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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: )

"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


"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


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


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


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


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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