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PPL Supply Earnings Weighed By Lower Pricing, Outage

August 5, 2011
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PPL Corporation's Supply segment reported lower earnings from ongoing operations of $68 million for the second quarter, versus $164 million a year ago, on lower energy margins as well as a refueling outage at the Susquehanna nuclear plant.

The largest driver for the decrease was lower margins for Supply's eastern energy and capacity sales. Operations and maintenance expense, largely due to the Susquehanna refueling and an unplanned turbine blade replacement, was another significant negative driver.

Partially offsetting these negative drivers were higher margins on full-requirements sales contracts (now a smaller part of Supply's business after shifting away from such contracts) and better runtimes and margins from Supply's intermediate and peaking units.

During an earnings call, executives said that most of the full requirements contracts remaining in Supply's portfolio are legacy contracts that are rolling off this year, or are short-term contracts. PPL presented updated hedging information to investors in announcing results, and reported that in the new hedge disclosures for 2013, there are essentially no full requirements contracts.

Executives also said that Supply's marketing and trading activities have been very strong.

Gross margin for PPL's unregulated energy segment was $493 million for the quarter, versus $621 million a year ago.

Unregulated retail electric and gas revenues were $180 million for the quarter, versus $103 million a year ago. Revenues to the unregulated segment from POLR sales to PPL Electric Utilities were $4 million, versus $64 million a year ago.

Realized wholesale energy marketing revenues for the segment were $716 million (versus $1.219 billion a year ago), while revenue from net energy trading margins was $10 million, versus $5 million a year ago.

Retail sales by PPL EnergyPlus (including POLR sales to PPL Electric Utilities) were 2,203 GWh for the quarter, versus 2,165 GWh a year ago.

Reported earnings, which include the impact of special items, at the Supply segment were $91 million for the quarter, versus $30 million a year ago.

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