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There is an energy shortage. There isn't an energy shortage. The sentiment earlier this year was that it would take at least a couple of years to build the additional power plants to meet the country's increasing energy demands. Momentum investors ran the stock up to 62 when the California crisis was in effect. However, since the economy has slowed to recession levels those fears have subsided and energy prices have come down. Just as the stock price had gotten overdone on the upside it appears it is getting overdone on the downside.

PPL is now trading at one of the utility sector's lowest pe's (8 based on this year's earnings forecast of $4+). Granted there is some concern over the Montana situation regarding the lawsuit against the Montana Public Service Commission (precedents appear to favor PPL). Also, a pending energy contract sale with Montana Power is uncertain at this point in time (however, a new lower offer has been made by PPL). Because PPL is heavily involved in the wholesale power markets any market price decrease could have an adverse impact on earnings going forward. While PPL has confirmed their earnings forecast (yesterday) of $4 and change for this year there was no guidance of earnings for 2002 (at least not yet). Previously PPL had forecast about $4.60 for 2002.

The insider sales less than 2 months ago appears to be well timed on their part. I'm guessing that they decided to sell around the fifty mark but because of the quick price drop and the time it took for them to process their requests they got a price of 45 instead. I'm also guessing that they recognized the lower wholesale energy prices (primarily because of the slowing economy) were in the cards and that would precipitate a stock price contraction. They simply took profits because of the quick run-up.

Longer term I believe the positives outweigh any negatives. The company has hedged the vast majority of its power sales at rates above the current wholesale spot prices, so it doesn't have a lot of exposure to the recent decline in power prices. Also, its generating capacity is growing as the company completes more projects. In addition, its power-supply unit has won a contract to supply its distribution unit (PPL Utilities) with electricity through 2009. This should help stabilize PPL's profitability over the next several years, even if power prices decline. The one big negative is that earnings growth will decelerate several years out as power market prices moderate due to increased online generating capacity. Irregardless, because of its large exposure to the commodity business side as opposed to its past reliance on its distribution business volatility will continue to be a factor in its stock price performance.

Regards,
Mike

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