Utility of the Year 2013– PPL Corp.

by Kristen Wright, senior editor

With more than 30 years in the utility industry, PPL Corp. Chairman, President and CEO William H. Spence oversees assets of $43 billion in the U.S. and U.K.

This year editors at Electric Light & Power named PPL Corp. Utility of the Year.

The utility was born in 1920 when eight utilities with 62 generating plants merged to form Pennsylvania Power & Light Co. Ninety-three years later, it’s still headquartered in Allentown, Penn.

Today the Fortune 500 global energy holding company includes:

• Louisville Gas and Electric and Kentucky Utilities, which deliver electricity and gas to 1.3 million customers in Kentucky, Virginia and Tennessee;
• PPL Electric Utilities, the electric delivery business line that serves 1.4 million customers in Pennsylvania;
• PPL EnergyPlus, one of the leading suppliers of competitively priced electricity and energy services in the mid-Atlantic region;
• PPL Generation, the business line that controls or owns some 11,000 MW in the U.S. Its portfolio includes power plants in Montana and Pennsylvania; and
• PPL Global, which owns and operates distribution businesses in the U.K. that deliver electricity to 7.8 million customers.

In 2012, PPL Corp. posted $12.3 billion in revenue, and assets totaled $43.6 billion. Total utility customers topped 10 million in the U.S. and U.K. In addition, PPL Corp. boasts some 19,000 MW of generation capacity, nearly 18,000 full-time employees and 200,000 miles of electric lines.

This year’s winner ranked high in numerous areas, especially storm preparedness and response, customer satisfaction, construction and earnings.

To learn more, Electric Light & Power interviewed PPL Corp. Chairman, President and CEO William H. Spence.

ELP: PPL Corp. won the East Region’s top spot among large utilities in the annual J.D. Power 2013 Electric Utility Residential Customer Satisfaction Study. How much of that is a reflection of your preparedness and response to Hurricane Sandy, which struck your service area Oct. 29, 2012?

Spence: We learn a lot from every storm experience. In recent years, Hurricane Irene and a rare October snowstorm in 2011 provided lessons that helped PPL Electric Utilities improve operations, logistics and communications. We applied those lessons in Hurricane Sandy and implemented several new approaches. The comments we received from regulators, legislators and customers about our response to Hurricane Sandy were overwhelmingly positive. Among utilities that were affected by the hurricane, we had one of the highest scores in the 2013 J.D. Power Electric Utility Residential Customer Satisfaction Study for power quality and reliability. We also scored well in a separate study by J.D. Power assessing the response by utilities, local governments and others.

ELP: How much was PPL affected by Sandy? Did the storm teach you to do anything differently?

Spence: Hurricane Sandy interrupted service to half a million PPL Electric Utilities customers. That’s more than one-third of our customers in Pennsylvania. We restored power to 85 percent of those customers within four days; a few customers were without power for more than a week.

Even before the hurricane arrived, PPL Electric Utilities applied lessons learned from previous storms. Based on the weather forecasts, we made proactive phone calls and sent emails to forewarn customers. We pre-staged support from other companies, including crews from PPL-owned utilities in Kentucky, so that they were ready to go when the storm hit.

In 2010, PPL acquired Louisville Gas & Electric and Kentucky Utilities as part of the company’s transformation to a more regulated business mix.

During the restoration, PPL Electric Utilities expanded customer communications, continually monitored and managed social media to stay on top of issues that arose, conducted daily conference calls with elected officials and municipal leaders, and used new approaches for logistical needs such as crew housing and feeding, fueling and stocking of vehicles, and providing job information to crews at the start of each day.

In the year since Hurricane Sandy, PPL Electric Utilities has continued to make improvements. We are in the midst of a five-year, $3.8 billion system improvement plan that includes nearly $1 billion in upgrades in 2013. We are refining mutual assistance plans with other utilities. We participated in best-practice work groups with other Pennsylvania electric utilities. We have further improved the website and continue to build social media presence.

These actions are consistent with the shared objective of all PPL-owned utilities–in Pennsylvania, Kentucky and the United Kingdom–to provide superior customer service and a safe, reliable system that is more resilient to storms. Improvements we’ve made and continue to make will benefit the 10 million customers served by PPL companies when severe weather strikes in the future.

PPL Electric Utilities plans to spend $3.8 billion over five years to improve its electric delivery system in eastern and central Pennsylvania, making the system more resilient to big storms like Hurricane Sandy.

ELP: What customer communication initiatives has PPL found most successful? Are customers more responsive to outage-related tweets and text messages, for example?

Spence: PPL’s utilities in Pennsylvania, Kentucky and the United Kingdom use a wide range of customer communications methods. We have found that customers, regulators, the news media and other stakeholders expect utilities to be active in social media. All PPL-owned utilities use social media in customer communications.

PPL Electric Utilities found that customer use of social media grew exponentially during Hurricane Sandy. We responded to comments and questions on Facebook and Twitter around the clock. Our storm update postings were shared more than 66,000 times. We also saw a big increase in customer use of the PPL Alert system, which allows customers to get outage updates by email, text message, phone or all three. Since Hurricane Sandy, PPL Electric Utilities has expanded the use of PPL Alerts to include bill payment reminders and other helpful customer information. Increasingly, we are using social media to talk about energy efficiency, reliability and other topics of interest to customers.

ELP: In the U.K., your management team successfully completed the integration of the acquired Midlands operations, dramatically improving customer service in the region. How did operations earn more than $80 million in performance bonus revenue?

Spence: The integration of the former Central Networks into our existing Western Power Distribution business in the United Kingdom is a tremendous success story, the result of our strong local management team executing a well-designed plan. We restructured operations, reduced staff almost entirely on voluntary terms, renegotiated labor agreements, acquired or built 15 new facilities, and transferred all data into WPD’s existing information technology infrastructure–all within nine months.

Since the acquisition, reliability of the two Midlands distribution networks has improved dramatically. We reduced customer interruptions by 20 percent and average outage duration by 37 percent. Performance in the Midlands is approaching the best-in-class level of WPD’s existing networks in southwest England and south Wales. In fact, the four WPD networks currently rank 1 through 4 in the U.K. on broad measures of customer satisfaction.

The U.K. regulatory framework establishes outputs that distribution networks should deliver to customers. Incentive and penalty mechanisms encourage companies to improve performance. Improvements in the Midlands in both the number and duration of outages exceeded the targets set by regulators and earned WPD about $80 million in additional incentive revenue for the regulatory year that began April 1, 2013.

PPL’s Midlands acquisition in 2011, which includes the city of Birmingham, England, resulted in significant improvements in reliability and customer service metrics. Integration of the Midlands into existing Western Power Distribution operations was completed in just nine months.

This year, we’ve done even better. We recently learned that the performance of our four WPD distribution networks has resulted in $110 million in additional incentive revenue for the regulatory year that will begin April 1, 2014. The incentive revenue includes about $10 million for exceeding customer satisfaction metrics.

ELP: PPL has begun construction on more than $2 billion of environmental upgrades to its coal-fired power plants in Kentucky, as well as a large gas-fired plant. Is that enough to satisfy the EPA?

Spence: The improvements we are making at our Kentucky plants, and the improvements we already have completed at our competitive-market plants in Pennsylvania and Montana, put us in a good position to meet EPA regulations for sulfur dioxide, nitrogen oxides, ozone, mercury and other emissions. We are retiring three older, smaller coal-fired plants in Kentucky and building a 640-megawatt combined-cycle natural gas plant that will go into service in 2015.

Across our businesses, we generate electricity using diverse sources that include coal, natural gas, oil, nuclear, water and other renewable sources. Fuel diversity is the best way to ensure the reliable, affordable electricity supply that our customers count on. Over-reliance on any single fuel source carries considerable risk. As EPA considers regulation of carbon dioxide emissions from power plants, we will continue to make our voice heard for approaches that preserve fuel diversity and protect customers.

ELP: Investors are reacting positively to PPL’s Kentucky and U.K. acquisitions. Tell me about those.

Spence: The acquisitions of Louisville Gas and Electric and Kentucky Utilities in 2010 and Central Networks in the U.K. in 2011 fundamentally changed PPL’s business mix from one that was weighted toward competitive generation earnings to one that is now heavily weighted toward rate-regulated earnings. These changes have provided enhanced stability to PPL’s earnings, dividends and credit ratings.

The acquisitions more than doubled the number of customers served by PPL companies, nearly doubled our asset base and increased annual revenues by about 70 percent. The positive response from investors, and the resulting increase in PPL’s stock price, has put PPL among the 10 largest investor-owned utility companies in the United States in terms of market capitalization.

ELP: You’ve said that PPL’s rate-regulated businesses accounted for 72 percent of your earnings from ongoing operations in 2012, and you forecast that number to grow to 85 percent in 2013. How will you reach that number?

Spence: Two factors are affecting the contribution to earnings from our business segments. We continue to see expected decreases in earnings from the competitive Supply business–our merchant generation plants and energy marketing operation–largely due to the prolonged period of low wholesale power prices. We are looking at all avenues to ensure that the Supply business continues to make a positive contribution to earnings and is well-prepared to adapt to the cyclical nature of wholesale power prices.

PPL Corp. Chairman, President and CEO William H. Spence says his two biggest challenges are the largest capital programs in the company’s history and maintaining a skilled work force.

The other factor driving earnings is the expected growth in our regulated asset base. We project compound annual growth of around 8 percent over the next five years. That growth includes more than $2 billion in environmental controls at our regulated power plants in Kentucky to meet new EPA regulations, and the completion of major transmission upgrades by PPL Electric Utilities, including the $630 million Susquehanna-Roseland project.

ELP: PPL Electric Utilities has filed a request with the Pennsylvania Public Utility Commission to implement a new distribution system improvement charge that will accelerate recovery of $700 million of planned capital investments during the next five years. And as you mentioned, you’ve begun construction on PPL’s portion of the 150-mile Susquehanna-Roseland transmission line. How have you expressed the importance and necessity of these to ratepayers? Have you achieved customer buy in?

Spence: The Distribution Service Improvement Charge was approved by the Pennsylvania Public Utility Commission in May and implemented in July. With this new cost-recovery mechanism, PPL Electric Utilities can more efficiently plan, design, finance and construct improvements that benefit customers. We’ve communicated extensively about infrastructure investment needs. Our messages have focused more on benefits in terms of fewer and shorter outages, than on the cost.

PPL Electric Utilities is increasing investment in its transmission system to upgrade aging infrastructure and improve reliability for its 1.4 million customers.

The Pennsylvania portion of the Susquehanna-Roseland transmission line is about 50 percent complete. Roughly 70 miles of the 101-mile route being built by PPL Electric Utilities is either complete or under construction. The rest of the route is cleared and ready for construction. We conducted extensive public outreach for this major regional grid upgrade, including two dozen open meetings for people who live along the route or are otherwise interested in the project. We created a dedicated project website that made it easy for people to contact us with questions. One of the biggest challenges we faced was the perception that the line would not benefit customers in Pennsylvania. One of our communications goals was to emphasize that the project will strengthen the regional power grid, prevent overloads on other transmission lines and thus create more reliable service for everyone, including Pennsylvania customers.

ELP: What is your biggest challenge as chairman, president and CEO?

Spence: We have two critical challenges in our immediate future. First, PPL companies are undertaking one of the largest capital programs in our long history. We must execute these projects well and ensure that they provide value to our customers in the United Kingdom, Pennsylvania and Kentucky in terms of improved reliability and, for our Kentucky businesses, in terms of lowest-cost supply to meet projected demand and comply with new environmental regulations.

The second big challenge involves our work force. From a safety perspective, we continue to look for ways across all PPL companies to prevent job-related injuries and accidents. We also are in a work force transition. As the baby boomer generation approaches retirement age, it is absolutely essential that we recruit, hire and develop new employees who have the knowledge, skills and attributes that enable us to continue meeting expectations of customers, investors and the communities where we do business. To attract the people we need, we must be seen as a company that provides important and meaningful work, that encourages people to develop personally as well as professionally, and that has a diverse and inclusive work force where everyone is respected and valued for what they contribute.

ELP: What are you most proud of at PPL?

Spence: Our 17,000 employees. I am impressed time and time again with their focus on delivering world-class customer service, reliable power and results for investors. I am equally impressed with their commitment to improve the communities where they live and work.

Our employees in the United States and United Kingdom generously give both money and time to support a wide range of community needs. It’s a legacy passed from one generation of employees to the next.

More Electric Light & Power Current Issue Articles
More Electric Light & Power Archives Issue Articles