having more than 14% of commitments. 14 Institution Facility Expiration Date Total Facility (Millions) Letters of Credit Outstanding (1) (Millions) Drawn (1) (Millions) Availability (Millions) PPL Energy Supply 5-year Credit Facility Jun-2012 $3,225 $255 $285 $2,685 Bilateral Credit Facility Mar-2009 300 96 0 204 5-year Structured Credit Facility Mar-2011 300 269 0 31 364-day Credit Facility Sep-2009 385 0 0 385 $4,210 $620 $285 $3,305 PPL Electric Utilities 5-year Credit Facility May-2012 $190 $1 $95 $94 Asset-backed Credit Facility Jul-2009 150 0 0 150 $340 $1 $95 $244 WPD 5-year Credit Facility Oct-2009 £150 £0 £37 £113 5-year Credit Facility Jan-2013 150 0 121 29 Uncommitted Credit Facilities 65 0 8 57 Letter of Credit Facility Mar-2009 5 4 0 1 £370 £4 £166 £200
PPL Energy Supply Collateral Profile (Millions of Dollars) - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Available Credit Capacity Cash Posted Borrowings/CP Outstanding Letters of Credit 15
Debt Maturities (1) PPL Electric Utilities prefunding done in 10/2008 for 2009 maturity As of 12/31/2008 16 ($Millions) 2009 2010 2011 2012 2013 PPL Energy Supply $0 $0 $500 $0 $737 PPL Capital Funding 201 0 0 0 0 PPL Electric Utilities 486 (1) 0 0 0 500 WPD Group 0 0 0 0 0 Sub Total $687 $0 $500 $0 $1,237 Prefunding $400 (1) $0 $0 $0 $0 Total $287 $0 $500 $0 $1,237
PA and International Delivery Operational Update PA Delivery • PPLEU completed 4 of 6 RFPs • Bids due for 5th RFP March 30 with PUC approval expected April 2 • 2011-2013 Procurement Plan – Evidentiary Hearings Scheduled for February 11-13 • 10% of eligible customers enrolled in Rate Phase-In Plan International Delivery • Distribution Price Control Review (DPCR5) is underway 17
Supply Segment Operational Update 18 • Completed work on Montour cooling tower sub-structure and unit went back in service in November 2008 • Susquehanna set generation record in 4Q08 • Susquehanna Unit 2 up-rate of 69 MW to be completed in Spring 2009 • Federal court reversed its decision vacating CAIR program
19 Marketing and Trading * Marketing included as part of total generation gross margins in 2005. 2% 5% 8% 0%M&T as % of Supply Gross Margin * Marketing & Trading Gross Margins $Millions 4% $32 $35 $41 $11 $43 $104 $122 $74 $(121) $1 ��$32 $78 $145 $85 ($125) ($75) ($25) $25 $75 $125 $175 2005 2006 2007 2008 2009 Marketing Trading Total *
Current Hedge Positions -Electricity and Fuel Note: As of 12/31/2008 20 2009 2010 2011 2012 Electricity Sales East 95% 80% 43% 23% West 93% 72% 66% 46% Total 95% 79% 47% 26% Uranium 100% 100% 100% 100% Coal East 100% 84% 71% 49% West 100% 100% 86% 77% Total 100% 89% 75% 57% Unhedged Coal – million tons Brunner & Montour 0.0 0.9 1.9 3.5 Keystone & Conemaugh 0.2 0.5 0.8 1.2
Hedged Baseload Electricity 2009-2012 Hedged Baseload Electricity Sales 0% 20% 40% 60% 80% 100% 2009 2010 2011 2012 % of Coal, Hydro & Nuclear Output $20 $30 $40 $50 $60 $70 $80 $/M W h Average Sale Price 21
Open EBITDA *Based on forward market prices as of December 31, 2008 2010E 2011E 2012E Generation Output - MWh 55.5 55.8 56.7 Unhedged Gross Margin* 2,637 2,732 2,741 O&M (859) (899) (929) Open EBITDA 1,778 1,833 1,812 Fuel 309 239 190 Power 214 92 166 Other 7 5 8 Above/ (Below) Market Value of Hedges* 530 336 364 Expected Margin 3,167 3,068 3,105 (Millions) 22
2009 - -2012 Sensitivities EPS Impact 2009 2010 2011 2012 $10/MW-Day Capacity Price Change >$0.00 >$0.00 >$0.00 ±$0.03 $1/MWh of Unhedged Baseload Sales ±<$0.01 ±$0.01 ±$0.04 ±$0.06 $1/MWh of Unhedged Total Sales ±<$0.01 ±$0.02 ±$0.05 ±$0.07 1% Generation Availability ±$0.02 ±$0.03 ±$0.03 ±$0.03 See Appendix A-1 for market price assumptions 23 Note: Discrete sensitivities based on changes to individual item, but which ultimately may be interrelated. $0.05 between USD and British Pound ±$0.02 ±$0.02 ±$0.02 ±$0.02
PPL
Market Prices ELECTRIC PJM On-Peak Off-Peak ATC(2) Mid-Columbia On-Peak Off-Peak ATC(2) GAS(3) NYMEX TZ6NNY PJM MARKET HEAT RATE(4) CAPACITY PRICES (Per MWD) EQA Actual 2008 2009 2010 2011 2012 $81 $63 $69 $69 $69 $49 $47 $51 $52 $52 $69 $55 $59 $60 $60 $65 $48 $57 $59 $59 $51 $38 $44 $46 $46 $59 $43 $52 $53 $56 $8.84 $6.11 $7.13 $7.31 $7.20 $9.85 $7.10 $8.16 $8.31 $8.19 8.3 8.9 8.4 8.3 8.4 $82.00 $158.24 $181.39 $136.79 $157.63 89.6% 90.7% 92.2% 90.9% 92.1% Forward(1) (1) Market prices based on the average of broker quotes as of 12/31/2008. (2) 24-hour average. (3) NYMEX and TZ6NNY forward gas prices on 12/31/2008. (4) Market Heat Rate = PJM on-peak power price divided by TZ6NNY gas price. A-1
PPL Supply Business Overview 2009E Production GWh A-2 Gas/Oil 37% Coal 34% Nuclear 18% Hydro8% QFs 3% 2009E Installed Capacity MW Gas/Oil 9% Coal 52% Nuclear 31% Hydro 8% Note: Graphs include tolling agreements.
PPL’s Generation Portfolio Total Domestic Generation: 12,184 MW Planned Uprate Projects or Additions: 148 MW A-3 (1) Reflects reduction of 60 MW expected loss due to increased plant usage during scrubber operation. (2) Includes tolling agreements. Coal 3,500 Nuclear 2,165 Oil 1,817 Gas 2,282 Hydro 366 CTs 462 QFs 305 Coal 683 Hydro 604 West 1,287 MW Hydro Uprate (2011) 28 Nuclear Uprate (2009-2010) 98 Hydro Uprate (2009) 3 Coal Uprate (2009) 11 Landfill Gas Addition (2009) 8 (1) East 10,897 MW (2)
2007 Synfuel and Divested Assets Ongoing Earnings Contributions A-4 Synfuel Q1 Q2 Q3 Q4 2007 Synfuel Earnings $0.07 $0.01 $0.02 $0.04 $0.14 Fuel Costs 0.01 0.01 0.01 0.01 0.04 Total Synfuel Contribution $0.08 $0.02 $0.03 $0.05 $0.18 Net Impact of Asset Divestitures $0.03 $0.03 $0.02 $0.00 $0.08
Reconciliation of Cash from Operations to Free Cash Flow before Dividends (Millions of Dollars) A-5 303898Asset Sales (203)Investment in Energy Project $347$231($237 )$513Free Cash Flow before Dividends (61)18(58)39Other Investing Activities-net (1,762)(1,218)(1,503)(1,685)Capital Expenditures --(293)(310)Transition Bond Repayment Increase/(Decrease) in cash due to: $2,170$1,431$1,517$1,571Cash from Operations 2010200920082007 Note: Asset sales includes the net proceeds from the disposition of Latin American and domestic telecommunication operations in 2007 and the sale of gas and propane businesses in 2008.
Millions $939 $678 $752 $790 $286 $289 $582 $649 $278 $251 $428 $448 $0 $400 $800 $1,200 $1,600 $2,000 2008A 2009E 2010E 2011E Supply PA Delivery International Delivery $1,503 $1,887 $1,762 $1,218 Capital Expenditures by Segment A-6
Reconciliation of Fourth Quarter Reported Earnings and Earnings from Ongoing Operations A-7 (Millions of Dollars) Pennsylvania International Supply Delivery Delivery Total Qtr. Ending December 31, 2008 Reported earnings $182 $38 $57 $277 Special Items: MTM adj's from energy-related, non- trading economic hedges 130 130 Asset impairments (16) (1) (17) Impairments & other impacts - EAs 2 2 Impairment of nuclear decom. trust investments (12) (12) Sale of gas and propane businesses (1) (1) 104 (1) (1) 102 Earnings from ongoing operations $78 $39 $58 $175 Qtr. Ending December 31, 2007 Reported earnings $114 $13 $291 $418 Special Items: MTM adj's from energy-related, non- trading economic hedges 12 12 Sale of Latin American businesses 213 213 Sale of gas and propane businesses (21) (21) Impairment of certain transmission rights (1) (1) Workforce reductions (4) (1) (4) (9) 7 (22) 209 194 Earnings from ongoing operations $107 $35 $82 $224 Change excluding special items ($29) $4 ($24) ($49)
Reconciliation of Fourth Quarter Reported Earnings and Earnings from Ongoing Operations A-8 (Dollars Per Share) Pennsylvania International Supply Delivery Delivery Total Qtr. Ending December 31, 2008 Reported earnings $0.49 $0.10 $0.15 $0.74 Special Items: MTM adj's from energy-related, non- trading economic hedges 0.35 0.35 Asset impairments (0.05) (0.05) Impairments & other impacts - EAs 0.01 0.01 Impairment of nuclear decom. trust investments (0.03) (0.03) 0.28 0.28 Earnings from ongoing operations $0.21 $0.10 $0.15 $0.46 Qtr. Ending December 31, 2007 Reported earnings $0.31 $0.03 $0.77 $1.11 Special Items: MTM adj's from energy-related, non- trading economic hedges 0.03 0.03 Sale of Latin American businesses 0.56 0.56 Sale of gas and propane businesses (0.06) (0.06) Workforce reductions (0.01) (0.01) (0.02) 0.02 (0.06) 0.55 0.51 Earnings from ongoing operations $0.29 $0.09 $0.22 $0.60 Change excluding special items ($0.08) $0.01 ($0.07) ($0.14)
Reconciliation of Year-to-Date Reported Earnings and Earnings from Ongoing Operations A-9 (Millions of Dollars) Pennsylvania International Supply Delivery Delivery Total Year-to-Date December 31, 2008 Reported earnings $479 $161 $290 $930 Special Items: MTM adj's from energy-related, non- trading economic hedges 251 251 Asset impairments (16) (1) (17) Impairments & other impacts - EAs (25) (25) Impairment of nuclear decom. trust investments (17) (17) Sale of gas and propane businesses (6) (6) Off-site remediation of ash basin leak 1 1 Colstrip groundwater litigation (5) (5) Synfuel tax adjustment (13) (13) 176 (6) (1) 169 Earnings from ongoing operations $303 $167 $291 $761 Year-to-Date December 31, 2007 Reported earnings $568 $110 $610 $1,288 Special Items: MTM adj's from energy-related, non- trading economic hedges 32 32 PJM billing dispute (1) (1) Sale of Latin American businesses 259 259 Sale of telecommunication operations (23) (23) Sale of gas and propane businesses (44) (44) 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 (45) 309 288 Earnings from ongoing operations $544 $155 $301 $1,000 Change excluding special items ($241) $12 ($10) ($239)
Reconciliation of Year-to-Date Reported Earnings and Earnings from Ongoing Operations A-10 (Dollars Per Share) Pennsylvania International Supply Delivery Delivery Total Year-to-Date December 31, 2008 Reported earnings $1.27 $0.43 $0.77 $2.47 Special Items: MTM adj's from energy-related, non- trading economic hedges 0.67 0.67 Asset impairments (0.05) (0.05) Impairments & other impacts - EAs (0.07) (0.07) Impairment of nuclear decom. trust investments (0.04) (0.04) Sale of gas and propane businesses (0.01) (0.01) Colstrip groundwater litigation (0.01) (0.01) Synfuel tax adjustment (0.04) (0.04) 0.46 (0.01) 0.45 Earnings from ongoing operations $0.81 $0.44 $0.77 $2.02 Year-to-Date December 31, 2007 Reported earnings $1.48 $0.29 $1.58 $3.35 Special Items: MTM adj's from energy-related, non- trading economic hedges 0.08 0.08 Sale of Latin American businesses 0.67 0.67 Sale of telecommunication operations (0.06) (0.06) Sale of gas and propane businesses (0.11) (0.11) 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 (0.11) 0.80 0.75 Earnings from ongoing operations $1.42 $0.40 $0.78 $2.60 Change excluding special items ($0.61) $0.04 ($0.01) ($0.58)
Reconciliation of Year-to-Date Operating Income and Energy Margins A-11 2008 2007 Change Per Share (after-tax) Synfuel Tax Credit Reclass (a) Per Share Adjusted (after-tax) Eastern U.S., pre-tax $1,286 $1,555 ($269) ($0.42) $0.04 ($0.38) Western U.S., pre-tax 278 269 9 0.01 0.01 Domestic gross energy margins, pre-tax $1,564 $1,824 ($260) ($0.41) $0.04 ($0.37) 2008 2007 Operating Income $1,819 $1,683 Adjustments: Energy-related businesses, net (38) (7) Other operation and maintenance 1,430 1,373 Amortization of recoverable transition costs 293 310 Depreciation 461 446 T axes, other than income 289 298 Revenue adjustments (b) (3,256) (2,017) Expense adjustments (b) 566 (262) Domestic gross energy margins $1,564 $1,824 Year Ended December 31, Year Ended December 31, (Millions of Dollars) (a) Reclassified for presentation purposes. (b) See additional information on the following slide.
Reconciliation of Year-to-Date Operating Income and Energy Margins A-12 2008 2007 Revenue adjustments WPD utility revenue ($824) ($863) Domestic delivery component of utility revenue (1,325) (1,308) Other utility revenue (52) (48) RMR revenues (52) Mark-to-market adjustments from certain economic activity (1,061) 145 Gains from sale of emission allowances 6 109 Total revenue adjustments ($3,256) ($2,017) Expense adjustments Mark-to-market adjustments from certain economic activity ($631) $200 Domestic electric ancillaries (54) (50) Gross receipts tax 113 112 Other 6 Total expense adjustments ($566) $262 Year Ended December 31, (Millions of Dollars)
Reconciliation of PPL’s Reported Earnings and Earnings from Ongoing Operations High Low 2009 2009 2008 2007 2006 Per Share Earnings from Ongoing Operations $1.90 $1.60 $2.02 $2.60 $2.25 Special items (net of taxes): economic hedges 0.67 0.08 (0.03) Reversal of cost recovery - Hurricane Isabel (0.02) Impairment of synfuel-related assets (0.01) Sale of interest in Griffith (0.04) Reduction in Enron reserve 0.03 Off-site remediation of ash basin leak 0.02 PJM billing dispute 0.01 Realization of benefits related to Black Lung Trust assets 0.05 Susquehanna workforce reduction (0.01) Impairment of nuclear decom. trust investments (0.04) (0.01) Sale of Latin American businesses 0.67 Sale of telecommunication operations (0.06) Sale of gas and propane businesses (0.01) (0.11) 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) Synfuel tax adjustment (0.04) Colstrip groundwater litigation (0.01) Asset impairments (0.05) Impairments & other impacts - Emission Allowances (0.07) 0.00 0.00 0.45 0.75 (0.01) Reported Earnings Per Share $1.90 $1.60 $2.47 $3.35 $2.24 Note: Per share amounts are based on diluted shares outstanding. MTM adj's from energy-related, non-trading Forecast Actual A-13
A-14 Issuer Rating BBB Tax-Exempt Bonds* Aaa AAA Outlook STABLE NEGATIVE STABLE Senior Secured Debt A3 A- A Commercial Paper P-2 A-2 F-2 Preferred Stock Baa3 BBB BBB Issuer Rating Baa1 A- BBB First Mortgage Bonds A3 A- A Tax- Exempt Bonds** Baa1 AA Preference Stock Baa3 BBB BBB PPL Electric Utilities Senior Unsecured Debt Baa2 BBB- BBB Subordinated Debt Baa3 BB+ BBB Outlook STABLE STABLE STABLE PPL Capital Funding Issuer Rating BBB BBB Senior Notes Baa2 BBB BBB+ Outlook STABLE NEGATIVE STABLE PPL Energy Supply Outlook STABLE NEGATIVE STABLE Issuer Rating Baa2 BBB BBB PPL Corporation Moody’s Standard & Poor’s Fitch * Letter of Credit-Backed Security ** Insured Security
Credit Ratings (cont.) A-15 A-3 Commercial Paper A-BBB+ Baa1Senior Unsecured Debt F2A-2P-2 Commercial Paper POSITIVE STABLE STABLE Outlook BBB+ BBB+ Baa1 Issuer Rating A-BBB+ Baa1 Senior Unsecured Debt F2A-2 Commercial Paper POSITIVE STABLE STABLE Outlook Western Power Distribution (South West) PLC BBB+ BBB+ Issuer Rating Western Power Distribution (South Wales) PLC POSITIVE STABLE STABLE Outlook POSITIVE STABLE Outlook BBBBBB-Issuer Rating WPD Holdings LLP BBB-BBB-Baa3 Issuer Rating BBBBBB-Baa3 Senior Unsecured Debt A-3 Commercial Paper WPD Holdings Limited BBBBBB-Baa3 Pass-Through Certificates STABLE STABLE Outlook PPL Montana Fitch Standard & Poor’s Moody’s
Forward-Looking Information Statement A-16 Statements contained in this presentation, including statements with respect to future earnings, energy prices, margins, sales and supply, marketing performance, hedging, 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; volatility in financial or commodities markets; weather conditions affecting customer energy usage and operating costs; competition in power markets; the effect of any business or industry restructuring; the profitability and liquidity of PPL Corporation and its subsidiaries; new accounting requirements or new interpretations or applications of existing requirements; operating performance of plants and other facilities; environmental conditions and requirements and the related costs of compliance, including environmental capital expenditures and emission allowance and other expenses; system conditions and operating costs; development of new projects, markets and technologies; performance of new ventures; asset acquisitions and dispositions; any impact of hurricanes or other severe weather on our business, including any impact on fuel prices; receipt of necessary government permits, approvals and rate relief; capital market conditions and decisions regarding capital structure; the impact of state, federal or foreign investigations applicable to PPL Corporation and its subsidiaries; the outcome of litigation against PPL Corporation and its subsidiaries; stock price performance; the market prices of equity securities and the impact on pension income and resultant cash funding requirements for defined benefit pension plans; the securities and credit ratings of PPL Corporation and its subsidiaries; political, regulatory or economic conditions in states, regions or countries where PPL Corporation or its subsidiaries conduct business, including any potential effects of threatened or actual terrorism or war or other hostilities; foreign exchange rates; new state, federal or foreign legislation, including new tax legislation; 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.11
“Earnings from ongoing operations” excludes the impact of special items. Special items include charges, credits or gains that are unusual or nonrecurring. Special items also include the mark-to-market impact of energy-related, non-trading economic hedges and impairments of securities in PPL’s nuclear decommissioning trust funds. These energy-related, non-trading economic hedges are used to hedge a portion of the economic value of PPL’s generation assets and PPL’s load-following and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., coal and power). The mark-to-market impact of these hedges is economically neutral to the company because the mark-to-market gains or losses on the energy hedges will reverse as the hedging contracts settle in the future. 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. "Domestic Gross Energy Margins" is intended to supplement the investors' understanding of PPL’s domestic non-trading and trading activities by combining applicable income statement line items and related adjustments to calculate a single financial measure. PPL believes that "Domestic Gross Energy Margins" is useful and meaningful to investors because it provides them with the results of PPL's domestic non-trading and trading activities as another criterion in making their investment decisions. "Domestic Gross Energy Margins" is not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. PPL's management also uses "Domestic Gross Energy Margins" in measuring certain corporate performance goals used in determining variable compensation. Other companies may use different measures to present the results of their non-trading and trading activities. Definitions of Financial Measures A-17
