PPL Corporation
Q4 2011 Earnings Call Transcript

Published: 10 Feb 2012

[Operator:]

Good morning. My name is Amanda, and I will be your conference operator today. At this time, I would like to welcome everyone to the PPL Corporation Fourth Quarter Conference Call. [Operator Instructions] Joe Bergstein, Director of Investor Relations, you may begin your conference.

[Joe Bergstein:]

Thank you. Good morning. Thank you for joining the PPL conference call on fourth quarter results and our general business outlook. We are providing slides of this presentation on our website at www.pplweb.com. Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the appendix to this presentation and in the company's SEC filings. At this time, I'd like to turn the call over to Jim Miller, PPL Chairman.

[James H. Miller:]

Thanks, Joe, and good morning, everyone. Thanks for participating in the call today. As most of you -- I think all of you know, I'll be retiring from PPL at the end of March, so this will be my last earnings call with you. Obviously, it's been a real thrill with serving PPL for the last 6 or so years as Chairman and CEO, and it certainly has been a highlight of my career. A lot have changed, a lot of interesting transactions throughout the sector and certainly, many, many, many challenges that we've tried to seek, finding the opportunities within that realm of challenge. I would say that PPL is fundamentally a very strong company, and we've made significant progress over the past few years in further strengthening the foundation, which we can continue to grow the value for the share-owners. And I am real confident that you're going to see the best years of PPL ahead as a result of the work we've done over the last several years. We've got a great team in place under Bill Spence's leadership. I'm sure he'll turn that confidence into a reality. So I thank all of you on the phone for your interest in the company and for your diligence in assessing PPL's performance over the years of my tenure. So I wish each of you continued success and good fortune in your areas out there. And again, I think you'll see PPL flourish under its new portfolio structure, and a lot of opportunities lie out there ahead for us. So today I'll talk a little, just a little bit about the overview of 2011 results and talk a little bit about our positioning for the future. Then Bill will provide an overview of our '11 operational performance, a review of future prospects for each of our business segments, and a bit of discussion on our 2012 earnings forecast. And then Paul Farr, our Chief Financial Officer, will provide very detailed financial review before we turn to your questions. As you saw in the announcement, fourth quarter earnings of $0.69 per share compared with $0.73 in the fourth quarter of 2010. Earnings from ongoing operations for the fourth quarter were $0.70 per share compared with $0.83 in the same period a year ago. Our reported earnings and our earnings from ongoing operations were each $0.13 per share lower than a year ago due to dilution from the April 11 common stock issuance. For the quarter, both reported earnings and ongoing earnings were pressured by lower wholesale electricity margins at our Supply segment. Turning to the year-end results, we announced 2011 reported earnings of $2.61 per share, an increase of $0.44 per share over 2010. Our 2011 earnings from ongoing operations were $2.72 per share compared with $3.13 per share in 2010. Now the '11 earnings from ongoing operations reflect dilution of $0.75 per share due to the June 2010 and the April 2011 issuances of common stock to fund the Kentucky and U.K. acquisitions. Strong '11 results were driven by solid performance in each of our business segments, and I'm also pleased that we're able to announce this morning a rough 3% increase in our annualized dividend. Our quarterly dividend will now be $0.36 per share. The increase is further indication of our continued confidence in the strength of our portfolio and our prospects for future growth of the company. Before turning the call over to Bill and Paul, I'd like to review some of the significant factors that position us well for the future. Clearly, we think our business mix has shifted significantly towards rate-regulated earnings, providing us stability and security to our earnings forecast, dividend and credit ratings. Approximately 70% of our projected 2012 earnings per share will come from regulated businesses, and we expect compound annual rate base growth in these businesses of nearly 8% over the next 5 years. That growth would result in an $8.1 billion increase in the asset base of our regulated companies by 2016, the equivalent of adding another large regulated utility to the portfolio. Much of this rate base growth comes from planned CapEx, that's already been reviewed by various regulators with very little lag in earning a return for shareowners. The business mix improvements we've made over the past 2 years of have resulted in an excellent business risk profile rating from S&P, putting us in a category with only 2 other companies in our sector. So our stable earnings mix also makes our dividend more secured and gives us platform for continued growth. And while wholesale electricity prices remain depressed, our high-quality competitive Ghent fleet provides upside in stronger energy markets. Baseload plants and PJM are complemented by a flexible mix of gas-fired units that'll position us well on the largest wholesale market in the world. Fuel mix of our fleet differentiates PPL from many other power producers in the sector. Diverse fuel mix provides us competitive advantages in a variety of market conditions over fleets that are heavily dependent on one fuel source. Over the past several years, I believe that our management team has consistently proven its ability to make the right strategic and tactical calls. Already our team in the U.K. has made meaningful improvements in the Midlands operations, achieving the financial objectives we announced at the time the deal was signed and subsequently financed. While we have accomplished a great deal, challenges certainly remain. I'm confident, however, that Bill and his team of excellent executives will continue to turn these challenges into opportunities and growth for our shareowners. So I'll now turn the call over to Bill, the PPL's new CEO. Bill?

[William H. Spence:]

Thanks, Jim, and good morning, everyone. I'd like to first take this opportunity to thank Jim on behalf of the executive team and all the employees of PPL for his outstanding leadership in the company over the past 6 years. In guiding PPL through a very challenging time, Jim not only ensured the company weather challenging market conditions, he led the implementation of the strategy that has significantly strengthened the company. Under Jim's leadership, PPL fundamentally repositioned itself with 2 transformational acquisitions and aggressive hedging program that has added tremendous shareholder value and operational performance that ranks among the best in our industry. Congratulations, Jim, on an outstanding career, and thanks for all you've done for PPL. I'm honored also to have been selected to carry on your excellent leadership. And speaking of carrying on, let's next turn now to Slide 6. As Jim noted, 2011 was a very successful year for the company. PPL has had now 12 consecutive quarters of very solid performance and 3 consecutive years of exceeding the midpoint of our ongoing earnings guidance. And as Jim mentioned, we've completed 2 transformational acquisitions in an extraordinary fashion. In 2011 we seamlessly acquired and permanently financed Central Networks in the U.K. We implemented our integration plan very close to targeted cost and at the high-end of our expected range of synergies. We overcame extended nuclear outages in poor market conditions in our Supply business, and our Electric Utilities in Kentucky and Pennsylvania provided solid results in a lackluster economy. I'll briefly review each of the 4 business segments starting with the U.K. Our WPD CEO, Robert Symons, and his team developed a very aggressive efficient integration plan, following our acquisition of the 2 Central Networks utility operations last April. I'm very happy to report that all of that significant operational integration is now complete, and that Western Power Distribution is now serving over 7 million customers with a radical improvement in WPD Midland's operations in just 9 months. This is possibly one of the most dramatic changes ever made in the U.K. utility industry, and I expect WPD Midlands will now join WPD South West than WPD South Wales as the U.K.'s front-tier performers on several incentive measures. These dramatic improvements are appearing in 4 key areas

[Paul Farr:]

Thanks, Bill, and good morning, everyone. Let's move to Slide 13 to review fourth quarter and year-end results. As outlined on this slide, the largest positive driver of earnings from ongoing operations in the fourth quarter came out of the U.K. and was primarily due to earnings from the Midlands acquisition. This positive driver was more than offset by the combined impact of dilution of $0.13 per share as a result of the common stock issued in April to fund the Midlands acquisition and lower energy margins, as we expected. Full year 2011 earnings from ongoing operations were favorably impacted by the financial performance of our utilities in U.K. and Kentucky. These positive drivers were offset by dilution of $0.75 per share, resulting from the common stock issued in June 2010 to fund the Kentucky acquisition and the common stock issued in April of last year to fund the Midlands acquisition. As forecasted our Supply segment had lower margins in 2011 compared to a year ago. Because the Kentucky acquisition did not close until November 1, 2010, the fourth quarter results are not fully comparable. However, I'd like to remind everyone that the Kentucky Regulated segment earnings include 4 major items

[James H. Miller:]

All right. Thanks, Paul. Operator, open the call up for questions please.

[Operator:]

[Operator Instructions] And your first question comes from the line of Marc de Croisset from FBR Capital Markets.

[Marc de Croisset:]

I just wanted to ask a brief question about the earnings trajectory or the trajectory for EPS growth, if you could comment on it. On previous calls, you mentioned your expectations for higher power prices in '13 and '14, and it looks like you still hold that view. But for the moment, we basically have a stay in CSAPR. We've seen substantial decline in forward natural gas and power prices. And so if this actually materializes, given these facts, do you see enough drivers on the regulated side to offset those headwinds and any impact from the converts to drive earnings growth in '13 and '14 from 2012?

[Paul Farr:]

Okay. One of the reasons why obviously beyond just having rate case filings, that we expect for next year like we have multiple fronts. Clearly, the commodity markets are dynamically changing, and the environmental regulations stays obviously make it difficult to predict earnings on an intermediate forecast basis. I would expect as we look at current forward collar prices that we would be able to offset much of the decline that could come from margin declines with rate regulated earnings growth, that would be a combination of those rate case filings I've talked about, the ECR spending in Kentucky the, normal formula rate adjustments that we've got coming through the FERC jurisdictional transmission in Pennsylvania Electric Utilities, as well as obviously in this year in 2013, on an annualized basis starting April 1, I talked about the 9.5% revenue increase for that asset base, and that's going to continue to grow in '14 and beyond. I'd expect we'd be able to offset much of it. The question is obviously what happens between now and the time that we layer in the hedges that secure most or all of 2013, which I wouldn't expect to happen until we move further in the year, obviously. And then '14 as we've talked about in the past, is fairly open. So it just depends upon on what happened in those commodity markets. I think, For what we have control over, we've executed very well in terms of the rate case filings and the settlements in those areas, and I'd expect we'll do the same in '13. The thing that we don't have control over is the commodity markets.

[William H. Spence:]

Mark, this is Bill. I would say that for 2013, given that we're already over 80% hedged, we feel very good about earnings per share growth for '13 as we sit here today. I think Paul highlighted some of the other risks in '14 and beyond, that we're going to have to deal with. But the fact is with the mix that we have today, we are very much well positioned to combat something like this compared to where we were 18 months ago. So I think as we sit here today, we really feel great about the transformational acquisitions we've done and where we are relative to the commodity cycle.

[Operator:]

Your next question comes from the line of Ameet Thakkar from Bank of America Merrill Lynch.

[Ameet I. Thakkar:]

I just had a couple of quick questions. It looks like the 2012 EPS guidance, it looks like you guys have a bit of a wider range than you historically have about $0.10 wider . And given, I guess, one-year hedge levels where they stand for '12 and a greater proportion of regulated earnings, I was wondering what kind of drove the wider range for this year?

[William H. Spence:]

There were a couple of things there. Obviously, with the volatility in the commodity prices, even though we are substantially hedged, they're still of the intermediate and peaking units. They're open. There's still some unhedged baseload generation. That's clearly significant factor. With International, even though things are going very, very well and we're actually, as I mentioned in my prepared remarks, forecasting net income well above even the upper end of the range we gave during the roadshow on the equity offering, we're still 9 months into the business, so there's potential variability there. Of course, with the economy being what it is, that's going to be a factor, in addition to weather, of course. So those are some of the factors that went through our minds as we looked at the range.

[Paul Farr:]

I think also we've got for 2012, we've got about between actual results, where the currency rates are locked, and the hedges that we've got in place, about 82% of budgeted total year earnings are hedged from a U.K. standpoint. But there's a little bit of an open position there. Interest rates can move on as they can affect the index link bonds in the U.K. I think it will clearly take a combination of significant items to move us to the top or bottom end of the range. But we felt like given the very -- Bill mentioned weather, the weather was a fairly significant headwind for us in the fourth quarter. Very temperate in both Pennsylvania and Kentucky. It's been very temperate in Jan, Feb so far. So we just felt it was prudent to give a range that if a combination of items were to hit us, the range would be broad enough to accommodate those items.

[William H. Spence:]

But I would say we feel very good about the midpoint of the range and confident that, that's an achievable target.

[Operator:]

Your next question comes from the line of Paul Fremont with Jefferies.

[Paul B. Fremont:]

I guess, my first question has to do with based on your projected level of contribution from the regulated companies in Pennsylvania and in Kentucky, what type of ROEs does that - earned ROEs does that get you to in 2012?

[Paul Farr:]

In 2012, that would get us on the Pennsylvania Regulated front, and I'll leave the U.K. to the side, because we've talked about the U.K. in the past and where we get the below the double digits to middle double digits unlevered and get into the low 20s on a lever basis. Everything is pretty much fully unplanned on that front. We were in the -- with the benefits of -- which almost $0.04 of bonus depreciation benefit in Pennsylvania, get in the 10% to 11% in '11, I would expect with that not recurring and with the spending plan, what we've got for the customer and reliability initiative we talked about that we'd be in the mid-single-digit range for Pennsylvania electric. And then in Kentucky, it's going to be in the 8-ish percent range, factoring in at the operating companies and not factoring in goodwill or anything like that, given where we expect the spending plans in those businesses to be as well.

[Operator:]

[Operator Instructions] Your next question comes from the line of Michael Lapides of Goldman Sachs.

[Michael J. Lapides:]

Actually, a couple of questions. First on O&M cost in the U.S. both at the Regulated segments and at Supply, what's kind of embedded as a percentage year-over-year increase from '11 to '12? And how much of that is pension versus kind of true -- kind of late labor materials related O&M?

[Paul Farr:]

When I look at the O&M across the board, of course, you're focusing on Slide 17, and leave International Regulated off, pension year-over-year domestically is $0.03 just in terms of rounded out in full. It's another $0.01 in the U.K., so it's a total of $0.04 from an ongoing earnings perspective related to the pension. Everything else would relate to either movement or higher levels of power plant outage experiences in both Kentucky and in the Eastern fleet, as I've mentioned in my comments. And then inflationary spending around wages and other benefits and things like that. So those will be the biggest drivers there. There are specific [indiscernible] related items in Kentucky, there are customer service initiatives and responding to an audit that we went through last year in Kentucky that requires some cost support, there's the initial reliability base measures that Bill talked about in the Electric Utilities that are several cents a share, as well. So it did -- only about $0.04 in total globally in pension, $0.03 domestic.

[William H. Spence:]

And I would say, Michael, the way I'm looking at it, about half of the increases year-over-year are driven by the normal labor escalation and the pension cost that Paul mentioned. The other 1/2 are initiatives specifically focused on customer service and reliability.

[Paul Farr:]

Yes, now clearly we expect to recover those in the rate filings, as well.

[Michael J. Lapides:]

Okay. And if I look at the coal hedging for 2013 for the Eastern fleet, if that's delivered ton and it includes rail, and if it's low to mid-20s per ton of transport, that's implying like roughly $60, $62 a ton of delivered coal, a little bit below where we've seen over the last 6 to 12 months, kind of before the Appalachian coal prices range. Just curious, are you able to exercise -- are you benefiting somehow from proximity from mines? Are you signing longer-term contracts at lower prices but giving the mining companies a little bit more certainty over the longer term? Do you have some other form of buyer power? Just can you give any color around that?

[William H. Spence:]

Sure. And yes, you're spot on in terms of the cost of the mine mouth, if you will. And that is really a function of longer-term contracts that we had negotiated some time ago and many of those contracts have collars that limit the increases. Of course, they also limit the decreases as well in a very soft market. But we're seeing the benefits, at least in 2012 and 2013 ,of the strategy we put in place a number of years ago to lock in a substantial amount of the coal at very favorable prices.

[Operator:]

And your next question comes from the line of Julien Dumoulin-Smith from UBS.

[Julien Dumoulin-Smith:]

First question. With regards to the same hedging slide, I just wanted to kind of touch base on the expected generation number there. You talked about the offset from your gas portfolio. How much of the change down here is from coal? And how much of an offset are we getting, just if you could provide that in terms of terawatt hours? How much is one offsetting the other there?

[William H. Spence:]

Sure. Yes, if you take a look at the slide and compare it to where we were at the end of the last quarter, on the 2012 side, expected generation in the intermediate went up from 6.2 gigawatts to 6.9, so that's substantial increase there. That is displacing, if you will, some coal generation, not so much on our own coal generation, but other less efficient units in the market. On the baseload side, you see most of the drop is in the East, although there is some drop in the West quarter-over-quarter. And for 2012, for example, we're at 46.2 gigawatts at the end of the last quarter and we're at 45.5 gigawatts in the East this quarter. That drop is really a combination of 2 things. One is more plant outages on the coal fleet but also less runtime, particularly in the off-peak hours from the coal fleet based on the current soft power prices.

[Julien Dumoulin-Smith:]

All right. Great. So there's nothing from the gas side now baked in the baseload for whatever it's worth, right?

[William H. Spence:]

Correct, that's right.

[Paul Farr:]

It's all down below.

[William H. Spence:]

It's all down below. Even though it maybe running as baseload, we still categorize it in the intermediate to peaking area.

[Julien Dumoulin-Smith:]

Perfect. And then a follow-up on the rate implementation. Assuming everything gets signed in Pennsylvania, I wanted to see, does this impact your timing of a rate case this year, are you guys still going to go in file a rate case this year and then next year go in and sort of true that up with the implementation?

[William H. Spence:]

Correct. We would not anticipate any change in the rate filing we would make, which we would expect to file at the end of the first quarter here, where the rates effective 1/1/13 for that base rate case. For the enhanced disc, if you will, this distribution infrastructure charge, we would expect to file that in the first -- hopefully in the first quarter of next year. It would not be combined with the base rate case. I think if you read the legislation, you know that you have to have it filed within the last 5 years to file this rate proceeding, which we will have had. So we would use that as the basis for the launching off point, if you will, for the disc.

[Julien Dumoulin-Smith:]

Great. And then the last question is more broad. When I look at the hedging in the Supply business, it seems that you guys might be pursuing a little bit less for requirement, perhaps, more on sort of residential retail, what have you. I just wanted to get the latest thoughts in terms of how you anticipate pursuing the various sales channels on that front.

[William H. Spence:]

Sure. As I've mentioned previously, we do look to have a balance portfolio in terms of types of products that we -- and options that we use to hedge the fleet. So there is a combination of straight sales and West Hub that are just fixed-price. There is a combination of collars, and then we have retail, as well. At this point, the retail load is not a large piece of the hedge portfolio. It's growing, but it's probably one of the smaller pieces. It's really dominated right now, the hedges are, with fixed prices and collared products.

[Operator:]

Your next question comes from the line of Andy Bischof with MorningStar.

[Andrew Bischof:]

Just a quick question for you in regards to MAAC. What do you think is kind of the likelihood that MAAC will really face legal challenge and on what grounds do you think someone would base that legal challenge on?

[William H. Spence:]

I'm sorry it was a little hard to hear the question.

[Andrew Bischof:]

I'm sorry. What do you think is the likelihood that MAAC rule will face legal challenge and what grounds do you think someone would base that legal challenge on?

[William H. Spence:]

Yes. That's so hard to predict. I don't think we have a feel at this point for whether it will be challenged. My guess is that like all these rules that have come before it, there will be some type of challenge. How it's challenged, I really can't say.

[Operator:]

Your next question comes from the line of Daniel Eggers with Credit Suisse.

[Kevin Cole:]

It's actually Kevin. On the U.K. operations, what level of incentive and bonus revenues are you assuming in 2012 guidance?

[Paul Farr:]

In 2012 it was GBP 18.7 million, so annualized from April -- and that was based upon the results through March 31, 2011, probably a test year or accomplishment year. We would expect, so that would affect revenues from April 1, '12 through 3/31/13. We would expect to basically at least double that amount for the next year that would be ending here come March 31, '12. So from April 1, '13 through March 31, '14, it's from instead of $30 million, it's closer to $60 million.

[Kevin Cole:]

Okay. And then with the dividend, with the big increase, what is your dividend policy now and how do you expect to grow it in the future?

[Paul Farr:]

We don't really formally have a policy. We focus very heavily on clearly ensuring that the rate regulated utilities can more than fully cover the dividend. What I'd say is that we're trying as best as we can to grow the dividend, but at the same time, we've got very significant growth opportunities and capital and capital that we can deploy in areas where we earn basically immediate recovery. So I would expect when you look at that kind of a trajectory of earnings of the rate base and therefore, net income growth in the regulated utilities, it will be at a fraction of that. Whether it's 1/3 of that amount or 1/2 of that amount, I'm not entirely certain. There is an element that does depend upon as things kind of fall into line around the fundamentals around supply. We do consider supply, I know that's not as probably as specific as you want, but we don't target a specific payout ratio.

[Kevin Cole:]

Okay. And last question is for 2012 guidance. Are you assuming like $300 million to $350 million of equity through your DRIP and other programs?

[Paul Farr:]

Yes. That's saying we're at $350 million for 2012 as we have kind of discussed previously. That includes $75 million related to the DRIP and management comp, so it will be an incremental $2.75 of issuance. If the commodity market stays soft, I could see that staying at that level for the next couple of years when markets look a little better. We're looking at amounts less than that over the next couple of years. So that'll be a little bit dynamic, but I wouldn't see it moving materially at all from the $350 million over the next several years.

[Operator:]

Your next question comes from the line of Geoffrey Dancey with Cutler Capital.

[Geoffrey K. Dancey:]

I'm curious what you see in terms of further switching from coal to natural gas and how important it can be for you and just your broad observations on it, sort of across the industry.

[William H. Spence:]

Sure, I think as we've already begun to see, there's significant levels of switching going on now. And I would expect that to continue with the soft natural gas prices. For us, as I have mentioned in my opening remarks, our capacity factor on our gas units was up around 78% last year. And roughly, almost double what it was 2 years before that. So we are seeing with our fleet, and I'm sure others are, significant additional runimes. As gas continues to go down, if the margins continue to improve, there's clearly some upside for those of us that have the capability to use these gas assets.

[Geoffrey K. Dancey:]

And what about just the considerations for new plants coming on. How long and how low do you need to see natural gas prices before you think new plants come on driven based off on natural gas.

[William H. Spence:]

Well, I think that's heavily dependent not only on the energy price, but also on where capacity prices clear in the forward markets. I think if you look at current capacity prices that have cleared in the last few auctions, coupled with where energy prices are today. I don't think it would even clear the economic hurdles that you'd need to incent new generation. Having said that, as more coal units retire, certainly, the largest beneficiary from a technology standpoint are going to be gas-combined cycle units, and those typically take from on a greenfield site, you're talking about a minimum of 3 years between permitting and construction to put those into play.

[Operator:]

Your next question comes from the line of Mark de Croisset from FBR Capital Markets.

[Marc de Croisset:]

Just a quick follow-up. You mentioned you are lightly hedged in '14. I'm wondering if you might give us a little more indication around that? Is that a 20%, 30% hedging in '14? Or are you substantially open at this point?

[William H. Spence:]

No, we're less than 20% out in 2014. 2010 and 20%.

[William H. Spence:]

I was just going to note that we will probably -- when we substantially hedge more of 2014, we'll obviously add that to our slide deck in the future. But for right now, given that it's in that 10% to 20% range, we didn't think it was meaningful enough to put it onto the slide.

[Marc de Croisset:]

And maybe you commented on this. I don't recall exactly. But on Slide 17, you have Other as a headwind between 2011 and 2012. Can you describe a little bit more what is in that bucket?

[Paul Farr:]

Yes. And I've talked about at a high level on my remarks, this is Paul. Let me kind of go through it segment by segment and tell you what's in Other. In International Regulated, that $0.11, $0.06 is depreciation, and $0.05 is taxes, income taxes. In the $0.10 of Other, in Supply, it's about $0.03 of depreciation, $0.03 financing, $0.02 nuclear decommissioning trust earnings being lower, and then $0.01 of truly other. Pennsylvania Regulated, o$0.01 of depreciation and $0.03 to $0.04 related to bonus depreciation that I talked about that wouldn't continue into '12, because the way the Pennsylvania interpretation was worded. And then in Kentucky Regulated, the other $0.02 of depreciation and $0.01 is a mix of other items.

[Operator:]

Your next question comes from the line of Paul Fremont from Jefferies.

[Paul B. Fremont:]

Yes. Just a clarifying question. If you were not to do anything, either to issue shares or repurchase shares, can you just give us a sense of what the diluted -- average diluted share count will look like in '14, given the converts?

[Paul Farr:]

Given the coverts, we move from 550,000, 553,000 to 586,000 in '13. Let me take a quick look, 586,000 -- I'm sorry, 586,000 in '12. So it goes 615,000 in '13. Now that does include a modest amount of additional equity, so the DRIP in the management comp is in there. So if you back off probably call it 10 million shares from that, you're closer to 610,000 and then in the year like in '14, you ask for, which is 664,000 you'd probably have to back off 20 million to 25 million shares from that. So you're closer to...

[Paul B. Fremont:]

So that would be like 640,000 right?

[Paul Farr:]

Like 640,000, right. In that zip code.

[Operator:]

And we have time for one further question. It comes from the line of Michael Lapides from Goldman Sachs.

[Michael J. Lapides:]

I Just want to ask quick questions on the regulated side. First, Kentucky, you mentioned you're going to file this year and Pennsylvania, you're still planning to file this year in Kentucky, that's a first question. Second question on the bill in Pennsylvania and the new alternative ratemaking process, can you give a little color in terms of how that will be implemented? Is it like a track or a formula rate plan? Or is it just a true multi-year forward test year? The way we read it, it seems like you almost have an option of an either/or, but we'd love to hear your thought.

[William H. Spence:]

Yes, of course, we'll see what the model tariff looks like from the PSC and any other provisions once they issue those. But on the Pennsylvania House Bill 1294, we do think there's an option there. You can either pick a forward test year or the disc-type mechanism. My understanding of it is, that it would be trued up on a quarterly basis, so you would file and there's a limit of up to 5% of your distribution revenues that can be filed under this, although you can ask for a waiver for additional, if you'd like. And we think that's a pretty substantial amount to go for, anyway. So I would think that we would file, as I mentioned earlier, some time early next year, and then we would probably lean towards the tracking-type mechanism more so than the forward test year, but we haven't made that determination yet. And that's just based on our early read of that. As it relates to Kentucky, we have not announced formally any plan to issue a rate or to file a rate case. Typically if we were to do so, we need to file that about 6 months in anticipation of the targeted date for implementation, 6 to 9 months in that range. As Paul mentioned, we're looking at ROEs in the 8 percentage range for this year, and we'll -- obviously, that's well below the authorized rates, so we're obviously going to be looking at our plans for filing a rate case for next year in the next quarter or so. But we haven't made that decision yet.

[Michael J. Lapides:]

Meaning, you're looking at filing -- you're going to look at it in the next quarter or so about whether you would want to file midyear this year or about whether you would want to wait until filing sometime in 2013?

[William H. Spence:]

Yes. Correct, but I guess; assuming the 8% holds, I would say it's probably more likely that we'd file for rates to be effective 1/1/2013, but, again, we haven't made an official notice or filing yet.

[Operator:]

And presenters, I'll turn the call back over to you for any closing remarks.

[James H. Miller:]

Okay. Thank you, operator. Well, thank you all for being on the call. I just offer, maybe 3 important points that the team I think has covered today. One, it was obviously 2011 was a good strong year. 16-or-so percent total shareholder return. I think, as Bill mentioned earlier, the range for 2012, we feel good about the midpoint of that range at $2.30. And I think to Paul's comments, we feel that although obviously natural gas prices are staying down, the reason we move the company in this direction is precisely to be able to perform and hopefully grow earnings during the sustained period of low grass prices. And at the same time, we're growing our dividends so that people -- dividend is important, too. They're being paid that dividend while we wait for probably a couple of years for prices to start to move up. But they will move up, given the ultimate retirement of coal and demand picking back up. So I think we feel as a whole that the company is positioned very, very well to face the future and we feel pretty good about where we sit today. So thank you all for being on the call and it's been great working with all of you. Take care.

[Operator:]

This concludes today's conference call. You may now disconnect.