• Quarterly earnings decline versus a year ago, when PPL recorded a gain on the sale of a Latin American business

• Company expresses optimism for 2010 and  longer-term earnings growth

PPL Corporation (NYSE: PPL) on Friday (8/1) reported declines in both second-quarter and first-half earnings for 2008, compared with the same periods of 2007.

PPL’s reported earnings in the most recent quarter were $0.50 per share, compared with $0.88 per share a year ago. For the first six months of 2008, PPL reported earnings of $1.19 per share, compared with $1.41 per share a year ago. 

Contributing to the declines in earnings versus 2007 were: the divestitures of PPL’s electricity delivery businesses in Latin America, including the loss of operating earnings; a 2007 U.S. tax benefit that did not recur in 2008; rising fuel costs; and the loss of synfuel-related earnings. Partially offsetting these negative factors were improved margins from energy marketing and trading activities.

Second-quarter earnings from ongoing operations also declined, to $0.50 per share, compared with $0.63 per share a year ago. For the first six months of 2008, earnings from ongoing operations were $1.11 per share, compared with $1.28 per share a year ago.

“As we stated last quarter, we expect stronger second-half margins in our supply business segment, compared with first-half margins,” said James H. Miller, PPL’s chairman, president and chief executive officer. “However, on top of the previously announced loss of several key 2007 earnings contributors, the continued increase in coal commodity and transportation costs, combined with lower than planned results from our marketing and trading activities, prompts us to lower our 2008 ongoing earnings forecast today.”

PPL lowered its 2008 forecast of earnings from ongoing operations to $2.25 to $2.35 per share from $2.35 to $2.45 per share. The company’s 2008 forecast of reported earnings is $2.33 to $2.43 per share, reflecting special items recorded through June 30, 2008. This forecast does not reflect the previously announced potential impairment of certain emission allowances as a result of a recent federal court decision invalidating the Environmental Protection Agency’s Clean Air Interstate Rule. Any impairment of allowances as a result of the court’s decision would be a special item charge.

“As we look ahead to initiating our 2009 earnings forecast later this year, we anticipate that rising delivered fuel prices and the completion of our scrubber construction program, coupled with the fall in sulfur dioxide allowance prices, will create challenges for us in 2009 compared with our expected results in 2008,” Miller said. “While we will clearly continue to explore ways to mitigate these cost pressures, we expect that our 2009 earnings will be lower than what we expect to achieve in 2008. Our ability to recover these fuel price increases is constrained by the fixed-price, provider-of-last-resort contract that expires at the end of 2009.”  

Beyond 2009, however, Miller said the company is seeing upside earnings potential.

“We are more optimistic about our earnings outlook for 2010 than we were a year ago, when we established our current forecast range of $4.00 to $4.60 per share,” Miller said. “Based on what we have been able to achieve through our rigorous hedging program and the prices that we currently see in the marketplace, we anticipate that ― for 2010 and beyond ― our generating portfolio and marketing expertise will allow us to continue to increase value for shareowners even in the face of higher fuel and other commodity costs.”

Second-Quarter 2008 Earnings Details

PPL’s reported earnings in the second quarter of 2008 reflected a special item credit of $0.01 per share related to mark-to-market impacts of energy-related, non-trading economic hedges, and a special item charge of $0.01 for impairments of securities in PPL’s nuclear decommissioning trust funds. The second quarter of 2007 reflected net special item credits of $0.25 per share, primarily from the sale of PPL’s electricity delivery business in El Salvador.

Reported earnings are calculated in accordance with generally accepted accounting principles (GAAP). Earnings from ongoing operations is a non-GAAP financial measure that excludes special items. Special items include charges or credits that are unusual or nonrecurring. Special items also include the mark-to-market impact of energy-related, non-trading economic hedges and impairments of securities in PPL’s nuclear decommissioning trust funds.

First-Half and Second-Quarter 2008 Earnings by Business Segment

The following chart shows PPL’s earnings by business segment for the second quarter and first half of 2008, compared with the same periods of 2007.

Key Factors Impacting Business Segment Earnings from Ongoing Operations

Supply Segment
PPL’s supply business segment primarily consists of the domestic energy generation and marketing operations of PPL Energy Supply.

Earnings from ongoing operations for PPL’s supply business segment decreased in the second quarter of 2008 by $0.04 per share, or 13 percent, compared with a year ago. This decline resulted primarily from the following factors: a $0.02 per share loss in synfuel-related earnings as a result of the expiration of federal synfuel tax credits at the end of 2007; higher average fuel prices and lower base load generation; and higher operating expenses. Partially offsetting these negative factors were improved margins from energy marketing and trading activities in the East and West.

Earnings from ongoing operations for PPL’s supply business segment during the first six months of 2008 decreased by $0.17 per share, or 27 percent, compared with a year ago. This decline resulted primarily from the same factors that drove second-quarter 2008 results, including $0.10 per share related to synfuels. 

Pennsylvania Delivery Segment
PPL’s Pennsylvania delivery business segment includes the regulated electric and gas delivery operations of PPL Electric Utilities and PPL Gas Utilities.
 
Earnings from ongoing operations for PPL’s Pennsylvania delivery business segment increased in the second quarter of 2008 by $0.01 per share, or 14 percent, compared with a year ago. This increase resulted primarily from the higher electricity revenues as a result of load growth and PPL Electric Utilities’ base rate increase effective Jan.1, 2008. These positive earnings factors were partially offset by higher operation and maintenance expenses. 

Earnings from ongoing operations for PPL’s Pennsylvania delivery business segment increased during the first six months of 2008 by $0.01 per share, or 4 percent, compared with a year ago. This increase resulted primarily from the net impact of the same factors that drove second-quarter 2008 results.  

International Delivery Segment
PPL’s international delivery business segment primarily includes investments in the regulated electric distribution companies in the United Kingdom and included the operating results of the Latin American electricity distribution businesses prior to their divestiture in 2007.

Earnings from ongoing operations for PPL’s international delivery business segment decreased in the second quarter of 2008 by $0.10 per share, or 38 percent, compared with a year ago. This decline resulted primarily from a 2007 U.S. tax benefit of $0.08 per share related to the U.K. businesses and the loss in earnings of $0.03 per share from PPL’s Latin American businesses following their divestitures throughout 2007. Partially offsetting these decreases were higher U.K. delivery revenues, due to higher rates from the annual regulatory adjustment for inflation, and lower operating expenses.

Earnings from ongoing operations for PPL’s international delivery business segment decreased during the first six months of 2008 by $0.01 per share, or 2 percent, compared with a year ago. This decline resulted primarily from the net impact of the same factors that drove second-quarter 2008 results.   
 
2008 Earnings from Ongoing Operations Forecast by Business Segment

Supply Segment
PPL projects lower earnings from ongoing operations in its supply business segment in 2008 compared with 2007 as a result of the loss of synfuel-related benefits and higher depreciation and operating expenses for scrubbers that have been or will be installed during 2008 at its Montour and Brunner Island coal-fired power plants, both in Pennsylvania.

PPL now expects its energy margins to be flat in 2008 compared with 2007. During the second half of 2008, increased margins as a result of higher-valued wholesale energy contracts and higher expected base load generation are expected to be offset by higher coal commodity and transportation costs and lower expected margins from PPL’s marketing and trading activities as a result of reduced liquidity in certain energy markets. 

Pennsylvania Delivery Segment
PPL projects higher earnings from ongoing operations for its Pennsylvania delivery business segment, driven by higher revenues as a result of PPL Electric Utilities’ new distribution rates, partially offset by higher operating expenses.

International Delivery Segment
PPL projects the earnings from ongoing operations of its international delivery business segment will decline in 2008 compared with 2007. This decline is a result of the 2007 divestiture of PPL’s Latin American businesses and higher U.S. income taxes primarily driven by certain U.S. income tax benefits realized in 2007. Partially offsetting the impact of these negative earnings drivers are lower U.K. pension expense and lower financing costs.

2010 Earnings Forecast

PPL also reaffirmed its 2010 earnings forecast range of $4.00 to $4.60 per share. This forecast is driven primarily by higher energy margins based on higher wholesale electricity and capacity prices, higher expected generation output, and increased earnings from marketing and trading activities.

At the end of 2009, the full-requirements supply contract between PPL EnergyPlus and PPL Electric Utilities will expire. As a result of higher forward energy prices in the competitive marketplace and the 2010 capacity prices set in PJM Interconnection’s auctions, PPL expects a significant improvement in energy margins in 2010.

This forecast does not include the effect of any new assets being added to the company’s portfolio and assumes PPL Electric Utilities’ ability to fully recover its market-based energy costs as provided under Pennsylvania law.

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

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(Note: All references to earnings per share in the text and tables of this news release are stated in terms of diluted earnings per share.)

Conference Call and Webcast

PPL invites interested parties to listen to the live webcast of management’s teleconference with financial analysts about second-quarter 2008 financial results at 9 a.m. EDT Friday, Aug. 1. The meeting is available online live, in audio format, along with slides of the presentation, on PPL’s Web site: www.pplweb.com. The webcast will be available for replay on the PPL Web site for 30 days. Interested individuals also can access the live conference call via telephone at 702-696-4769 (ID# 54797054).
 
Condensed Consolidated Financial Information (unaudited)

Statements contained in this news release, including statements with respect to future earnings, energy prices, margins and sales, growth, revenues, expenses and pension costs, marketing performance, regulation, corporate strategy, and generating capacity and performance, are “forward-looking statements” within the meaning of the federal securities laws. Although PPL Corporation believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, these statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in the statements. The following are among the important factors that could cause actual results to differ materially from the forward-looking statements: market demand and prices for energy, capacity and fuel; weather conditions affecting customer energy usage and operating costs; competition in power markets; the effect of any business or industry restructuring; the profitability and liquidity of PPL Corporation and its subsidiaries; new accounting requirements or new interpretations or applications of existing requirements; operating performance of plants and other facilities; environmental conditions and requirements and the related costs of compliance, including environmental capital expenditures and emission allowance and other expenses; system conditions and operating costs; development of new projects, markets and technologies; performance of new ventures; asset acquisitions and dispositions; any impact of hurricanes or other severe weather on our business, including any impact on fuel prices; receipt of necessary government permits, approvals and rate relief; capital market conditions and decisions regarding capital structure; the impact of state, federal or foreign investigations applicable to PPL Corporation and its subsidiaries; the outcome of litigation against PPL Corporation and its subsidiaries; stock price performance; the market prices of equity securities and the impact on pension income and resultant cash funding requirements for defined benefit pension plans; the securities and credit ratings of PPL Corporation and its subsidiaries; political, regulatory or economic conditions in states, regions or countries where PPL Corporation or its subsidiaries conduct business, including any potential effects of threatened or actual terrorism or war or other hostilities; foreign exchange rates; new state, federal or foreign legislation, including new tax legislation; and the commitments and liabilities of PPL Corporation and its subsidiaries. Any such forward-looking statements should be considered in light of such important factors and in conjunction with PPL Corporation’s Form 10-K and other reports on file with the Securities and Exchange Commission.