PPL wins Utility of the Year.

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by Kathleen Davis, senior editor

PPL has my favorite marketing slogan of any U.S. utility: “Whenever you find the inspiration, we’ll be there when the light comes on.”

Here at EL&P, our “light” lit a few months ago when discussing the annual utility of the year award. Many names were tossed out and talked about, but only PPL cast a glow in all the areas we discussed: customer response, positive shareholder value, and a look ahead to renewables and proactive policies. Among the deciding factors: PPL’s continued pilot program on a time-of-use pricing option that it wants open to all customers by 2010, its recent groundbreaking on an unusual renewable energy generating facility—a landfill-gas plant—and its silver medal in customer satisfaction in the East according to J.D. Power’s annual survey.

Headquartered in Allentown, Pa., PPL controls more than 11,000 MW of generating capacity in the United States, sells energy in key U.S. markets, and delivers electricity to about 4 million customers in Pennsylvania and the United Kingdom.

In announcing this award to PPL, we spoke to James Miller, the company’s chairman, president and CEO, about all of those factors, as well as nuclear energy, climate change and what inspires him at PPL.

Your Pennsylvania distribution subsidiary, PPL Electric Utilities, ranked quite high on the J.D. Power Associate’s 2008 annual customer satisfaction survey: second in the entire East Region. What are you doing to make your customers so happy?
We appreciate the positive response from our customers, but survey results are not an end in themselves; they’re merely an indication of how customers feel we are meeting their expectations for safe, reliable and affordable service. We track customer perceptions through independent surveys, reports from the Pennsylvania Public Utility Commission and our own quarterly research.

Our utility business places a priority on understanding what customers want and expect. We have dedicated employees who go the extra mile to serve customers. We were an early adopter of advanced metering, which has enabled us to provide tools like our online Energy Analyzer, which helps customers understand how they use electricity and how they can save.

We’re grateful that customers have consistently expressed their satisfaction with PPL Electric Utilities. Our U.K. subsidiary, Western Power Distribution, also is a recognized leader in quality service. Our distribution subsidiaries do not take customer satisfaction for granted and are always looking for ways they can improve.

PPL is a large proponent of time-of-use pricing. What’s the catalyst behind your push to have time-of-use pricing options available to all of your customers by 2010? What does it bring to PPL? What does it offer your customers?
Customers should have choices for managing their electric use and greater control over their electricity purchasing decisions. That’s why PPL Electric Utilities has expanded an existing time-of-use pilot program, proposed a new year-round time-of-use pilot program, and pledged to make time-of-use rate options available to all customers in 2010.

Time-of-use rates give customers a way to save on their electric bills. The incentive to shift use into off-peak hours provides an opportunity to shave peak demand, which could help PPL Electric Utilities reduce the price of electricity it purchases from suppliers in the competitive market. The value of this approach is supported by recently enacted legislation requiring that smart meters and time-of-use rate options be deployed by other electric utilities throughout the Commonwealth of Pennsylvania.

Besides the time-of-use pilot you’re introducing this year, you have a number of other programs aimed at “educating” the electric consumer—your Energy Analyzer that’s planned for your Web site, for example, that you mentioned earlier. Why is it so important to PPL to have in-the-know customers?
With energy prices rising and environmental concerns growing, it’s more important than ever that customers understand the power they have to save energy and money.

By taking simple steps to make their homes more energy efficient, customers can help offset future price increases and protect the environment.

The key to making good decisions is having the right information. Giving them that information is what PPL Electric Utilities’ e-power efforts are all about. PPL Electric Utilities’ Energy Analyzer gives customers daily and hourly electric usage information. It lets them evaluate their home and get tips to save. Additionally, PPL Electric Utilities personnel are visiting malls, senior centers, home improvement stores and special events throughout our service territory to talk about energy efficiency. And, the company is also supporting energy-efficiency rebates for small businesses, grants for companies that build “green” and energy education in schools.

Your generation cap expires on the last day of 2009 and you predict a 36 percent price increase for the average residential customer once that is lifted. How do you see this impacting your customer satisfaction? Will the rate stabilization plan approved by the public utility commission this year help ease the pain?
Higher prices in 2010 will be difficult for many customers. PPL Electric Utilities’ rate stabilization plan, which allows them to spread out the increase over several years, will help those who enroll.

New rate options and customers’ efforts to improve energy efficiency will also help. But it will still be difficult, and it will affect customer satisfaction.

What’s important for PPL Electric Utilities is that we continue to be open and honest with customers about the changes ahead, just as we’ve been for more than two years. Talking with customers about higher energy costs is not the popular thing to do, but it is the right thing to do.

It’s also important that we look for more opportunities to expand the options available to customers and to help them better understand how they use electricity and how they can save.

Finally, PPL Electric Utilities is purchasing over a three-year period (2007-2009) the generation supply it will need for default service in 2010. It has procured two-thirds of its supply needs for 2010 by spreading out the purchases in this way, and we expect to avoid short-term spikes in the market price of that supply and, thereby, keep the cost as low as possible.

PPL Electric Utilities is committed to helping customers through this transition and to making it as smooth as can be.

Climate change is a huge issue these days, and Pennsylvania is one of the states with a mandated renewable portfolio standard (18 percent by 2020). Are you on track to meet or exceed that standard?
PPL Electric Utilities is on track to meet its renewable portfolio standard obligations of 6.7 percent beginning January 1, 2010. The Pennsylvania Public Utility Commission approved the Competitive Bridge Plan, under which PPL Electric is purchasing the generation supply it will need for default service in 2010. Under this plan, electricity suppliers providing energy and capacity in 2010 also must provide renewable energy credits. These credits—or RECs—will help PPL Electric Utilities meet the Alternative Energy Portfolio Standards for 2010.

PPL power plant in Colstrip, Montana.
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In addition, PPL EnergyPlus, our energy marketing subsidiary, continues to market an expanding renewable energy portfolio through development with PPL Renewable Energy, through power purchase agreements, and through renewable energy off-takes.

PPL EnergyPlus, along with the company affiliates PPL Generation and PPL Renewable Energy, presently own, manage or contract about 300 MW of renewable generation—with 215 MW of wind, 15 MW of biomass, 45 MW of small hydro, 25 MW of landfill gas and 15 MW of solar.

In addition to the above renewable resources, the company owns an additional 900 MW of larger-scale hydro facilities and 2,300 MW of nuclear energy. Therefore, PPL EnergyPlus markets a portfolio in which approximately 40 percent of the generation output is from clean energy resources.

PPL EnergyPlus markets this portfolio through marketing channels related to the compliance and voluntary markets. Compliance markets include state renewable portfolio standards (RPS) which are typically assigned to load-serving entities (LSEs) who serve customers in a state. Voluntary markets include wholesale and retail customers who want to diversify their resource mix or want to add a green resource to their portfolio.

Most companies investing in renewables are pushing heavily into wind. PPL, however, has quite a bit of diversity, including the recent groundbreaking for a landfill-biogas plant and plans for a large-scale solar facility in New Jersey. Why so much diversity? How does the company’s hydro expansion and DG fit into the overall equation?
At PPL, we understand that there is no single solution to meeting future energy needs, especially with the uncertainty about legislation that would address greenhouse gas emissions. We view renewable energy as part of our core business and believe it has an important role in the nation’s energy mix.

PPL Renewable Energy has not made a major push in developing wind energy projects, but we have made a 20-year commitment to buy the electricity generated at two wind farms in Pennsylvania and agreed to buy half of the renewable energy credits produced by a new wind farm in West Virginia. The three projects total 132 MW of renewable energy, which also provides important renewable energy credits to help PPL EnergyPlus, our energy marketing subsidiary, to meet renewable portfolio standards in states that have them.

Our commitment to renewable energy production extends beyond wind power, as you noted.

Since 2000, PPL Renewable Energy has developed, built and operated renewable energy projects that total more than 30 MW of generation—enough to power 24,000 homes. These include solar, methane gas-to-energy, fuel cell and cogeneration renewable energy facilities throughout the mid-Atlantic and Northeast.

Over the next several years, PPL plans to invest more than $100 million in new renewable energy projects. The company also plans to invest more than $500 million to expand its hydroelectric generation in Maine, Montana and Pennsylvania as a way to grow generation from non-carbon sources.

PPL publicly supported the Bingaman-Specter Low Carbon Act, which has lost its steam. Looking forward at the potential for energy legislation on climate change, what would you like to see passed? What rules would you prefer and, conversely, what rules do you believe you’ll end up dealing with?
At PPL, we’d prefer a unified, national response [on climate change], but most of all we need to know what the rules will be, remove the uncertainty and get on with reducing greenhouse gas emissions. The objective should be to slow the growth of greenhouse gas emissions in the near term, then stop and in time reduce those emissions. This approach will allow for technology improvements we need to move the world toward a low-carbon economy while minimizing short-term economic harm.

Inside a PPL nuclear reactor
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Federal legislation should cover all greenhouse gases and all sectors of the economy that emit greenhouse gases. It should regulate as far upstream as possible so that the number of regulated entities is manageable. For industries that already measure carbon dioxide emissions, the point of regulation should be at the stack, in what’s been referred to as a hybrid point of regulation. Legislation should include an emissions cap with allowance trading, with provisions for eventual international allowance trading.

Nuclear and renewable energy will play key roles in addressing climate change. Federal tax incentives for renewable energy, an expanded federal loan guarantee program for financing new nuclear plant construction, and a solution to the spent fuel issue are essential. So is increased federal funding for carbon capture and storage technologies that enable us to continue using our most abundant
fuel, coal.

At an early September Lehman Brothers conference, you discussed exploring options of a new nuclear unit to complement the uprates on Susquehanna 1 and 2. What’s in the works and how would a new nuclear unit fit into your future generation portfolio?
Our economy runs on electricity, and the demand keeps growing. While we work on the demand side of the equation with improved efficiency, conservation programs and time-of-use options, we must also address supply with new sources of generation.

Renewables have a role, and we’re pursuing that option, but renewables are small-scale and intermittent. We need baseload generation; it’s the backbone of reliable supply.

In that regard, PPL has submitted an application to the NRC for a Combined Operating License for a new nuclear unit, and we’ve submitted the first part of an application to the Department of Energy for a federal loan guarantee that we would need to finance construction
if we decide to go ahead. The company plans to submit a second part of the nuclear loan guarantee application as required before the Dec. 19, 2008, deadline.

A new nuclear generating unit would help meet the growth in electricity demand from a source that does not emit carbon dioxide, which is an important factor in our society today.

In a climate where many companies are afraid of nuclear, you value it. Why does nuclear make sense for PPL?
Nuclear is one part of our overall strategy to grow the generation business and an important portion of PPL Generation’s diverse fuel mix. With other options for large-scale baseload generation—namely coal or natural gas—there remains uncertainty over carbon dioxide emission restrictions, and the volatility of fuel prices.

There are issues with nuclear, also, such as construction costs, spent fuel and political acceptance. And, we are still several years from a decision on whether to build a nuclear unit. But weighing the options available, nuclear can be a good choice in our present situation.

With the most recently available EIA numbers, you were the top in revenue. What top three items in your across-the-spectrum mix, would you say, give PPL such a valuable portfolio?
Three things. First, we are well-hedged for rising fuel prices at our power plants. Second, despite rising fuel costs, we benefit greatly from low production costs at our hydro, coal-fired and nuclear power plants. And, finally, we are well-positioned for coming carbon dioxide rules due to our balanced generation fleet and our ongoing substantial investment in renewable energy sources. At PPL Generation, 40 percent of the electricity generated produces no greenhouse gases; it will be around 50 percent if the company adds a new nuclear unit and completes planned uprates at some of the hydro facilities in Pennsylvania and Montana.

You predict strong long-term earnings growth from your current range of $2.17 to $2.27 per share to $4 to $4.60 a share in 2010. What makes you so confident in this growth? What’s the plan to make that high jump?
(Editor’s note: PPL Corporation updated its 2008 and 2010 earnings guidance and initiated 2009 earnings guidance during its earnings conference call and Web cast on Nov. 4, which was past the deadline for this issue.)

A shot of PPL’s corporate headquarters.
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High fuel costs are a challenge in the near term, particularly with the constraint of generation rate caps in Pennsylvania until the end of 2009. We think PPL, with a hybrid strategy (featuring a healthy balance of regulated and unregulated businesses in multiple markets) is especially well-positioned to weather the current challenging environment and to thrive. We remain confident that our earnings outlook brightens in 2010 because of our strong fundamentals at PPL, the hedges we have in place, and because of our ability to renegotiate long-term, fixed-rate energy supply contracts starting in 2010, following the expiration of the generation rate caps and a provider-of-last-resort contract affecting about 6,000 MW of generation capacity in Pennsylvania.

What are you—as chairman, president and CEO—most proud of with PPL? What do you brag about when you brag about this company?
I think the most impressive thing about PPL is the company’s ability to find competitive advantage in changing market conditions. Our corporate strategy relies on PPL people being flexible and being able to turn on a dime. And, PPL people deliver.

Miller is chairman, president and CEO of PPL Corp.—so named in August 2005. He earned a bachelor’s degree in electrical engineering from the University of Delaware and served in the U.S. Navy nuclear program. Before joining PPL Generation in February 2001, Miller served as executive vice president and vice president, production of USEC Inc. He also held earlier positions at ABB and Delmarva Power and Light Co.

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