PPL slashes earnings forecast and cancels power projects

By the OGJ Online Staff

HOUSTON, Jan. 4, 2002 – Fallout from the Enron Corp. bankruptcy contributed to slashed earnings projections for Allentown, Pa.-based PPL Corp.

The power generation and utility holding company Friday cut its earnings forecast for 2001 and 2002 and warned earnings could even be worse than estimated because of a write-down on an investment in a UK utility. PPL also said it will cancel about 2,100 Mw of planned development valued at $1.3 billion.

PPL said it expected earnings to be $3.35-$3.45/share for 2001 when consensus estimates called for earnings of $4.13/share. This estimate included charges related to Enron’s bankruptcy. But PPL said it excluded the “potential impact of issues related to the company’s investment in its UK affiliate Western Power Distribution.”

In connection with the Enron bankruptcy and the resulting loss of cash flow from the Teesside power plant, PPL reported it is evaluating the carrying value of its investment in Western Power Distribution. PPL said it couldn’t say how much the write-down would be but projected the impact could be “material.”

The company also lowered its projections for 2002 to $3.35-$3.45/share from $4/share because of falling prices in the wholesale energy market. Electricity prices are at a 4-year low, said CEO William Hecht.

Earnings will also be negatively affected by the company’s Latin American operations because of the continued drought and general economic conditions in Brazil, the company said.

PPL said the 2002 estimate doesn’t include a negative impact on accounting for “goodwill.” Accounting rules are changing that could result in a “substantial negative impact” for 2002, it said. The company has not quantified the impact at this time.

PPL said it is well positioned to continue growing at single digits for the years beyond 2002. Because of its strong cash flow and liquidity position, the company reported it is evaluating whether to increase its common stock dividend “near term.”

The company reported it now expects its generation capital expenditures over the next 2 years to be about $1.5 billion, for which it already has obtained funding. “Current market prices and regulatory conditions do not justify our continued pursuit of six projects that were in the early stages of development,” said Hecht.

Five of the cancelled projects are in Pennsylvania and one in Washington.

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