Q4 2019 Earnings Call
Are u s utilities are in for JD Power awards for customer satisfaction raising their combined total 251 since JD Power began assessing utility customer satisfaction in nineteen, ninety nine. Meanwhile our UK utilities all achieved a nine out of ten rating in off Tim's broad measure of customer satisfaction review page in addition Western power distribution earned the UK's customer service Excellence award for the 27th consecutive year. The company was also ranked by the industry regular as best and stakeholder engagement and support for vulnerable customers for the 8th straight year these achievements and more reflect our shared values and common Palm across PPL to deliver without fail for a customers to exceed their expectations and to continuously improve
aware of the tremendous
Opportunity we have to make a positive impact on society not only today but for years to come he also invested more than three billion dollars in infrastructure improvements with our continued Investments are aimed at strengthening grid resiliency in the face of worsening storms incorporating automation replacing and rebuilding power lines and substations package saving electricity networks to support the growth of Renewables and other distributed energy resources and Regulatory matters. We remain focused in 2019 on achieving a balanced regulatory outcomes that will benefit our customers and our shareowners in Kentucky. We receive Public Service Commission approval of a combined $187 rate increase which supports additional improvements to the grid our natural gas lines and our generation Fleet new rates took effect May first.
And in the UK we continue to actively engage with all Jim to advance a balanced regulatory frame week were that will provide real value to customers support the UK's replication and decarbonisation initiatives and provide fair and reasonable returns to investors when the next price control review. Begins in 2023 our investment over the past year included meeting with off-cam leadership and submitting responses to off-campus open letter consultation on behalf of both PPL and WPD including our Chef. I'll know that the Rio eighty-two framework released by Austin in December was largely in line with our expectations.
in summary
We're proud of our many achievements over the past year on behalf of PPL share owners and customers are performance is reflected in the numerous Awards received throughout the year. Looking ahead are committed to building on this momentum and adding to our long-term track record of Financial and operational excellence.
Now turning to slide 5 and our 2020 Outlook today. We initiated formal 2020 earnings guidance of $2.40 per share to $2.60 per share with this reflects our updated foreign currency hedge position, which we increase following the UK election that finally led to brexit last month given the election result. We expect UK business climate to remain strong as as historically been turning to our dividend today. We announced we were raising the annualized dividend to a dollar sixty six per share wage the increase announced today represents our 18th dividend increase in the last nineteen years, and we remain committed to Dividend growth in terms of network investment in 2020. We plan to invest in additional 3.3 billion in all of our utilities. These investments will continue to support our efforts to improve customer experience and grid excellent choice.
an advanced a cleaner
Energy Future finally as I touched upon earlier, we will remain engaged on the regulatory front to achieve balance outcomes that benefit customers and shareowners last week Thursday. CEO of off can Jonathan barely announced his decarbonization program action plan options plan over the next eighteen months to make low-cost decarbonization a reality shows that the dinos will play a critical role in the significant investment required to deliver clean energy and the UK's Net Zero carbon emissions Target by June 2050 this supports what we've been saying that we see real long-term growth opportunities with rwp d business as the lead many of the decarbonisation initial that will enable a net zero carbon economy on the I'll turn the call over to Vince for now operational update minutes. Thanks milk.
As we turn to a new year and a new decade. I just want to express how proud I am of the operational excellence that are seven utilities continue to deliver for our customers are sector continues to rapidly off of and our teams are meeting the challenges and finding opportunities to leverage technological advancements and decarbonization initiatives that are driving real value for our customers.
We believe that.
Well as well positioned to further enhance its networks and continue to build these utilities of the future as we look ahead. I'd like to highlight some of the operational developments from this past year and briefly describe our strategic priorities for each segment for 2020 and Beyond I'll also provide an update on our five-year capital expenditure plan.
Turning to slide seven.
Starting with the UK during 2019 WTV continue to demonstrate this leadership in support of the UK's decarbonization gold WPD was the first UK Network operator to publish an electric vehicle strategy building on knowledge gained through the company's electric Nation easy smart charging initiative. The company has begun to proactively ready. It's Network for increasing age of electric vehicles anticipating the potential for up to 3 million V's in our service territory by 2030 w d d also continues to deliver an industry-leading innovation programme including finding ways to connect more distributed generation to local networks through 2019 W TV connected nearly 10 gigawatts of distributed generation to a network about 6 gigawatts of which was a Google energy. In addition WPD is leading the way and developing markets for flexibility services and demand response solutions to help maintain great resiliency and control costs to UK customer.
these flexibility Solutions
Should enable the deferral if some Network spend which optiom is Keen to see that the you know is delivered.
As we look to the upcoming year. It's important to review how we are performing against are real easy one business plan and I'm proud to say the WPD continues to perform extremely well in Rio 81
in the most recent auction manual record for electric distribution WPD ranked first in customer satisfaction and customer minutes lost ranked second in time to connect customers are returned a middle-of-the-pack with an r o r e expectation of 8.4% on a real basis over the 81. I'll note that this equates to a nominal fee of about 11% when including of inflation as we've indicated in the past as the only Fast Track company and really T1, we think the fact that we are the top-performing, you know group in the sector and only earning average return that will serve us well going into really to our strategic priorities moving forward are to continue this high level of performance and continue our engagement with ofgem to help develop the sector specific methodology. Our objective is to ensure led to provide the appropriate incentives for Dino's to deliver on the initiatives required to achieve Net Zero carbon emissions by 2050.
Turning to slide.
Eight in Pennsylvania PPL Electric utilities continue to demonstrate this leadership in the deployment of smart grid Solutions. We currently have 4500 smart switches installed on our dog since 2015. This technology has helped us eliminate over 900,000 outages for our customers as we discussed during the year PPL Electric has received numerous Awards this year or operational excellence and commitment to Innovation including the deployment of a new distributed energy resource management system or terms and the development of groundbreaking technology that safely automatically Cuts power to downed power lines protecting the public First Responders and our employees.
In addition PPL Electric utilities was awarded the most improved utility in the decade by PA Consulting. The company is also substantially complete with the multi-year nearly 500 million dollar project to install one point four million Advanced meters for our customers looking ahead for 2020. We remain focused on executing on our substantial electric transmission and distribution investment plans bought a majority of to spend this year remains in our transmission business, which has been the fastest-growing business in our portfolio for a number of years now due to the ongoing needs to upgrade and modernize our transmission system. This includes upgrading transmission lines and substations replacing wood poles with steel poles and building new substations.
We've also invested considerably our distribution Network also adding.
Upgrade devices to the network hardening the system are getting our tree trimming effort and investing in new systems to automate how the network is controlled. This investment has also resulted in significant reduction in the number of and duration of outages for our customers going forward will continue to deploy digital and cloud-based Technology Solutions to further automate the system to improve service even further for our customers from a research perspective or retail rates continue to remain competitive in the Mid-Atlantic region. Thanks to our ongoing emphasis on integrating technology and efficiently managing, especially since we haven't had a base rate case since 2016 over the past decade. We've held our operating cost of less than a 1% increase on average each year will look to continue our efforts in this area as we don't expect another rate case to be affected within the earnings guidance.
We'll wait to Kentucky on slide 9.
Google gas and electric and Kentucky Utilities continue to make progress on a multi-year eight hundred million dollar project that cap includes ponds that are coal-fired power plant. Overall. We are about 80% complete with the cap and closure program. We also retired 272 megawatts of coal-fired generation at r e w ground facility raising the amount of retired col generation to nearly twelve hundred Megs. Mm.
meditation
Karen Public Service Commission approval of a green energy carrot for businesses and continue to enhance our solar offerings for all of our customers.
We completed construction of the first phase of our subscription-based solar share program and we have fully subscribed the second phase with construction expected to be completed in Q2 of this year following up on a renewable energy RFP conducted in 2019 in January. We requested approval of contracts to supply an additional hundred megawatts of ads available solar power to Kentucky customers long as we move into 2020. We see a balanced mix of investment across our Kentucky utilities over the past decade. We've had a significant portion of our Capital devoted to improving the environmental profile of generating units, which has supported reductions of SO2 and nox emissions by approximately 90% And 80% respectively will be completing the majority of these environmental projects to comply with current regulations within the next couple of years back.
As the environmental Capital requirements have begun.
Klein we've been able to deploy Capital to improving our electric and gas TV networks with a focus on system reliability and Automation and that are already delivering real value for our customers as evidenced by 120000 interruptions that have been prevented to date from our smart grid Solutions. All of these Investments has supported rate based growth of over 7% per year on average over the past twenty years.
As we look forward we are focused on a number of initiatives including customer focus programs such as our green energy tariff as well as planning for the future investment cycle as it relates to generation resource will also be working on updating our integrated resource plan with a new IRP to be filed with the Commission in late 2021. We expect the new IRP will provide a better sense of timing for the next wave of capital deployment in Kentucky related to the replacement of our Coal Fired generating leads. I'll touch on this further in a few minutes.
Turning to slide ten.
As the world focuses on climate change if you fail remains committed to advancing a cleaner energy future while maintaining safety reliability and affordability for those who serve today. We are updating our goal to reduce PPL CO2 emission specifically, we raised our goal of reducing carbon emissions to at least 80% or 2010 Levels by 2050 from our previous Target of said company also accelerated its previous Target by a decade and we are now targeting reducing carbon emissions by at least 70% by 2040 has already reduced this month by over 50% since 2010 exiting the competitive generation business in 2015, including nearly four thousand megawatts of coal-fired generation and retiring 1,200 megawatts of golden age.
We expect to achieve these further reductions through a variety of actions including replacement of Kentucky coal-fired generation over time with a mix of Renewables and natural gas while meeting our obligations to provide long-lasting reliable service to our Kentucky customers are updated targets are based on our ongoing resource planning activities and updated Market data and Trends in Kentucky. Assuming we received a pre-approval for the previously mentioned renewable PTA and if technology continues to improve and drive down the cost of renewable is certainly possible that we can achieve even greater carbon reductions in these targets off at the same time ensuring the best value and reliability for our customers. We are confident. However that these targets are achievable under current legislation and regulations as well as current technology and correct.
Turning to slide 11.
We also wanted to provide an overview of the near-term and longer-term opportunities to economically shift our business mix away from coal-fired generation, as you can see from the chart on the left side of the slide cocktails rebates already consists of more than 80% transmission and distribution and non-qualifier generation. Given that are significant plan Investments over the next five years are heavily weighted towards additional Community infrastructure. The percentage of rate base from coal-fired assets is expected to decrease even further in the near-term. In fact only about 5% of our 17s are $14 Capital plan is for Investments related of coal-fired generating ad our current miles IRP supports the transition to cleaner energy driven by technology and economics consistently current policy and regulations as you can see based on the chart on the right of the slide based on certain scenarios from our latest IRP file back in 2018. We could see some additional cold retirements in the back half of the 2020s with significant wage.
for retirement in the 20
He scenarios continue to evolve and we are starting to see more momentum for Renewables in the state as evidenced by the results of the recent renewable RFP where we are proposing to economically had our cost as available renewable generation resource while reducing the amount of output from some of our higher-cost fossil units. We are not at a point where Renewables can compete on a replacement bulb actually basis as renewable plus storage options are not even competitive with our PT gas line with that said it is clear that these factors are rapidly changing as we move through time, which require to continuously assess the most prudent strategy that's in the best interest of our customers something we've always demonstrated.
moving to slide 12
Updated our capital expenditure plan and continue to see significant investment opportunities in our networks over the next five years totaling about fourteen billion dollars. We've increased our twenty-twenty and twenty Twenty-One thousand options by approximately two hundred million dollars each year from our prior estimates primarily due to additional fluid limitation guidelines spend in Kentucky, and it makes of timing related investments in the u k r u k Capital plan projects that we will be within one per-cent of our gym approved business plan for Ed one is will strengthen our credibility with auction when we file are really two business one month know that changing the assume that tax rate from a dollar forty per pound to a dollar Thirty per pound on our UK spend reduce the 5-year capex projections by about three hundred million.
We have not included three hundred million Kentucky Ami project in our forecast at this time, but that remains of potential upside opportunity for us as well as the other.
Areas of opportunity noted on the slide including decarbonization related spending in the UK. We believe these additional opportunities could be as much as another $500 above within the five-year Capital plan a long-term. We expect more than an incremental billion dollars of investment to be required over the five-year reopening. To achieve electrification initiatives based on our initial estimate.
As I previously noted, we also believe the transition of Our coal-fired Generation Fleet will be the next significant investment opportunity in Kentucky while this opportunity is outside of our five-year Capital an undercurrent scenarios. It's important to remember that this plan reflects assumptions based on today's use a future prices and market conditions, which could rapidly change.
What will not change Is our commitment to our customers to continue to optimize our Fleet and exceed expectations as we leave the evolution of our Kentucky operation, including the transition to less carbon-intensive generation resources.
As we look at the diverse portfolio of businesses that we have. It's important to point out that each business is in a different stage of its investment cycle while UK RAV growth has been a strong 5 to 6% off one. We see that growth accelerating into easy to beginning in 2023 as we fund the UK electrification initiative in Kentucky. We see the initial stages of the Kentucky coal generation Republican strategy likely starting in the mid 2020s, which will begin another period of significant Capital Investments and in Pennsylvania. We are expecting growth the likely slow in the next couple of years following extensive period of transmission spending over the last five years at almost seven hundred million dollars per year the diversity of our portfolio of businesses combined with our culture of operational excellence and I'm moving and will continue to deliver long-term value for our shareowners.
With that, I'll turn it over to Joe now to cover the financial.
Thanks, Vincent. Good morning. Everyone. I'll begin with a brief Financial overview on slide Fourteen and while PPL delivered an outstanding quarter of financial performance earning 57% of ongoing earnings-per-share. I'll Focus my review this morning on our full-year results. We have included a walk in the appendix of today's presentation and our news release for additional details on for the results looking at the full year. We achieved 2019 reported earnings of $2.37 per share compared with $2.58 per share a year ago suggesting for special items primarily reflecting mark-to-market changes related to unrealized foreign currency economic Hedges 2019 earnings from ongoing operations for $2.55 per share exceeding the Bitcoin of our forecast by $0.05 per share.
This compares to the $2.40 per share that we are last year which included significant weather benefits of about eight cents per share looking forward to 20 20. We announced the former is range of $2.40 to $2.60 per share which reflects updates for current market conditions and our foreign currency hedge position. We also are updating our 20,000 estimates primarily reflecting changes to foreign currency forecast, which are lower than our prior forecast.
Western
Just like 15 for an update on our earnings results for the full year walking from our 2018 results on the left. We first make whether adjustments for comparability purposes of the underlying businesses long as I mentioned weather was $0.08 favorable compared to normalized weather results in 2018 or 2019. We experience slightly favorable weather.
The net result with the $0.07 per share declined year-over-year across all of our utilities. We also adjust for the effect of delusion. We settled the remaining forty three million shares on our Ford Equity transactions in November of 2019, which is the primary driver of the $0.10 per share of pollution year-over-year segment allocation of pollution is included on the slide for your reference turning to the individual segments drivers, which exclude the impact of these items starting with the u k r u k regulated segment earned a dollar forty per share at 12% year-over-year increase wage increase in the UK earnings was primarily due to higher adjusted gross margins primarily driven by higher prices due to the April 1st, 2018 and 2019 price increases monthly offset by lower sales volumes and higher pension income.
in Pennsylvania
62 cents per share, which was $0.05 higher than a results in 2018 are Pennsylvania results were primarily driven by a higher adjusted gross margins primarily resulting from Returns on invested Capital Investments and transmission partially offset by year-over-year differences in reduced income tax rates to the US tax reform.
The higher adjusted gross margins were partially offset by higher depreciation expense.
Burnings or Kentucky regulated segment. We are $0.59 per share and twenty 95% increase overall results one year ago.
Increase was primarily due to higher adjusted gross margins primarily resulting from higher retail rates effective May one 2019 and lower income taxes primarily due to the Kentucky receive a credit record it in the second quarter.
Partially offsetting these items for higher depreciation expense and higher interest expense to the higher interest rates and excuse me, an increased following results the corporate and other we're consistent compared to the prior-year the results are primarily driven by higher other income offset by higher operations and maintenance expenses.
I think the slide sixteen and our financial outlook for 2020 Jeep sales growth is underpinned by continued operational excellence and organic Investments that are regulated utilities walking from our strong 2019 results on the left of the slide. I'll note that whether this past year was not significant compared to our forecast of normal conditions and results in only a $0.01 per share adjustment for comparability purposes. We also project pollution of about $0.11 to the November 2019 settlement of our May 2018 Equity Ford offering which increases our 2012 here that's standing compared to 2019 the allocations by segments or provided on the slide for your reference.
Excluding these two factors, we project wrote that each of us business segments. The UK segment is expected to experience growth primarily driven by higher based demand revenues due to the annual April wage increases and expected higher foreign currency exchange rates reflecting are solid hedge position for 2020 these positive drivers in the UK are expected to be partially offset by lower revenues from True up mechanisms related to cost of debt recovery property taxes and sales volumes totaling about ten cents.
lower pension in, primarily do this
Typically decline in discount rates in the UK and a combination of other miscellaneous drivers such as higher depreciation financing costs and taxes in Pennsylvania. If we project is driven primarily by higher Returns on transmission Investments and turning to Kentucky we project an increase from 2019 driven by higher retail rates partially offset by higher depreciation expense in corporate and other we projected improved earnings driven by a number of items including including lower interest expense due to lower short-term debt post the settlement of our Equity forward truck drivers results in the midpoint of our guidance range of $2.50 per share.
Turning to slide Seventeen. We've also updated our 2021 projections to account for current foreign currency forecast. Our prior earnings forecast is $2.50 to $2.80 per month reflected of foreign currency range of a dollar thirty-five cents per pound to a dollar sixty per pound which was consistent with bank FX forecast at the time. We initiated the earnings range or update earnings are updated earnings forecast of $2.40 to $2.60 per share includes an updated foreign currency range of a dollar twenty-five to a dollar forty four pounds, which is below the correct words and Market forecasts.
We're using these lower.
Thanks for the FX range given the expected near-term volatility as the UK Works through the brexit transition period during twenty-twenty and we will be heading 20-21 during this time. The other dog for twenty Twenty-One highlighted in our previously announced forecast remained largely unchanged with rate based still expected to grow at 5 to 6 % on our expectation to continue to earn near are allowed retire at twenty twenty and twenty Twenty-One forecast continued assume an immaterial amount of equity issuance has has previously indicated.
Let me provide an update on our foreign currency hedging status, which is on 518 4/20. We were actively hedging during the fourth quarter and increased our hedge percentage by another 20% wage positions in ninety percent of twenty-twenty forecasted ongoing earnings. The average rate for twenty twenty reflecting. These new Hedges is a dollar forty eight 4-pound. We are able to slightly improved average twenty twenty hedge rates by optimizing our hedge portfolio given the brief uplifting currency rates following the positive you pay election outcome and the strength in our 2019 results. We continue to wage is options in our hedging strategy that preserve outside for the current market rates with about one-third of the twenty-twenty Hedge portfolio being option-based for 20 21 or hedge position is off 5% of forecasted earnings at an average rate of a dollar thirty three pounds again, we expect to continue layering in 2020-21 had just going forward.
Ready to slide nineteen as we continue our efforts to invest in our Network and earn are authorized returns. We remain committed to paying dividends to shareholders as we've done over the past Century the January 1st, June 10th represents the 296th and 2nd of quarterly dividend paid to shareowners as Bill mentioned. We remain committed to Dividend growth and today announced. We are raising the annualized dividend to a dollar sixty six per share. We will continue to assess the rate at which we grow the dividend going forward the context of our yield and pay-off relative to our peers that concludes my prepared remarks and a call back to build for some closing comments. Thank you Joe before we open up the call for Q&A. I'd like to take a moment to reflect on what has truly been a remarkable decade for people over the past ten years. We've doubled our market cap. We've unfailingly exceeded the midpoint of our earnings forecast. We've grown our dividend 18% off.
121 JD Power Awards
For customer satisfaction in the US we've consistently ranked highest for customer satisfaction among the network operators in the UK. We've invested twenty seven billion dollars to make our Network smarter to improve reliability into advanced a cleaner energy future. We've cut average customer interruptions by over a third in the UK and by more than 20% in the US since 2010 all the while. We've kept electricity cost reasonable for our customers and remained deeply engaged with the communities we serve and last but not least we have dramatically transformed PPL a decade ago. We were primarily a Pennsylvania hybrid utility facing stiff headwinds in competitive markets today. We are one of the nation's largest investor-owned utility companies with one hundred percent of its earnings driven by stable.
High-performing regulated businesses in short we are stronger today than we were a decade ago were better positioned to invest in the future. And as we celebrate our Centennial off voice power progress for another hundred years when our directors first met a century ago, they did so at a pivotal time the country was beginning to move from a patchwork quilt of isolated lighting companies to a coordinated network of regional utilities power plants and transmission lines born in that moment PPL would help drive that change extending electricity service throughout the regions. We serve expanding to meet the needs and demands of Rapid industrial growth and to helping to improve the quality of life for generations of Life today. We again find ourselves at a pivotal moment for our industry, which is investing in new technologies to reshape not only how we deliver power but how we produce it as well.
In this moment, we remain as committed as ever.
During progress to fostering Innovation to creating long-term sharing or value and to making a positive impact on society and closing. I'm proud of our past achievements equally excited about our future and I'm convinced that his best days are ahead with that operator. Let's open the call. For questions, please absolutely to ask a question even press star key on your touch-tone phone. If you are using the speaker phone, we asked you please pick up your handset before pressing the keys to a draw your question, please press stars and to today's first question comes from l e e r s t r h please go ahead. Thank you. Good morning. Good morning. Holly morning. First question. I just wanted to reconcile your 2020 guidance off of 242 to 60 with you know, the numbers you'd been showing us for quite a while up until recently, you know, a 2020 projected range of 254 to 2:50 a.m.
I guess when I think about
The midpoints I know that was a narrow range, but the midpoint was certainly higher than what you're showing us today. It could you just reconcile what changed from the numbers you had been sharing with us? Sure. I'll make a couple of opening comments and I'll pass it on the Joe as one of the things you just pointed out was the very tight range that we had established for twenty twenty, you know having said that you suck week. We still are kind of within that range but but towards the lower end operationally when you look at the assumptions behind the twenty-twenty, we're largely consistent with the with the birth forecast. The primary change was really a significant decline in corporate bond rates in the UK resulting in some lower discount rates, which had a negative impact on our wage pension obligations. Those factors really result in about a $0.06 impact compared to our prior plan. But as I mentioned despite this we're still in the price range for 20 20, Joe did you want to dead?
anything more
Yeah, we probably we saw that sharp decline in corporate bond rates in the UK that lowered the discount rates resulting in the increase. UK pension obligations under us gaap. The divorce rate declined by more than a hundred basis points. It went from about 3% to less than 2% And that's really what's causing the the difference from a prior forecast again, cuz those Point operationally anything else remains unchanged
I got it then second question. I just wanted to be clear when you talked about, you know, the opportunities that you're seeing across the different utility box did not hear it right that over this five-year. 19 through 24 or 23 24. I should say that you're seeing potentially another eight hundred million of additional capex or was the number even larger than that. I just wanted to be very clear. What's the opportunity size that you see that's not yet embedded in your official Camp X numbers.
Yeah, sure. I leave my remarks.
Okay, that was about a half a billion. So five five hundred million.
500 million but and I think separately you also talked about three hundred million of Ami, that's not yet in there. Is that correct? Yeah, that's part of that's part of the I got you. Okay, and the last the other thing I would note is that just changing that FX assumption from a dollar forty or previous assumption down to a dollar thirty thousand it on our side twelve cut about three hundred million from the forecast. So depending on when we get out particularly to twenty twenty-two and Beyond to the extent the FX bulb goes goes back up that'll come back into the forecast. And we do think that there's this cute to the upside when it comes to the FX rate given where we see brexit today and off now, you can't follow political front. So so we're we're expecting some of that may come back in but that was three hundred million alone.
right and last question
Send the bill to you. I know in the past you've talked about from your Vantage Point. You still think that the UK business is disproportionately to Big wage as a contributor to earnings for PPL. Just wondering how you look at that today. And is there any new tools available to you or what you're thinking on how to correct that today, you know, if you still think that it's disproportionately too large of of a business makes for you. Sure. Well first I'd say we are comfortable with the current business makes and and believe it will deliver long-term value for a share owners and that there are many opportunities as events described in his remarks as I have that in the past the unprecedented UK volatility that we've been experiencing over the past few years. I would have preferred to be less weighted towards the UK, but quite frankly we probably share Thursday.
Review for any jurisdiction where we've got a significant.
Waiting such as in the UK. I do think for those things that we were within our control. We've got a great track record of operational excellence and financial investments that that I think are going to pay dividends for the future and I think the opportunities we outline today will continue to enable us to be successful for very long time.
Well, thank you. Sure.
Next question today comes from sharper. Ezza of Guggenheim Partners, please go ahead. Hey, good morning guys. Good morning. I just want to just touch on sort of the guidance and and your outlook wage a little bit a little bit deeper. Obviously, if you just kind of look at your out of your plan, you know, the capex steps down and remains flat Kentucky rate based kind of declines. There's a modest step of Pennsylvania. Can you maybe just give a little bit more details in the puts and takes and what could move you hire and I'm kind of curious on when you can present the timing of an update understanding that you guys are very very conservative when it comes to the outer years, you know, I like but the capital opportunities associated with Evie deployment in the UK, why not have included some of this stuff in your Capital Outlook today off-white take such a conservative stance.
Yeah, so I'll make a comment or two and then turn it to Vince.
If you look at the overall capex plan, it's it's about and the rate base.
Growth that's associated with that it looking at in my view a minimum 4% rate based Grove with earnings that will follow that with the caveat that of course exchange rates and pension deficits funding and push that higher or lower but I think in my view because of the upsides that Vince talked about wage I look at the plan as a minimum 4% probably more in the four to six percent over over the longer term as we fill in some of the gaps with more certain projects and and really scrub things a little bit better in the outer years. As you indicated. We have historically been pretty conservative with our forecast off and you know, we we continue to be the the really driven by what what we know about current, you know projects, but also what we see is the current kind of affects birth
which as you know as as
It's been pretty volatile over time. And again, I I mentioned earlier that I believe we have asked you to the upside with the FX rate as as the brexit process becomes a lot more clear off events. Do you want to add anything to the to the potential upside? Yeah and and sharp payments to your question about kind of, you know, we're thinking about that when we would update. So the the two hundred million a year that we've included. So basically an incremental billion Network expecting over really leading to that that's based on our initial estimates going into you know, the electrification initiatives that would be required to be funded by by the Dinos.
When you look at the the process going forward for Rio to like the sector methodology consultation will be coming out, you know Q2 Q3 of this month or this is on flight 28 By the way in the deck, the the methodology decision would be coming out till Q4. Then the companies will be submitting our our submissions in Q2 age. Twenty Twenty-One. So to be honest with you were going through the process right now on planning for those submissions the business plans submissions while we're Consulting with Jim on the methodology. And so I think we just need to get through that process a little more Char before we would I think you know update the view of of easy or electrification spending going into easy to talk to your point. I think there's there certainly could be an opportunity there for incremental Capital especially coming out of what Jonathan freely published really on his first day on the job.
Carbonization plan so we think that'll fit very nicely and see what we've been talking about. But I think we need to get through the process a little more before we would go beyond our initial estimate God and then just sticking a sort of with your you know, conservative theme here just around the effects. I mean you did highlight obviously you're you know, you're taking a little bit more of a conservative stance, but you know your assumptions do Trail sort of consensus and forwards. So just maybe talk a little bit about that at a deeper level and then what's sort of the timing of the 21 hedging program. I've already sort of any mandated thresholds off or you're able to keep it open based on kind of your fundamental views.
You want to talk about the FX4 for ya. Dark so too. So I guess the first part of your your questions are on on our forecast range relative to the market wage rates and and Market forecasts. We are lower than those for the reasons. I said in my prepared remarks as we expect volatility in the exchange rate during 2020 is the UK. I used through the transition. And what we will be hedging 20-21 during that time. Thanks for tests are are at a range of a dollar thirty-five to a dollar forty-five or 20,000. So there's certainly some potential upside to our forecast. And as we looked at 20.2 this Bank forecasts are actually in the mid 140s rain, so, you know sensitivity of a penny off to a penny of earnings. That's that's fifteen cents of upside if if the bank forecasts are factored in 20 point to relative to where we sit today.
Got it. And then
And then just one last one is Bill. I know you you know, you may or may not want to answer this but you know, I know the board is has been you know, obviously very patient around how you guys are thinking about the stock and evaluation off but it does kind of still continue to trade even if you look at it from a sum-of-the-parts multiple RAV basis post-brexit. Is there any other strategic steps that you can take to maximize value for shareholders outside of the plan you sort of present today and outside of the obviously incremental opportunities given the fact that your plan is very conservative. Well, I'm obviously I'm not going to speculate on potential emanate but when I look at the overall strategy for the things that we can control it's actually worked really well, I think in terms of you know meeting all the things that we do control you obviously can't control the politics and UK or the the exchange rate. I I think that as we look for a job
Particularly as we get through twenty.
20 it's very likely that we'll know a lot more about where brexit ultimately lands and what the the currency landscape looks like for sure. Having said that we're always looking at you know, strategic or improvements to the to the base case that we can make that would create shareowner value. So we'll continue to do that as a board and as a management team wherever and and always is there's there's opportunities. I think to create some additional sharing a value month, but you know, we are always on the on the lookout for how do we improve the base case in the plan that we have and will continue to do that. Thanks guys. A lot of value was depreciated. You're you're welcome.
And it was for today cuz some quick or whatever her eyes, please go ahead.
That thanks. Actually Shore actually set me up reasonably. Well there we didn't even plan this when when I look at the what you can control obviously operation operational guys are are still top-notch and across all your businesses, but given the things that you you can't control in 20 and 21 and then the other thing you can only do some damage control in 22, which is the, you know, the reset of under r e o e d too if I step back and look at this from a high level is it fair?
to look at the big picture
As the next few years, you've got some earnings challenges that could create a more or less flat earnings profile, but the setup going into twenty to age Beyond creates a lot of growth opportunities from a decarbonisation perspective both on both your platforms to start growing the business again at a pretty steady and long trajectory. I would say overall the earnings from with the guidance. We just gave here today from 20 to 21 wage at least looking at the midpoints. Um, you know, looks looks flat as as we indicated depending on the FX rates in particular that could that could move up a new age to some growth. I think the underlying business is kind of see your point continue to grow the rate basis continuing to grow and I think we are going to be set up well going into both the carbonization wage.
opportunities in the UK as well as domestically so I think
Yeah, you know depending on your outlook for the effects will will dictate whether there's growth from 2020 to 2021.
Right and then look twenty twenty-two. I know you haven't given guidance. I'm not trying to beat you paint you into giving me guidance, but you know, we do we did go through a you know in real life when you transitioned. There was a, you know, a a reset year on revenues that you had to overcome and you've talked about on prior calls how you can manage through a spot slope allocations and how you think that because you're best-in-class operator. You'll do better than average on the outcome and that hopefully the the will do better on the margin than some of the other utility segments but it it is fair to say that twenty-two has its own set of challenges as well that you're going to have to manage, correct. Well, I think again, I think it all depends on what what the forecast do you want to use for foreign currency rates because I I think we're in my View kind of towards the the low-wage.
If you look at what FX rates have done really since the black.
There was a temporary bounce but we really stayed around a dollar Thirty. That's pretty much been range Bound for the last couple of months and and you look at the Ford forecast wage. And a lot of them is Joe indicated or as R35 and better particularly much better and gets twenty twenty-two. So I would expect just on the strength of the FX device that we get the 2022 will suck. Kro, Jo I don't know if you want to you know, if we just look at the the underlying business apps and FX sort of, you know, if all else equal give them we are talking about 20 22 would see see growth in the businesses in the really the reason we're flat from from twenty twenty two twenty. Twenty-One based on the midpoints is because of our strong hedge position for twenty twenty years to to the Hedge position we have in twenty Twenty-One. So that's really what's what's what's you know, showing a flat year-over-year earnings is because we actually have a decline in the FX rate. That's the Tagalog.
Assumed in 2020 compared to what we've used in the forecast for 20 21, but I think there is you know on the underlying business as we see growth and then we'll have to see what FX does but certainly as we moved twenty-twenty expect some clarity on the transition get back into what we would expect and hope to be more normal times around the FX rate that could have additional growth on top of the yeah Greg. It's just also the the Rio to transition is 2023 not 2022 so sorry. Yeah, I think they'll Jose Jose point on expecting it to twenty $22 right on the money. Yeah, and then and then I I think back to the Strategic decisions that that you guys made.
when you decided
To aggressively diversify and you bought the you know, you you bought more utility Assets in the UK and you bought the the the Kentucky business and you did it at a really opportune time to Diversified away quite quite well from your exposure to the declining margin outlook for merchant power and I can't help but but think that this decarbonization opportunity which is going to be huge for for your company in the in Kentucky and in the UK is also a huge opportunity and took build a little bit on on shores question on on strategic options with would that play into a decision to to to think about how you could potentially scale up with a partner to better off potentially better execute on that transition.
Well, yeah, I probably I won't I was just say probably I will not speculate on em, but in terms of your underlying thesis found the decarbonization opportunity, I agree with that and I believe that particularly in the UK. It's one of the the reasons why we continue to have a positive outlook on life. Okay, you know we've weathered, you know, probably the strongest of the storm so far particularly with three nationalization threats, which are now obviously not not a threat at all given the strong election outcome in the UK so that risk is now behind us and we still have like a risk of brexit that's keeping the markets a little bit jittery, but you know beyond that I think things will stabilize will have a much better view of not only real easy to draw.
But also where the FX start.
Land and I think for for the going for set up for the businesses, I think we're in we're in very good shape.
Okay. Thank you guys. Take care.
Thanks, very next question today comes from Citigroup, please go ahead. Thanks so much. Hi guys. Good morning morning. So maybe staying home in Italy with the theme on the Strategic side. And I guess one of the points that I took away from all the answers was clearly you would look too or at least benefit from reducing the proportion of the UK business. So just wanted to understand I know that there was a constrained around selling the UK business because of tax and the leakage there if you were to partner up and use that increase size of the company effectively reducing the proportion of the UK business what kind of constraints should we think about on the south side or other side that could limit any kind of strategic decisions around that decision?
Well again.
And a Speculator not even a however as we've indicated in the past an outrage sale either in full or partially of the UK business does create multiple challenges all of which destroys shareholder value and if you look at the valuation of the company today, I think it's even more challenging today. Then it probably was when our stock was in the upper 2828 just $30 range. So in the upper 20s, so I think with where we are today that wage strategic decision continues to be a big challenge for us in terms of you know, where the you know, the nationalization risk being remember clearly, you've seen the values of the UK utilities move up significantly after the election.
And we still have what we believe is one of the strongest not the strongest distributed Network operator in the UK. So we we believe, you know on its own its values increased but again for us to be wait and sell the business that would be destructive to shareowners.
Yeah.
No, I I get that and I remember that but I'm asking is if rather than selling the UK business PPL as a whole would partner with somebody else and that way reducing the proportion of the UK business long. Do those same constraints apply on the tax side or any other side that we should be thinking about as we think about the Strategic Direction.
Yeah, let me let me ask you to comment on that. You know, it's a very hypothetical question and it would be dependent on.
The other party and and a lot of aspects of them. So it's it's really hard to give an answer in that I would say, you know, we build earlier point. We we look at we look at a lot of all sorts of ways to create shareowner value and dead sleep tax implications and and what that would do to shareowner value or something that we look we focus closely on but I I think it'd be very difficult to say in a hypothetical situation and dependent on the on who the other party.
Fair enough and and that makes sense. Just a couple of quick cleanup questions on slide twenty-five and I look at the rate base growth that you've projected through 24 months. I saw a meaningful decline android-based growth both for the UK business and Kentucky. Obviously, this is a slightly different timing 18 to 23 vs 19 to 24, but I'm trying to understand the UK sounds like mostly pension-related and exchange rate and most of the exchange rate, I guess and Kentucky you guys have talked about is there anything else we should be thinking about around? Great Pace growth profile is you think about the different segments?
The looking at that slide $25 you can see there that the rate base growth in the UK is is about five and half percent. It's not materially different. I don't believe from where it was previously. I think it might have been as high as six. I think the biggest decrease is really in the Kentucky operation. We're we're only projected in one and half percent growth much much about her much because of the reasons that vents articulated in his opening remarks and in PA transmission, that's really been the probably the larger decrease when you look at the overall mix off because for a period of time we were growing double-digit there and then on the distribution side, I think it's been fairly consistent in the 46% So I'm not too big changes changes are lowering Kentucky and lower on the Pennsylvania transmission side.
Yeah, thanks. Sorry. I didn't mean Pennsylvania transmission. Sorry. So thanks for that and then and finally just on slide twenty-six when I look at incentive revenues. There's been a slight decrease in that direction as well for the UK's it just want to understand is that also exchange rate or anything else on the incentive side? It's a purely exchange rate.
Okay, perfect. Well, I really appreciate it guys. Thank you. You're welcome.
Question today comes from Julian dumoulin-smith Bank of America I please go ahead.
A team well done again and just going to play a little clean up here on some of the last questions. So can we talk a little bit more specifically on the timeline here for am I in Kentucky you talk about three hundred million bucks, but you know sort of procedurally, how do we get that done when I know there's been some talk historically about that and also perhaps more importantly decarbonization in the UK. How do you think about that the time were able to reflect some of that? And what would that how would that manifest itself in terms of cat box here just to be a little bit more specific on that process and I got a follow-up. Okay. Sure. Go ahead.
Sure, Julian on the am I?
We would likely time that with the next grade case as you know in Kentucky we've been on this every other year rate case cycle the last rate case, you know new rates were affected May 1st of 2019. You know, if we were to continue that Cadence wage would see a ring case becoming effective, you know in the first half of 2021. So am I I would say we would we would factor that into that that upcoming rate case and then I apologize. What was the second part of your question?
How does a decarbonisation in the UK get reflected? How does that manifest itself? What kind of order of magnitude spending we talking about? I know you guys talked about a five hundred million upside and the 5 year outlook off. I mean when you think about the conversation that probably seems like a bigger number here, but I don't want to put words in your mouth. And what time. Are we talking about in the current e d are we talking with the next one? If you can provide some context? I'm not sure so the bulk of the incremental electrification capex. We've included in the easy to initial estimate. So we have about a billion dollars over five years call it two hundred million dollars a year in that five-year period and again that's based on our initial assumptions. The team is working through our business plan submission and that will be dead files mid twenty Twenty-One as part of the radio to process. I would say, you know, depending how aggressive
The government initiatives and off Jem's policies become on the tail light.
And the one we could see deploying some capital in our current rate our current business plan time frame on electric station in life as we think we have enough leeway within the existing plan that we would be able to divert some spending towards that therefore it wouldn't be a drag on the returns cuz as you know, the revenues are dead kind of set for the 81. So what have we would have to basically shift Capital away from other things to two v's. We have the Innovation Capital other things that I would say are placeholders that we could we could redeploy there. So I think we have enough flexibility in the back end of of eighty-one and you'll see a significant uptick in easy to which cook once we get the business plans done that would be higher than what we're currently projecting at that at that building over the five years.
Yeah, it's probably obvious. But anything that we would shift from the current D12 e d to to accommodate any electrification in it, as we would wind up showing up in D too long cuz presumably it's all worked at it necessary to be done. Not necessarily for electrification put for reliability and customer service reasons.
My question today comes from Anthony, please. Go ahead. Hey, good morning. I want to follow up on Craig's earlier question. If I think of 2120 1022 earnings in order to see some growth there. Do I need to see, you know to see like an earnings growth that matches rate based growth to need to see an improvement in the exchange rate.
No.
And then also on currency for I think some of the currency Hedges our options with preserves the upside any thought on why not locking in twenty one month since I don't know if there's many moving parts to 21 earnings with Ray cases and also twenty-two. I think you just mentioned Kentucky locking those options now and preserving the upside but maintaining a base wage versus if there's any further fall out in the UK the option that they are are 4.29 and twenty one, so
I think given
For the options or Christ and and where where the spot rate is will we prefer to let me see what happens within those option races were protected on the downside, you know clearly and could see some appreciation of The Upside but there in 2029 play 21.
And and sorry, sorry just to add to that to the extent that we wanted to put options on for for the the bulk of twenty twenty one that can be pretty expensive. So, we we probably wouldn't look to do that. Unless you know, there was some shift in the in our thoughts around the currency, but for now, I think we'll look out for mystical EtG hedge in at at the dollar Thirty and above wherever we can and you'll see you know, we'll we'll start to ramp up for a lot of our kitchen by probably my life here.
And and just lastly if you could update on the pension assumptions. I don't believe there's a major change in their pension assumptions and UK. I thought it was like a 10% degradation from 2020 to 2020, I just wanted to double-check with you guys.
It's we had projected about a $0.05 change from 2020 to 2021 and and it's our assumptions have been changed materially around that at this point.
Great. Thanks for taking my question. Thank you. Ladies and gentlemen question answer session. I'd like to turn the conference back over to Bill Spencer any final remarks? Thank you, and thanks everyone for joining us today. Well, is it with you again on the first quarter earnings call? Thank you. And thank you, sir. Today's conference has not concluded. We thank you all for attending today's presentation. You may now to suck your lines and have a wonderful day.