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PRESS RELEASE: PPL Corp To Implement Initiative
Updated: Tuesday, April 24, 2001 05:10 PM ET

Securitization of U.S. Electricity Delivery Company

- More Than Doubles PPL's Generating Capacity Available for Wholesale Markets

- Lowers Company's Cost of Capital Through Increased Leverage


- Contributes to Significantly Increased Earnings Forecast


- Eliminates Energy Price Risk for Pennsylvania Delivery Customers


ALLENTOWN, Pa., April 24 /PRNewswire Interactive News Release/ -- PPL


Corporation (NYSE, news, msgs: PPL) Tuesday (4/24) announced a unique strategic initiative


that more than doubles the company's generating capacity available for


wholesale electricity markets, while lowering its cost of capital and


eliminating the risk of higher energy costs for PPL Electric Utilities'


customers for the rest of this decade.


(Photo: http://www.newscom.com/cgi-bin/prnh/19981015/PHTH025 )


"As a result of this initiative, PPL's energy supply business will have an


earnings growth profile consistent with a full unregulated, independent


generating company," said William F. Hecht, PPL chairman, president and chief


executive officer.


Hecht said an electric delivery business securitization plan -- the first


of its kind in the United States -- will provide PPL shareowners with


immediate benefits by growing the earnings potential from its unregulated


generation operations. The plan also will allow PPL to retain valuable


advantages related to operating both energy supply and energy delivery


businesses.


"PPL now will have about 10,000 megawatts of electricity available to sell


in the high-margin wholesale markets, a 150 percent increase over what we have


available today," said Hecht. "Additionally, this plan provides an effective


way to fund our high-growth, high-return energy supply business.


"Importantly, this securitization plan also protects our Pennsylvania


delivery customers from the potential for the kind of energy supply price


increases that recently have been experienced in other parts of the U.S.,"


said Hecht.


"This unique plan, which provides benefit for PPL Electric Utilities


customers as well as for the shareowners of PPL Corporation, is one more


example of the innovation that Pennsylvania's deregulation success has


spawned," Hecht said. "Clearly, the results show that Pennsylvania's approach


to deregulation should serve as an example for the nation."


Earnings forecasts increased


On Tuesday afternoon (4/24), the company also reported record first-


quarter earnings of $1.52 per diluted share, an increase of 54 percent over


the same period last year. (See accompanying news release for more details on


earnings.)


As the result of the securitization plan, the company's record earnings


performance in the first quarter of this year and continued strength in the


wholesale energy markets, Hecht said PPL has significantly increased its


earnings forecasts for 2001 and 2002.


Using conservative assumptions about future business conditions, PPL now


forecasts earnings in excess of $4.00 per share for 2001 and $4.55 to


$4.65 per share for 2002. Earnings per share of $4.00 in 2001 would represent


an increase of about 22 percent over 2000's adjusted, diluted earnings of


$3.28 per share. Earnings per share of $4.55 to $4.65 in 2002 would represent


an increase of about 15 percent over earnings now forecast for 2001.


Hecht said the financing savings alone from the securitization process are


expected to add about 2 cents to earnings per share this year and about


10 cents per share in 2002 and subsequent years, increases that are reflected


in the new earnings forecast that the company issued Tuesday.


"We are confident that our strong asset base, combined with our proven


operating, marketing and development capabilities, will lead to additional


growth in earnings through the middle of this decade," said Hecht. "For that


period, we expect a compound annual earnings per share growth rate of 12 to


15 percent, based on our 2000 adjusted earnings."


Securitization of transmission/distribution business


The securitization of the company's Pennsylvania electric transmission and


distribution business is being made possible by a series of steps that


substantially reduce the business risk of PPL Electric Utilities.


The first step in the process will be to structurally separate PPL


Electric Utilities from PPL Corporation and PPL Corporation's other affiliated


companies. This will allow an increase in leverage at PPL Electric Utilities


without adversely impacting credit ratings.


Hecht said the company has received preliminary confirmations from Moody's


and Standard & Poor's that their existing investment-grade credit ratings for


all of PPL's companies will be maintained as this securitization is


implemented.


The second step in the process, scheduled to be completed in early June,


calls for PPL Electric Utilities to solicit bids to contract with energy


suppliers to meet all of its electricity needs from 2002 through the end of


2009. PPL Electric Utilities currently has a full requirements supply


agreement with PPL EnergyPlus that expires at the end of 2001. Under the


Pennsylvania Customer Choice Act, PPL Electric Utilities is required, through


2009, to provide electricity at preset prices to its delivery customers who do


not select an alternate supplier.


Hecht said the securitization would help to ensure that energy supply


prices paid by PPL Electric Utilities' customers do not exceed the price caps


established by the company's agreement with the Pennsylvania Public Utility


Commission in 1998.


"PPL Electric Utilities does not plan to seek recovery from its customers


for any energy supply costs that exceed the price caps established by the


PUC," said Hecht. "Any payments that PPL Electric Utilities must make to


energy suppliers that are above this level would be financed through the


issuance of senior secured debt by PPL Electric Utilities." The delivery


customers of PPL Electric Utilities will benefit over the longer term because


lower financing costs will reduce the amount of any rate relief that might


otherwise be required over the next 10 to 15 years, Hecht said.


"As a result of this initiative, PPL Electric Utilities and its customers


should be fully insulated from increases in energy prices for nearly all of


this decade," said Hecht. "Of course, customers will always have the option


of changing suppliers. That option would be particularly valuable if energy


prices fall."


PPL's wholesale market capacity increases by 6,000 megawatts


Hecht said PPL EnergyPlus will bid on the new PPL Electric Utilities


supply contract at market-competitive rates.


To the extent that PPL EnergyPlus is a successful bidder, it will have


locked up an eight-year contract to sell a portion of its available energy at


market-competitive wholesale prices. To the extent that PPL EnergyPlus is not


a successful bidder for PPL Electric Utilities supply, it will have additional


energy to be sold in the attractive wholesale markets.


"Regardless of the results of PPL EnergyPlus' bid on the PPL Electric


Utilities supply contract, this transaction will result in an additional


6,000 megawatts of our Pennsylvania-based generation being sold in the


wholesale market," said Hecht.


Several aspects of this financial restructuring must be reviewed and


approved by the Pennsylvania Public Utility Commission. PPL plans to request


such approvals later this week.


"This securitization is a significant milestone in PPL Corporation's


effort to fully realize the value of its excellent generating assets and


capabilities. This strategic initiative not only expands our capabilities in


the wholesale generation market, but also it provides us with low-cost funds


for our generation expansion projects that will come into service over the


next two years," said Hecht.


Hecht added that PPL's Energy Marketing Center, with trading operations in


both the eastern and western United States, continues its superior performance


in marketing the company's generation.


"Our conservative estimates show that our wholesale marketing operations


directly contributed more than $60 million to net income in 2000 over and


above the earnings of our generating assets, improving our returns by more


than 300 basis points," said Hecht. "Our remarkable increase in earnings and


our confidence in the future are fueled by the day-to-day successful marketing


of our well-run generating assets."


Hecht also announced that PPL Corporation plans to issue $400 million of


premium equity participating security units (PEPS, news, msgs(SM, news, msgs) Units) in early May.


The proceeds will be used to provide additional funding for domestic


generation assets currently under development and to reduce short-term debt.


The earnings impact of this financing has been incorporated into the company's


updated earnings forecasts. The company's current business plan does not


necessitate issuing any additional common stock through 2003.


Dividend policy


This restructuring is yet another confirmation of the transformation of


PPL to a successful growth-oriented energy company, Hecht said. One element


of that transformation is a more growth-oriented dividend policy. "Given our


stated objective of pursuing long-term growth for our shareowners by


reinvesting in the business, we have decided that we will maintain the annual


dividend rate at $1.06 per share for the foreseeable future," said Hecht.


"Clearly, our reinvestment of earnings in the business has resulted in far


greater returns to our shareowners -- through increases in the stock price --


than would have resulted from increased cash dividends."


PPL was advised on this transaction by Morgan Stanley.


PPL Corporation generates electricity at power plants in Pennsylvania,


Maine and Montana; markets wholesale or retail energy in 42 U.S. states and


Canada; and delivers electricity to nearly 6 million customers in


Pennsylvania, in the United Kingdom and in Latin America.


Certain statements contained in this news release, including statements


with respect to future earnings, dividends, energy prices, supply, sales,


margins and deliveries, costs, strategic initiatives, subsidiary performance,


growth, project development, 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; weather variations affecting customer energy usage;


competition in retail and wholesale 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; system conditions


and operating costs; development of new projects, markets and technologies;


performance of new ventures; political, regulatory or economic conditions in


countries where PPL Corporation or its subsidiaries conduct business; receipt


of necessary governmental approvals; capital market conditions; stock price


performance; foreign exchange rates; and the commitments and liabilities of


PPL Corporation and its subsidiaries. Any such forward-looking statements


should be considered in light of such factors and in conjunction with PPL


Corporation's Form 10-K and other reports on file with the Securities and


Exchange Commission.


Questions and Answers on Strategic Initiative


What is securitization?


Securitization is a financing somewhat like a home equity loan. In this


case, PPL Electric Utilities will issue bonds to investors and those bonds


will be secured by a lien on the assets of PPL Electric Utilities.


Why would bond buyers find PPL Electric Utilities bonds attractive?


Potential investors are expected to view these bonds as attractive and


secure investments because PPL Electric Utilities is a low-risk, regulated


electricity delivery business with consistent and stable revenue. In


addition, PPL Corporation will completely protect that earnings stream from


the business activities of PPL's unregulated subsidiaries, which generally are


viewed as being more risky than the regulated electricity business. The bonds


will be rated as investment grade by the three major rating agencies.


How will PPL Electric Utilities use this money?


Primarily, PPL Electric Utilities will use the funds to buy electricity,


using a long-term contract, for its delivery customers who have not chosen an


alternate electricity supplier. PPL Electric Utilities also will use these


funds to retire higher cost debt.


How is PPL Electric Utilities currently obtaining the energy it needs for


supply to customers who do not choose an alternate supplier?


Currently, PPL Electric Utilities is purchasing from PPL EnergyPlus,


another PPL Corporation subsidiary, the energy it needs to supply customers


who do not choose an alternate supplier. This arrangement has reduced the


amount of generation that PPL EnergyPlus has available to sell in the more


profitable competitive wholesale markets.


Did PPL Corporation consider an IPO to fully separate its generation and


delivery businesses?


PPL Corporation believes that this transaction is superior to an IPO,


since it retains PPL Corporation's financial scale; redeploys capital from a


low-growth, low-return business to a high-growth, high-return business; and


provides the greatest flexibility for the future. By repositioning PPL


Electric Utilities in this way, PPL Corporation will capture the optimistic


future associated with wholesale energy markets. And, our common stock will


be that of a generating company.


Might PPL do an IPO in the future?


This current transaction would not preclude a properly designed full


separation sometime in the future.


Will PPL EnergyPlus bid on the supply needs of PPL Electric Utilities?


PPL EnergyPlus plans to bid on this contract, at market-based prices.


Would it be better for PPL Corporation's financial condition if PPL


EnergyPlus were to win all or most of the bid for PPL Electric Utilities'


supply needs?


Somewhat surprisingly, it doesn't matter much!


If PPL EnergyPlus is a successful bidder, it will have locked up an eight-


year contract to sell a portion of its available energy at market-competitive


wholesale prices. If PPL EnergyPlus is not a successful bidder, it will have


additional energy to be sold in the attractive wholesale market.


Regardless of the results of this supply contract, PPL EnergyPlus will


have an additional 6,000 megawatts of capacity to be sold in the wholesale


markets.


What is the wholesale market?


_Wholesale_ sales of electricity are sales to other utilities or energy


marketers who don't use the electricity themselves, but sell it to other


utilities, energy marketers or end-users.


Is this opportunity unique to PPL Corporation or could other electricity


companies use this approach as well?


While each company's situation is different, there is no reason why other


companies couldn't consider this sort of transaction. In fact, since it


lowers costs, regulators may well encourage consideration of this structure.


How does this initiative affect PPL's Pennsylvania electric delivery


customers?


This initiative further protects our Pennsylvania delivery customers from


any problems that might be encountered by our unregulated businesses and it


ensures that those who do not shop for an alternative supplier will have


adequate electricity supplies -_ at capped prices -_ through 2009.








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