Good morning, and welcome to the PPL Corporation First Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Joe Bergstein. Please go ahead.

Thank you, Amy. Good morning, everyone. Thank you for joining the PPL conference call on first 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 the factors that could cause actual results or events to differ 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 Bill Spence, PPL's Chairman, President and CEO.

Thanks Joe and good morning everyone. We are glad you are able to join us today. On the call with me are Paul Farr, PPL's Executive Vice President and Chief Financial Officer, and the Presidents for our business segments. Moving to slide 3; the agenda will start with an overview of quarterly earnings and operational results and a discussion of the 2013 earnings forecast, which we raised this morning. After my remarks, Paul will review our segment financial results. When Paul has concluded his remarks, we will open the phone lines to your questions. Turning to slide 4, today we announced reported earnings of $0.49 per share for the first quarter, a decrease from $0.65 per share on the first quarter of 2013. Adjusting for special items are earnings from ongoing operations or $0.80 per share, an increase of 13% over last year's first quarter of ongoing earnings of $0.71 per share. Each of our three regulated segments outperformed first quarter 2013 results and Supply segment earnings were the same as the first quarter of 2013. These strong results show the value of our ongoing investments in regulated infrastructure and a strong performance of our competitive generating plants during the unusually cold weather we experienced this winter. Moving to slide 5; today we updated our 2014 ongoing earnings forecast to $2.15 to $2.30 per share, with a midpoint of $2.23 per share. As reflected in the table, our strong first quarter enabled us to increase the guidance range for each of our four business segments from the original forecast. Slide 6 identified some of the Q1 operational highlights of our regulated business segments. We received confirmation in late February that all four of our Western Power Distribution subsidiaries in the United Kingdom were accepted for fast tracking of their eight…

Thanks Bill and good morning everyone. Let's move to slide 9; our strong first quarter results reflect higher earnings from each of our three regulated segments, and flat earnings from our Supply business, compared to the first quarter of 2013. Now let's move over -- start with a detailed review of Q1 segment earnings driver, starting with the U.K. on slide 10. U.K. regulated earned $0.41 per share in the first quarter, a $0.04 increase over last year. This increase was primarily due to higher utility revenues, driven by the April 1st, 2013 price increase, partially offset by lower volume due to weather, and lower pension expense. These positive drivers were partially offset by higher depreciation. Moving now to slide 11; Kentucky earned $0.16 per share in the quarter, a $0.02 increase compared to last year. This increase was due to higher gross margins, primarily due to higher retail and off-system sales volumes, driven by the unusually cold weather Bill mentioned, and higher earnings from environmental CapEx, partially offset by higher O&M. Turning to slide 12; our Pennsylvania regulated segment earned $0.13 per share in the first quarter, a $0.03 increase versus last year. This increase was due to higher distribution margins, driven by higher sales volumes due to the cold weather, and the benefit from a change in estimate of a regulatory liability, as well as higher transmission margins. Finishing with Supply on slide 13; this segment earned $0.11 per share in the quarter compared to last year. This result was primarily due to higher Eastern energy margins, driven by higher capacity prices, and a net benefit from colder weather, partially offset by lower hedged, baseload energy prices, and lower nuclear generation off-grid, due to the timing of planned outages, and lower financing costs. Now this was offset by lower Western energy margins, driven by lower coal and hydro unit availability, and higher income taxes. That's the end of my prepared remarks, and I will turn the call back over to Bill for the Q&A period.

Okay. Thanks Paul and operator, we are now ready for questions.

Thank you. (Operator Instructions). Our first question comes from Dan Eggers with Credit Suisse.

Good morning guys.

Good morning Dan.

There has been a lot of press commentary in the last few days, in particular, about Supply and may be where that's headed. I know you guys are trying to find the best way to extract value for their business or so the value of it. Do you have a view may be on timing of when will [indiscernible] or when you guys will come to a reasonable conclusion of how that fits into PPL on a long run basis?

Dan, there is no specific timeline, but I would say, it continues to be a key priority of the company.

Okay. And then on -- in Kentucky I guess, kind of the munis stepping back on the renewal, their contracts, and the reevaluation mill [indiscernible], can you just talk about what that process looks like, and maybe thought process around that plant?

Sure. I will ask Vic Staffieri to answer that.

We see no application from none of our municipals, it is about 300 megawatts or so that they'd like to get out of their contract in about five years. That has led us to we think -- the timing on a new combined cycle plant at Green River. So we have filed with the Public Service Commission and put that in advance. We are talking to the municipals, and that will play out over time. But the only impact frankly would be, perhaps a delay in the in-service date of the next combined cycle plant.

Vic, to put that in context I mean, a delay by -- is kind of a two year delay, three year delay, I mean, how long were you guys [indiscernible] in?

It could be -- there are other things that could compel us to move a little -- to keep it. It may not just below that makes us decide to move that plant back -- we might want to move it for load purposes back to the three years. We might decide to keep it only one year, depending upon some of the environmental concerns. That could give us a nice diversification opportunity, and we want to be mindful of the environmental requirement, particularly the pressure on coal. So you could say from a load perspective, you could move back as far as three years, but there might be other consideration that allows to move it up. We are looking at that right now, which is why we made a bonding with the Public Service Commission to put that proceeding in advance of 90 days, as we think through the implications.

Okay. And I guess one last question, there has been some issues in the quarter around kind of coal ash, and coal ash remediation in the region. Can you just give us an update where you guys are, both at Supply and in Kentucky, as far as compliance plans and your perspective spending, to make sure you don't have any issues.

Sure. On the competitive coal front in Pennsylvania, the majority -- actually all of our plans at this point are all dry ash facilities and they are all beneficially using the dry ash. So we have really essentially closed all of our wet ash compounds quite some time ago. So most of those have been remediated. When we look at, on a go forward basis, our major concern as with the entire industry, is ensuring that coal ash does not become a hazardous waste. And that's our number one priority I think as a company and as an industry. And we think that can be avoided and should be avoided, and when you drop back to the additional oversight that we may see, I think its just a question of degree, and how much more would we have to do at some of the facilities, particularly those that are wet ash facilities.

And then in Kentucky, what is [indiscernible]?

In Kentucky, we do still have some wet ash ponds. We are moving towards landfills. We are in licensing, proceedings at Trimble County and [indiscernible] and other places, to remove our ponds over time. We are confident, we have done the kind of analysis that need to be done, to ensure that we hopefully don't have the problems that have plagued others with respect to these ponds, but we are moving towards the landfills in almost every occasion.

Do you have a ballpark on how much money that's going to require and maybe timing to get that result?

It would be over the next decade or so. Remember, part of the problem is we don't have the bottom [ph] regulations yet out of EPA. Once we get those, we will be in a better position. But we do have some money in our budget over time. I think it's in the order of $300 million to $400 million, probably in our long term capital budgets to reflect that.

Great. Thank you guys.

You're welcome.

The next question comes from Kit Konolige at BGC.

Close enough. That's okay. So couple of different areas. So first of all, should we be projecting anything forward in earnings level for the company from the increase in 2014? In other words, is this all due to weather at Supply -- basically at Supply and distribution companies? Or is there stronger earning power than we had thought so far?

I think when we look at our business plan, clearly weather in the first quarter was a significant factor, and I will let Paul comment on the details of how much of the outperformance was weather driven. But fundamentally, we had very good performance as well from all the regulated segments. I think what I would say is that we are very well on track with our regulated business on a weather adjusted business. We continue to perform at a high level, and may be Paul, you can comment on the specific numbers for the quarter?

Yeah Kit, weather in total was only about half of the $0.08 increase to the midpoint of the forecast. So we were significantly ahead. We were about $0.04 in total for the Supply business ahead of plan and forecast. And then the utilities were kind of a push. We were $0.03 positive domestically offset by $0.03 negative in weather in the U.K. So when you look at that -- a big component of the increase was weather, but that only made up about half of the total.

Okay, that's great. How about in the U.K., what can you tell us about FX effects compared to what we might have thought before, and about the cash repatriation process? Are you on-track with all of those compared to prior guidance?

Yeah, Kit we are. Obviously the currency has been a little bit stronger, but as you may recall, we are fully hedged -- nearly fully hedged coming into this year. So really net effect is that we are on plan. In terms of repatriation, I don't think there is any new news there. I think again, its on track as we would we expect, and so again, we are right on plan, right where we would like to be at this point in the year.

Okay. And last area on the future of Supply. Are you or potential counterparties waiting for any further news on the market front in particular on the RPM auction coming up, and in general, can you tell us anything about your perception of how higher prices in PJM this year have affected the value of supply?

I would say generally speaking, neither the capacity auction nor the price action that we have seen, based on the significant increase that we saw on our prices in PJM in the winter, would impact our strategic thinking around the supply business. We continue to have, as our number one priority, the aggressive cost control and optimizing the dispatch of our plants, while of course maintaining safe and reliable operations. At the same time, we do continue to consider other options that could enhance value. There is no particular data point or view point of forward prices that we are waiting for or that would substantially impact our thought process around strategic options for that business.

Okay, that's great. Thanks Bill.

You're welcome.

Our next question comes from Julien Dumoulin-Smith at UBS.

Good morning.

Good morning.

Bill, quick question if you can talk about the supply side a little bit more. As you think about strategic options, how important is control of any eventual structure, that you might conceive of?

Well as I mentioned, we are considering other options that can enhance value, or remain committed to creating value from the Supply business for shareowners, and we are going to keep focused on this effort. There is not a particular structure or ownership or objective that we have, along those lines, that would be of the table. I think we are looking for the best opportunity we have, to create shareowner value. So whatever form that may come in, we are considering. So as I mentioned, we don't have specific timeline. We are being disciplined about the process, and it is a key priority of ours.

Excellent. And then looking at the Supply side, I suppose, we have seen some recent rise in Maryland around NOX. I'd be curious, as you think about your Pennsylvania portfolios, Brunner Island doesn't have an SCR. Is that something that you guys are thinking about down the line, or how you think about environmental CapEx, just from a conventional perspective?

I think at this juncture, we don't see a lot of incremental CapEx required on the environmental front, for either Brunner Island or Montour stations in Pennsylvania. I think we are in fairly decent shape. There is some related to the math. Really, folks more around mercury control than it is around SOX or NOX. So at this point, I don't see any significant addition that we would need to make.

Great. And then lastly, on the 2016 outlook. I know you haven't talked about it. But we have obviously seen a pretty big move in the supply mark-to-market. Are we talking about still kind of targeting breakeven or positive EPS, or were we better than that in the long term here and thinking about 2015 and 2016?

Yeah, when we think about the forward curve and looking at our supply business, we expect that it will continue to be in positive EPS territory. I think our comments in the past were, that we would do everything that we could, to ensure that it stayed in positive territory; and with the cost cutting, that Dave DeCampli and his team have already embarked on, and where we see forward prices, we would expect that it will continue to be in positive EPS territory.

Excellent. And then lastly, if you don't mind, on the RPM side. I know, you just got a question there. But expectations on that, and then also, just with regards to new gas generation entrants if you will?

Sure. I think as we look at this RPM in particular, there are a lot of moving parts, a lot of modifications have been made. There is a lot of kind of noise out there around the residual auctions and so forth. So I think for this year at least, we are not going to put out an expectation around where we expect RPM prices to settle out, because there is a lot more uncertainty, in our view, coming into this auction than we have seen in past auctions. So I think it's just really difficult to nail this one down in any precise manner. So we are going to really avoid making any prediction at this point.

Great. Thank you very much.

The next question comes from Paul Patterson at Glenrock Associates.

Good morning. How are you?

Good morning Paul.

Just to sort of follow-up on that last question. Do you want to talk at all about may be directionally where you think RPM might be going with respect to last year's auction? I mean, I hear you on the substantial modifications, but when you are adding them all up and subtracting, any thoughts there?

No I think again it could be significantly volatile, so I think its really difficult to know, and I think based on upcoming retirements, other factors, I think the bidding strategies of companies could be substantially different this time than last, and I think that could influence the outcome, more so than maybe some of the planning parameters that have influenced prior outcomes. So I think for that reason, we are really having a difficult time, even directionally predicting where we think this could turn out.

Okay, great. Then on the WPD line loss? What was that exactly? I am sorry to be stressful on it. What caused that?

Yeah, no problem. Let me ask Rick Klingensmith to come in on that.

Sure. Good morning Paul. On the line loss aspect that we had, where we increased the liability for this quarter, related to that activity. The line loss aspect was one that was in the regulatory period in the 2005 to 2010 timeframe. And the regulatory structure was such that, there was incentives and penalties that Ofgem had established around electricity and line losses for that period of time. And as we went through the process, there were certain incentives that had been earned and certain penalties that had been incurred by the distribution network operators. But there was not a significant amount of accuracy in the metering and the data that was being received that ultimately calculated what the line losses were. And so Ofgem has been working since the end of that rate review period, to determine a formulaic approach to how best to address that data issue, and determine what would be the appropriate formulas to determine incentives and penalties. We had up to this point, up to this quarter, assumed that anything that we had received as incentives would ultimately be given back to customers and suppliers, and as the ultimate final determination came out of Ofgem this quarter, it was actually an increase in our liability, a penalty that was to be assessed, and so we needed to increase that liability by $65 million in the quarter. It was an item that was treated as a special item in the quarter, because it primarily related to the midlands businesses prior to our acquisition of those in 2011.

So going forward though, you would now expect this to be an item we should be thinking about?

That is correct.

Okay. And then just back to -- I think it was Kit who had asked this. I am sorry if I missed it. What would you say was the total weather impact across the company?

The total net weather impact, Paul, was $0.04 for the first quarter.

Thanks again.

You're welcome.

Our next question comes from Neel Mitra at Tudor, Pickering.

Hey good morning. I was wondering if you could tell us kind of roughly, where your hedge percentages for supply in 2016, and where that's tracking versus ratable?

Okay. Dave DeCampli, do you want to comment on that?

We haven't published those in the past. We are still in that band of kind zero to 30% for year three. Until we -- historically, till we have gotten those hedge levels up to something that's more meaningful, we haven't provided those. We are in the band, and we are cognizant of the benefit that we have seen in the first quarter from rising prices. Some of the things that we have been forecasting to happen around higher heat rates, rises in gas prices, the incremental volatility that's showing up as a result of the winter weather. In certain instances, we are probably more at the lower end of our ranges, given some of the fundamentals actually starting to come through. So we are sticking to the three year strategy at this point.

And we will provide that on the Q3 call for sure.

Got it. Thank you. And then the expected generation from the baseload fleet for 2014 has gone up roughly, a little bit over three terawatt hours since the last call. How much of that is due to this quarter, Q1 and can you comment on how the coal fleet ran in general, and then how much of that three terawatt hour increase is due to the rest of the year and the forward prices?

Sure, Dave?

Yeah. The majority of the increase is actually in the balance of the year. Not much of it was in the first quarter. The coal units were expected to run a good part of the winter. So what you're seeing is majority of that in the second half of the year. Dark spreads have improved. Most of that is going to be in the off-peak in the shoulder months where we hadn't originally planned to run those units. So with pricing as we are seeing, we expect that generation to occur in shoulder months at all peak, primarily. What was the other part of your question, there were two parts to it?

In capacity factors, how did the coal fleet run in the first quarter versus the first quarter of last year?

Yeah. The fleet ran very well. We had just one outage in the -- one forced outage, back in early January, that lasted for 24, 26 hours. But beyond that, the coal fleet ran at capacity through all the periods it was called for.

Okay. And then, to add to the questions about looking at the options on Supply, may be I can ask it a different way. It seems like a lot of the value which you can receive from a third party would be from, possibly synergies or cutting O&M costs. So when you look at the various options, do you prefer a spin or a partnership, versus an outright sale? What's the best way to actually participate in some of the synergies or O&M cuts, which could substantially add value to supply?

My only preference is to seek the highest value for the shareowners. Whatever form that comes in, it would be our objective. So I am reluctant to comment on any particular type or style of objective there, because there are various options, and we are open to considering the ones that are going to create the highest value.

Okay. Thank you very much.

Sure.

Next question comes from Paul Ridzon at KeyBanc.

Just a real small question. What was the impact in Pennsylvania, the change in estimate?

Paul, the change in estimate was reversal of storm costs accrual that we put on the books last year, that we got positive results from the commission. 11 of the 12 months we had accrued last year, we were not required to refund to consumers, so it was just adjusting that liability down.

Can you quantify it?

A penny.

Okay. Thank you very much.

You're welcome.

The next question comes from Michel Lapides at Goldman Sachs.

Hey guys. Congrats on a good quarter. Two questions, a little bit unrelated after the more complex one first. I want to pay you a compliment, and that you are one of the only companies back in 2010-2011 timeframe, who made via corporate actions, meaning via M&A, a call on your view of, at least a three to five year view on merchant power, when you bought both the Kentucky businesses and you bought the U.K. business. In other words, kudos for making that call. It showed insight that I think a lot of other folks didn't show in terms of a three to five year view on merchant power in general. I now want to ask, if you look three to five years and then look longer term, in general, what's your near term or medium term view on merchant power and then long term view?

Sure. On the near to mid term view, I think its more or less unchanged from what we said on prior quarters, which is that we did not believe that forward prices were truly reflective of the supply and demand fundamentals, and the looming coal retirements that we had anticipated. And I think this winter highlighted how tight the supply and demand could be, when you remove some of that coal from the dispatch stack. So the movements that we have seen in power prices in the forwards now, essentially reflect our fundamental view that we have held for quite a while now. If you look longer term, I think strategically, you still are going to have a fairly volatile complex in the power and natural gas sectors. So I think as you know, natural gas is a significant driver to the power markets, and we continue to see a lot of uncertainty in the gas markets which will drive uncertainty in the power market. So I think our view, while it has improved, it has improved towards our fundamental view, A. And B, perhaps it has improved even beyond that, and may be things will be significantly better than we are all anticipating in the longer term. However, its still going to be, I think, a volatile ride in our view, and one that you just have to ensure that you are prepared to survive.

Okay. Do you guys have a view whether its for purchasing gas -- do you have a view on gas basis differentials, kind of in and around your part of PJM? I am just kind of looking at what's happening at TETCO versus NYMEX over the last -- really over the last six or nine months, both in the spot market and in the forward markets, where TETCO or Marcellus gas had been in a sizeable discount, is actually trading a little bit about Henry Hub?

I think our view would be shaped by the timing of a lot of the pipeline expansion projects that are attempting to deliver the Marcellus shale and the other Eastern shale into the key markets, namely the mid-Atlantic and northeast markets. In terms of a specific view on MMBTU in basis, we don't really have a particular viewpoint, a strong viewpoint I should say, on that.

Okay. Last one, unrelated to the merchant markets. When you look across your businesses, which ones do you think have the greatest opportunities over a multiyear period for O&M cost management, and which ones will be a little harder to implement O&M cost savings?

I think there's opportunities across the board, but I don't know that any particular group is easy or more difficult than another. So we attempt to be as efficient as we can across the board. So I don't know that I can specifically say that there is one group or another that's any more equipped or better prepared to embark on significant cost cutting. I think our number one priority in terms of aggressive control of costs is really around the supply business as it needs to be.

Got it. Okay, thanks guys and congrats on a good quarter.

Thank you.

The next question comes from Gregg Orrill at Barclays.

Thank you. I was wondering if you could touch base on Kentucky and what your thoughts there are in terms of the timing of rate case filing?

Okay, sure Greg. Vic, why don't you?

I think its likely that we will make a rate case filing by the end of the year.

Okay. Thank you.

The next question comes from Steven Fleishman at Wolfe Research.

Yeah hi. Good morning.

Good morning Steve.

Hey Bill. So just a question on hedging. It look like you added a decent amount of hedging for 2015, and the average hedge price in the East came down a decent amount. Is that just kind of the prices you hedged and may be a bit early in the year, is there something else that occurred, that would explain that?

Dave can provide some color around that.

Steve its primarily -- the focus of our hedging recently has been on off-peak hour, and we got aggressive there, that's why you see the pull down in price.

Got you. So would you say that the 30% that's still open for 2015 is very weighted towards peak?

Actually, it has gotten fairly close to even at this point.

Okay. And then, sorry to ask a PJM question, but just, one of the things this year is, there is a PTL zone that has been created. I mean, do you think that there is a decent chance that that zone separates, and why was it created?

Well I think it was probably created around the challenges that coal plants in particular face, and looking at the region around our Brunner Island station, I think PJM felt that it may be there is a need there to send the price signal. But its really hard to judge Steve, whether that zone will break out in this auction or not. So we don't really have an expectation necessarily that it will. But again, a lot of volatility in the parameters coming into this auction compared to others, and then, as I mentioned on an earlier question, the bidding behavior, we are expecting to be probably different than it probably has been in the past.

Okay. Great. Thank you very much.

The next question comes from Rajeev Lalwani at Morgan Stanley.

Hi. Thanks for taking my question. Can you just talk about the excess leverage investment capacity you have today, and hypothetically, if you were to exit the merchant power business, what that does to that capacity, just given lower business risk?

Paul, why don't you?

Hi Rajeev, this is Paul. I guess the way I would think about things is, we are at our targeted credit metrics across the complex. The internal cash flow that we generate is basically going to from all of the business and Supply is obviously a cash flow positive contributor, is going towards rate base growth and maintaining equity ratio at the utilities, as they deploy that significant amount of CapEx that we have in the schedule and in the appendix, and going to pay the dividend, which we recently announced an increase on. So I don't feel uncomfortable with where we are at from a balance sheet perspective in any way. If there was a structural separation of the Supply business, I don't want to pre-judge what the rating agencies would do as they evaluate that. But clearly, to Bill's earlier comment, you'd be taking out the most volatile risky component of the enterprise, and the remaining pieces that are left, should be able to live with, lower -- at that point, consolidated FFO to debt metrics. Obviously, the Supply business is high for a reason, it reflects that volatility. In pre or post, some type of structural event if you will, I think the company is in very good shape.

Okay. And then a follow-up on the U.K. side, can you just talk about some of the pluses and minuses around your guidance that you have provided before? I think it was for 2015, 2016 and may be where you are within those ranges, or even outside of them?

Okay. Rick?

Sure. Good morning. We had provided back, July 1 of last year, when we submitted our business plans into the RIO-ED1 process, some outlooks associated with 2015 and 2016 ranges. And as we went through the RIO process, gotten through the final determination. Got through the effects of the cost of equity changes, incorporated the fast track benefits that we are getting from that and updated our spending and our pension expense and currency hedging programs, we expect that the earnings are within the ranges that we had provided, but likely at the higher end of the ranges in 2015 and 2016.

Great. That was it. Thank you.

The next question comes from Greg Gordon at ISI Group.

My question was just asked and answered. Thank you.

Great. Amy, I think we have time for one more question.

Okay. Then our last question will come from Brian Chin at Merrill Lynch.

Hi good morning.

Good morning.

Just a minor one, on slide 16, the projected CapEx, there was a small uptick in corporate CapEx versus the last set of slides, just what is that?

Rounding. Its just extremely minor, typically in that bucket, its primarily IT expenditures for corporate platforms that get spread across the enterprise. So just very small modifications to how we see the timing of certain projects.

Got you. Great. That's it. Thank you very much.

Thank you. Sure.

Okay operator, thank you very much; and PPL, as we just talked about, had a very strong quarter, and we continue to execute on all fronts. We thank you for joining us today, and look forward to talking to you on our Q2 earnings call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.