PPL warns of Brazil-related earnings charges

By the OGJ Online Staff

HOUSTON, Jan. 22, 2002 — Energy rationing in Brazil could result in “substantial” charges to 2001 and 2002 earnings, Allentown, Pa.-based PPL Corp. said Tuesday.

PPL owns 89% of the Brazilian electricity distribution company Companhia Energetica do Maranhao (CEMAR) in Sao Luis, Maranhao, in northeastern Brazil. It serves about 1 million customers. Through subsidiaries, PPL has invested about $314 million in CEMA. PPL reported it could incur charges this year and next up to the carrying amount of its net investment in CEMAR.

Countrywide electricity rationing was implemented by the Brazilian government in mid-2001 after decreased rainfall hurt the country’s hydroelectric industry. Delays in the development of a regulatory structure slowed new nonhydroelectric generation. The turmoil has substantially disrupted Brazil’s wholesale energy markets, PPL said.

As a result, “CEMAR’s results of operations, its cash flows, and its continued ability to meet its financial obligations have deteriorated,” PP said in a filing with the US Securities and Exchange Commission. PPL said it is “currently evaluating the business and regulatory situation in Brazil to determine what actions should be taken with respect to the CEMAR investment.”

Analysts polled by Thomson Financial/First Call were estimating PPL would earn $4.14/share in 2001 and $3.41/share in 2002. Tuesday PPL shares closed down 3.70% to $33.06 in light trading on the New York Stock Exchange.

PPL blamed the problem on the inability of CEMAR and government regulators to agree on adjustments to electricity tariffs. In December 2001 and January 2002, the Brazilian electricity regulator issued rulings that won’t allow CEMAR to compensate for its rationing-related losses or meet its ongoing operational and financial requirements, PPL said.

Moreover, PPL said its Brazilian affiliate believes the tariff rulings demonstrate regulators may not resolve the current problems in a manner satisfactory to CEMAR. The continued problems and lack of appropriate regulatory action have significantly decreased available local financing for CEMAR, PPL said.

Earlier this month, PPL warned lower-than-expected profits from its Latin American operations, including Brazil, could take a toll on 2002 earnings.

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