Electric Deregulation The Upcoming Crisis 1 Background Late

Electric Deregulation The Upcoming Crisis 1

Background • Late in 1996, the “Electricity Generation Customer Choice and Competition Act” was enacted. The primary purpose of the act was to deregulate the generation of electricity and create a competitive retail market. • Policymakers had hoped that by permitting direct access by retail customers to a competitive electric market, customers would benefit from lower rates and better service. • During the transition to a competitive retail market, all utility companies were permitted to recover the construction costs of their power plants (costs that may not be recoverable in a competitive market), by assessing a “competitive transition charge” (CTC) on each customer’s bill. As a result of litigation, wholesale generation rates were capped and most customers experienced little to no rate increases in their electric bills since 1997. • These rate caps are now set to expire for most customers during the next 2 years. 2

Electric Prices Compared to Inflation, Other Commodities 3

5 Year Stock Performance (’ 03 -’ 08) Under Existing Rate Caps Exelon Corporation First. Energy June 27, 2003 – Closing Price $29. 83 June 27, 2008 – Closing Price $87. 00 Up 192% June 27, 2003 – Closing Price $37. 40 June 27, 2008 – Closing Price $80. 01 Up 114% PPL Corporation June 27, 2003 – Closing Price $21. 45 June 27, 2008 – Closing Price $52. 05 Up 143% 4

Today… • Rate caps expiring • Cost of energy escalating • No retail competition 5

Rate Caps Expiration Schedule Under the restructuring, consumers pay unbundled prices for generation, transmission and distribution services, which were capped during the state’s restructuring proceedings. With the exception of West Penn Power Co. , all of the distribution rates have expired. The West Penn distribution rate cap expired Dec. 31, 2007. All of the transmission caps have expired. Transmission costs are regulated by the Federal Energy Regulatory Commission and the PUC. Company Citizens Electric Co. Duquesne Light Co. Pennsylvania Power Co. Pike County Light & Power Co. UGI Utilities Inc. Wellsboro Electric Co. PPL Electric Utilities Inc. Metropolitan-Edison Co. Pennsylvania Electric Co. PECO Energy Co. West Penn Power Co. Generation Rate Cap Status % of PA Ratepayers Expired Expired Dec. 31, 2009 Dec. 31, 2010 0. 1 10. 6 2. 8 0. 1 1. 1 0. 1 24. 6 9. 5 10. 6 27. 8 12. 7 6

Projected First Year Rate Increases 7

Actual First Year Rate Increases 8

Single Market Clearing Price for Electricity 9

Utility Projected Revenues & Cost Comparisons 10

PPL Generation Selling Price/Cost • In 2007, 94% of our owned generation output is expected to be produced at a fuel cost of approximately $16/MWh or less. ***Source: PPL Shareholder, 3 Q 2007 • PPL Energy. Plus, LLC (“PPL Energy. Plus”), the energy marketing subsidiary of PPL Energy Supply, LLC, participated as one of the bidders in the competitive solicitation process. PPL Energy. Plus was one of the winning bidders and has entered into an agreement with PPL Electric to supply up to 671 megawatts of total peak load in 2010, at an average price of $91. 42 per megawatt-hour. ***Source: PPL 8 -K Filing, July 2007 11

Expected 2008 to 2010 Margin Walk April 2008, Shareholder Presentation 12

Necessary Steps to Lessen the Problem PROCUREMENT: how generation is acquired for ratepayers. • Require utilities to acquire energy generation for customers at “the least cost” on a long term basis. Current law permits generation to be acquired at “prevailing market rates. ” HB 2201 only provides for “lowest reasonable rates. ” • Permit utilities to enter into long term contracts – to encourage new energy generation and provide rate stability. Current law discourages long term contracts in excess of 3 years. HB 2201 arbitrarily prohibits long term contracts for more than 20% of energy load. • Require utilities to develop a portfolio mix of long term, short term, and spot market contracts. Utilities are pushing for “full load requirements” that relieve them of the duty to acquire energy under terms and conditions most favorable to ratepayers. • Mandate the PUC to ensure that utilities are acting in the interest of ratepayers and prohibit market manipulation or favoritism. HB 2201 has no such requirement. 13

Necessary Steps to Lessen the Problem MITIGATION: how to lessen the economic shock when rate caps expire. • Senate Plan provides a gradual phase-out of rate caps over a 5 -year period, without transferring additional cost to ratepayers. The purpose of the phase-in is to prevent financial hardship and damage to the state economy. • House Bill 2201 creates a 3 -year “balloon” loan for ratepayers, creating even higher electric bills at the end of the period. • Utility plan would allow customers “to pay early” in anticipation of higher electric rates – otherwise known as “a Christmas Club. ” 14

Necessary Steps to Lessen the Problem ELECTRIC MARKET CORRECTION: how to ensure market prices reasonably reflect marginal costs. • Creation of State Power Purchase Agency – to acquire energy generation at costs below PJM market rates, and remove inefficient plants from market and reduce peak pricing. • Imposition of Generation Assessment – assess in-state produced generation and pass proceeds to acquire generation for State Power Purchase Agency. Utilities claim that nuclear power plants are without value to avoid paying PURTA taxes and lower local property taxes. 15

Necessary Steps to Lessen the Problem LOW-INCOME ASSISTANCE: how to prevent catastrophic harm to economically disadvantaged ratepayers who are extremely vulnerable to escalating rates. Notice of Termination • Current • Ten days written notice before termination • Attempted personal or telephone notice at least three days prior to termination • Posted winter notice if personal contact is not made • Proposal • Ten day written notice • Require personal notification at least three days prior to termination • Attempt personal contact at the time of termination Winter Termination • Current • Permits winter termination for families over 250% of the Federal poverty line • Proposal • Ban winter terminations 16