From: Breininger, Stephen K [skbreininger@pplweb.com] Sent: Thursday, May 23, 2002 1:09 PM To: rule-comments@sec.gov Subject: S7-08-02 John R. Biggar Executive Vice President and Chief Financial Officer Tel 610.774/5613 fax 610.774.7016 E-mail: jrbiggar@pplweb.com PPL Corporation Two North Ninth Street Allentown, PA 18101-1179 Tel 610.774.5151 http://www.pplweb.com May 23, 2002 Securities and Exchange Commission c/o Jonathan G. Katz, Secretary 450 Fifth Street, NW Washington, DC 20549 Re: Release No. 33-8089; 34-45741; File No. S7-08-02 "Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports" Dear Mr. Katz: These comments are being submitted by PPL Corporation and four of its subsidiaries (PPL Energy Supply, LLC; PPL Electric Utilities Corporation; PPL Montana, LLC; and PPL Transition Bond Company, LLC). PPL and these subsidiaries are reporting companies under the Exchange Act of 1934 (collectively, "PPL" or "we"). These comments are in response to the SEC's request for comments on the above-captioned Release. We appreciate the opportunity to provide the SEC with our views concerning the proposed rules (the "Proposed Rules") presented in the Release. We completely agree with the principle underlying the Proposed Rules - i.e., that investors must be provided with prompt and accurate material information concerning public companies that is readily available from a variety of sources. PPL has a long history of providing investors with timely, complete and accessible information. We typically file our Form 10-K reports within 60 days following each fiscal year end and provide our Exchange Act filings on our Web site in a timely manner. We are especially proud of our commitment to the quality of our Exchange Act reports, and we fully support any SEC initiative that will improve the timeliness and accessibility of our reports so long as it does not adversely impact the quality, accuracy and transparency of our disclosures. We therefore support the Proposed Rules to accelerate the filing deadlines for 10-K reports and to provide access to Exchange Act filings on corporate Web sites. However, it is our view that the Proposed Rule to accelerate the filing deadline for 10-Q reports from 45 to 30 calendar days after quarter end could jeopardize the quality of our quarterly reporting. In order to provide the SEC with some perspective on our concerns in this regard, we have included below some background on PPL and a review of our preparation process for our quarterly reports. We then elaborate on our primary concerns with this Proposed Rule. Background: PPL is an energy and utility holding company with both domestic and international operations. Through subsidiaries, PPL generates electricity in power plants in the northeastern and western U.S.; markets wholesale or retail energy primarily in the northeastern and western portions of the U.S.; delivers electricity to nearly six million customers in Pennsylvania, the U.K. and Latin America; and provides energy services for businesses in the mid-Atlantic and northeastern U.S. Many of the business activities in which we engage are complex. Among other activities, we acquire and invest in companies both in the U.S. and abroad, we are active in the debt and equity capital markets and we engage in energy marketing and various risk management activities. Because of the complexity and breadth of our business, we also are subject to various complex accounting rules, as well as SEC disclosure requirements. PPL's consolidated revenues were $5.7 billion in 2001, and its total year-end assets were $12.6 billion. 10-Q Preparation Process: We have carefully reviewed our timeline for the preparation of our quarterly reports, from the closing of our books to the filing of each 10-Q. Detailed in Exhibit A is an illustrative timeline of the process that we currently follow to prepare and complete our quarterly reports. As illustrated by Exhibit A, we place great emphasis on our 10-Q preparation to ensure that we have complied with applicable guidelines and rules, and that adequate time is provided for review by key parties inside each reporting company and by our external advisors, all in an effort to ensure high quality 10-Q reports. Over the last five years, we have filed our quarterly reports on or about the 43rd day following quarter-end. The following are key steps in our 10-Q preparation process: Closing of Books: The closing process takes 9 to 11 calendar days (7 business days). This includes running accounting systems, completion of month-end journal entries and off-system input of certain domestic and international affiliates. In 2000, we hired an outside consultant to help identify improvements to our closing process. As a result, we were able to shorten our closing process by 1 1/2 days. The closing process is, therefore, a fixed component of our 10-Q preparation. Under the Release, we would only have 19 to 21 days after closing to file the 10-Q. Financial Statement Preparation: We have a state-of-the-art accounting system with advanced consolidation features. The system generates a working income statement and balance sheet. However, we perform extensive analyses on these statements to make appropriate reclassifications to comply with GAAP and SEC regulations, and to ensure comparability between reporting periods. We then dedicate significant time to completing the cash flow statements, which cannot be generated by our systems. Writing of Notes and MD&A: The drafting of the 10-Qs is started in advance of completing the financial statements. Preparation of Notes to the Financial Statements and the MD&A is a "multidisciplinary" task requiring substantial input from our legal, tax, accounting research, finance and marketing and risk management groups. Review: We typically prepare four drafts of our 10-Qs, seeking valuable feedback from key contributors, senior management, outside counsel, potential underwriters and their counsel, and our external auditors. Each draft takes from two to five days and encompasses dissemination, review, meetings, compilation of feedback and re-drafting. We believe that this review process is critical to providing investors with high quality, transparent disclosures. We believe it is imperative to obtain feedback from all of these parties to ensure that we have captured all pertinent information for investors and complied with all applicable accounting guidelines and SEC disclosure requirements. Typically, we send a draft to about 50 internal people throughout the review process, who conduct their reviews during the course of also performing their own primary responsibilities within the company. We significantly improve the quality of our 10-Q reports with each draft. Edgarization and Filing: Beginning with the third quarter of 2001, in an effort to maximize control on quality, while reducing our costs, we brought the edgarization process in-house. As mentioned above, the 10-Q preparation process involves several groups in our company and our external advisors. We estimate that our financial reporting group alone devotes approximately 400 hours per registrant in preparing each 10-Q. This estimate excludes the closing process, and direct support provided by others. These hours alone far exceed the estimate of 136 hours that is suggested in the Release as an estimate of 10-Q preparation time. (As a point of reference, the Release also indicates an estimated preparation time of 1,720 hours for the 10-K. We believe that this is a more accurate estimate than the estimate for the 10-Q.) Moreover, the Release assumes about 25% of the 10-Q effort is contributed by the registrants, with the other 75% of the burden assumed by outside advisors. On the contrary, we estimate that 90% of our total time expended to prepare our quarterly report is provided with internal company resources, while 10% is provided by our outside advisors. Concerns with an Accelerated Quarterly Report: While we believe that 60 days is sufficient to file the annual report, we do not believe that 30 days is sufficient time to produce a high quality quarterly report. Although quarterly reports are designed to be updates to the annual report, the annual report and the quarterly report involve similar steps with respect to their preparation, analysis and review. Therefore, we do not believe that a reduction in the time provided to file the 10-K should translate into a proportionate reduction in the time provided to file the 10-Q. We believe that the accelerated deadline for filing 10-Qs would necessarily constrain certain steps of our process that we believe are essential to maintain our ability to produce high quality reports. With closing as a fixed component, we would be forced to compress most of the steps in the 10-Q process and eliminate others as follows: * Far less time would be afforded to our financial statement preparation and analysis; * Less time would be available to company experts to provide critical information for the development of Notes and MD&A (e.g., derivatives and hedging disclosures, liquidity, credit arrangements and contingent liabilities); * The amount of time for edgarization and proofing would be limited; * Our external auditors and outside legal counsel would have significantly less time to perform their review and due diligence on us and their other clients; and most importantly * We would no longer be able to circulate four drafts of our 10-Qs. Rather, we could be limited to two drafts (only one draft would be available beyond the financial reporting group review). This would substantially decrease the time for senior managers and others to provide meaningful feedback on the document, which can only decrease its quality. The SEC acknowledges in its Release that while the deadlines for filing quarterly and annual reports have not changed in over 30 years, despite advances in technology, the disclosure requirements have increased dramatically. The SEC also notes that companies, particularly those with widespread operations, face additional complexities in today's environment. Unfortunately, the SEC also adds that these increased disclosures and complexities have not outweighed fully the ability of companies to report in shorter timeframes. We disagree. Recent disclosure requirements relating to the following matters have had significant impacts on our reports: * SFAS 133 * Goodwill and other intangible assets * Critical Accounting Policies * Liquidity * Energy Trading Activities While these are worthwhile disclosures to investors, there needs to be an appreciation for the substantial and time-consuming effort necessary to properly report these and other new disclosures. In our opinion, the ever-increasing accounting requirements, coupled with an increase in the breadth and complexity of business operations, substantially mitigate the time savings that have resulted from advances in technology. In addition to a potential adverse impact on quality, the proposed acceleration of the quarterly report will also result in additional costs to PPL. These costs include additional overtime, possible outsourcing of edgarization, and possible outsourcing of other aspects of the 10-Q presently prepared in-house. In addition, there is an increased likelihood of extension requests, filing amendments to fix errors and additional hiring needs. Closing Remarks: PPL is committed to quality financial reporting. We acknowledge and agree that especially in this "post-Enron" period, we need to provide investors with timely financial information. However, timely reporting cannot be a substitute for quality reporting. We believe that shortening the filing deadline for quarterly reports to 30 days would cause such a substitution to be made. Instead of shortening the timing of the 10-Q, we believe that the SEC's focus should continue to be placed on the quality of the disclosures, which we believe can be maintained at the highest level only if the deadline for quarterly reports remains at 45 days. (As noted above, we do not believe the proposal to shorten the 10-K filing period will adversely impact quality.) As an alternative to acceleration of the 10-Q filing date, we support amendments to Form 8-K that would increase its use as a means of providing timely information concerning material corporate events and certain management transactions (such as the amendments proposed in your recent 8-K Proposal). Thank you for giving us the opportunity to comment. Please feel free to contact us with any additional questions that you may have. It is our hope that the SEC will consider our comments useful in finalizing its decisions regarding the Proposed Rules. Sincerely yours, John R. Biggar Executive Vice President & Chief Financial Officer _____ EXHIBIT A - TIMELINE OF 10-Q PREPARATION RELATING TO PPL'S FIVE REGISTRANTS TASK APPROXIMATE CALENDAR DAYS* A. Closing of Books 9 -11 - Includes completion of month-end journal entries, off-system input of domestic and international affiliates, analyses, and reviews by Corporate Controller. B. Financial Statement Preparation 7 - Includes a thorough review of our results, including any necessary reclassification of system generated income statements and balance sheets to be consistent with GAAP/SEC reporting practices and maintain comparability between periods presented. Also includes manual preparation of cash flow statements. C. Writing of Notes and MD&A 8 - Drafting begins as the financial statements are being prepared. This includes input from our Office of General Counsel, Tax, Accounting Research, Finance and Derivative & Trading departments. D. Review - Includes distribution of the 10-Q in four drafts for review to the following recipients, as well as time to make recommended changes: 1st Draft: To financial reporting 2 2nd Draft: To financial reporting, managers of key contributing departments, external auditors, and outside legal counsel. 5 3rd Draft: To senior managers, potential underwriters and their counsel and again to 2nd draft distribution. 4 4th Draft: Limited distribution to senior management, as well as including external auditors and outside legal counsel for review of all changes. 3 E. Edgarization and Filing 4 - Includes final review comment changes, conversion from Microsoft Word document to Edgar format, and proofing of documents. TOTAL DAYS: _____ 42 - 44 _____ * Includes weekends and holidays