PPL Corporation (PPL) Q4 2012 Earnings Report, Transcript and Summary

Good morning. My name is Janice, 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] Thank you. I would now like to turn the call over to Joe Bergstein, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining the PPL conference call on fourth quarter and year-end results and our general business outlook. We're 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 Bill Spence, PPL Chairman, President and CEO.

Thanks, Joe, and good morning, everyone. We appreciate your participation in today's call. Joining me on the call are Paul Farr, PPL's Executive Vice President and Chief Financial Officer; as well as the Presidents of our 4 business segments who will participate in the question-and-answer session. To get started, I'll provide an overview of our fourth quarter and year-end 2012 results, as well as a few operational highlights. Then Paul will provide more details on our segment performance for the fourth quarter and for the full year. Let me start by highlighting this morning's announcement of a dividend increase beginning with the April 1 payment. The new annualized rate will be $1.47 per share, up from $1.44 per share previously. This increase represents the 11th increase in 12 years and reflects a 177% increase over that period. Turning to earnings. Today, we announced year-end 2012 earnings that exceeded our forecasted range. Reported earnings for 2012 were $2.60 per share compared with $2.70 per share in 2011. Earnings from ongoing operations were $2.42 per share compared to $2.73 per share a year ago. Reported earnings for the fourth quarter were $0.60 per share, down from $0.78 per share a year ago, and our ongoing earnings for the fourth quarter were $0.49 per share compared with $0.71 a share a year ago. Our year-over-year decrease in ongoing earnings was driven predominantly by lower supply business margins as a result of falling power prices. We're pleased with these results as each of the segments performed better than their forecast midpoints, with the U.K. achieving the strongest outperformance at $0.04 per share. Keys to our success is a strong focus on business plan execution by the people in each of our business and service groups. As I'll discuss shortly in my operational overview, 2012…

Thanks, Bill, and good morning, everyone. Let's move to Slide 8 to review fourth quarter and year-end 2012 results. Our fourth quarter results include lower supply segment earnings driven by lower energy margins, higher O&M and higher income taxes. Full year 2012 earnings from ongoing operations benefited from strong financial performance by our U.K. utilities, but the U.K. results were more than offset by the combination of lower supply segment energy margins and higher O&M depreciation and income taxes in our 3 domestic segments. This year's results include dilution of $0.14 per share resulting from the common stock issuance Bill mentioned earlier. Let's move to the Kentucky regulated segment earnings drivers on Slide 9. Our Kentucky regulated segment earned $0.33 per share in 2012, a $0.07 decrease compared to 2011. This decrease was due to lower retail margins primarily due to unfavorable weather during the first 4 months of 2012. Higher O&M driven by increased scope of scheduled generation outages in 2012, higher depreciation, higher property taxes, losses from an equity method investment and dilution of $0.02 per share. Our U.K. regulated segment earned $1.19 per share in 2012, a $0.32 increase over 2011. [Technical Difficulty]

Ladies and gentlemen, this is the operator. We are experiencing technical difficulties. Please standby.

Okay, we seem to experience some technical difficulty. We apologize for that. I think we were – got cut off somewhere in the middle of Slide 10. So we’re going back to Slide 10 on the U.K. regulated segment earnings drivers. So Paul, go ahead.

Okay, let me start back over at the beginning of Slide 10. Again, apologies, folks. Our U.K. regulated segment earned $1.19 per share in 2012, a $0.32 increase over 2011. This increase was due to 4 additional months of earnings contributions from the Midlands Utilities, a full 12 months versus 8 months in 2011. Higher utility revenue primarily due to higher prices partially offset by higher depreciation, higher income taxes, higher financing costs, a less favorable currency exchange rate and dilution of $0.07 per share. Moving to Slide 11, our Pennsylvania regulated segment earned $0.22 per share in 2012, a $0.09 decrease compared with 2011. This decrease was the net result of higher O&M primarily due to a greater amount of maintenance work compared to 2011, higher vegetation management costs, higher PUC reportable storm expense and higher support [indiscernible] costs, higher depreciation primarily due to capital investment and higher income taxes. These were partially offset by higher transmission revenue and lower financing costs due to the redemption of preferred securities. Segment results also included dilution of $0.01 per share. Turning now to supply on Slide 12, this segment earned $0.68 per share in 2012, a decrease of $0.47 per share compared to the prior year. Lower earnings were primarily driven by lower energy margins as a result of lower Eastern energy and capacity prices; lower Western energy margins, primarily due to a contract termination related to the bankruptcy of a Southern Montana electric co-op; higher O&M at Susquehanna as well as on our gas, coal-fired and hydro-electric stations and higher shared service costs; higher depreciation; higher income taxes and higher financing costs as well as dilution of $0.04 per share. Turning now to Slide 13, as Bill had previously mentioned, we are announcing our 2013 earnings forecast range of $2.25…

Okay. Thank you, Paul, and operator, we're ready for questions, please.

[Operator Instructions] Your first question is from Justin McCann of S&P Capital and IP. Justin C. McCann - S&P Equity Research: I have 2 questions for Paul and 1 for Bill. For Paul, what -- the effective tax rate for the U.K. is expected to be 22%. What will it be for the consolidated?

On a consolidated basis for '13, between 27% and 28% for 2013. Justin C. McCann - S&P Equity Research: Okay. And after the exchange of the 2025 8.857s for the 2021 4.6s, what is your current weighted average cost of capital? And where are you targeted for by the end of '13?

The -- from an interest expense level, we'll basically end up with the same level of P&L interest expense on the converted note but a higher par balance than we were sitting on with the notes that were at Ironwood. Your question on weighted average cost of capital is at what segment or our corp we're at? Justin C. McCann - S&P Equity Research: Yes, corp.

I don't have that number off the top of my head right now. Using a market-implied rate across all of the segments and blending that and looking at the average debt levels, especially with the holdco leverage that we've got in the U.K. and in Kentucky and the bit that we have at cap funding, that includes the convertible securities, it's going to be in the 7% to 8% range. Justin C. McCann - S&P Equity Research: Okay, okay, and for Bill, what kind of impact do you now see the MATS-related plant retirements by 2015, having on forward power prices? And when do you see this taking place?

Sure. I would say in terms of forward prices, we haven't yet fully seen the MATS impact reflected. We do believe that, that impact should be in the range of $3 to $5 per megawatt hour in addition to where forward prices are today. From a overall coal plant retirement perspective, we would expect, based on the MATS, as well as the care and CSAPR, EPA rules that you may get up to the 60,000 to 70,000 gigawatt retirement levels overall. So -- and I believe that's about 20%, a little over 20% of the U.S. coal fleet could be impacted ultimately by MATS. So I think the real question is one of timing. We would expect somewhere between the 2015 to 2017 time frame that all those units that would ultimately be impacted would announce retirements in that range.

Your next question is from Dan Eggers of Crédit Suisse. Dan Eggers - Crédit Suisse AG, Research Division: Paul, could you just give an update on where you guys are standing kind of on the cost reduction and the capital reduction programs and your kind of -- how that's fitting the plan? And what are kind of the major buckets where you're seeing benefit right now?

I think when you look at the CapEx chart that we included in the presentation that we've reflected the -- it's about $250 million of reduction for the supply segment. Most all of the major projects that are sitting in Kentucky have been fully contracted at this point in time, so I would not expect that we would see much variability in that forecast. The U.K. is always pretty right on. Greg and his team at EU are always pretty right on, so it would really take another downward movement in power prices before we would have to address CapEx in an even more significant way than we've already taken over the last 2 or 3 planning cycles to cause that to go down. On the O&M front, as Bill mentioned in the upfront remarks where we've included in the plan a $0.05 impact roughly for extra outages and extended outage in the refuel for Unit 2 at Susquehanna and a planned outage now for Unit 1 as well. We had said back in fall that the combination of potential additional outages, plus the Fukushima-related work, was really going to absorb some of the cost-reduction measures that we had already been putting in place at our shared services units. Some of the spending increase that you're seeing coming through the plan this year, as I indicated for the EU, was being driven by really trying to continue the outperformance on the customer service metrics and to get the condition of the network back to the level that it should have been at had the prior owner been spending where they should have been spending. In addition, Vic and his team cut somewhere around $50 million of O&M last year just to respond to what we were seeing from really bad weather at the front end of the year, so there is a restoration of some level of spend there as well. So in the very short term in 2013, I think there are some things that happened in '12 and that are going to continue into '13 that will have an impact. We're always focused on trying to operate the business in the most cost-efficient manner that we can, and we'll continue to strive to find ways to do that. I don't think that I would expect -- that you should expect to hear from us a larger scale O&M reduction downsizing effort at least as we look at our business prospects right now. Dan Eggers - Crédit Suisse AG, Research Division: Okay. And then I guess, just on Susquehanna, if you guys look at the 2 outages planned for this year, is this -- what is your level of confidence this will kind of fix the ongoing issues and [indiscernible] this plant back to a normal operating level going forward?

Sure, Dan. I think we are highly confident. We have a very detailed root cause analysis that we have worked on for the last year in conjunction with the vendor. We believe the equipment changes we're making will, in fact, fix this for the long term, so we're very optimistic that this can be put in place in the spring outage and take care of us on a go-forward basis. Dan Eggers - Crédit Suisse AG, Research Division: Can I just -- one last question just on demand growth trends and what you guys are seeing. Power demand, weather normalized, is down in part last year, what are you guys expecting kind of in guidance and then looking forward into the CapEx program for volume gains for, yes, '13 and maybe a long-term outlook?

Sure. For the plan in 2013 in the Kentucky utility business on a weather normalized basis, we're looking at a little more than 0.5% growth so around 0.7% growth. In Pennsylvania, because of energy efficiency requirements in the state, we're actually looking at a decrease of about 0.5% on a volumetric basis, again weather normalized. So that's for 2013. On a longer-term basis, we would expect growth in about the 1% range on a year-over-year basis on a go-forward basis.

Your next question is from Kit Konolige of BGC.

Question, I guess, this would be for Paul. With regard to the cap funding entity, so as you indicate, you'll be breaking that out separately. Can you give us an indication of -- I think you raised $400 million at that level last October. What was the use of those funds? And can you give us an idea of what kind of level of funding you expect at that entity going forward?

Okay. Well, I -- again, as the models kind of transition here a little bit, if we go back to even a couple of years ago when we did the Kentucky transaction, the reason that we used Kentucky holdco as financing was it was cheaper to do it at that level than it was given the relative business mix at that time, given the steps that we've taken over the past couple of years, we're now comfortable with replacing the Kentucky holdco financing with a single holdco at PPL Cap Funding, which comes with a PPL Corp. guarantee. The $400 million issuance last year was actually originally planned at supply, and so we primarily used that level of financing to delever the supply business. I would expect that as we remarket convert securities, the piece of which -- the $1.150 billion that we'll convert in June will remarket at that level, and then the $977 million, $978 million that'll convert in April of the following year, will also be remarketed at that level. Those are existing outstanding securities, and then I would look again as we kind of grow the balance sheet. And as we're trying to maintain target credit metrics at the opcos, it won't be an overreliance on cap funding, it'll be the right balance between on the domestic front primarily first mortgage bonds, some modest level of holdco issuances, all to kind of keep the targeted credit metrics and cap structures at the regulated utilities, plus the investment-grade credit rating at corp.

Right. And one other -- somewhat related to that, Paul, so on supply segment reported earnings, you've talked in the past about wanting to ensure that earnings at supply don't go negative as a segment. Is that still the outlook? And what year would you expect the bottom to be? And would you be -- if we included this $0.04, that looks like it arguably could be a sign to supply. Would that also be the case?

That would be the case and I would -- as we think about kind of the business planning horizon, as we look at our numbers, 2014 looks like the trough period for us. We need to kind of see obviously as we continue our hedging program and execute on our retail and other platforms. We kind of see -- need those -- need to see those forwards play out. So there's more work to do, if you will, but yes, we will continue to see those levels.

And I think the good news there, Kit, is that with all the strategic acquisitions that PPL's done over the past few years, we've really significantly shielded ourselves from commodity market volatility. So I think as we look forward, we have a very stable and predictable platform of earnings drivers that I think really position us well.

And so just to follow -- just to be clear, Paul, so you're saying EPS segment reported at supply would not go below 0 as you see it at this point?

Correct.

Your next question is from Paul Ridzon of KeyBanc.

Paul, can you just remind -- can you remind us what your expected '13 and '14 share counts are?

Yes, they're actually in the appendix to the material...

Okay, I'll dig them up.

Okay. No problem.

And then with the maturities coming due, have you taken any proactive steps to hedge out any interest rate risk around those refis?

We actually have a very active hedging program around both interest rates and FX, and we're right on in terms of where I would expect those hedge levels to be around expected issuances. We actually are most active in kind of on the interest expense side inside the 24-month window but definitely 1 year out, which we -- we're active so...

Your next question is from Neel Mitra of Tudor, Pickering. Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Question on supply, now that you're running your coal plants less, are you looking to blend some PRB or lower-cost coal into the northern add [ph] mix? And how would that affect your current coal contracts and transport agreements?

Sure, I'll ask Dave DeCampli, President of our supply group to take that question.

Yes. Neel, we are experimenting with the use of lower quality coal in some of our coal units. We need to determine technically the impact on the boilers over the long term. So during the year, late year 2012, we were doing a lot of test burning. We do expect to be able to burn some lower-spec coal going forward. And that is reflected in a little bit of an increase in our expected baseload generation from the coal units, and it's priced in as well. With regard to PRB coal, with the transportation cost, we just don't anticipate that being much of a player for us. Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. And then just additional question on the Susquehanna outages. The way I understand it is that you have 2 planned outages in the spring, and one's a refueling outage, and you're going to try to do the work on the unit during the refueling outage. So should we expect that there could be a possible additional outage in the fall? Or do you expect to be able to get all the work done in the spring?

Yes, the -- actually, you know there's -- there are 2 outages scheduled for the spring. One is the refueling outage that's -- was previously scheduled, and we'll couple onto that the modifications or the initial modifications to that unit. Within the same time frame, with 1 week of overlap, we're going to take the second unit off and do the same modifications to it. So we expect to be done in the spring period with both units coming out of service. Again, one for refueling plus modification and then the other unit just for modification.

Your next question is from Julien Dumoulin-Smith of UBS.

First question, going back to the U.K., if you will, I just wanted to get a little bit of a sense. I know you talked about 2014. Obviously, you've been outperforming thus far and going forward. How do you think about 2015, the rate review, just, again, earned ROEs, et cetera? How do you think about that in the context of the new rate design here as well and revenue profiling rate specifically as well?

Okay. I'll ask Rick Klingensmith, President of our Global and Energy Services Group, to take that question.

As we look at 2015 and the RIIO approach to the regulatory framework as we reach to that period of time, there really are a number of factors that are -- come into the determination of what our revenues are going forward. You mentioned profiling, which is the way the revenues have been shaped during this rate review period will likely be different as to how we see, perhaps, a more unprofiled approach in the next rate review period. That element is just one variable, but there will be other variables that will come into play as well, including the weighted average cost of capital, incentive revenues, our capital expenditures and our cost plans going forward into that next 8-year period. We are still working on our business plans at the moment to put all those variables together, and we'll be submitting those to Ofgem in July of this year. So hard to say what the ultimate outcome will be from that RIIO effect, but we will have a better idea of the various parameters and its effects with our business plans the middle of July.

Great. And then in terms of the, I suppose, early notification, the accelerated business plan or what have you, if you were to get that, shall we say, would we have a better view on '15 earlier shall we say?

Well, you may have a better view of '15 as Ofgem has announced that they would come out in October of this year with an assessment of the business plans that have been filed and an assessment of were any of those business plans of sufficient justification for them to be fast tracked through the process. To the extent we are fast tracked through the process, and that is our goal, to have each of our 4 distribution operating companies fast tracked through the process, that it would be in February '14 that we would have a final determination, a set of final proposals from Ofgem, for the fast-tracked entities. That would be about 9 months sooner than the normal process that would happen toward the end of '14.

And sorry, just to clarify, just to ask you directly, what kind of earned ROE are we talking about at the utility last year -- U.K. utility?

Well, the U.K. utility was in the 17% range as far as the earned ROE for the last year.

And that's at the holding company basis?

That's in the U.K. If you were to look at our U.K. regulated segment, which incorporates the interest costs associated with our equity units, you would find that and some extra costs that are allocated here on the domestic side, you would find our U.K. regulated segment ROE, as we've reported, to be about 16%, 16.1% in 2012.

Great. And Paul, just one clarification from the last question there I think Neel asked. The kind of coal, Dave, that you're experiment with, that is not PRB. It's Illinois Basin? I'm sorry, just wanted to clarify on behalf of Neel here.

Well, we're working with a couple of suppliers for lower-spec coal but not PRB.

Your next question is from Angie Storozynski of Macquarie.

What is your realized ROE for Kentucky embedded in your midpoint of the '13 guidance?

It's -- on a regulatory ROE basis, it would be about 9.5%, so that would exclude the goodwill and some other things that, in the purchase accounting, that wouldn't be embedded in a normal calculation. But around [indiscernible] ...

Okay. And if you were to include it, is it like closer to -- is it below 9%?

It will be below 9%. It would be closer to 8%. There's roughly $1 billion of goodwill on Kentucky.

Okay. That's fine. Secondly, could you -- I mean, I know that you're not showing us any power hedges for '15, but can you give us at least a sense if you have any hedges in both on power and the coal side?

Sure. We typically will report on that forward year, that third year, if you will, later this year based on past practice. So we don't have a lot of hedges out there in 2015 at this point. We're probably in the 10% to 20% type range right now, which is very typical where we would be at this point in time for a year like 2015.

So the comment that the '14 is an earnings trough for supply, so '15 seeing some pickup is just purely a function of forward power curve.

Predominantly, yes.

Okay. And then lastly, you are showing a slide with the share count, with the average share count. It seems to me, at least, that it's a little bit higher than what we heard from you during the third quarter earnings call. Am I mistaken?

No, it should be right -- pretty much right on top of those numbers because at that time, we knew that we would be able to constrain the future equity issuances after the equity forward settles here at the end of Q1 and then the 2 converts, they're basically just driven management comp. So that was embedded at that point in time as well. It should be very close to those numbers.

Your next question is from Michael Lapides of Goldman Sachs.

A couple of questions. First on O&M at the non-regulated PPL supply business, just we've seen a lot of your peers, whether it's Exelon, whether it's FirstEnergy, several others, some of the IPPs talk about kind of increased focus on O&M cost management given kind of a multi-year down cycle. We've seen you reduce capital spending costs, and we know that 2013 is a little unusual because you have the Susquehanna outages. Just curious how you're thinking kind of second half of '13 or for the next few years about your -- I guess, the actions you're likely to take given the power market conditions.

Sure. I think as I mentioned in my opening remarks, Michael, we are very focused on managing the O&M as we look at the next few years in particular. And Dave, why don't you comment on some of the specific things we are doing.

Yes, Michael, in 2012, on the fossil and hydro-side of the business, we were able to reduce O&M about $40 million. Some of that was offset in 2012 due to the Susquehanna outages, and you commented that will -- some of that will occur in 2013 as well. We continue to work through the whole fleet and very, very carefully work through a whole number of items to trim O&M costs going forward. I would expect level or slightly reduced O&M in the plan for the next 5 years.

Got it. Okay. Another thing, you mentioned pension cash contributions in the $550 million range. What's the impact of bonus depreciation across your segments and at the entirety of the business?

The impact from what it does from a cash perspective?

Cash and which segments could it be an offset to rate base.

Okay. We have -- based upon the level of spend for next year plus some carryover from the prior years, it would be about a $400 million deferred tax asset. Now remember that we purchased north of $1 billion of net operating losses from the Kentucky acquisition that we have not been able to use at this point in time given the number of years that we've now been having bonus depreciation. So we were not going to be a tax -- a federal-level cash taxpayer until 2016 without the incremental bonus depreciation we've been given. That now pushes us out into at least 2017. So we would not have had cash taxes planned prior to the gift of bonus depreciation that we got right at year end here, but it will push out another year before we're a cash taxpayer.

Got it. And then finally on Susquehanna, the $0.05, is that mostly O&M? Or is that lost megawatt hours? And then when we think about the future years, should we back that out? Or do you expect to see future recurring, higher nuclear O&M costs?

It is a combination of both O&M as well as lost margin due to the days that we're planning to be out. And on a go-forward basis, the level of adjustment, if you will, on O&M should be minimal, meaning that we should come back to more or less a normal run rate with just our planned outage schedules, and any follow-up work that we need to do on turbine blade-type modifications, we would do in the context of scheduled outages as we go forward.

Your next question is from Andy Bischof of MorningStar Financial.

I was wondering if you'd just give a little more guidance around the incentive awards in the U.K. business. And kind of looking at this year's level, is that a pretty good range for a run rate going forward and opportunities for further incentives?

Sure. As we noted, we were able to generate a little over $80 million. I believe it's $83 million in incentives in the last regulatory cycle, which would kick in April 1 of this year. And maybe Rick, you could comment on how we look at the future in terms of incentive bonus.

Yes, as we look out at the future, as Bill mentioned, for the regulatory year that ended in March of 2012, that we will get recovery starting in April 1 of this year for the 12 months following April 1 of this year. It was about $83 million, and about 80% of that incentive revenue was earned at the Midlands business. 20% of our legacy business is in Southwest and South Wales. As we look into the future, we are expecting and forecasting at least that same level of outperformance here over the next 2 years, relatively in Q4 heading into our real period when the metrics are reset at that point in time. So we are confident that we'll be able to earn at least that same level of $83 million in bonus revenues going forward.

So the net income -- the new net income guidance that we provided for 2013 and '14 reflects the $83 million of bonuses that we expect to continue.

Your next question is from Jonathan Ronald (sic) [Jonathan Arnold] of Deutsche Bank.

My question on the U.K., just that you talked a little about this fast-track process. Could you just describe a little more when you would expect to know if you will be going down that path and how that works?

Yes, as Rick mentioned, I think, on one of the previous answers to the question, it was in the October time frame in '13 with the final knowledge in February-type time frame of 2014. [indiscernible]

Sorry, I missed that. And then I wanted to clarify on one of the other answers you gave on another question. You talked about '14 being the bottom obviously and cyclically in the power business for you, but you also said you needed the curves to cooperate or something along those lines. So you're saying that '14 is the bottom of today's forward curve or '14 is the bottom assuming your view of the curve, which might be different?

Yes. At that point in our 5-year plan, we wouldn't have a significant blending yet of a PPL fundamental view. So there might be some modest expectation in there of some recovery, but it's much more towards years 4 and 5 of our plan where we would clearly expect to see recovery and heat rates and the retirement of the units that Bill had talked about, so not anything significant. It's pretty much the market [indiscernible] .

So it's for -- so you see '15 as an up year based off the curves that are on the screen today?

We would expect to clearly see by '15 some level of correction in terms of things getting more rational.

And there is, even in the forward curve for '15, now a slight increase; '14 to '15, there's already built in, in the forwards, some increase there already. So I think what Paul is saying is that our current plan and outlook for '14 and '15 really reflect the forward prices that are posted out there.

Okay. But I'm still not clear if '15 is an up year based off the actual market curve.

It is. Yes, it is, slight increase.

And your next question is from Bill Appicelli of ISI Group.

Most of my question have been asked, but just one clarifying point. The -- I think you talked about your -- the ROE you expect to have earned in or will earn in Kentucky for 2013. What about Pennsylvania?

Sure. I'll ask Greg Dudkin, President of our PPL Electric Utilities, to answer that.

Similar to what Paul answered for Kentucky, based on our regulated rate base, for the distribution business, we expect about a 9.3% ROE for the distribution business, and then on a GAAP perspective, including both our transmission distribution business, we'll probably be around 8% and the difference being that we have non-earning regulatory assets, primarily deferred taxes or deferred storm costs and cash working capital.

Okay. So if you -- I guess, if you strip that out, just look more on an apples-to-apples basis on how you view the distribution, how would you look at that ROE then?

The 9.3% I think, you'd call. On a regulatory basis, how you would look at it, it would be in the low 11% range around transmission.

Right, yes, so the 9.3% equates to the 10.4% that we were granted in the Turner [ph] rate case.

Right, but if I think about all the Pennsylvania assets on a regulatory basis, so you're saying 9.3% on the distribution side and closer to 11% on transmission. Is that fair?

Correct, yes.

And then in terms of the rate case schedule, I know you just resolved cases in both jurisdictions this past year. But would you expect again to file in '14 for new rates in '15 in both Pennsylvania and Kentucky?

[indiscernible] yet.

With the low levels of low growth that Bill referred to earlier and the level of capital spend that we've got, not all of which gets a tracker-based recovery on it, especially and including the combined cycle units that's under construction now in Kentucky, we would expect in every other year, so 2015, new rates would be effective, correct.

Your next question is from Anthony Crowdell of Jefferies & Company. Anthony C. Crowdell - Jefferies & Company, Inc., Research Division: Two questions. One is on the U.K. You talked about what you guys earned or realized ROE in 2012, and you've given out parameters until the end of '14. But when I try to model '15 beyond, do you think Ofgem has an ROE target where when you bake in incentives and everything else, and you add it all in that they're comfortable with? Or is it just if you get incentives and you could earn 16% or 17% or 18%, that's fair game?

Go ahead, Rick.

This is Rick Klingensmith. As you look at what they've done in the past, the upside potential was there because, ultimately, the ability to outperform also is helping customers. And so in the past, Ofgem has not been concerned about the outperformance that might be available for your levels of performance because it's ultimately benefiting customers. As we move into RIIO, that will likely be the case, but they will also look at the weighted average capital that's required for the business to finance the capital investment and the costs going forward. So they will reset sort of all the revenues based upon that finance ability of our business plan going forward. But I do believe that their process around outperformance will remain in the RIIO time period. Anthony C. Crowdell - Jefferies & Company, Inc., Research Division: Great. And just quickly on supply, I know people are beating up the '14 and '15, whether to trough or not. I'm just wondering are you seeing enough liquidity in the power markets right now to lock in on '14 or '15 or increase your hedges? Any comment on liquidity of that market?

Well for '14, there's liquidity. I think when you get out to '15 and '16, that's when you start to see pretty thin markets there. So no real issues locking down more hedges for '14. But as we get into -- further here into '13, liquidity will probably increase, I'm sure, for '15. So we always look for opportunities to hedge in when the markets are available and at a price that we think is fair. Okay. Well, I think with that, operator, we'll close the call, and I thank everyone for joining us today and look forward to our next call.

This concludes today's PPL Corporation Fourth Quarter Conference Call. You may now disconnect.