CFOs Speak Out: Growing Overseas
John R. Biggar, Executive VP and CFO, PPL Corp.
Why did PPL recently revise its growth rates upward? What is driving the revised numbers?
John R. Biggar: When we reported second quarter earnings at our analysts meeting on August 2 in New York, we announced a number of things that improved the long-term outlook for the company. In this regard, we revised our long-term, annual compound growth rate from 3 to 5 percent to 6 to 7 percent in earnings per share through 2010. This is a significant increase in our growth forecast over the longer term.
There were a number of factors that we looked at in revising our forecast. We are upgrading a number of our generating assets to improve their power output. Essentially, we will be able to get 255 MW of additional capacity at the plants that we currently own and operate. The bulk of that, 177 MW, will be through a power uprate program at our Susquehanna nuclear plant. Also, we will be replacing some turbines and other equipment at our coal-fired plants, which is more efficient equipment that allows us to get more output for the same thermal input. When fully implemented by 2010, these power plant uprates are expected to result in about $100 million of additional margin annually. We are improving our power plant reliability. We currently have an equivalent availability factor of about 91 percent. We expect to get that up closer to the 94 percent range as we go out over the next several years. Each percentage improvement in equivalent availability adds about $20 million per year in margins for us. We have a number of long-term power supply agreements that have been in place for a number of years. Those power supply agreements will expire over the next several years. Because the market prices have increased dramatically from the time those contracts were put in place, we would expect to sell that power at the higher prices, reflecting current forward-price levels. In total, these factors are expected to add about $570 million in additional margins above the $1.58 billion of margins projected for this year.
What earnings are you forecasting for 2005 and 2006?JRB: As you may know, we announced a 2-1 stock split that became effective on Aug. 24, so all of the per-share amounts I'm going to discuss are post split. Our 2005 forecast of earnings from ongoing operations before August 2 was $1.90-$2.10 per share. We have raised the lower end of the forecast range to $2.00 per share. So, the current forecast range for 2005 is $2.00-$2.10 per share, with a $2.05 per share midpoint. We also announced our earnings forecast for 2006 about four months earlier than when we normally announce the upcoming year's forecast. We are expecting earnings on a post-split basis for 2006 to be $2.15-$2.25 per share, which produces a midpoint of $2.20. That represents a 7.3 percent increase in earnings growth from 2005 to 2006. … In August we