Construction work is continuing on the 500-kV Susquehanna-Roseland transmission line, PPL (NYSE:PPL) Chairman, President and CEO William Spence said on Aug. 1 during the company’s 2Q13 earnings webcast.
“We expect to complete the line and be in service by the summer of 2015,” he said.
During its 1Q13 earnings call in May, PPL reported that its portion of the project would cost about $630m, a $70m increase from the $560m cost estimate referred to during the company’s 4Q12 earnings call.
Company officials blamed general cost increases for the higher cost estimate.
“It’s a variety of materials and services which came in at a higher cost than when we originally estimated the job, which was some time ago,” a PPL spokesperson told TransmissionHub on May 2.
PPL is building the 100-mile Pennsylvania portion of the project, while Public Service Enterprise Group (NYSE:PEG) is building the 45-mile New Jersey portion of the line.
Spence also noted during the Aug. 1 webcast that PPL is increasing its capital spending plan for its Northeast–Pocono Reliability Project, primarily due to higher material and labor cost as well as additional scope due to revised construction standards.
PPL Electric Utilities President Gregory Dudkin said during the webcast that the increase went from $200m to $335m, with material and labor costs accounting for about $45m of the change.
As for the scope, he said: “[W]hen we put together the original estimate, we hadn’t finalized on the path. So it’s finalizing on a path [and] increase right of way. We changed the construction standards, so the remainder is in that area.”
The project is scheduled over the next few years through to 2017, he said.
The PPL subsidiary said in December 2012, that it is seeking approval from the Pennsylvania Public Utility Commission (PUC) for the proposed project, which will involve a new 230-kV line and new electrical substations.
The new power line will be about 58 miles long and will connect the new substations to the existing high-voltage grid, strengthening the local electric delivery network, PPL said in a statement. The project will serve customers in parts of Lackawanna, Monroe, Wayne, Pike, Carbon and Luzerne counties in Pennsylvania.
Spence noted that Pennsylvania state regulators have approved PPL Electric Utilities’ request for accelerated recovery of certain distribution system reliability improvements. The state Public Utility Commission in January approved the company’s five-year, $700m long-term infrastructure improvement plan, he said, adding that the cost recovery mechanism will be adjusted quarterly, providing more timely recovery of needed system improvement expenditures.
Paul Farr, PPL executive vice president and CFO, said during the webcast that the company’s Pennsylvania regulated segment earned 7 cents per share in the quarter, a 2-cent increase compared to last year.
“This increase was the result of higher delivery margins primarily due to new rates that went into effect Jan. 1 … and increased transmission investment, lower O&M and dilution of 1 cent per share,” he said.
Spence also noted that weather-normalized 2Q13 sales in Pennsylvania increased by about 1.5% over the same period a year ago.
The increase was driven by a 4.5% increase in industrial sales due to increased activity and customer billing adjustments from 1Q13, he said, adding that commercial sales in the state were flat in 2Q13 and residential sales increased by 1.3%.
In Kentucky, weather-normalized industrial sales were up 2.8% because of industrial customer expansions and increased production levels at certain customers’ facilities. However, Spence added, there were decreases of 3.8% in the residential category and 5.5% among commercial customers, influenced by regional economic conditions.
“On a 12-month trailing basis, weather-normalized sales are up about one-half of 1% in Kentucky and down just slightly in Pennsylvania,” he said.
Victor Staffieri, chairman, president and CEO PPL subsidiaries Louisville Gas and Electric and Kentucky Utilities, said during the webcast the industrial load continues to grow.
“Where we’re seeing issues is in the commercial side, which really is being affected by the economy,” he said. “And, I do think there are some efficiency gains in our residential customers.”
He later added during the webcast’s question-and-answer session that there is a lot of efficiency going on, noting that the largest commercial customers are doing “a pretty good job” in getting more efficient and making the investments that make sense.
“Kentucky’s economy never really busted and never really boomed, and so, we’ve been steady as you go,” he said, adding that he is cautiously optimistic that “we’re on the path to recovery.”
Spence said PPL’s focus remains on maintaining a slightly positive-to-flat earnings profile for the supply business.
“We certainly understand the challenges the competitive generation sector faces and the expectations on declining profitability,” he said. “Because of the strong growth in the utility businesses, we’re obviously able to offset a lot of the declines that we’ve seen in the supply. … We do think there’s inherent value in the supply business and we’re very focused on our shareholders getting the benefit of that value.”
Spence noted that PPL completed outages on both units at the Susquehanna plant as it addresses turbine issues that have affected plant operations over the past two years. The units are running at normal levels and PPL continues to evaluate the turbine performance data since the outages were completed, he said.
On PPL’s western fleet, he said the company is making repairs to the Colstrip 4 generator in Montana and expects those repairs to take at least six months, with the estimated total pre-tax economic impact being between $5m and $10m, which will not be material to the company.
PPL has also completed the Rainbow hydroelectric expansion project in Montana, he said.
On supply and demand following coal plant retirements from the Mercury and Air Toxics Standards, Staffieri noted that the company has issued a request for proposals (RFP) for generation supply, beginning in “about 2017, 2018.”
The company is reviewing about 30 bids that came in, he said, adding, “It appears to us that we begin to show a deficiency … by 2018, so we’ll put something in place to meet those requirements.”
Farr said PPL’s supply segment earned 1 cent per share in 2Q13, a decrease of 7 cents compared to last year.
The decrease was primarily the net result of lower eastern energy margins driven by lower baseload energy prices, partially offset by higher capacity prices and increased baseload unit availability; and lower western energy margins, primarily due to lower wholesale energy prices and higher depreciation.
“These negative drivers were partially offset by lower O&M at Susquehanna and lower outage costs at the eastern fossil and hydroelectric plants,” Farr said.
PPL announced 2Q13 reported earnings of $405m, 63 cents per share, up from $271m, or 46 cents per share, a year ago. For the first six months, PPL’s reported earnings were $818m, or $1.28 per share, compared with $812m, or $1.39 per share, in the first six months of 2012.
Adjusting for special items, PPL’s earnings from ongoing operations for the quarter were $311m, or 49 cents per share, compared with $298m, or 51 cents per share, a year ago. Earnings from ongoing operations for the first six months were $765m, or $1.20 per share, compared with $707m, or $1.21 per share, for the first half of 2012.