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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934
Check the appropriate box:
o | Preliminary Information Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) | |
þ | Definitive Information Statement. | |
PPL Electric Utilities Corporation
Payment of Filing Fee (Check the appropriate box):
þ | No fee required. | |
o | Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11 |
(1) | Title of each class of securities to which transaction applies: | ||
(2) | Aggregate number of securities to which transaction applies: | ||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): | ||
(4) | Proposed maximum aggregate value of transaction: | ||
(5) | Total fee paid: |
o | Fee paid previously with preliminary materials. | |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: | ||||||
(2) | Form, Schedule or Registration Statement No.: | ||||||
(3) | Filing Party: | ||||||
(4) | Date Filed: | ||||||
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May 24, 2007
and
Information Statement
(including appended
2006 Financial Statements)
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Two North Ninth Street
Allentown, Pennsylvania 18101
Time and Date | 9:00 a.m., Eastern Daylight Time, on Thursday, May 24, 2007. |
Place | Offices of PPL Electric Utilities Corporation Two North Ninth Street Allentown, Pennsylvania |
Items of Business | To elect directors |
Record Date | You can vote if you are a shareowner of record on February 28, 2007. |
Proxy Voting | Proxies are not being solicited from shareowners because a quorum exists for the Annual Meeting based on the PPL Electric Utilities Corporation stock held by its parent, PPL Corporation. PPL Corporation owns all of the outstanding shares of common stock and as a result 99% of the voting shares of PPL Electric Utilities Corporation. PPL Corporation intends to vote all of these shares in favor of the election of PPL Electric Utilities Corporation’s nominees as directors. |
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Schedule A |
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Two North Ninth Street
Allentown, Pennsylvania 18101
Annual Meeting of Shareowners
May 24, 2007
9:00 a.m. (Eastern Daylight Time)
• | the election of six directors for a term of one year. |
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recommends that shareowners vote FOR this Proposal
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c/o Corporate Secretary’s Office
PPL Electric Utilities Corporation
Two North Ninth Street
Allentown, Pennsylvania 18101
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Dean A. Christiansen |
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• | Expertise and experience through competitive salaries; | |
• | Short-term financial and operational performance through annual cash incentive awards, which are tied to specific, measurable goals; | |
• | Achievement of annual strategic objectives through performance-based PPL Corporation restricted stock and stock unit awards; | |
• | Long-term financial and operational performance through performance-based PPL Corporation restricted stock or stock unit awards; and | |
• | Stock price growth through awards of stock options for shares of PPL Corporation common stock. |
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Percentage of Total Direct Compensation | |||||||||||||||||
Senior Vice | |||||||||||||||||
President- | Other Executive | ||||||||||||||||
Direct Compensation Element | President | Financial | Officers(2) | ||||||||||||||
Salary | 32.3 | % | 32.3 | % | 41 | % | |||||||||||
Target Annual Cash Incentive Award | 16.1 | % | 16.1 | % | 16 | % | |||||||||||
Target Long-term Incentive Awards | 51.6 | % | 51.6 | % | 43 | % | |||||||||||
(1) | Percentages based on target award levels as a percentage of total direct compensation. Values of restricted stock unit and stock option awards shown in the tables throughout this Information Statement may reflect compensation expense recognized in 2006 for financial reporting purposes, rather than fair market values calculated using the number of shares or options actually awarded. See “—Tax and Accounting Considerations—SFAS 123(R)” at the end of this CD&A at page 24 for further details on how equity awards are expensed. | |
(2) | Includes the positions of Treasurer; Vice President and Controller; and Senior Vice President-Transmission and Distribution Engineering and Operations. |
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PPL Competitive | ||||||||||||||||||||||
Name and Position | Prior Salary | Range | 2006 Salary | % Change | ||||||||||||||||||
J. F. Sipics | ||||||||||||||||||||||
—President(1) | $ | 325,000 | $323,000-$437,000 | $ | 350,000 | 7.7 | % | |||||||||||||||
P. A. Farr | ||||||||||||||||||||||
—Senior Vice President-Financial | 350,000 | $323,000-$437,000 | 390,000 | 11.4 | % | |||||||||||||||||
J. E. Abel | ||||||||||||||||||||||
—Treasurer | 250,773 | $221,000-$299,000 | 265,773 | 6.0 | % | |||||||||||||||||
J. M. Simmons, Jr. | ||||||||||||||||||||||
—Vice President and Controller(2) | — | $221,000-$299,000 | 225,000 | — | ||||||||||||||||||
D. G. DeCampli(3) | ||||||||||||||||||||||
—Senior Vice President-T&D Engineering and Operations | — | $221,000-$299,000 | 265,000 | — | ||||||||||||||||||
(1) | Mr. Sipics served as president for all of 2006, but retired on January 1, 2007. | |
(2) | Mr. Simmons joined PPL on January 30, 2006 as Vice President and Controller of the company and of the company’s parent, PPL Corporation. | |
(3) | Mr. DeCampli joined the company on December 4, 2006 at the salary noted for 2006. |
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Targets as % | |||||
Position | of Salary | ||||
President | 50 | % | |||
Senior Vice President-Financial | 50 | % | |||
Treasurer; Vice President and Controller; and Senior Vice President—T&D Engineering and Operations | 40 | % | |||
SVP—T&D | Treasurer and | |||||||||||||||||||
Engineering and | VP & | |||||||||||||||||||
Category | President | SVP-Financial | Operations | Controller | ||||||||||||||||
Financial Results | 40% | 60% | 40% | 40% | ||||||||||||||||
Operational Results | ||||||||||||||||||||
PPL Generation | — | 9% | — | 9% | ||||||||||||||||
PPL EnergyPlus | 10% | 9% | — | 9% | ||||||||||||||||
PPL Electric Utilities | 38% | 9% | 35% | 9% | ||||||||||||||||
PPL Gas Utilities | 2% | 5% | — | |||||||||||||||||
PPL Global | 10% | 9% | — | 9% | ||||||||||||||||
PPL Energy Services Group | — | 4% | — | 4% | ||||||||||||||||
Individual Results | * | * | 20% | 20% | ||||||||||||||||
* | Annual cash incentive awards for these executive officers are based on the financial and operational results of PPL for the year and are not further adjusted for individual performance. |
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annual cash incentive award | = | result | × | weights (Table 4) | × | target award % (Table 3) | × | year-end salary (Table 2) |
Salary Basis for | Total Goal | 2006 Annual Cash | |||||||||||||||
Name | Award | Results | Award(1) | ||||||||||||||
J. F. Sipics | $ | 350,000 | 118.8% | $ | 207,900 | ||||||||||||
P. A. Farr | 390,000 | 131.3% | 256,000 | ||||||||||||||
J. E. Abel | 265,774 | 127.1% | (2) | 135,100 | |||||||||||||
J. M. Simmons, Jr. | 225,000 | 129.1% | (3) | 107,500 | |||||||||||||
D. G. DeCampli | 265,000 | 110.4% | (4) | 117,000 | |||||||||||||
(1) | Total award amounts may differ from the amounts included in the Non-Equity Incentive Award column of the Summary Compensation Table due to amounts exchanged under the Premium Exchange Program, which is described on page 23 of this CD&A under “— Ownership Guidelines.” | |
(2) | Includes individual results achieved at 120% of target performance. | |
(3) | Includes individual results achieved at 130% of target performance. | |
(4) | Assumes 12 months in the position as provided by the terms of Mr. DeCampli’s employment offer letter. |
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Results | Weight | Attainment | |||||||||||||
PPL Corporation EPS (60% weight) | 140.9% | 40% | 56.4% | ||||||||||||
Operational: | |||||||||||||||
PPL EnergyPlus (10% weight) | |||||||||||||||
EnergyPlus Energy Marketing Center | 142.5% | 10.0% | 14.3% | ||||||||||||
Utility Operations (9% weight) | |||||||||||||||
PPL Electric Utilities (95%) | 82.0% | 38.0% | 31.1% | ||||||||||||
PPL Gas Utilities (5%) | 107.2% | 2.0% | 2.1% | ||||||||||||
PPL Global (10% weight) | |||||||||||||||
Global | 149.3% | 10.0% | 14.9% | ||||||||||||
Total Weight & Attainment | 100.0% | 118.8% | |||||||||||||
Results | Weight | Attainment | ||||||||||||
PPL Corporation EPS (60% weight) | 140.9% | 60% | 84.6% | |||||||||||
Operational: | ||||||||||||||
PPL Generation (9% weight) | ||||||||||||||
Generation East Fossil/Hydro (50%) | 95.4% | 4.5% | 4.3% | |||||||||||
Susquehanna (30%) | 97.1% | 2.7% | 2.6% | |||||||||||
Generation West Fossil/Hydro (20%) | 79.9% | 1.8% | 1.4% | |||||||||||
PPL EnergyPlus (9% weight) | ||||||||||||||
EnergyPlus Energy Marketing Center | 142.5% | 9.0% | 12.8% | |||||||||||
Utility Operations (9% weight) | ||||||||||||||
PPL Electric Utilities (95%) | 82.0% | 8.5% | 7.0% | |||||||||||
PPL Gas Utilities (5%) | 107.2% | 0.5% | 0.5% | |||||||||||
PPL Global (9% weight) | ||||||||||||||
Global | 149.3% | 9.0% | 13.4% | |||||||||||
PPL Energy Services Group (4% weight) | ||||||||||||||
Energy Services (30%) | 125.0% | 1.2% | 1.5% | |||||||||||
Synfuels (20%) | 101.3% | 0.8% | 0.8% | |||||||||||
Telcom (15%) | 142.9% | 0.6% | 0.9% | |||||||||||
PPLSolutions (15%) | 94.1% | 0.6% | 0.6% | |||||||||||
Development (20%) | 117.9% | 0.8% | 0.9% | |||||||||||
Total Weight & Attainment | 100.0% | 131.3% |
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• | Any impact from changes in accounting resulting from FASB or SEC determinations that, as of January 31, 2006, were not scheduled to become applicable to current year financial statements, or if the financial statement impact was not determinable based on the issued or proposed guidance. | |
• | Costs associated with the refinancing of debt or senior equity securities where refinancing results in a positive net present value. | |
• | Asset impairments related to or resulting from a decision to sell assets or discontinue operations where such sale or discontinued operations results in a positive net present value. | |
• | Anymark-to-market (MTM) impact on earnings from energy marketing and trading activities. The MTM changes of forward commitments are not reflective of the ultimate profitability of the MTM transactions. The ultimate financial impact of MTM transactions, as well as related transactions that do not receive MTM accounting, are reflected in earnings as contracted products and services are delivered. | |
• | The outcome of the legal proceedings relating to a PJM billing dispute at the Federal Energy Regulatory Commission. PJM, or PJM Interconnection, L.L.C., is the independent operator of the electric transmission network for the region in which PPL Electric Utilities Corporation provides transmission service. |
• | Safety goals are included in all units (limits on Occupational Safety and Health Administration reportable events and motor vehicle accidents). | |
• | Gross margin, net income or net operating profit after tax (NOPAT) goals are included in each business line’s goals. Gross margin is a goal for PPL Generation and PPL EnergyPlus. Net income is a goal for the delivery companies—PPL Electric Utilities and PPL Gas Utilities and PPL Global—and our smaller business lines. NOPAT is used by PPL Global. PPL Generation, PPL Electric Utilities and PPL Gas Utilities also have specific operations and maintenance and capital expenditure goals that support their margin or income goals. | |
• | Energy marketing and trading goals are also included. PPL EnergyPlus has specific goals pertaining to strategy to grow value extracted from our generation assets, to refine a marketing strategy and to hedge and expand margins in years 2007 and beyond. |
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• | Station generation goals are included for PPL Generation units, including specific equivalent availability, prime time availability and coal plant unplanned outage goals. | |
• | PPL Generation’s nuclear unit has a specific goal pertaining to its extended power “uprate” project and license renewal capital budget. | |
• | PPL Energy Services Group’s development unit has goals pertaining to asset growth. | |
• | Environmental compliance goals are determined for the fossil and hydro generating units. Nuclear Regulatory Commission Performance Indicators and Inspector Findings and Institute of Nuclear Power Operations rating goals are determined for the nuclear unit. | |
• | Customer service goals are included for the delivery companies—PPL Electric Utilities, PPL Gas Utilities and PPL Global’s subsidiaries—taking the form of customer satisfaction surveys, interruption limits, lost minute limits and non-storm lost minute measures. | |
• | Community impact goals are included for our fossil and hydro units in the form of a favorable public perception evaluation. |
• | Restricted stock unit awards for sustained financial and operational performance of PPL; | |
• | Restricted stock unit awards for PPL performance on specific, strategic goals; and | |
• | Stock option awards for stock price growth of PPL Corporation common stock. |
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Restricted Stock Units | Stock Options | |||||||||||||||||||
(Targets as % of Salary) | ||||||||||||||||||||
Sustained | ||||||||||||||||||||
Financial and | Strategic | |||||||||||||||||||
Operational | Objective | Stock Price | ||||||||||||||||||
Position | Results | Results | Performance | Total | ||||||||||||||||
President | 40.00 | % | 40.00 | % | 80.0 | % | 160% | |||||||||||||
Senior Vice President—Financial | 40.00 | % | 40.00 | % | 80.0 | % | 160% | |||||||||||||
Treasurer; Vice President and Controller; and Senior Vice President—T&D Engineering and Operations | 26.25 | % | 26.25 | % | 52.5 | % | 105% | |||||||||||||
number of units granted | = | target award % | × | salary | × | 3-year average result | ¸ | market price of PPL stock as of award date |
number of units granted | = | target award % | × | salary | × | goal result | ¸ | market price of PPL stock as of award date |
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• | Influence the evolution of federal and state policies: |
• | Toward more competitive markets | |
• | Toward use of prices to send economically efficient capital allocation signals | |
• | Toward permitting generators greater latitude to bid into energy markets | |
• | Toward permitting transmission owners greater latitude in selection of an independent system operator or regional transmission operator to operate the transmission owner’s system | |
• | Away from price caps | |
• | Away from excessive market power mitigation initiatives |
• | Internally structure PPL: |
• | To position the energy marketing and trading organization to take advantage of opportunities presented by the expiration of the provider of last resort (POLR) contract | |
• | To develop and retain the management and technical skills and the financial profile necessary to permit continued growth |
• | Implement necessary actions to position PPL to successfully benefit from the expiration of the current Pennsylvania generation price cap. |
number of options granted | = | target award % | × | salary | ¸ | option value as of award date |
• | Restricted stock unit award for sustained financial and operational results: the 2006 annual cash incentive results for executives were averaged with similar results for 2005 and 2004 and formed the basis for the 2007 award. The total results were 120.5%; which represent the average of 2006 (131.3%), 2005 (109.9%) and 2004 (120.4%). | |
• | Restricted stock unit award for strategic goal attainment: goal attained at 100%. |
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Restricted Stock Units | Stock Options | ||||||||||||||||
(Awards in Dollars) | |||||||||||||||||
Sustained | |||||||||||||||||
Financial and | Strategic | ||||||||||||||||
Operational | Objective | Stock Price | |||||||||||||||
Name | Results | Results | Performance | ||||||||||||||
J. F. Sipics | $ | 168,747 | $ | 140,000 | $ | 260,000 | |||||||||||
P. A. Farr | 188,032 | 156,000 | 280,000 | ||||||||||||||
J. E. Abel | 84,091 | 69,766 | 131,656 | ||||||||||||||
J. M. Simmons, Jr.(1) | 65,088 | 54,000 | 118,125 | ||||||||||||||
D. G. DeCampli(2) | 83,800 | 69,600 | 139,900 | ||||||||||||||
(1) | Mr. Simmons’ restricted stock unit awards are based on 11 months of actual service as the Vice President and Controller of PPL Corporation. | |
(2) | Mr. DeCampli’s restricted stock unit awards assume 12 months in the position as provided by the terms of his employment offer letter. Because Mr. DeCampli was not deemed to be an executive officer of PPL Corporation during 2006, his restricted stock unit and stock option awards were approved by the CLC and not the CGNC. |
Restricted Stock Units | Stock Options | |||||||||||||||||||
(Targets as % of Salary) | ||||||||||||||||||||
Sustained | ||||||||||||||||||||
Financial and | Strategic | |||||||||||||||||||
Operational | Objective | Stock Price | ||||||||||||||||||
Position | Results | Results | Performance | Total | ||||||||||||||||
President | 47% | 47% | 50.75% | 145% | ||||||||||||||||
Senior Vice President-Financial* | 52% | 52% | 56.00% | 160% | ||||||||||||||||
Treasurer; Vice President and Controller; and Senior Vice President—T&D Engineering and Operations | 34% | 34% | 37.00% | 145% | ||||||||||||||||
* | As of April 1, 2007, Mr. Farr’s long-term incentive award targets for 2007 became those of the chief financial officer of PPL Corporation (71.5% for each restricted stock unit target, 77% for the stock options, with a total target of 220%). |
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• | accelerated vesting of outstanding equity awards in order to protect executives’ equity-based accrued value from an unfriendly acquirer; | |
• | severance benefits; and | |
• | trusts to fund promised obligations in order to protect executive compensation from an unfriendly acquirer. |
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Multiple of | ||||
Base | ||||
Executive Officer | Salary | |||
Chairman, President and CEO of PPL Corporation | 5x | |||
Executive Vice Presidents of PPL Corporation | 3x | |||
Senior Vice Presidents of PPL Corporation (including Mr. Farr) | 2x | |||
Presidents of major operating subsidiaries (including Mr. Sipics) | 2x | |||
Vice Presidents of PPL companies (including Messrs. Abel, Simmons and DeCampli) | 1x |
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Change in | |||||||||||||||||||||||||||||||||||||||||||||
Pension Value | |||||||||||||||||||||||||||||||||||||||||||||
and | |||||||||||||||||||||||||||||||||||||||||||||
Nonqualified | |||||||||||||||||||||||||||||||||||||||||||||
Non-Equity | Deferred | ||||||||||||||||||||||||||||||||||||||||||||
Name and Principal | Stock | Option | Incentive Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||||||||||
Position | Year | Salary(1) | Bonus(2) | Awards(3) | Awards(4) | Compensation(5) | Earnings(6) | Compensation(7) | Total | ||||||||||||||||||||||||||||||||||||
John F. Sipics | 2006 | $349,040 | — | $355,593 | $279,304 | $207,900 | $1,144,680 | $23,655 | $ | 2,360,172 | |||||||||||||||||||||||||||||||||||
President | |||||||||||||||||||||||||||||||||||||||||||||
Paul A. Farr | 2006 | 388,462 | — | 265,027 | 209,167 | 256,000 | 76,291 | 10,063 | 1,205,010 | ||||||||||||||||||||||||||||||||||||
Senior Vice President—Financial | |||||||||||||||||||||||||||||||||||||||||||||
James E. Abel | 2006 | 263,466 | — | 152,819 | 141,426 | 135,100 | 206,408 | 8,465 | 907,683 | ||||||||||||||||||||||||||||||||||||
Treasurer | |||||||||||||||||||||||||||||||||||||||||||||
J. Matt Simmons, Jr. | 2006 | 199,040 | $ | 100,000 | 38,402 | 38,773 | 107,500 | 24,886 | 171,434 | 680,035 | |||||||||||||||||||||||||||||||||||
Vice President and Controller | |||||||||||||||||||||||||||||||||||||||||||||
David G. DeCampli | 2006 | 10,192 | 225,000 | 5,546 | — | 117,000 | — | 24,699 | 382,437 | ||||||||||||||||||||||||||||||||||||
Senior Vice President—Transmission and Distribution Engineering and Operations | |||||||||||||||||||||||||||||||||||||||||||||
(1) | Salary includes cash compensation deferred to the PPL Corporation Officers Deferred Compensation Plan. Mr. Farr deferred $30,831 of salary. | |
(2) | Reflects one-time cash sign-on bonuses for Mr. Simmons when he joined PPL Corporation as Vice President and Controller on January 30, 2006, and for Mr. DeCampli when he joined the company on December 4, 2006. | |
(3) | This column represents the compensation expense recognized in 2006 for financial statement reporting purposes on all outstanding shares of restricted stock and restricted stock units in accordance with SFAS 123(R), other than restricted stock unit awards granted in lieu of the annual cash incentive award foregone by the named executive officer. See Note 5 below. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. No forfeitures of restricted stock or restricted stock units actually occurred during 2006. Because Messrs. Sipics and Abel were eligible for retirement during 2006, the fair value of their awards has been fully expensed. This column also includes the value of the premium restricted stock units granted in January 2006 and the restricted stock units granted as part of the exchanges made by Messrs. Sipics, Farr and Abel of their cash incentive compensation awarded in January 2007 for 2006 performance under the Premium Exchange Program. See description of the Premium Exchange Program in “CD&A—Ownership Guidelines.” For shares of restricted stock and restricted stock units granted in 2006 and earlier years, fair value is calculated using the average of the high and low sale prices of PPL Corporation’s common stock on the date of grant. For additional information, refer to Note 12 to the company’s financial statements in the Annual Report onForm 10-K for the year ended December 31, 2006, as filed with the SEC. See the “Grants of Plan-Based Awards During 2006” table below for information on awards made in 2006. These amounts reflect the company’s accounting expense for these restricted stock and restricted stock unit awards, and do not correspond to the actual value that will be recognized by the named executive officers. | |
(4) | This column represents the dollar amount recognized for financial statement reporting purposes with respect to the 2006 fiscal year for stock options granted to each of the named executive officers in 2006 as well as prior fiscal years, in accordance with SFAS 123(R). Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. No forfeitures of any stock options actually occurred during 2006. As Messrs. Sipics and Abel were eligible for retirement during 2006, the fair values of their stock option awards have been fully expensed. For additional information on the valuation |
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assumptions with respect to the 2006 stock option grants, refer to Note 12 to the company’s financial statements in the Annual Report onForm 10-K for the year ended December 31, 2006, as filed with the SEC. For information on the valuation assumptions with respect to option grants made prior to 2006, refer to the Note entitled “Stock-Based Compensation” in the company’s financial statements in the Annual Report onForm 10-K for the respective year-end. See the “Grants of Plan-Based Awards During 2006” table for information on options granted in 2006. These amounts reflect the accounting expense for these stock option awards and do not correspond to the actual value that will be recognized by the named executive officers. | ||
(5) | This column represents cash awards granted in January 2007 under the Short-term Incentive Plan for performance in 2006. Mr. Farr elected to exchange $166,400 of his cash awarded in January 2007, for 2006 performance, for restricted stock units under the Premium Exchange Program. See description of the Premium Exchange Program in “CD&A—Ownership Guidelines.” The value of this award is included in this column and not in the “Stock Awards” column. The grant of restricted stock units under the Premium Exchange Program for the cash award foregone by Mr. Farr will be reflected in next year’s Grants of Plan-Based Awards table. | |
(6) | This column represents the sum of the changes in value in the Retirement Plan and Supplemental Executive Retirement Plan during 2006 for each of the named executive officers. No change in value is shown for Mr. DeCampli because he was not eligible to participate in these plans until January 1, 2007. See the “Pension Benefits in 2006” table on page 31 for additional information. No above-market earnings under the Officers Deferred Compensation Plan are reportable for 2006. See the “Nonqualified Deferred Compensation in 2006” table on page 34 for additional information. | |
(7) | The table below reflects the components of this column, which include the company’s matching contribution for each individual’s 401(k) plan contributions under the Deferred Savings Plan, annual allocations under the Employee Stock Ownership Plan, and certain perquisites, including financial counseling and tax preparation services and relocation reimbursements. |
ESOP | Financial | Benefits | ||||||||||||||||||||||||||||
Name | 401(k) Match | Allocation | Counseling | Relocation | Paid | Total | ||||||||||||||||||||||||
J. F. Sipics | $7,116 | $4,228 | $5,000 | $ — | $7,311 | (b)(c)(d) | $ | 23,655 | ||||||||||||||||||||||
P. A. Farr | 5,633 | 330 | 4,000 | — | 100 | (d) | 10,063 | |||||||||||||||||||||||
J. E. Abel | 6,677 | 1,688 | — | — | 100 | (d) | 8,465 | |||||||||||||||||||||||
J. M. Simmons, Jr. | 5,452 | 316 | 9,000 | 152,339 | (a) | 4,327 | (b) | 171,434 | ||||||||||||||||||||||
D. G. DeCampli | — | — | — | 24,699 | (a) | — | 24,699 | |||||||||||||||||||||||
(a) | The expenses listed for Messrs. Simmons and DeCampli include taxgross-up payments of $29,582 to Mr. Simmons and $11,523 to Mr. DeCampli. Relocation expenses for Mr. Simmons are computed on the basis of the amounts of reimbursements to him for costs of movement and storage of household goods; house hunting costs; temporary living costs; costs associated with the purchase of a home in the new location; costs associated with the sale of his former residence; relocation company administrative costs; home sale incentives; and other miscellaneous fees. | |
(b) | Includes the following payments to executive officers for vacation earned but not taken: Mr. Sipics ($6,731) and Mr. Simmons ($4,327). | |
(c) | Each management employee receives an annual allocation of funds that can be used to purchase health and welfare benefits, such as health insurance, life insurance and additional vacation up to 40 hours. If an employee does not use all of the allocated funds for company benefits, the employee can elect to receive the remaining cash. Mr. Sipics received such a payment of $480 in 2006. | |
(d) | Each employee who completed a health risk appraisal as part of PPL’s wellness program received $100 in their paycheck. Messrs. Sipics, Farr and Abel received this payment. |
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All Other | All Other | |||||||||||||||||||||||||||||||||||||||
Stock | Option | |||||||||||||||||||||||||||||||||||||||
Estimated Possible Payouts | Awards: | Awards: | Exercise or | |||||||||||||||||||||||||||||||||||||
Under Non-Equity Incentive | Number of | Number of | Base Price of | Grant Date Fair | ||||||||||||||||||||||||||||||||||||
Plan Awards(1) | Shares of | Securities | Option | Value of Stock | ||||||||||||||||||||||||||||||||||||
Grant | Stock or | Underlying | Awards(4) | and Option | ||||||||||||||||||||||||||||||||||||
Name | Date | Threshold | Target | Maximum | Units(2) | Options(3) | ($/Sh) | Awards(5) | ||||||||||||||||||||||||||||||||
J. F. Sipics | �� | 3/17/2006 | $0 | $ | 175,000 | $ | 262,500 | |||||||||||||||||||||||||||||||||
1/26/2006 | 18,660 | $562,412 | ||||||||||||||||||||||||||||||||||||||
1/26/2006 | 57,470 | $30.14 | 279,304 | |||||||||||||||||||||||||||||||||||||
P. A. Farr | 3/17/2006 | 0 | 195,000 | 292,500 | ||||||||||||||||||||||||||||||||||||
1/26/2006 | 14,230 | 428,892 | ||||||||||||||||||||||||||||||||||||||
1/26/2006 | 61,890 | 30.14 | 300,785 | |||||||||||||||||||||||||||||||||||||
1/27/2006 | 15,400 | 463,232 | ||||||||||||||||||||||||||||||||||||||
J. E. Abel | 3/17/2006 | 0 | 106,309 | 159,464 | ||||||||||||||||||||||||||||||||||||
1/26/2006 | 4,590 | 138,343 | ||||||||||||||||||||||||||||||||||||||
1/26/2006 | 29,100 | 30.14 | 141,426 | |||||||||||||||||||||||||||||||||||||
3/01/2006 | 1,020 | 32,385 | ||||||||||||||||||||||||||||||||||||||
J. M. Simmons, Jr. | 3/17/2006 | 0 | 82,500 | 123,750 | ||||||||||||||||||||||||||||||||||||
1/26/2006 | 4,120 | 124,177 | ||||||||||||||||||||||||||||||||||||||
1/26/2006 | 26,110 | 30.14 | 126,895 | |||||||||||||||||||||||||||||||||||||
D. G. DeCampli | 3/17/2006 | 0 | 106,000 | 159,500 | ||||||||||||||||||||||||||||||||||||
12/04/2006 | 6,060 | 225,129 | ||||||||||||||||||||||||||||||||||||||
(1) | This column shows the potential payout range under the 2006 annual cash incentive award program. For additional information, see “CD&A—Compensation Elements—Direct Compensation—Annual Cash Incentive Awards” at page 10. The cash incentive payout range is from 0% to 150%. The actual 2006 payout is found in the Summary Compensation Table on page 25 in the column entitled “Non-Equity Incentive Plan Compensation.” | |
(2) | This column shows the total number of restricted stock units granted in 2006 to the named executive officers. In general, restrictions will lapse three years from the date of grant (on January 26, 2009 for the awards granted on January 26, 2006; on March 1, 2009 for the awards granted on March 1, 2006 to Mr. Abel under the Premium Exchange Program; and on December 4, 2009 for the awards granted on December 4, 2006 to Mr. DeCampli on his first day of employment with the company). During the restricted period, each restricted stock unit entitles the individual to receive quarterly payments from PPL Corporation equal to the quarterly dividends on one share of PPL Corporation stock. As a result of Mr. Sipics’ retirement and under the terms of PPL’s Incentive Compensation Plan, the restrictions on 31,400 restricted stock units will lapse on July 1, 2007 for units granted in January 2006 for 2005 performance, which is six months after his retirement. Mr. Sipics would have forfeited 3,920 Premium Units granted under the Premium Exchange Program, but the CGNC waived the forfeiture as part of his retirement package. See “Termination Benefits—Termination Benefits for Mr. Sipics” on page 38 for more information on his retirement package. | |
This column also shows the number of restricted stock units granted to the following named executive officers who exchanged a portion of their cash incentive compensation awarded in January 2006 for 2005 performance under the Premium Exchange Program (called Exchanged Units) and the number of premium restricted stock units granted in January 2006 as result of the Exchanges made (called Premium Units): Sipics (6,860 Exchanged Units and 2,740 Premium Units); Farr (3,190 Exchanged Units and 1,280 Premium Units); and Abel (730 Exchanged Units and 290 Premium Units). The Exchanged Units are not included in the Stock Award column of the Summary Compensation Table because they would have been required to be |
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reported as cash incentive awards for 2005. The Premium Units are included in this year’s Summary Compensation Table to the extent they were expensed during 2006. | ||
(3) | This column shows the number of stock options granted in 2006 to the named executive officers. These options vest and become exercisable in three equal annual installments, beginning on January 26, 2007, which is one year after the grant date. | |
(4) | This column shows the exercise price for the stock options granted in 2006, which was the average of the high and low sale prices of PPL Corporation common stock on the date the CGNC granted the options. This exercise price is greater than the closing price of $29.85 on the grant date. | |
(5) | This column shows the full grant date fair value of restricted stock units and stock options under SFAS 123(R) granted to the named executive officers. Generally, the full grant date fair value is the amount that the company would expense in its financial statements over the award’s vesting schedule. Because Messrs. Sipics and Abel were eligible for retirement, the full grant date fair value of their stock awards was expensed in 2006. For restricted stock units, fair value is calculated using the average of the high and low sale prices of PPL Corporation stock on the grant date, as follows: $30.14 for the grants made on January 26, 2006; $30.08 for the retention shares granted to Mr. Farr on January 27, 2006; $31.75 for the grants made on March 1, 2006 to Mr. Abel under the Premium Exchange Program; and $37.15 for the grants made on December 4, 2006 to Mr. DeCampli on his first day of employment. For stock options, fair value is calculated using the Black-Scholes value on the grant date of $4.86. For additional information on the valuation assumptions, see Note 12 of the company’s financial statements in the Annual Report onForm 10-K for the year ended December 31, 2006, as filed with the SEC. These amounts reflect the accounting expense, and do not correspond to the actual value that will be recognized by the named executive officers when restrictions lapse on the restricted stock units or when the options are exercised. |
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Option Awards | |||||||||||||||||||||||||||||||||||
Equity | |||||||||||||||||||||||||||||||||||
Incentive | Stock Awards | ||||||||||||||||||||||||||||||||||
Number of | Number of | Plan Awards: | |||||||||||||||||||||||||||||||||
Securities | Securities | Number of | Number of | Market Value | |||||||||||||||||||||||||||||||
Underlying | Underlying | Securities | Shares or | of Shares or | |||||||||||||||||||||||||||||||
Unexercised | Unexercised | Underlying | Units of | Units of | |||||||||||||||||||||||||||||||
Options | Options | Unexercised | Option | Option | Stock That | Stock That | |||||||||||||||||||||||||||||
(#) | (#) | Unearned | Exercise | Expiration | Have Not | Have Not | |||||||||||||||||||||||||||||
Name | Exercisable(1) | Unexercisable(1) | Options | Price | Date | Vested(2) | Vested | ||||||||||||||||||||||||||||
J. F. Sipics | 28,100 | $21.58 | 1/24/2011 | ||||||||||||||||||||||||||||||||
23,980 | 18.12 | 1/22/2013 | |||||||||||||||||||||||||||||||||
31,533 | 15,767 | 22.59 | 1/21/2014 | ||||||||||||||||||||||||||||||||
18,254 | 36,506 | 26.66 | 1/26/2015 | ||||||||||||||||||||||||||||||||
57,470 | 30.14 | 1/25/2016 | |||||||||||||||||||||||||||||||||
44,420 | $1,592,013 | ||||||||||||||||||||||||||||||||||
P. A. Farr | 7,427 | 22.59 | 1/21/2014 | ||||||||||||||||||||||||||||||||
16,994 | 33,986 | 26.66 | 1/26/2015 | ||||||||||||||||||||||||||||||||
61,890 | 30.14 | 1/25/2016 | |||||||||||||||||||||||||||||||||
72,130 | 2,585,139 | ||||||||||||||||||||||||||||||||||
J. E. Abel | 3,240 | 18.12 | 1/22/2013 | ||||||||||||||||||||||||||||||||
8,900 | 8,900 | 22.59 | 1/21/2014 | ||||||||||||||||||||||||||||||||
10,060 | 20,120 | 26.66 | 1/26/2015 | ||||||||||||||||||||||||||||||||
29,100 | 30.14 | 1/25/2016 | |||||||||||||||||||||||||||||||||
16,450 | 589,568 | ||||||||||||||||||||||||||||||||||
J. M. Simmons, Jr. | 26,110 | 30.14 | 1/25/2016 | ||||||||||||||||||||||||||||||||
4,120 | 147,661 | ||||||||||||||||||||||||||||||||||
D. G. DeCampli | 6,060 | 217,190 | |||||||||||||||||||||||||||||||||
(1) | All stock options for the named executive officers vest, or become exercisable, over three years — one-third at the end of each year following grant. Under the terms of PPL’s Incentive Compensation Plan, all of Mr. Sipics’ unvested outstanding stock options granted prior to 2006 vested as of his retirement date, which was January 1, 2007. The 57,470 stock options granted to Mr. Sipics on January 26, 2006 were forfeited when he retired because the grant date was less than 12 months before his retirement date. |
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Vesting Dates | |||||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | |||||||||||||||||||||||||||||||||
Grant | |||||||||||||||||||||||||||||||||||
Officer | Date | 1/22 | 1/26 | 1/27 | 1/26 | 1/27 | 1/26 | ||||||||||||||||||||||||||||
J. F. Sipics | 1/22/04 | 15,767(a | ) | ||||||||||||||||||||||||||||||||
1/27/05 | 18,253(a | ) | 18,253(a | ) | |||||||||||||||||||||||||||||||
1/26/06 | 19,157(b | ) | 19,156(b | ) | 19,157(b | ) | |||||||||||||||||||||||||||||
P. A. Farr | 1/22/04 | 7,427 | |||||||||||||||||||||||||||||||||
1/27/05 | 16,993 | 16,993 | |||||||||||||||||||||||||||||||||
1/26/06 | 20,630 | 20,630 | 20,630 | ||||||||||||||||||||||||||||||||
J. E. Abel | 1/22/04 | 8,900 | |||||||||||||||||||||||||||||||||
1/27/05 | 10,060 | 10,060 | |||||||||||||||||||||||||||||||||
1/26/06 | 9,700 | 9,700 | 9,700 | ||||||||||||||||||||||||||||||||
J. M. Simmons, Jr. | 1/26/06 | 8,704 | 8,703 | 8,703 | |||||||||||||||||||||||||||||||
D. G. DeCampli(c) | — | — | — | — | |||||||||||||||||||||||||||||||
(a) | These unvested stock options vested on the day Mr. Sipics retired, which was January 1, 2007. | |
(b) | These unvested stock options were forfeited on the day Mr. Sipics retired. | |
(c) | Mr. DeCampli did not receive any stock option awards in 2006. |
(2) | The dates that restrictions lapse for each restricted stock or unit award granted to the named executive officers are as follows: |
Dates Restrictions Lapse | |||||||||||||||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | |||||||||||||||||||||||||||||||||||||||||||
Grant | |||||||||||||||||||||||||||||||||||||||||||||
Officer | Date | 1/22 | 3/1 | 1/27 | 3/1 | 1/26 | 3/1 | 12/4 | 4/27/27 | ||||||||||||||||||||||||||||||||||||
J. F. Sipics | 1/22/04 | 10,480(a | ) | ||||||||||||||||||||||||||||||||||||||||||
1/27/05 | 15,280(b | ) | |||||||||||||||||||||||||||||||||||||||||||
1/26/06 | 18,660(b | ) | |||||||||||||||||||||||||||||||||||||||||||
P. A. Farr | 4/22/02 | 24,600 | |||||||||||||||||||||||||||||||||||||||||||
3/01/04 | 5,200 | ||||||||||||||||||||||||||||||||||||||||||||
1/27/05 | 8,420 | ||||||||||||||||||||||||||||||||||||||||||||
3/01/05 | 4,280 | ||||||||||||||||||||||||||||||||||||||||||||
1/26/06 | 14,230 | ||||||||||||||||||||||||||||||||||||||||||||
1/27/06 | 15,400 | ||||||||||||||||||||||||||||||||||||||||||||
J. E. Abel | 1/22/04 | 3,120 | |||||||||||||||||||||||||||||||||||||||||||
3/01/04 | 2,740 | ||||||||||||||||||||||||||||||||||||||||||||
1/27/05 | 4,980 | ||||||||||||||||||||||||||||||||||||||||||||
1/26/06 | 4,590 | ||||||||||||||||||||||||||||||||||||||||||||
3/01/06 | 1,020 | ||||||||||||||||||||||||||||||||||||||||||||
J. M. Simmons, Jr. | 1/26/06 | 4,120 | |||||||||||||||||||||||||||||||||||||||||||
D. G. DeCampli | 12/4/06 | 6,060 | |||||||||||||||||||||||||||||||||||||||||||
(a) | The restrictions on 10,420 of these restricted stock unit awards lapsed on January 1, 2007, the day Mr. Sipics retired. | |
(b) | The restrictions on 14,640 of the 15,280 restricted stock units granted on January 27, 2005, and on 16,760 of the 18,660 restricted stock units granted on January 26, 2006 will lapse on July 1, 2007 as a result of Mr. Sipics’ retirement. The remaining options were forfeited as of his retirement on January 1, 2007. |
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Option Awards | Stock Awards | |||||||||||||||||||
Number of Shares | ||||||||||||||||||||
Number of Shares | Value Realized | Acquired | Value Realized | |||||||||||||||||
Name | Acquired on Exercise | on Exercise(1) | on Vesting | on Vesting(2) | ||||||||||||||||
J. F. Sipics | — | — | 3,200 | $101,600 | ||||||||||||||||
P. A. Farr | 15,139 | $214,787 | 3,640 | 114,484 | ||||||||||||||||
J. E. Abel | 6,000 | 77,100 | 3,700 | 114,404 | ||||||||||||||||
J. M. Simmons, Jr. | — | — | — | — | ||||||||||||||||
D. G. DeCampli | — | — | — | — | ||||||||||||||||
(1) | Amounts reflect the difference between the exercise price of the stock option and the market price at the time of exercise. | |
(2) | Amounts reflect the market value of the restricted stock units on the day the restrictions lapsed. |
• | PPL Retirement Plan. The PPL Retirement Plan is a funded and tax-qualified defined benefit retirement plan that covers approximately 5,750 active employees of PPL as of December 31, 2006. As applicable to the named executive officers, the plan provides benefits based primarily on a formula that takes into account the executive’s earnings for each fiscal year. Benefits under the PPL Retirement Plan for eligible employees are determined as the greater of the following two formulas: |
• | The first is a “career average pay formula” of 2.25% of annual earnings for each year of credited service under the plan. | |
• | The second is a “final average pay formula” as follows: |
1.7% of final average earnings in excess of the average Social Security Wage Base
the sum of years of credited service (up to a maximum of 40 years).
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• | PPL Supplemental Executive Retirement Plan. PPL offers the PPL Supplemental Executive Retirement Plan, or SERP, to approximately 27 active officers in PPL companies as of December 31, 2006, including all of the named executive officers, to provide for retirement benefits above amounts available under the PPL Retirement Plan described above. The SERP is unfunded and is not qualified for tax purposes. Accrued benefits under the SERP are subject to claims of PPL’s creditors in the event of bankruptcy. |
• | PPL Subsidiary Retirement Plan. From December 1999 until September 2001, Mr. Farr participated in the PPL Subsidiary Retirement Plan while he was employed by a generation subsidiary of PPL Corporation. This plan is a defined benefit pension plan that provides an annuity form of benefit payable on retirement at age 50 or older. Mr. Farr’s benefit amount under this plan was frozen when he became an employee of PPL Services Corporation. The present value of his accumulated benefit under this plan is reflected in the table below. |
Present Value of | ||||||||||||||||||||
Number of Years | Accumulated | Payments During | ||||||||||||||||||
Name | Plan Name | Credited Service | Benefit(1)(2) | Last Fiscal Year | ||||||||||||||||
J. F. Sipics | PPL Retirement Plan | 35.4 | 1,349,223 | — | ||||||||||||||||
SERP | 28.4 | 1,769,089 | — | |||||||||||||||||
P. A. Farr | PPL Retirement Plan | 2.3 | 41,362 | — | ||||||||||||||||
SERP | 8.6 | 186,735 | — | |||||||||||||||||
PPL Subsidiary Retirement Plan | 4.8 | 20,538 | ||||||||||||||||||
J. E. Abel | PPL Retirement Plan | 32.3 | 1,009,908 | — | ||||||||||||||||
SERP | 25.9 | 612,750 | — | |||||||||||||||||
J. M. Simmons, Jr. | PPL Retirement Plan | .9 | 17,954 | — | ||||||||||||||||
SERP | .9 | 6,932 | — | |||||||||||||||||
D. G. DeCampli | PPL Retirement Plan | — | ||||||||||||||||||
SERP | — | |||||||||||||||||||
(1) | The accumulated benefit is based on service and earnings (base salary and annual cash incentive award) considered by the plans for the period through December 31, 2006. The present value has been calculated assuming the named executive officers will remain in service until age 60, the age at which retirement may occur without any reduction in benefits, and that the benefit is payable under the available forms of annuity consistent with the assumptions as described in Note 13 to the financial statements in the company’s Annual Report onForm 10-K for the year ended December 31, 2006, as filed with the SEC. As described in such Note, the interest assumption is 5.94%. The post-retirement mortality assumption is based on the most recently available retirement plan table published by the Society of Actuaries, known as RP 2000, which is a widely used table for determining accounting obligations of pension plans. Only Messrs. Sipics and Abel are vested in the SERP as of December 31, 2006. |
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(2) | The present values in the table above are prescribed by the SEC. The table below illustrates the benefits payable under the listed events assuming termination of employment occurred as of December 31, 2006. |
SERP Payments upon Termination | |||||||||||||||
as of December 31, 2006(a) | |||||||||||||||
Named | |||||||||||||||
Executive Officer | Retirement | Death | Disability | ||||||||||||
J. F. Sipics | $ | 1,769,089 | $ | 791,667 | $ | 1,769,089 | |||||||||
P. A. Farr(b) | — | — | — | ||||||||||||
J. E. Abel | 961,997 | 397,918 | 961,997 | ||||||||||||
J. M. Simmons, Jr.(c) | — | — | — | ||||||||||||
D. G. DeCampli(c) | — | — | — | ||||||||||||
(a) | Messrs. Sipics and Abel have elected to receive benefits payable under the SERP as a lump-sum payment, subject to applicable law. The amounts shown in this table represent the values that would have become payable based on a December 31, 2006 termination of employment. Actual payment would be made following December 31, subject to plan rules and compliance with Section 409A of the Internal Revenue Code. | |
(b) | Mr. Farr is not eligible to retire or receive other benefits under the SERP. If he had left PPL on December 31, 2006, voluntarily or as a result of death or a disability, he would have been vested in deferred benefits on a reduced basis under the PPL Retirement Plan, first payable at age 55, and under the PPL Subsidiary Retirement Plan, first payable at age 50. | |
(c) | Messrs. Simmons and DeCampli are not eligible to retire or receive other benefits under the SERP. |
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Executive | Registrant | Aggregate | Aggregate | ||||||||||||||||||||||
Contributions in | Contributions in | Earnings in | Withdrawals/ | Aggregate Balance | |||||||||||||||||||||
Name | Last FY(1) | Last FY | Last FY(2) | Distribution | at Last FYE(3) | ||||||||||||||||||||
J. F. Sipics | — | — | — | — | — | ||||||||||||||||||||
P. A. Farr | $ | 30,831 | — | 14,439 | — | 189,334 | |||||||||||||||||||
J. E. Abel | — | — | 2,474 | — | 27,113 | ||||||||||||||||||||
J. M. Simmons, Jr. | — | — | — | — | — | ||||||||||||||||||||
D. G. DeCampli | — | — | — | — | — | ||||||||||||||||||||
(1) | The amount deferred by Mr. Farr during 2006 is included in the “Salary” column of the Summary Compensation Table. | |
(2) | Aggregate earnings for 2006 are not reflected in the Summary Compensation Table because such earnings are not considered to be “above-market” earnings. | |
(3) | Represents the total balance of each named executive officer’s account as of December 31, 2006. All amounts previously deferred by the named executive officers under the Officers Deferred Compensation Plan were reported in previous years in either the “Salary” or “Bonus” column of prior Summary Compensation Tables. |
• | a change in the majority of the members of the PPL Corporation Board of Directors occurs through contested elections; | |
• | an investor or group acquires 20% or more of PPL Corporation’s common stock; | |
• | a merger occurs that results in less than 60% control of PPL Corporation or surviving entity by the current shareowners; | |
• | shareowner approval of the liquidation or dissolution of PPL Corporation; or | |
• | the Board of Directors of PPL Corporation declares that a change in control is anticipated to occur or has occurred. |
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• | a lump-sum payment equal to three times (for Messrs. Sipics, Farr, Abel and DeCampli) or two times (for Mr. Simmons) the sum of (1) the named executive officer’s base salary in effect immediately prior to the date of termination, or if higher, immediately prior to the first occurrence of an event or circumstance constituting “good reason,” and (2) the highest annual bonus in respect of the last three fiscal years ending immediately prior to the fiscal year in which the change in control occurs, or if higher, the fiscal year immediately prior to the fiscal year in which first occurs an event or circumstance constituting “good reason”; | |
• | a lump-sum payment having an actuarial present value equal to the additional pension benefits the officer would have received had the officer continued to be employed by the company for an additional 36 months (for Messrs. Sipics, Farr, Abel and DeCampli) or 24 months (for Mr. Simmons); | |
• | the continuation of welfare benefits for the officer and his or her dependents for the applicable36-month or24-month period following separation (reduced to the extent the officer receives comparable benefits from another employer); | |
• | unpaid incentive compensation that has been allocated or awarded for a previous performance period; | |
• | all contingent incentive compensation awards for all then uncompleted periods, calculated on a prorated basis of months of completed service, assuming performance achievement at 100% of the target level; | |
• | outplacement services for up to three years; | |
• | for Messrs. Sipics, Farr and DeCampli only, agross-up payment for any excise tax imposed under the golden parachute provisions of the Internal Revenue Code; and | |
• | post-retirement health care and life insurance benefits to officers who would have become eligible for such benefits within the applicable36-month or24-month period following the change in control. |
• | the restriction period applicable to any outstanding restricted stock or restricted stock unit awards lapses for those awards granted as part of PPL’s compensation program (excluding restricted stock granted under any retention agreements); | |
• | all restrictions on the exercise of any outstanding stock options lapse; and | |
• | all participants in the SERP immediately vest in their accrued benefit, even if not yet vested due to age and service. |
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• | PPL Corporation enters into an agreement that would result in a change in control; | |
• | PPL Corporation or any investor announces an intention to enter into a change in control; | |
• | the Board of Directors of PPL Corporation declares that a potential change in control has occurred; or | |
• | an investor obtains 5% or more of PPL Corporation’s common stock and intends to control or influence management (requiring a Schedule 13D to be filed by the investor with the SEC). |
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CHANGE IN CONTROL OF PPL CORPORATION
Retirement or | Involuntary | Change in | ||||||||||||||||||
Voluntary | Termination | Control | ||||||||||||||||||
Executive Name | Termination | Death | Disability | Not for Cause | Termination | |||||||||||||||
J. F. Sipics | ||||||||||||||||||||
Severance payable in cash(1) | $ | 0 | $ | 0 | $ | 0 | $ | (7) | $ | 1,673,706 | ||||||||||
Other separation benefits(2) | 0 | 0 | 0 | (7) | 119,619 | |||||||||||||||
Taxgross-up amount payable(3) | 0 | 0 | 0 | 0 | 2,128,929 | |||||||||||||||
SERP(4) | 0 | 0 | 0 | 0 | 980,000 | |||||||||||||||
Restricted stock/units(5) | 1,498,829 | 1,592,013 | 1,592,013 | 1,498,829 | 1,592,013 | |||||||||||||||
Stock options(6) | 544,038 | 0 | 0 | 544,038 | 871,617 | |||||||||||||||
P. A. Farr | ||||||||||||||||||||
Severance payable in cash(1) | 0 | 0 | 0 | (7) | 1,938,000 | |||||||||||||||
Other separation benefits(2) | 0 | 0 | 0 | (7) | 126,467 | |||||||||||||||
Taxgross-up amount payable(3) | 0 | 0 | 0 | 0 | 3,165,403 | |||||||||||||||
SERP(4) | 0 | 0 | 0 | 0 | 620,000 | |||||||||||||||
Restricted stock/units(5) | 0 | 2,585,139 | 2,585,139 | 1,433,600(8) | 2,585,139 | |||||||||||||||
Stock options(6) | 0 | 0 | 0 | (8) | 763,172 | |||||||||||||||
J. E. Abel | ||||||||||||||||||||
Severance payable in cash(1) | 0 | 0 | 0 | (7) | 1,202,622 | |||||||||||||||
Other separation benefits(2) | 0 | 0 | 0 | (7) | 114,671 | |||||||||||||||
Taxgross-up amount payable(3) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
SERP(4) | 0 | 0 | 0 | 0 | 1,090,000 | |||||||||||||||
Restricted stock/units(5) | 580,608 | 589,568 | 589,568 | 580,608 | 589,568 | |||||||||||||||
Stock options(6) | 302,627 | 0 | 0 | 302,627 | 468,497 | |||||||||||||||
J. M. Simmons, Jr. | ||||||||||||||||||||
Severance payable in cash(1) | 0 | 0 | 0 | 225,000 | 665,004 | |||||||||||||||
Other separation benefits(2) | 0 | 0 | 0 | (7) | 100,623 | |||||||||||||||
Taxgross-up amount payable(3) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
SERP(4) | 0 | 0 | 0 | 0 | 100,000 | |||||||||||||||
Restricted stock/units(5) | 0 | 147,661 | 147,661 | (8) | 147,661 | |||||||||||||||
Stock options(6) | 0 | 0 | 0 | (8) | 148,827 | |||||||||||||||
D. G. DeCampli | ||||||||||||||||||||
Severance payable in cash(1) | 0 | 0 | 0 | 265,000 | 764,000 | |||||||||||||||
Other separation benefits(2) | 0 | 0 | 0 | 12,800 | 90,479 | |||||||||||||||
Taxgross-up amount payable(3) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
SERP(4) | 0 | 0 | 0 | 0 | 115,000 | |||||||||||||||
Restricted stock/units(5) | 0 | 217,190 | 217,190 | (8) | 217,190 | |||||||||||||||
Stock options(6) | 0 | 0 | 0 | (8) | 0 |
(1) | Messrs. Simmons and DeCampli each have an agreement to receive up to 52 weeks of pay following involuntary termination for reasons other than cause. The full 52 weeks of pay are illustrated as “Severance payable in cash” under the “Involuntary Termination Not for Cause” column. | |
In the event of termination of employment in connection with a change in control, the named executive officers are eligible for severance benefits if termination occurs within 36 months of a change in control (a) due to termination for reasons other than cause or (b) by the executive on the basis of “good reason” as that term is defined in the agreement. | ||
For purposes of the illustration, we have assumed executives are eligible for benefits under the severance agreements. Amounts illustrated as “Severance payable in cash” under the “Change in Control Termination” column are three times (for Messrs. Sipics, Farr and Abel) and two times (for Mr. DeCampli) the sum of (a) the executive’s annual salary as of the termination date plus (b) the highest annual cash incentive payment made in the last three years as provided under the agreements. Mr. Simmons’ severance pay was determined on the same basis as Mr. DeCampli’s; however the benefit was reduced by $63,598 in order to avoid an excise tax, which would be payable by the executive. Mr. DeCampli became eligible for three times the sum described above when he was elected President of the company on April 1, 2007. | ||
(2) | Under the terms of each named executive officer’s severance agreement, the executive is eligible for continued medical and dental benefits, life insurance and disability protection for the period equal to the severance payment, and outplacement benefits. The amounts illustrated as “Other separation benefits” are |
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the estimated present values of these benefits. In addition, for Mr. DeCampli, under the terms of his employment offer letter the company agreed to provide one year of medical, dental and life insurance coverage. An estimate of this cost is included under the “Involuntary Termination Not for Cause” column. | ||
(3) | In the event excise taxes become payable under Section 280G and Section 4999 of the Internal Revenue Code as a result of any “excess parachute payments,” as that phrase is defined by the Internal Revenue Service, the severance agreements of Messrs. Sipics and Farr provide that the company will pay the excise tax as well asgross-up the executive for the impact of the excise tax payment. (The tax payment andgross-up does not extend to normal income taxes due on any separation payments.) The amounts illustrated as “Taxgross-up amount payable” include the company’s best estimate of the excise tax andgross-up payments that would be made if each named executive officer had been terminated on December 31, 2006, under the terms of the severance agreement. | |
(4) | Amounts illustrated as “SERP” under the “Change in Control Termination” column include the value of the incremental benefits payable under the terms of the severance agreements and the SERP. Under the agreements, each named executive officer is eligible for a severance payment equal to the value of the SERP benefit that would be determined by adding an additional three years (for Messrs. Sipics, Farr and Abel) and two years (for Messrs. Simmons and DeCampli) of service. Under the SERP, upon a change in control, benefits vest immediately. | |
(5) | Total outstanding restricted stock and restricted stock unit awards are shown in the “Outstanding Equity Awards at Fiscal-Year End 2006” table above at page 29. The table above includes only the value of the restricted stock and stock units that would become payable as a result of each event as of December 31, 2006. In the table below, the number of units accelerated and payable as of the event, as well as the number forfeited, is shown. The gross value in the above table would be reduced by the amount of taxes required to be withheld; and the net shares, determined based on the stock price as of December 31, 2006, would be distributed based on a PPL Corporation stock price of $35.84. For purposes of the table below, the total number of shares is included without regard for the tax impact. | |
For Mr. Farr, the totals shown below for death, disability, involuntary termination not for cause and change in control termination include the acceleration of outstanding retention shares. |
(#)
Retirement or | Involuntary | Change in | ||||||||||||||||||
Voluntary | Termination | Control | ||||||||||||||||||
Named Executive Officer | Termination | Death | Disability | Not for Cause | Termination | |||||||||||||||
J. F. Sipics | ||||||||||||||||||||
accelerated | 41,820 | 44,420 | 44,420 | 41,820 | 44,420 | |||||||||||||||
forfeited | 2,600 | 0 | 0 | 2,600 | 0 | |||||||||||||||
P. A. Farr | ||||||||||||||||||||
accelerated | 0 | 72,130 | 72,130 | 40,000 | (8) | 72,130 | ||||||||||||||
forfeited | 72,130 | 0 | 0 | (8) | 0 | |||||||||||||||
J. E. Abel | ||||||||||||||||||||
accelerated | 16,200 | 16,450 | 16,450 | 16,200 | 16,450 | |||||||||||||||
forfeited | 250 | 0 | 0 | 250 | 0 | |||||||||||||||
J. M. Simmons, Jr. | ||||||||||||||||||||
accelerated | 0 | 4,120 | 4,120 | (8) | 4,120 | |||||||||||||||
forfeited | 4,120 | 0 | 0 | (8) | 0 | |||||||||||||||
D. G. DeCampli | ||||||||||||||||||||
accelerated | 0 | 6,060 | 6,060 | (8) | 6,060 | |||||||||||||||
forfeited | 6,060 | 0 | 0 | (8) | 0 |
(6) | Total outstanding stock options are shown in the “Outstanding Equity Awards at Fiscal-Year End 2006” table. The table above includes only the value of the options not yet exercisable that would become exercisable as a result of each event as of December 31, 2006. Exercisable options as of December 31, 2006, are excluded from this table. The table below details the number of options that accelerate and become exercisable as of the termination event, the number of options that become exercisable in the future in the events of death or disability and the number forfeited. |
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For illustrative purposes, it is assumed that all options not yet exercisable that become exercisable as of the event are exercised as of December 31, 2006, based on a PPL Corporation stock price of $35.84. |
(#)
Retirement or | Involuntary | Change in | ||||||||||||||||||
Voluntary | Termination | Control | ||||||||||||||||||
Named Executive Officer | Termination | Death | Disability | Not for Cause | Termination | |||||||||||||||
J. F. Sipics | ||||||||||||||||||||
Accelerated | 52,273 | 0 | 0 | 52,273 | 81,373 | |||||||||||||||
Forfeited | 57,470 | 0 | 0 | 57,470 | 0 | |||||||||||||||
Become exercisable over next 36 months | 0 | 81,373 | 81,373 | 0 | 0 | |||||||||||||||
P. A. Farr | ||||||||||||||||||||
Accelerated | 0 | 0 | 0 | (8) | 103,303 | |||||||||||||||
Forfeited | 103,303 | 0 | 0 | (8) | 0 | |||||||||||||||
Become exercisable over next 36 months | 0 | 103,303 | 103,303 | 0 | 0 | |||||||||||||||
J. E. Abel | ||||||||||||||||||||
Accelerated | 29,020 | 0 | 0 | 29,020 | 58,120 | |||||||||||||||
Forfeited | 29,100 | 0 | 0 | 29,100 | 0 | |||||||||||||||
Become exercisable over next 36 months | 0 | 58,120 | 58,120 | 0 | 0 | |||||||||||||||
J. M. Simmons, Jr. | ||||||||||||||||||||
Accelerated | 0 | 0 | 0 | (8) | 26,110 | |||||||||||||||
Forfeited | 26,110 | 0 | 0 | (8) | 0 | |||||||||||||||
Become exercisable over next 36 months | 0 | 26,110 | 26,110 | 0 | 0 | |||||||||||||||
D. G. DeCampli | ||||||||||||||||||||
Accelerated | 0 | 0 | 0 | (8) | 0 | |||||||||||||||
Forfeited | 0 | 0 | 0 | (8) | 0 | |||||||||||||||
Become exercisable over next 36 months | 0 | 0 | 0 | 0 | 0 |
(7) | In the event of involuntary termination for reasons other than for cause, any severance payable in cash (except for Messrs. Simmons and DeCampli)and/or other separation benefits (except for Mr. DeCampli), if any, would be determined as of the date of termination and would require the approval of the CNGC. | |
(8) | In the event of involuntary termination for reasons other than for cause, Messrs. Farr, Simmons and DeCampli would forfeit all outstanding restricted stock units and stock options because they are not eligible to retire, with the exception of 40,000 shares of retention stock held by Mr. Farr. Any exceptions to the automatic forfeitures would require the approval of the CGNC. |
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2006 | 2005 | |||||||
(In thousands) | ||||||||
Audit fees(a) | $ | 725 | $ | 515 | ||||
Audit-related fees(b) | 27 | 27 | ||||||
Tax fees(c) | — | — | ||||||
All other fees(d) | 4 | — |
(a) | Includes audit of annual financial statements and review of financial statements included in the company’s Quarterly Reports onForm 10-Q and services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC. | |
(b) | Fees for performance of specificagreed-upon procedures. | |
(c) | The independent auditor does not provide tax consulting and advisory services to the company or any of its affiliates. | |
(d) | Fees relating to access to an E&Y online accounting research tool. |
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• | market demand and prices for energy, capacity and fuel; | |
• | weather conditions affecting customer energy usage and operating costs; | |
• | the effect of any business or industry restructuring; | |
• | PPL Electric’s profitability and liquidity, including access to capital markets and credit facilities; | |
• | new accounting requirements or new interpretations or applications of existing requirements; | |
• | transmission and distribution system conditions and operating costs; | |
• | current and future environmental conditions and requirements and the related costs of compliance, including environmental capital expenditures and other expenses; | |
• | market prices of commodity inputs for ongoing capital expenditures; | |
• | collective labor bargaining negotiations; | |
• | development of new markets and technologies; | |
• | political, regulatory or economic conditions in regions where PPL Electric conducts business; | |
• | any impact of hurricanes or other severe weather on PPL Electric; | |
• | receipt of necessary governmental permits, approvals and rate relief; | |
• | new state or federal legislation, including new tax legislation; | |
• | state and federal regulatory developments; | |
• | the impact of any state or federal investigations applicable to PPL Electric and the energy industry; | |
• | capital market conditions, including changes in interest rates, and decisions regarding capital structure; | |
• | the market prices of equity securities and the impact on pension costs and resultant cash funding requirements for defined benefit pension plans; | |
• | securities and credit ratings; | |
• | the outcome of litigation against PPL Electric; | |
• | potential effects of threatened or actual terrorism or war or other hostilities; and | |
• | PPL Electric’s commitments and liabilities. |
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• | “Results of Operations” provides an overview of PPL Electric’s operating results in 2006, 2005 and 2004, including a review of earnings. It also provides a brief outlook for 2007. | |
• | “Financial Condition—Liquidity and Capital Resources” provides an analysis of PPL Electric’s liquidity position and credit profile, including its sources of cash (including bank credit facilities and sources of operating cash flow) and uses of cash (including contractual commitments and capital expenditure requirements) and the key risks and uncertainties that impact PPL Electric’s past and future liquidity position and financial condition. This subsection also includes a listing of PPL Electric’s current credit ratings. | |
• | “Financial Condition—Risk Management” includes an explanation of PPL Electric’s risk management activities regarding commodity price risk and interest rate risk. | |
• | “Application of Critical Accounting Policies” provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of PPL Electric and that require its management to make significant estimates, assumptions and other judgments. |
2006 | 2005 | 2004 | ||||||||
$ | 180 | $ | 145 | $ | 74 |
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2006 vs. 2005 | 2005 vs. 2004 | |||||||
Delivery revenues (net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges) | $ | (6 | ) | $ | 123 | |||
Operation and maintenance expenses | (13 | ) | (6 | ) | ||||
Taxes, other than income (excluding gross receipts tax) | 1 | (9 | ) | |||||
Depreciation | (4 | ) | (3 | ) | ||||
Change in tax reserves associated with stranded costs securitization (Note 2) | (15 | ) | ||||||
Interest income on 2004 IRS tax settlement | (5 | ) | ||||||
Financing costs (excluding transition bond interest expense) | (6 | ) | 4 | |||||
Interest income on loans to affiliates | 4 | 6 | ||||||
Income tax return adjustments | (4 | ) | ||||||
Income tax reserve adjustments | 5 | |||||||
Other | (1 | ) | ||||||
Unusual items | 64 | (29 | ) | |||||
$ | 35 | $ | 71 | |||||
• | Delivery revenues decreased in 2006 compared with 2005 primarily due to milder weather in 2006. | |
• | In December 2004, the PUC approved an increase in PPL Electric’s distribution rates of $137 million (based on a return on equity of 10.7%), and approved PPL Electric’s proposed mechanism for collecting an additional $57 million in transmission-related charges, for a total annual increase of $194 million, effective January 1, 2005. Additionally, delivery revenues increased in 2005 compared with 2004 due to a 4.3% increase in electricity delivery sales volumes. | |
• | Operation and maintenance expense increased in 2006 compared with 2005, primarily due to higher tree trimming costs, a union contract ratification bonus and storm restoration costs. Operation and maintenance expense increased in 2005 compared with 2004, primarily due to increased system reliability work and tree trimming costs. Operation and maintenance expenses were also impacted in 2005 due to the January 2005 ice storm costs and subsequent deferral as discussed below. |
2006 | 2005 | 2004 | ||||||||||
Reversal of cost recovery—Hurricane Isabel (Note 1) | $ | (7 | ) | |||||||||
Realization of benefits related to Black Lung Trust assets (Note 8) | 21 | |||||||||||
PJM billing dispute (Note 9) | 21 | $ | (27 | ) | ||||||||
Acceleration of stock-based compensation expense for periods prior to 2005 (Note 1) | (2 | ) | ||||||||||
Total | $ | 35 | $ | (29 | ) | |||||||
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2006 vs. 2005 | 2005 vs. 2004 | |||||||
PLR electric generation supply | $ | 127 | $ | 122 | ||||
Electric delivery | (38 | ) | 201 | |||||
Other | (1 | ) | 1 | |||||
$ | 88 | $ | 324 | |||||
• | higher electric delivery revenues resulting from higher transmission and distribution customer rates effective January 1, 2005, and a 4.3% increase in sales volume; and | |
• | higher PLR revenues due to a 2% rate increase and a 6% increase in sales volume, in part due to the return of customers previously served by alternate suppliers. |
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2006 vs. 2005 | 2005 vs. 2004 | |||||||
Costs associated with severe ice storms in January 2005 (Note 1) | $ | (16 | ) | $ | 16 | |||
Subsequent deferral of a portion of costs associated with January 2005 ice storms (Note 1) | 12 | (12 | ) | |||||
Increase in PUC-reportable storm costs | 9 | |||||||
Increase in domestic system reliability work, including tree trimming | 19 | 10 | ||||||
Accelerated amortization of stock-based compensation (Note 1) | (5 | ) | 5 | |||||
Increase in pension and postretirement benefit costs (Note 8) | 4 | 1 | ||||||
Increase in allocation of certain corporate service costs (Note 10) | 2 | 1 | ||||||
Reversal of cost recovery—Hurricane Isabel (Note 1) | 11 | |||||||
Decrease in employee benefits due to transfer of field services employees to PPL Generation | (7 | ) | ||||||
Union contract ratification bonus | 3 | |||||||
PJM system control and dispatch services | (5 | ) | (3 | ) | ||||
Change in retired miners’ medical benefits | (7 | ) | 5 | |||||
Other | 3 | (6 | ) | |||||
$ | 30 | $ | 10 | |||||
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2006 vs. 2005 | 2005 vs. 2004 | |||||||
Dividends on 6.25% Series Preference Stock (Note 4) | $ | 12 | ||||||
Interest on PLR contract collateral (Note 10) | 5 | $ | 9 | |||||
Decrease in long-term debt interest expense | (20 | ) | (24 | ) | ||||
Interest accrued for PJM billing dispute (Note 9) | (15 | ) | 8 | |||||
Other | (1 | ) | (1 | ) | ||||
$ | (19 | ) | $ | (8 | ) | |||
2006 vs. 2005 | 2005 vs. 2004 | |||||||
Higher pre-tax book income | $ | 30 | $ | 50 | ||||
Tax return adjustments | 4 | |||||||
Tax reserve adjustments | 10 | |||||||
Other | 1 | 1 | ||||||
$ | 35 | $ | 61 | |||||
• | unusual or extreme weather that may damage PPL Electric’s transmission and distribution facilities or affect energy sales to customers; | |
• | the ability to recover and the timeliness and adequacy of recovery of costs associated with regulated utility businesses; | |
• | any adverse outcome of legal proceedings and investigations with respect to PPL Electric’s current and past business activities; and | |
• | a downgrade in PPL Electric’s or its subsidiary’s credit ratings that could negatively affect their ability to access capital and increase the cost of maintaining credit facilities and any new debt. |
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2006 | 2005 | 2004 | ||||||||||
Cash and cash equivalents | $ | 150 | $ | 298 | $ | 151 | ||||||
Short-term investments | 26 | 25 | 10 | |||||||||
176 | 323 | 161 | ||||||||||
Short-term debt | 42 | 42 | 42 |
2006 | 2005 | 2004 | ||||||||||
Net Cash Provided by Operating Activities | $ | 578 | $ | 580 | $ | 898 | ||||||
Net Cash Used in Investing Activities | (287 | ) | (193 | ) | (523 | ) | ||||||
Net Cash Used in Financing Activities | (439 | ) | (240 | ) | (386 | ) | ||||||
Net (Decrease) Increase in Cash and Cash Equivalents | $ | (148 | ) | $ | 147 | $ | (11 | ) | ||||
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Letters | ||||||||||||||||
Committed | of Credit | Available | ||||||||||||||
Capacity | Borrowed | Issued (b) | Capacity | |||||||||||||
PPL Electric Credit Facility (a) | $ | 200 | $ | 200 |
(a) | Borrowings under PPL Electric’s credit facility bear interest at LIBOR-based rates plus a spread, depending upon the company’s public debt rating. PPL Electric also has the capability to cause the lenders to issue up to $200 million of letters of credit under this facility, which issuances reduce available borrowing capacity. |
(b) | PPL Electric has a reimbursement obligation to the extent any letters of credit are drawn upon. |
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Actual | Projected | |||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2011 | |||||||||||||||||||
Construction expenditures (a) | ||||||||||||||||||||||||
Transmission and distribution facilities | $ | 268 | $ | 272 | $ | 234 | $ | 260 | $ | 268 | $ | 317 | ||||||||||||
Other | 21 | 24 | 20 | 17 | 17 | 21 | ||||||||||||||||||
Total Capital Expenditures | $ | 289 | $ | 296 | $ | 254 | $ | 277 | $ | 285 | $ | 338 | ||||||||||||
(a) | Construction expenditures include AFUDC, which is expected to be approximately $13 million for the2007-2011 period. |
Less | ||||||||||||||||||||
Than 1 | 1-3 | 4-5 | After 5 | |||||||||||||||||
Contractual Cash Obligations | Total | Year | Years | Years | Years | |||||||||||||||
Long-term Debt (a) | $ | 1,979 | $ | 555 | $ | 881 | $ | 543 | ||||||||||||
Capital Lease Obligations | ||||||||||||||||||||
Operating Leases | ||||||||||||||||||||
Purchase Obligations (b) | 5,370 | 1,737 | 3,633 | |||||||||||||||||
Other Long-term Liabilities Reflected on the Balance Sheets under GAAP | ||||||||||||||||||||
Total Contractual Cash Obligations | $ | 7,349 | $ | 2,292 | $ | 4,514 | $ | 543 | ||||||||||||
(a) | Reflects principal maturities only. Includes $605 million of transition bonds issued by PPL Transition Bond Company in 1999 to securitize a portion of PPL Electric’s stranded costs. This debt is non-recourse to PPL Electric. | |
(b) | The payments reflected herein are subject to change, as the purchase obligation reflected is an estimate based on projected obligated quantities and projected pricing under the contract. Purchase orders made in the ordinary course of business are excluded from the amounts presented. |
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Moody’s | S&P | Fitch (b) | ||||
PPL Electric | ||||||
Senior Unsecured/Issuer Rating | Baa1 | A- | BBB | |||
First Mortgage Bonds | A3 | A- | A- | |||
Pollution Control Bonds (a) | Aaa | AAA | ||||
Senior Secured Bonds | A3 | A- | A- | |||
Commercial Paper | P-2 | A-2 | F2 | |||
Preferred Stock | Baa3 | BBB | BBB+ | |||
Preference Stock | Baa3 | BBB | BBB | |||
Outlook | STABLE | STABLE | STABLE | |||
PPL Transition Bond Company | ||||||
Transition Bonds | Aaa | AAA | AAA |
(a) | Insured as to payment of principal and interest. | |
(b) | Issuer Rating for Fitch is an “Issuer Default Ratings.” |
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• | Discount Rate—The discount rate is used in calculating the present value of benefits, which are based on projections of benefit payments to be made in the future. The objective in selecting the discount rate is to measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments, would provide the necessary future cash flows to pay the accumulated benefits when due. | |
• | Expected Return on Plan Assets—Management projects the future return on plan assets considering prior performance, but primarily based upon the plans’ mix of assets and expectations for the long-term returns on those asset classes. These projected returns reduce the net benefit costs PPL Electric records currently. | |
• | Rate of Compensation Increase—Management projects employees’ annual pay increases, which are used to project employees’ pension benefits at retirement. | |
• | Health Care Cost Trend Rate—Management projects the expected increases in the cost of health care. |
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Increase (Decrease) | ||||||||||||||||
Change in | Impact on | Impact on | Impact on | |||||||||||||
Actuarial Assumption | Assumption | Liabilities | Cost | OCI | ||||||||||||
Discount Rate | (0.25 | )% | $ | 32 | $ | 1 | $ | 31 | ||||||||
Expected Return on Plan Assets | (0.25 | )% | N/A | 2 | (2 | ) | ||||||||||
Rate of Compensation Increase | 0.25 | % | 6 | 1 | 6 | |||||||||||
Health Care Cost Trend Rate (a) | 1.0 | % | 8 | 1 | 7 |
(a) | Only impacts other postretirement benefits. |
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• | Allowances for excess or obsolete inventory are reduced as the inventory items are pulled from the warehouse shelves and sold as scrap or otherwise disposed. | |
• | Allowances for uncollectible accounts are reduced when accounts are written off after prescribed collection procedures have been exhausted, a better estimate of the allowance is determined or when underlying amounts are ultimately collected. | |
• | Environmental and other litigation contingencies are reduced when the contingency is resolved and PPL Electric makes actual payments, a better estimate of the loss is determined or the loss is no longer considered probable. |
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2006 | 2005 | 2004 | ||||||||||
Operating Revenues | ||||||||||||
Retail electric | $ | 3,099 | $ | 3,011 | $ | 2,687 | ||||||
Wholesale electric | 3 | 4 | 6 | |||||||||
Wholesale electric to affiliate (Note 10) | 157 | 148 | 154 | |||||||||
Total | 3,259 | 3,163 | 2,847 | |||||||||
Operating Expenses | ||||||||||||
Operation | ||||||||||||
Energy purchases | 175 | 256 | 207 | |||||||||
Energy purchases from affiliate (Note 10) | 1,708 | 1,590 | 1,500 | |||||||||
Other operation and maintenance | 369 | 375 | 365 | |||||||||
Amortization of recoverable transition costs | 282 | 268 | 257 | |||||||||
Depreciation (Note 1) | 118 | 112 | 107 | |||||||||
Taxes, other than income (Note 2) | 189 | 185 | 152 | |||||||||
Total | 2,841 | 2,786 | 2,588 | |||||||||
Operating Income | 418 | 377 | 259 | |||||||||
Other Income—net (Note 11) | 31 | 21 | 15 | |||||||||
Interest Expense | 134 | 170 | 187 | |||||||||
Interest Expense with Affiliate (Note 10) | 17 | 12 | 3 | |||||||||
Income Before Income Taxes | 298 | 216 | 84 | |||||||||
Income Taxes (Note 2) | 104 | 69 | 8 | |||||||||
Net Income | 194 | 147 | 76 | |||||||||
Dividends on Preferred Securities | 14 | 2 | 2 | |||||||||
Income Available to PPL | $ | 180 | $ | 145 | $ | 74 | ||||||
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YEARS ENDED DECEMBER 31,
2006 | 2005 | 2004 | ||||||||||
Cash Flows from Operating Activities | ||||||||||||
Net income | $ | 194 | $ | 147 | $ | 76 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||||
Depreciation | 118 | 112 | 107 | |||||||||
Stock compensation expense | 4 | 7 | 3 | |||||||||
Amortizations—recoverable transition costs and other | 303 | 289 | 278 | |||||||||
Deferred income taxes and investment tax credits | 17 | 9 | 81 | |||||||||
Realization of benefits related to Black Lung Trust assets | (36 | ) | ||||||||||
Accrual for PJM billing dispute | (35 | ) | 47 | |||||||||
Write-off (deferral) of storm-related costs | 11 | (12 | ) | 4 | ||||||||
Change in current assets and current liabilities | ||||||||||||
Accounts receivable | 11 | (38 | ) | 40 | ||||||||
Accounts payable | 22 | 11 | 50 | |||||||||
Collateral on PLR energy supply (Note 10) | 302 | |||||||||||
Other | (18 | ) | 2 | (7 | ) | |||||||
Other operating activities | ||||||||||||
Other assets | (1 | ) | (6 | ) | (3 | ) | ||||||
Other liabilities | (12 | ) | 12 | (33 | ) | |||||||
Net cash provided by operating activities | 578 | 580 | 898 | |||||||||
Cash Flows from Investing Activities | ||||||||||||
Expenditures for property, plant and equipment | (289 | ) | (174 | ) | (179 | ) | ||||||
Purchases of marketable securities | (143 | ) | (32 | ) | (60 | ) | ||||||
Proceeds from the sale of marketable securities | 143 | 17 | 50 | |||||||||
Net increase in notes receivable from affiliate | (300 | ) | ||||||||||
Net increase in restricted cash | (2 | ) | (10 | ) | (35 | ) | ||||||
Other investing activities | 4 | 6 | 1 | |||||||||
Net cash used in investing activities | (287 | ) | (193 | ) | (523 | ) | ||||||
Cash Flows from Financing Activities | ||||||||||||
Issuance of preference stock, net of issuance costs | 245 | |||||||||||
Issuance of long-term debt | 424 | |||||||||||
Retirement of long-term debt | (433 | ) | (559 | ) | (394 | ) | ||||||
Contribution from PPL | 75 | |||||||||||
Repurchase of common stock from PPL | (200 | ) | ||||||||||
Payment of common stock dividends to PPL | (116 | ) | (93 | ) | (24 | ) | ||||||
Net increase in short-term debt | 42 | |||||||||||
Other financing activities | (10 | ) | (12 | ) | (10 | ) | ||||||
Net cash used in financing activities | (439 | ) | (240 | ) | (386 | ) | ||||||
Net (Decrease) Increase in Cash and Cash Equivalents | (148 | ) | 147 | (11 | ) | |||||||
Cash and Cash Equivalents at Beginning of Period | 298 | 151 | 162 | |||||||||
Cash and Cash Equivalents at End of Period | $ | 150 | $ | 298 | $ | 151 | ||||||
Supplemental Disclosures of Cash Flow Information | ||||||||||||
Cash paid (received) during the period for: | ||||||||||||
Interest | $ | 137 | $ | 156 | $ | 180 | ||||||
Income taxes—net | $ | 122 | $ | 21 | $ | (69 | ) |
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2006 | 2005 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 150 | $ | 298 | ||||
Restricted cash (Note 13) | 43 | 42 | ||||||
Accounts receivable (less reserve: 2006, $19; 2005, $20) | 219 | 224 | ||||||
Unbilled revenues | 163 | 174 | ||||||
Accounts receivable from affiliates | 6 | 10 | ||||||
Note receivable from affiliate (Note 10) | 300 | 300 | ||||||
Prepayments | 3 | 4 | ||||||
Prepayment on PLR energy supply from affiliate (Note 10) | 12 | 12 | ||||||
Other | 101 | 87 | ||||||
Total Current Assets | 997 | 1,151 | ||||||
Property, Plant and Equipment (Note 1) | ||||||||
Electric plant in service | ||||||||
Transmission and distribution | 4,163 | 4,034 | ||||||
General | 412 | 356 | ||||||
�� | ||||||||
4,575 | 4,390 | |||||||
Construction work in progress | 95 | 43 | ||||||
Electric plant | 4,670 | 4,433 | ||||||
Other property | 3 | 3 | ||||||
4,673 | 4,436 | |||||||
Less: accumulated depreciation | 1,793 | 1,720 | ||||||
Total Property, Plant and Equipment | 2,880 | 2,716 | ||||||
Regulatory and Other Noncurrent Assets (Note 1) | ||||||||
Recoverable transition costs | 884 | 1,165 | ||||||
Acquired intangibles (Note 14) | 118 | 114 | ||||||
Prepayment on PLR energy supply from affiliate (Note 10) | 23 | 35 | ||||||
Other | 413 | 356 | ||||||
Total Regulatory and Other Noncurrent Assets | 1,438 | 1,670 | ||||||
Total Assets | $ | 5,315 | $ | 5,537 | ||||
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2006 | 2005 | |||||||
Liabilities and Equity | ||||||||
Current Liabilities | ||||||||
Short-term debt (Note 5) | $ | 42 | $ | 42 | ||||
Long-term debt | 555 | 434 | ||||||
Accounts payable | 53 | 42 | ||||||
Accounts payable to affiliates | 164 | 183 | ||||||
Taxes | 58 | 76 | ||||||
Collateral on PLR energy supply from affiliate (Note 10) | 300 | 300 | ||||||
Other | 141 | 147 | ||||||
Total Current Liabilities | 1,313 | 1,224 | ||||||
Long-term Debt | 1,423 | 1,977 | ||||||
Deferred Credits and Other Noncurrent Liabilities | ||||||||
Deferred income taxes and investment tax credits (Note 2) | 814 | 771 | ||||||
Other | 206 | 190 | ||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,020 | 961 | ||||||
Commitments and Contingent Liabilities (Note 9) | ||||||||
Shareowners’ Equity | ||||||||
Preferred securities (Note 4) | 301 | 51 | ||||||
Common stock—no par value (a) (b) | 364 | 1,476 | ||||||
Additional paid-in capital | 424 | 354 | ||||||
Treasury stock (a) (b) | (912 | ) | ||||||
Earnings reinvested | 470 | 406 | ||||||
Total Shareowners’ Equity | 1,559 | 1,375 | ||||||
Total Liabilities and Equity | $ | 5,315 | $ | 5,537 | ||||
(a) | 170 million shares authorized; 66 million shares issued and outstanding at December 31, 2006, and 78 million shares issued and outstanding, excluding 79 million shares held as treasury stock, at December 31, 2005. | |
(b) | See Note 1 for additional information on the retirement of all treasury stock in 2006. |
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2006 | 2005 | 2004 | ||||||||||
Preferred securities at beginning of year | $ | 51 | $ | 51 | $ | 51 | ||||||
Issuance of preference stock | 250 | |||||||||||
Preferred securities at end of year | 301 | 51 | 51 | |||||||||
Common stock at beginning of year | 1,476 | 1,476 | 1,476 | |||||||||
Retirement of treasury stock | (1,112 | ) | ||||||||||
Common stock at end of year | 364 | 1,476 | 1,476 | |||||||||
Additional paid-in capital at beginning of year | 354 | 354 | 354 | |||||||||
Capital contribution from PPL | 75 | |||||||||||
Capital stock expense | (5 | ) | ||||||||||
Additional paid-in capital at end of year | 424 | 354 | 354 | |||||||||
Treasury stock at beginning of year | (912 | ) | (912 | ) | (912 | ) | ||||||
Treasury stock purchased | (200 | ) | ||||||||||
Retirement of treasury stock | 1,112 | |||||||||||
Treasury stock at end of year | (912 | ) | (912 | ) | ||||||||
Earnings reinvested at beginning of year | 406 | 354 | 304 | |||||||||
Net income (a) | 194 | 147 | 76 | |||||||||
Cash dividends declared on preferred securities | (14 | ) | (2 | ) | (2 | ) | ||||||
Cash dividends declared on common stock | (116 | ) | (93 | ) | (24 | ) | ||||||
Earnings reinvested at end of year | 470 | 406 | 354 | |||||||||
Total Shareowners’ Equity | $ | 1,559 | $ | 1,375 | $ | 1,323 | ||||||
Common stock shares outstanding at beginning of year (b) | 78,030 | 78,030 | 78,030 | |||||||||
Treasury stock shares purchased | (11,662 | ) | ||||||||||
Common stock shares outstanding at end of year | 66,368 | 78,030 | 78,030 | |||||||||
(a) | PPL Electric’s net income approximates comprehensive income. | |
(b) | Shares in thousands. All common shares of PPL Electric stock are owned by PPL. |
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Outstanding | ||||||||||||||||
2006 | 2005 | Maturity (a) | ||||||||||||||
First Mortgage Bonds(b) | ||||||||||||||||
6.55% | $ | 146 | March 1, 2006 | |||||||||||||
73/8% | $ | 10 | 10 | March 1, 2014 | ||||||||||||
10 | 156 | |||||||||||||||
Senior Secured Bonds(b) | ||||||||||||||||
57/8% | 255 | 255 | August 15, 2007 | |||||||||||||
61/4% | 486 | 486 | August 15, 2009 | |||||||||||||
4.30% | 100 | 100 | June 1, 2013 | |||||||||||||
4.95% | 100 | 100 | December 15, 2015 | |||||||||||||
5.15% | 100 | 100 | December 15, 2020 | |||||||||||||
1,041 | 1,041 | |||||||||||||||
Senior Secured Bonds (Pollution Control Series)(c) | ||||||||||||||||
3.125% Series | 90 | 90 | November 1, 2008 | |||||||||||||
4.75% Series (d) | 108 | 108 | February 15, 2027 | |||||||||||||
4.70% Series (e) | 116 | 116 | September 1, 2029 | |||||||||||||
314 | 314 | |||||||||||||||
Series 1999-1 Transition Bonds | ||||||||||||||||
7.05%—7.15% | 605 | 892 | 2006-2008 | |||||||||||||
Floating Rate Pollution Control Revenue Bonds (f) | 9 | 9 | June 1, 2027 | |||||||||||||
1,979 | 2,412 | |||||||||||||||
Unamortized discount | (1 | ) | (1 | ) | ||||||||||||
1,978 | 2,411 | |||||||||||||||
Less amount due within one year | (555 | ) | (434 | ) | ||||||||||||
Total Long-term Debt | $ | 1,423 | $ | 1,977 | ||||||||||||
(a) | Aggregate maturities of long-term debt are (millions of dollars): 2007, $555; 2008, $395; 2009, $486; 2010 and 2011, $0; and $543 thereafter. There are no bonds outstanding that have sinking fund requirements. | |
(b) | The First Mortgage Bonds were issued under, and are secured by, the lien of the 1945 First Mortgage Bond Indenture. The lien of the 1945 First Mortgage Bond Indenture covers substantially all electric distribution plant and certain transmission plant owned by PPL Electric. The Senior Secured Bonds were issued under the 2001 Senior Secured Bond Indenture. The Senior Secured Bonds are secured by (i) an equal principal amount of First Mortgage Bonds issued under the 1945 First Mortgage Bond Indenture and (ii) the lien of the 2001 Senior Secured Bond Indenture, which covers substantially all electric distribution plant and certain transmission plant owned by PPL Electric and which is junior to the lien of the 1945 First Mortgage Bond Indenture. | |
(c) | PPL Electric issued a series of its Senior Secured Bonds to secure its obligations to make payments with respect to each series of Pollution Control Bonds that were issued by the Lehigh County Industrial Development Authority (LCIDA) on behalf of PPL Electric. These Senior Secured Bonds were issued in the same principal amount and bear the same interest rate as such Pollution Control Bonds. These Senior Secured Bonds were issued under the 2001 Senior Secured Bond Indenture and are secured as noted in (b) above. | |
(d) | May be redeemed at par on or after February 15, 2015. | |
(e) | May be redeemed at par on or after March 1, 2015. | |
(f) | Rate was 3.97% at December 31, 2006, and 3.58% at December 31, 2005. |
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1. | Summary of Significant Accounting Policies |
2006 | 2005 | |||||||
Recoverable transition costs (a) | $ | 884 | $ | 1,165 | ||||
Taxes recoverable through future rates | 256 | 242 | ||||||
Recoverable costs of defined benefit plans | 61 | |||||||
Costs associated with severe ice storms—January 2005 | 12 | 12 | ||||||
Storm restoration costs—Hurricane Isabel | 10 | |||||||
Other | 3 | 5 | ||||||
$ | 1,216 | $ | 1,434 | |||||
(a) | Earn a current return. |
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Transition obligation | $ | 16 | ||
Prior service cost | 87 | |||
Net actuarial gain | (42 | ) | ||
Recoverable costs of defined benefit plans | $ | 61 | ||
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2006 | 2005 | |||||||
Transmission and distribution | 2.25 | % | 2.23 | % | ||||
General | 3.35 | % | 2.87 | % |
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2. | Income and Other Taxes |
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2006 | 2005 | |||||||
Deferred Tax Assets | ||||||||
Deferred investment tax credits | $ | 6 | $ | 7 | ||||
Accrued pension costs | 56 | 32 | ||||||
Contributions in aid of construction | 80 | 73 | ||||||
Other | 41 | 48 | ||||||
183 | 160 | |||||||
Deferred Tax Liabilities | ||||||||
Electric utility plant—net | 648 | 615 | ||||||
Recoverable transition costs | 145 | 144 | ||||||
Taxes recoverable through future rates | 106 | 100 | ||||||
Reacquired debt costs | 14 | 15 | ||||||
Other | 36 | 19 | ||||||
949 | 893 | |||||||
Net deferred tax liability | $ | 766 | $ | 733 | ||||
2006 | 2005 | 2004 | ||||||||||
Income Tax Expense | ||||||||||||
Current—Federal | $ | 85 | $ | 66 | $ | (33 | ) | |||||
Current—State | 1 | (5 | ) | (40 | ) | |||||||
86 | 61 | (73 | ) | |||||||||
Deferred—Federal | 19 | 12 | 79 | |||||||||
Deferred—State | 1 | (1 | ) | 5 | ||||||||
20 | 11 | 84 | ||||||||||
Investment tax credit, net—Federal | (2 | ) | (3 | ) | (3 | ) | ||||||
Total | $ | 104 | $ | 69 | $ | 8 | ||||||
Total income tax expense—Federal | $ | 102 | $ | 75 | $ | 43 | ||||||
Total income tax expense—State | 2 | (6 | ) | (35 | ) | |||||||
Total | $ | 104 | $ | 69 | $ | 8 | ||||||
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2006 | 2005 | 2004 | ||||||||||
Reconciliation of Income Tax Expense | ||||||||||||
Indicated federal income tax on Income Before Income Taxes at statutory tax rate—35% | $ | 104 | $ | 76 | $ | 30 | ||||||
Increase (decrease) due to: | ||||||||||||
State income taxes (a)(b)(c) | 12 | 4 | (1 | ) | ||||||||
Stranded costs securitization (a)(b)(c) | (7 | ) | (7 | ) | (22 | ) | ||||||
Amortization of investment tax credit | (2 | ) | (2 | ) | (2 | ) | ||||||
Other (a)(b)(c) | (3 | ) | (2 | ) | 3 | |||||||
(7 | ) | (22 | ) | |||||||||
Total income tax expense | $ | 104 | $ | 69 | $ | 8 | ||||||
Effective income tax rate | 34.9 | % | 31.9 | % | 9.5 | % |
(a) | During 2006, PPL Electric recorded $4 million in state and federal income tax expense from filing the 2005 income tax returns. The $4 million tax expense included in the Reconciliation of Income Tax Expense consisted of a $1 million federal expense reflected in “Other” and a $3 million state expense reflected in “State income taxes.” | |
During 2006, PPL Electric recorded a $9 million benefit related to federal and state income tax reserve changes. The $9 million benefit included in the Reconciliation of Income Tax Expense consisted of a $7 million benefit reflected in “Stranded costs securitization” and a $2 million federal benefit reflected in “Other.” | ||
(b) | During 2005, PPL Electric recorded a $10 million benefit related to federal and state income tax reserve changes. The $10 million benefit included in the Reconciliation of Income Tax Expense consisted of a $7 million benefit reflected in “Stranded costs securitization,” a $2 million state benefit reflected in “State income taxes” and a $1 million federal benefit reflected in “Other.” | |
(c) | During 2004, PPL Electric recorded a $20 million benefit related to federal and state income tax reserve changes. The $20 million benefit included in the Reconciliation of Income Tax Expense consisted of a $22 million benefit reflected in “Stranded costs securitization,” a $2 million state benefit reflected in “State income taxes,” offset by a $4 million federal provision reflected in “Other.” |
2006 | 2005 | 2004 | ||||||||||
Taxes, other than income | ||||||||||||
State gross receipts | $ | 181 | $ | 174 | $ | 155 | ||||||
State utility realty | 4 | 6 | (10 | ) | ||||||||
State capital stock | 4 | 5 | 7 | |||||||||
$ | 189 | $ | 185 | $ | 152 | |||||||
3. | Financial Instruments |
December 31, | December 31, | |||||||||||||||
2006 | 2005 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Long-term debt | $ | 1,978 | $ | 2,023 | $ | 2,411 | $ | 2,496 |
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4. | Preferred Securities |
2006 | 2005 | |||||||
41/2% Preferred Stock | $ | 25 | $ | 25 | ||||
Series Preferred Stock | ||||||||
3.35% | 2 | 2 | ||||||
4.40% | 12 | 12 | ||||||
4.60% | 3 | 3 | ||||||
6.75% | 9 | 9 | ||||||
Total Series Preferred Stock | 26 | 26 | ||||||
6.25% Series Preference Stock | 250 | |||||||
Total Preferred Securities | $ | 301 | $ | 51 | ||||
2006 | ||||||||||||
Issued and | ||||||||||||
Outstanding | Shares | Optional Redemption | ||||||||||
Shares | Authorized | Price Per Share | ||||||||||
41/2% Preferred Stock (a) | 247,524 | 629,936 | $ | 110.00 | ||||||||
Series Preferred Stock (a) | ||||||||||||
3.35% | 20,605 | 103.50 | ||||||||||
4.40% | 117,676 | 102.00 | ||||||||||
4.60% | 28,614 | 103.00 | ||||||||||
6.75% | 90,770 | 102.36 | ||||||||||
Total Series Preferred Stock | 257,665 | 10,000,000 | ||||||||||
6.25% Series Preference Stock (c) | 2,500,000 | 10,000,000 | (b) | |||||||||
Total Preferred Securities | 3,005,189 | |||||||||||
(a) | During 2006 and 2005, there were no increases or decreases to the preferred stock outstanding at December 31, 2005 and 2004. | |
(b) | Redeemable on or after April 6, 2011. | |
(c) | 2.5 million shares of preference stock were issued in 2006. |
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5. | Credit Arrangements and Financing Activities |
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• | obtained long-term electric supply contracts to meet its PLR obligations (with its affiliate PPL EnergyPlus) through 2009, as further described in Note 10 under “PLR Contracts”; | |
• | agreed to limit its businesses to electric transmission and distribution and related activities; | |
• | adopted amendments to its Articles of Incorporation and Bylaws containing corporate governance and operating provisions designed to clarify and reinforce its legal and corporate separateness from PPL and its other affiliated companies; | |
• | appointed an independent director to its Board of Directors and required the unanimous approval of the Board of Directors, including the consent of the independent director, to amendments to these corporate governance and operating provisions or to the commencement of any insolvency proceedings, including any filing of a voluntary petition in bankruptcy or other similar actions; and | |
• | appointed an independent compliance administrator to review, on a semi-annual basis, its compliance with the corporate governance and operating requirements contained in its Articles of Incorporation and Bylaws. |
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6. | Leases |
7. | Stock-Based Compensation |
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Weighted- | ||||||||
Average | ||||||||
Restricted | Grant Date | |||||||
Shares | Fair Value | |||||||
Nonvested at January 1, 2006 | 116,260 | $ | 23.09 | |||||
Granted | 64,610 | 31.73 | ||||||
Vested | (33,340 | ) | 17.69 | |||||
Nonvested at December 31, 2006 | 147,530 | 28.12 |
Weighted-Average | Aggregate | |||||||||||||||
Number of | Weighted-Average | Remaining | Total Intrinsic | |||||||||||||
Options | Exercise Price | Contractual Term | Value | |||||||||||||
Outstanding at January 1, 2006 | 285,372 | $ | 22.95 | |||||||||||||
Granted | 88,540 | 30.14 | ||||||||||||||
Exercised | (14,876 | ) | 27.62 | |||||||||||||
Outstanding at December 31, 2006 | 359,036 | 24.53 | 6.8 years | $ | 4 | |||||||||||
Options exercisable at December 31, 2006 | 200,920 | 21.90 | 5.5 years | 3 | ||||||||||||
Weighted-average fair value of options granted | $ | 4.86 |
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2006 | 2005 | 2004 | ||||||||||
Risk-free interest rate | 4.06% | 4.09% | 3.79% | |||||||||
Expected option life | 6.25 yrs. | 7.00 yrs. | 7.47 yrs. | |||||||||
Expected stock volatility | 19.86% | 18.09% | 32.79% | |||||||||
Dividend yield | 3.76% | 3.88% | 3.51% |
8. | Retirement and Postemployment Benefits |
Before | After | |||||||||||
Application | Application | |||||||||||
of SFAS 158 | Adjustments | of SFAS 158 | ||||||||||
Regulatory and Other Noncurrent Assets | ||||||||||||
Other (a) | $ | 352 | $ | 61 | $ | 413 | ||||||
Total Regulatory and Other Noncurrent Assets | 1,377 | 61 | 1,438 | |||||||||
Total Assets | 5,254 | 61 | 5,315 | |||||||||
Deferred Credits and Other Noncurrent Liabilities | ||||||||||||
Deferred income taxes and investment tax credits | 844 | (30 | ) | 814 | ||||||||
Other | 115 | 91 | 206 | |||||||||
Total Deferred Credits and Other Noncurrent Liabilities | 959 | 61 | 1,020 | |||||||||
Total Liabilities and Equity | 5,254 | 61 | 5,315 |
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(a) | See Note 1 for details of the regulatory assets recorded for recoverable costs of defined benefit plans in connection with the adoption of SFAS 158. |
2006 | 2005 | 2004 | ||||||||||
Pension benefits (a) | $ | 6 | $ | 4 | $ | 1 | ||||||
Other postretirement benefits (a) | 9 | 7 | 9 |
(a) | PPL Electric does not directly sponsor any pension or other postretirement benefit plans. PPL Electric is allocated a portion of the costs of pension and other postretirement plans sponsored by PPL Services, based on its participation in those plans. |
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9. | Commitments and Contingent Liabilities |
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• | The Public Utility Holding Company Act of 1935 has been repealed. PUHCA significantly restricted mergers and acquisitions in the electric utility sector. | |
• | The FERC has appointed the North American Electric Reliability Council as the electric reliability organization to establish and enforce mandatory reliability standards (“Reliability Standards”) regarding the bulk power system, and the FERC will oversee this process and independently enforce the Reliability Standards, as further described below. | |
• | The FERC will establish incentives for transmission companies, such as performance-based rates, recovery of the costs to comply with reliability rules and accelerated depreciation for investments in transmission infrastructure. | |
• | The Price-Anderson Amendments Act of 1988, which provides the framework for nuclear liability protection, was extended to 2025. | |
• | Federal support will be available for certain clean coal power initiatives, nuclear power projects and renewable energy technologies. |
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• | PPL Electric’s leasing arrangements, including those discussed above, contain certain indemnifications in favor of the lessors (e.g., tax and environmental matters). | |
• | In connection with its issuances of securities, PPL Electric engages underwriters, purchasers and purchasing agents to whom it provides indemnification for damages incurred by such parties arising from PPL Electric’s material misstatements or omissions in the related offering documents. In addition, in connection with these securities offerings and other financing transactions, PPL Electric also engages trustees or custodial, escrow or other agents to act for the benefit of the investors or to provide other agency services. PPL Electric typically provides indemnification to these agents for any liabilities or expenses incurred by them in performing their obligations. | |
• | In connection with certain of their credit arrangements, PPL Electric provides the creditors or credit arrangers with indemnification that is standard for each particular type of transaction. For instance, under the credit agreement for the asset-backed commercial paper program, PPL Electric and its special purpose subsidiary have agreed to indemnify the commercial paper conduit, the sponsoring financial institution and the liquidity banks for damages incurred by such parties arising from, among other things, a breach by PPL Electric or the subsidiary of their various representations, warranties and covenants in the credit agreement, PPL Electric’s activities as servicer with respect to the pledged accounts receivable and any dispute by PPL Electric’s customers with respect to payment of the accounts receivable. |
10. | Related Party Transactions |
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2006 | 2005 | 2004 | ||||||||||
Direct/Allocated Costs | $ | 133 | $ | 121 | $ | 119 |
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11. | Other Income—Net |
2006 | 2005 | 2004 | ||||||||||
Other Income | ||||||||||||
Affiliated interest income (Note 10) | $ | 20 | $ | 14 | $ | 3 | ||||||
Interest income—IRS settlement | 8 | |||||||||||
Other interest income | 12 | 7 | 5 | |||||||||
Miscellaneous | 1 | 2 | ||||||||||
Total | 33 | 23 | 16 | |||||||||
Other Deductions | 2 | 2 | 1 | |||||||||
Other Income—net | $ | 31 | $ | 21 | $ | 15 | ||||||
12. | Credit Concentration |
13. | Restricted Cash |
December 31, | ||||||||
2006 | 2005 | |||||||
Current: | ||||||||
Collateral for letters of credit (a) | $ | 42 | $ | 42 | ||||
Miscellaneous | 1 | |||||||
Restricted cash—current | 43 | 42 | ||||||
Noncurrent: | ||||||||
PPL Transition Bond Company Indenture reserves (b) | 33 | 32 | ||||||
Total restricted cash | $ | 76 | $ | 74 | ||||
(a) | A deposit with a financial institution of funds from the asset-backed commercial paper program to fully collateralize $42 million of letters of credit. See Note 5 for further discussion on the asset-backed commercial paper program. | |
(b) | Credit enhancement for PPL Transition Bond Company’s $2.4 billionSeries 1999-1 Bonds to protect against losses or delays in scheduled payments. |
14. | Acquired Intangible Assets |
December 31, 2006 | December 31, 2005 | |||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Subject to amortization | $ | 185 | $ | 84 | $ | 178 | $ | 81 | ||||||||
Not subject to amortization due to indefinite life | 17 | 17 | ||||||||||||||
$ | 202 | $ | 84 | $ | 195 | $ | 81 | |||||||||
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15. | Asset Retirement Obligations |
16. | Variable Interest Entities |
17. | New Accounting Standards |
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2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
Income Items—millions | ||||||||||||||||||||
Operating revenues | $ | 3,259 | $ | 3,163 | $ | 2,847 | $ | 2,788 | $ | 2,748 | ||||||||||
Operating income | 418 | 377 | 259 | 251 | 275 | |||||||||||||||
Net income | 194 | 147 | 76 | 28 | 55 | |||||||||||||||
Income available to PPL | 180 | 145 | 74 | 25 | 39 | |||||||||||||||
Balance Sheet Items—millions (b) | ||||||||||||||||||||
Property, plant and equipment—net | 2,880 | 2,716 | 2,657 | 2,589 | 2,456 | |||||||||||||||
Recoverable transition costs | 884 | 1,165 | 1,431 | 1,687 | 1,946 | |||||||||||||||
Total assets | 5,315 | 5,537 | 5,526 | 5,469 | 5,583 | |||||||||||||||
Long-term debt | 1,978 | 2,411 | 2,544 | 2,937 | 3,175 | |||||||||||||||
Shareowners’ equity | 1,559 | 1,375 | 1,323 | 1,273 | 1,229 | |||||||||||||||
Short-term debt | 42 | 42 | 42 | 15 | ||||||||||||||||
Total capital provided by investors | 3,579 | 3,828 | 3,909 | 4,210 | 4,419 | |||||||||||||||
Financial Ratios | ||||||||||||||||||||
Return on average common equity—% | 14.33 | 11.20 | 5.95 | 2.08 | 3.87 | |||||||||||||||
Embedded cost rates (b) | ||||||||||||||||||||
Long-term debt—% | 6.46 | 6.56 | 6.86 | 6.61 | 6.83 | |||||||||||||||
Preferred securities—% | 6.18 | 5.14 | 5.14 | 5.14 | 5.81 | |||||||||||||||
Times interest earned before income taxes | 2.96 | 2.19 | 1.45 | 1.22 | 1.33 | |||||||||||||||
Ratio of earnings to fixed charges (c) | 2.9 | 2.1 | 1.4 | 1.2 | 1.2 | |||||||||||||||
Ratio of earnings to combined fixed charges and preferred stock dividends (d) | 2.5 | 2.1 | 1.4 | 1.2 | 1.2 | |||||||||||||||
Sales Data | ||||||||||||||||||||
Customers (thousands) (b) | 1,377 | 1,365 | 1,351 | 1,330 | 1,308 | |||||||||||||||
Electric energy delivered—millions of kWh | ||||||||||||||||||||
Residential | 13,714 | 14,218 | 13,441 | 13,266 | 12,640 | |||||||||||||||
Commercial | 13,174 | 13,196 | 12,610 | 12,388 | 12,371 | |||||||||||||||
Industrial | 9,638 | 9,777 | 9,620 | 9,599 | 9,853 | |||||||||||||||
Other | 157 | 167 | 163 | 154 | 169 | |||||||||||||||
Retail electric sales | 36,683 | 37,358 | 35,834 | 35,407 | 35,033 | |||||||||||||||
Wholesale electric sales (e) | 72 | 676 | 679 | |||||||||||||||||
Total electric energy delivered | 36,683 | 37,358 | 35,906 | 36,083 | 35,712 | |||||||||||||||
Electric energy supplied as a PLR—millions of kWh | 36,577 | 36,917 | 34,841 | 33,627 | 33,747 |
(a) | The earnings for each year other than 2004 were affected by items management considers unusual, which affected net income. See “Earnings” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for a description of unusual items in 2006 and 2005. | |
(b) | As of each respective year-end. | |
(c) | Computed using earnings and fixed charges of PPL Electric and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges and the estimated interest component of other rentals. | |
(d) | Computed using earnings and fixed charges of PPL Electric and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges; the estimated interest component of other rentals and preferred dividends. | |
(e) | The contracts for wholesale sales to municipalities expired in January 2004. |
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For the Quarters Ended (a) | ||||||||||||||||
March 31 | June 30 | Sept. 30 | Dec. 31 | |||||||||||||
2006 | ||||||||||||||||
Operating revenues | $ | 852 | $ | 759 | $ | 841 | $ | 807 | ||||||||
Operating income | 114 | 83 | 109 | 112 | ||||||||||||
Net income | 52 | 34 | 55 | 53 | ||||||||||||
Income available to PPL | 51 | 30 | 50 | 49 | ||||||||||||
2005 | ||||||||||||||||
Operating revenues | $ | 819 | $ | 729 | $ | 824 | $ | 791 | ||||||||
Operating income | 68 | 99 | 122 | 88 | ||||||||||||
Net income | 16 | 36 | 53 | 42 | ||||||||||||
Income available to PPL | 15 | 36 | 52 | 42 |
(a) | PPL Electric’s business is seasonal in nature, with peak sales periods generally occurring in the winter and summer months. In addition, earnings in certain quarters were affected by unusual items. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations. |
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Name | Age | Positions Held During the Past Five Years | Dates | |||||
John F. Sipics (a) | 58 | President | October 2003—December 2006 | |||||
Vice President—Asset Management | August 2001—September 2003 | |||||||
Paul A. Farr (b) | 39 | Senior Vice President—Financial | January 2006—present | |||||
Senior Vice President—Financial and Controller | August 2005—January 2006 | |||||||
Vice President and Controller | August 2004—July 2005 | |||||||
Senior Vice President—PPL Global | January 2004—August 2004 | |||||||
Vice President—International Operations-PPL Global | June 2002—January 2004 | |||||||
Vice President—PPL Global | October 2001—June 2002 | |||||||
David G. DeCampli (c) | 49 | Senior Vice President—Transmission and Distribution Engineering and Operations | December 2006—present | |||||
Vice President—Asset Investment Strategy and Development—Exelon Energy Delivery-Exelon Corp. | April 2004—December 2006 | |||||||
Vice President and Chief Integration Officer—Exelon Energy Delivery—Exelon Corp. | June 2003—March 2004 | |||||||
Vice President Distribution Operations—Exelon Energy Delivery—Exelon Corp. | April 2002—June 2003 | |||||||
Vice President—Merger Implementation & Operations Strategy—Exelon Energy Delivery-Exelon Corp. | October 2000—April 2002 | |||||||
James E. Abel | 55 | Treasurer | July 2000—present | |||||
J. Matt Simmons, Jr. | 41 | Vice President and Controller | January 2006—present | |||||
Vice President-Finance and Controller—Duke Energy Americas | October 2003—January 2006 | |||||||
Chief Risk and Chief Accounting Officer—Reliant Energy Europe | February 2000—October 2003 |
(a) | Effective January 1, 2007, Mr. Sipics retired as President of PPL Electric. William H. Spence was elected as President of PPL Electric as of January 2, 2007, and held this position through March 31, 2007. David G. DeCampli was elected President of PPL Electric effective April 1, 2007. | |
(b) | Effective March 30, 2007, Mr. Farr resigned from this position. | |
(c) | Effective December 4, 2006, Mr. DeCampli was appointed Senior Vice President-Transmission and Distribution Engineering and Operations, reporting to the President. Mr. DeCampli was elected President of PPL Electric effective April 1, 2007. |
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Listed Securities: | Fiscal Agents: | ||
New York Stock Exchange | Stock Transfer Agent and Registrar; | ||
Dividend Reinvestment Plan Agent | |||
PPL Corporation: | Wells Fargo Bank, N.A. | ||
Common Stock (Code: PPL) | Shareowner ServicesSM | ||
161 North Concord Exchange | |||
PPL Electric Utilities Corporation: | South St. Paul, MN55075-1139 | ||
41/2% Preferred Stock | |||
(Code: PPLPRB) | Toll Free: 1-866-280-0245 | ||
4.40% Series Preferred Stock | Outside U.S.:651-453-2129 | ||
(Code: PPLPRA) | |||
Dividend Disbursing Office | |||
Philadelphia Stock Exchange | PPL Investor Services | ||
Two North Ninth Street (GENTW8) | |||
PPL Corporation: | Allentown, PA 18101 | ||
Common Stock (Code: PPL) | |||
Toll Free:1-800-345-3085 | |||
FAX:610-774-5106 | |||
Mortgage Bond Trustee and | |||
Transfer Agent | |||
Deutsche Bank Trust Company Americas | |||
Attn: Security Transfer Unit | |||
648 Grassmere Park Road | |||
Nashville, TN 37211 | |||
Toll Free:1-800-735-7777 | |||
FAX:615-835-2727 | |||
Bond Interest Paying Agent | |||
PPL Investor Services | |||
Two North Ninth Street (GENTW8) | |||
Allentown, PA 18101 | |||
Toll Free:1-800-345-3085 | |||
FAX:610-774-5106 | |||
Indenture Trustee | |||
The Bank of New York | |||
101 Barclay Street | |||
New York, NY 10286 |
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