Q1 2020 Earnings Call
Good morning, and welcome to the P.P.L. Corporation first quarter earnings Conference call.
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I would know what you're trying the conference ever to Andy language, Vice President of Investor Relations. Please go ahead.
Thank you good morning, everyone and thank you for joining the P.P.L. conference call on first quarter 2020 financial results.
Provided widespread this presentation and our earnings release issued this morning on the Investor section of our website.
Or presentation in earnings release.
We will discuss during today's call contain forward looking statements about future operating results or other future events.
Actual results may differ materially companies forward looking statements.
Please refer to the appendix that this presentation and P.P.L.P.C. filings for discussion of factors that can cause actual results can differ from forward looking statements.
You also referred to earnings from ongoing operations or ongoing earnings Nongaap measure on this call.
Reconciliation to the got measure you should refer to the appendix of this presentation and our earnings release.
Oh now turned to call over to don't spend P.P.L. Chairman Yep.
Thank you Andy and good morning, everyone. We're pleased that you've joined as for first quarter earnings call with me today are been stored D.P.P.L., President and Chief operating Officer, and Joe Bernstein, Chief Financial Officer.
Movies <unk> three I'll begin this morning's call with an executive overview.
Including our response to the cold bit 19, pandemic and P.P.O. strong position in the face of this challenge.
Oh, well then provide a more detailed review a first quarter earnings and discuss our approach to managing certain financial risk, we're waiting to comb it.
Then events will take a few moments on how we are maintaining our safe and reliable operation and focus on P.P.L. long term strategy.
As always will leave ample time to answer your questions.
Furniture quite poor I'm extremely proud of our teams response to the pandemic, which was the early and aggressive.
Proactive approach helped us adapt quickly to ensure that we continue to provide safe and reliable services. During these challenging time.
Importantly, we have been able to keep electricity and gas flowing so are over 10 million customers. Despite the expensive measures necessary to protect our employees and our communities.
First and foremost we've taken steps to practice social distance thing and all of our operation. This is included shifting almost 40% of our workforce to work from home that represents more than 4500 employees.
Ended is included creating additional separation for those who might still report to a P.P.L. facility.
The the nature of their jobs.
These measures have proven effective as we had just a handful of positive Kobe 19 cases across our company.
These encouraging results are in part due to the substantial investments, we've made which enable our staff to complete a lot of the work remotely and without direct interaction with customers.
And in those cases, where our employees need to enter our customer premises, we've been shirt or employees have the proper equipment and keep them safe.
We've experienced <unk> central businesses across the reasons, we serve which is supported our social distancing efforts.
And all of our jurisdiction the support for local trade Union has been fantastic as we've worked in true partnership to protect our workers and the public.
It's a testament to our employees, whose patients persistence and professionalism continues to shine through and these unprecedented time.
Importantly, we continue to deliver and essential service for our customers when they need us most especially the healthcare facilities that are literally on frontline fighting this pandemic.
We focus on meeting our customers need we also remain well positioned to manage an extended economic downturn brought on by code at 19.
This is a reflection of the low risk adaptable rate regulated business model with strategically built over the past decade.
We have a strong look what did he position and cook further steps to strengthen our financial position demonstrating our ability to access to capital markets, which Joe will discuss more in a few moments.
We also have substantial flexibility in our capital plants without major project, <unk>, which enables us to be agile and focus on the immediate needs of our customers shifting non critical work without significant significant implications to our overall capital plan.
In short we are competent in our ability to weather the storm as we confront the challenge of Kobe 19.
Lastly, I would notice that we are committed to supporting customers, who may be struggling financially through these difficult times.
Or foundations in Pennsylvania, and Kentucky.
Long with our U.K. business.
Quite just $1.6 million combine in donations to corona virus or at least fun and programs that help customers with financial hardships.
Our companies have also suspended disconnect and wait for you and work to connect reconnect customers.
We had previously been disconnected. In addition, we continued to offer payment system programs and other services to help customers manage their energy goals.
No the road won't be easy for many and we will continue to look for opportunities that support our local community going forward.
Yeah, I'll turning the slide five today, we announce first quarter reported earnings 72 cents per share compared with 64 cents per share during the same period a year ago.
Adjusting for special item.
Order earnings from ongoing operation or 60 cents per 67 cents per share compared to 70 cents per share a year ago.
Decrease was driven largely by four sense of delusion and lower sales buying primarily due to the mild weather in the first quarter.
These factors were partially offset by returns on her additional capital investments.
Turning to the full year, we have not changed start 2020 forecasts, oh $2.40 a share to $2.60 per share.
And while we're we're on track through the first quarter with minimal impact from <unk>, we have largely been under lockdown for the past six weeks.
This is resulted in lower seeing eye load and higher residential though in all of our jurisdictions.
At this point and it's too early to predict clearly what the pandemic impact will be on full year results.
This will depend on how long the pandemic Wow.
I used to an extent of the economic recovery and the degree companies continuing to employ work from home protocols, which is what striving to hire residential low.
Given these uncertainties and how early we are in the process, we're providing insensitivities today's materials, which Joe will cover in more detail in his remarks.
We felt it was more helpful and transparent provide sensitivity.
Shareowners, an analyst South central impact as time goes on.
You'll see in our sensitivity analysis, the monthly impact maybe manageable, especially if the economy's in our jurisdictions recover quickly and we see more favorable weather coupled with other lovers that we can call.
So, while we're bringing stability to our communities and customers in the face of unprecedented challenges. We also remain confident in our long term prospects for our shareowners, including our 2021 forecast, we see minimal if any impact or capital and rape based gross plans and we maintain an attractive dividend.
And strong investment great credit great credit ratings on the health turn the call over to Joe for financial update.
Thank you Bill having good morning, everyone.
I'll begin with a brief overview first quarter segment results on slide seven.
Don't mention P.P.L. delivered first quarter 2020 earnings from ongoing operations of 67 cents per share for 70 cents per share and the first quarter of 2019.
Walking from our Q1 2019 results on the left we first make whether adjustments for comparability purposes of the underlying businesses.
I just felt across much of the U.S. during the first quarter, we experienced a very mild winter, which drove a three cents negative variance compared to Q1, 2019 and about 5% variance to our forecast.
Degree days were down by about 30% in Pennsylvania, and 15 per cent in Kentucky compared to normal weather conditions.
We also adjust for the effects of dilution, primarily driven by the November 2019 draw on our equity forward contracts.
Turning to the individual segment drivers, which exclude the impacts of these items will be getting first with the U.K.
Are you K. regulated segment earned 39 cents per share two cent decrease compared to the same period a year ago.
Decrease in U.K. earnings was primarily due to lower other income due to lower pension income.
And higher operation and maintenance expense.
Decreases were partially offset by higher adjusted gross margins.
Merrily driven by higher prices to the April 1st 2019 price increases.
I'll note foreign currency was not a significant driver for Q1 based on the shape of our hedge portfolio.
Remain substantially heads for the balance of 2020 at an average heads rate of $1.55 per pound.
Well see the benefit of higher heads rates compared to 2019 in the balance of the year.
Moving to Pennsylvania, we are in 16 cents per share, which was two cents higher than are comparable results for 2019.
The increase was primarily driven to buy higher adjusted gross margins, primarily resulting from returns on additional capital investments in transmission.
Turning to our Kentucky regulated segment, where in 16 cents per share a three cent increase over our results one year ago.
The increase was primarily due to higher adjusted gross margins, primarily resulting from higher retail rates effective may 120 19.
Results of corporate another we're one cent higher compared to a year ago, driven by several factors, none of which were individually significant.
Burning to slide eight as Bill noted the company as well positioned to manage the challenges of <unk> and we did not see material impacts tour financial results through the first quarter.
Would that said there are a number of key areas of potential risk that we have been managing and continue to monitor.
Our preliminary estimates reflect the monthly impact of approximately three to four cents per share based on April Lockdowns <unk>.
Importantly, we believe a substantial portion of these risks well, we've mitigated through constructive regulatory mechanisms primarily U.K. decoupling.
Breaking down the overall potential risks starting with customer sales, we were seeing lower seeing eye volumes across the board given that each one of our jurisdictions have been operating under some form of mandatory lockdown.
However that is also driven strong increases in residential volumes that partially offset these declines.
I'll touch on loads specific sensitivities in each of our jurisdictions on the next slide but it's important to highlight that any impacts duty U.K. volume variances are fully recoverable in two years.
T.V. neutral.
Domestically, we have various fixed in the man charges and our tariffs that helped reduce the impact to changes in load and about 40% of our Pennsylvania margins come from transmission under a for formula rate.
Regarding bad debts or U.K. operations are very well insulated as we do not directly bill the unused customer in the U.K.
W.P.D. bills about 150 suppliers, but the largest seven suppliers comprising approximately two thirds of those receivables.
And as part of each U.K. supplier license agreement.
Counterparties are required to post collateral and the form of letters of credit escrow account deposits.
Cash deposits supporting the Dnos in the event of a supplier default.
Turning to the U.S.
Oh, you have experience some delayed payments, we haven't seen material drop off in cash receipts to date.
We believe that is in part due to the unemployment and small business provisions in the stimulus packages approved by Congress.
Also note that are commissions are encouraging customers to continue to pay their utility bills, including contact contacting us directly for payment options.
In the event, we see the trend of delinquent payments rising to a significant level, we will explore regulatory mechanisms whether commissions to recover late or missed payments related to covert 19.
In regard to our capital plans in the U.S., we do not expect major changes to our plans and expect to complete as much of our plan capital work as possible with minimal notable delays experienced to date.
In the U.K. the national shutdown ordered by Prime Minister Johnson has caused us to dial back capital spending to just be a central work focused on ensuring reliability and safety of our network.
Off Jim has provided guidance granting the networks flexibility in this area to prioritize our work accordingly.
Well, we could see some modifications on our plan for 2020, we do not expect us to have a significant impact on our overall cutbacks plan or wrap gross.
Flexibility to shift some of the projects to the backup of 2020 or in the future periods, depending on the duration of the lockdown.
As a reminder, under the favorable U.K. regulatory construct from Rick making purposes 80 per cent of are projected totex or total expenditures.
Goes towards increasing the rap and 20 per cent has recovered as current period revenue.
So shifting or differing capital investments at least the amount we were talking about.
Materially impact arrive or our annual revenues.
Oh cover our detailed liquidity update in a few moments.
I'll just reaffirmed bills comments on our strong position and competence to manage your prolong downturn.
Recent recent actions, we have taken plus the flexibility we have with our low risk capital plan cause us further levers the pool to effectively managed to companies cash flow and liquidity through these challenges.
Burning to slide nine.
We were providing an update and more detailed view of our load trends by customer class I'm related sensitivities to better reflect potential risks associated with any prolong shut down and our service territories.
The three to four cents per share of monthly exposure that I mentioned on the prior slide.
Two to three cents is driven by load.
I love that about two cents is recoverable in future periods due to decoupling in the U.K.
Based on our observations in April we estimate the potential impact on C. and I load is a decline of approximately 15% to 25% depending on the jurisdiction.
The decline and see a night load is partially offset by stronger residential demand.
Well, we observed one to three per cent increases in the U.K. and five <unk> five to eight per cent increases domestically.
Given this low profile, we're projecting about two thirds of the m. talked to come from the U.K.
In April this resulted in Kentucky margins being off about one cent per share relative to our original business plan.
In Pennsylvania margins were flat to plan and we do not have W.P.D.'s results, yet given the normal lagging receiving that data from suppliers.
If our projections are accurate it would result in about two cent impact for the UK for the month.
On the right side of the slide we provide an example of the U.K. decoupling mechanism.
This is an essential part of the regulation that provide stability tore cashflows supporting the low business risk profile from the credit rating agencies.
One of the key points is that in addition to recovering the lost revenue from any declines in volume. We also receive inflation on top of those revenues to make us whole.
So economically were very well protected in the UK from the potential impacts of covert whether or any volume related variances.
Fight any current your impact to earnings.
Turning to slide 10, I'd now like to take a moment and describe a number of steps who've taken to improve our liquidity position in the face of the covert 19 pandemic Andy uncertainty in the capital markets.
I still mentioned, we were very well situated with about $5 billion total available liquidity as we sit here today.
During March and April we secure term loan facilities at $400 million 12, and 24 month durations.
We also issued $1 billion of senior notes I.P.P.O. capital funding, providing incremental liquidity and prefunding. The okay maturity we have in November this year.
We believe this positions accompany very well from liquidity perspective for the remainder of 2020.
Well, we have $700 million of additional debt maturities at the operating companies in November we believe will have the ability to access to capital markets to refinance that debt.
That concludes my prepared remarks remarks, and I'll turn the Colts events for a brief operational update Vince.
[noise], Thanks gel and good morning, everyone.
First like the Echo bales commentary on how proud we are of our collective teams response to the challenges of code at 19.
There's no doubt that code 19 has had a significant impact on the way we're operating the business.
But as a company, we acted early and aggressively to foster social distancing and minimize the spread it around a virus.
As a result, I'm pleased to report that we have not had any significant operational issues related to cope at 19.
There's no denying how vital our services to our customers, particularly in times of the diversity and uncertainty.
We are committed to be a source of stability at this time it to continue to power their life, regardless of the challenges that are thrown our way.
Turning to slide 12.
I want to take a moment to highlight some of the actions that we've taken to maintain that stability and reliability of service.
We've taken extensive measures across P.P.L. to protect our employees in the public in order to deliver gas and electricity safely and reliably for our customers as they cope with the challenges of Celtic 19th.
Simply safety is our top priority.
We are following comprehensive emergency management and pandemic plans as well as the guidance of the C.D.C. and state and local health departments.
I work at home and social distancing measures that bill discussed earlier, our core to our strategy.
In addition, we've taken a number of other measures, including temperature testing, we're using masks and gloves and enhancing our industrial cleaning.
With our critical employees, which are primarily the control room operators.
We split the cruise into multiple teams where possible having them work in different locations in with the work from home numbers that we have were able to enforce social distancing much better at R.P.P.L. facilities.
From a customer perspective, we are very focused on maintaining safety and reliability. During these challenging times and that starts with not cutting service to customers and deferring the charging of late fees, which we in most utilities in the U.S. have agreed to do.
In the U.K. well W.P.D. does not build the end customer we continue to work with a wider energy industry to consider liquidity issues all focused on helping the consumer.
Despite these changes to how we operate it has been critically important to ensure our top tier reliability remains unchanged.
We had our first round so springs storms in all three of our jurisdictions and we were able to restore power in all cases without any issues in without mutual assistance.
He's restoration efforts highlight the importance of preserving a strong supply chain and we think crease star inventories for storm related supplies.
Despite the locked downs in our jurisdictions, we've been successful in getting are critical suppliers on the list of companies that are permitted to operate.
As a result, where well positioned with sufficient spares and supplies to operate effectively even in the code that environment.
We're also scenario planning in the event. This will continue for an extended period of time to ensure we have adequate supplies and to assess the employee working arrangements that we've put in place.
On P.P.L. premises and off.
As Joe indicated we've already dialed back R.U.K. capital spend two essential only work, but we are continuing to execute the original capital plans in the U.S. and expect to continue to do so.
Having said that based on the nature of our capital projects, we have the flexibility in the U.S. as well to defer capital spending into future periods if necessary.
In addition are planned Ratecase calendar is relatively light.
With no outstanding base rate cases in the U.S. in our current U.K. price control continues to March of 2023.
Turning to slide 13.
I covered the key points of our capital plan on the prior slide, but it's important to point out that a lot of our work in the U.K. is done on our customers premises. So it's critically important for the safety of our employees to take a more conservative approach to work and were extremely pleased that off Jim has been a great supporter of these efforts.
Point, we expect any delayed asset replacement work and or defer to asset reinforcement work could be completed in future periods.
Of course will continue to assess needs needs in the context of our overall capital plans and as we look at the deliverable as we committed to both our customers and to off Jen.
Looking forward, we do not expect the current environment to materially impact our overall capital plans and we continue to see future investment opportunity across the P.P.L. portfolio with about $14 billion of cat backs projected in the next five years focused on advancing a cleaner energy future.
That's disgusting or a year and call, we expect incremental cap x. opportunities of up to $500 million beyond me identify projects in our current plan.
And longer term, we continue to see significant opportunities with the electrification initiatives in the UK as well as the transition of our call generation fleet in Kentucky.
And finally moving to slide 14.
While we are certainly managing the current crisis at hand in ensuring that our customers and employees are protected during these difficult times I want a further emphasize that we remain focused on the long term strategy in a company.
Or P.P.L. in many utilities that includes a transition to cleaner energy and we continue to position or utilities to fight climate change in a manner that balances the needs of our customers and the environment.
P.P.L. remains committed to our updated C.O. two emission reduction targets announced earlier this year.
Increasing our reduction target to at least 80 per cent from 2010 levels by 2050.
Are also showing a glide path that has already resulted in a 56% reduction in C.O. two to the end of last year and at least a 70% reduction by 2040.
I want to remind investors that these targets are based on current economics and technologies as well as current legislation and regulation.
We believe these targets are credible and we are confident in our ability to achieve that.
Of course, if there are further advancements in technology or the cost of renewables continues to come down we could certainly see even greater C.O. two or adoption than what we are currently targeting.
With that I'll turn to call back to Bill for some closing remarks <unk>.
And then I'd like to take a moment now to reiterate that P.P.L. remains well position for the future.
Are strong financial profile, consisting of a significant liquidity position and low risk capital plan will enable us commanders through an extended economic downturn, our commitment to exceptional operational performance and customer satisfaction shine bright as we continue to deliver electricity.
Natural gas during this period of uncertainty.
We remain steadfast in our goals to advance cleaner energy future and delivering on commitments to share owners and closing I would note that this will be the last or any called right by me as P.P.L. Chief Executive Officer.
Announced in February I will be retiring at C.O. on June the first and will become non executive chairman of the board of directors.
This will become president to the O.P.P.L. at that time.
Has truly been an honor to read the tremendous theme of employees, we have here at P.P.L.
They are among the very best our industry has to offer air talented creative caring and hardworking and above all day or dedicated to making life better for our customers and our community.
As we look for the future I'm confident that the company will be in good hands led by then.
Guided by now standing management team.
Ordered by more than 12000 strong in the U.S. in U.K.
I used to deliver or shareowners movie for.
Lastly, we talked at length today about challenger coded 19.
<unk> response, and I think it's worth noting that P.P.L., it's delivered power safely and reliability for the communities weeks or for 100 years overcoming many difficult challenges in that time.
The World War, two the Great Depression, Hurricanes snowstorms and more generations of P.P.L. employees have answered the call with great determination and creativity I have no doubt we will continue to do that same once again in the face of this new and unprecedented challenge with that operate.
But it's open the corporate question. Please.
We will now begin the question and answer session to ask a question you may pressed star than one on your telephone keypad.
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At this time, we will paused momentarily to assemble our roster.
In our first question comes from Michael Lapidus of Goldman Sachs. Please go ahead.
Hi, guys. Thank you for taking my question in congrats both to both of them.
One easy question for you hiding what's happening with demand impact your thoughts on rate case timing in the U.S. and also the kind of the trade off.
Of quietly given a little bit lagging a little bit weaker demand versus the the counterbalancing issue with interest rates to slow the impact on authorized are always and just the the regulatory politics of asking for rate increases just given what's going on in the walls.
Sure a good question, Michael and thanks for the Con comments or early on there. This do you want to you want to handle that one but I. I think you you are set up the question well Michael in terms of some of those tradeoffs, but <unk> you could probably comment.
Oh sure in and Thanks, Michael I appreciate the <unk> so.
You know when we when we think about the U.S. right. So Kentucky.
Given the continued high level of investment that we're deploying not only in in 20, but also 21, we would expect that need to file or ratecase in Kentucky within the next year or so.
T. or point, given just the current backdrop with Kobe <unk> you know we are uncertain as to the timing of when we would file that next straight case are normal cadence that we've been on in Kentucky. Ah was basically every other here that would have suggested filing something at the end of this year with rates.
Coming into effect mid next year, but we are currently assessing that time and given given coded just the backdrop there Ah for Pennsylvania.
We don't have a rate case in the business plan through our guidance period through at least 2021 I.
I don't think Covidian in of itself would drive us to alter the timing of of any great case decisions in Pennsylvania.
Talked about in his remarks, when we looked at April's results, Pennsylvania was actually flat. So the residential load Ah offset the C.N.I. that the negative impacts on C.N.I. So.
I again, I think given the <unk> I wouldn't say Cove, it is going to drive us to alter our current plan there at P.A.
Got it and then in the U.K. can you talk tests about or are there any changes to the time lines.
Regarding you know kind of the river to process both for the T. Indeed, you know.
Information in the gas utilities.
In the process and then <unk> discuss.
Sure sure I'm I'm going to take really.
I'll start and then if you want to supplement Vince that'd be fine.
Really we don't expect Michael any impacts any material impact on the real e. two scheduling because point, our understanding and we've been in constant contact mostly because of coded 19 operational issues in constant contact with off Jan.
And they and our last you know conversation with them indicated that as it relates to the gas and transmission proceedings, they're continuing on and they still expect to issue a decision in the summer as it relates to the electric distribution as you know they're still.
A lot of work that's scheduled for 2021 2022.
This year's were.
At least as it relates to the electric distribution segment is still going forward, obviously virtually versus face to face, but we don't really expect this to have any material impact on the timing of course, if the code at 19 pandemic where to go out.
Time for M- much Mark standard time frame that could change, but right now looks like we're still on track Vince I don't know if you have anything else you want to add there.
Maybe just a couple of points so yeah to your to your point <unk> off Jim has indicated that they will.
Issued the draft determinations for gas distribution and transmission at the end of July. So they are working hard to keep that timing also in in that Q2 to three time frame of this year off Jim's schedule to get.
The 82 sector methodology consultation out with the final methodology decision in Q4 of this year.
That would feed our initial business plan submission in Q. <unk> next year, we are continuing to work towards that this this plan submission for the middle if next year.
I'm, assuming that off jam will be on schedule with all the the sector methodology consultation and then the final decision.
I could see though slipping a little bit, but I think they would probably just a contract. The time. The overall time, leading up to cute next year for the business plan submission. So again, we're we're preparing to make sure that we can make that submission.
In any any upside to cap accident rate base in the U.K., that's more a yellow to not something that would happen out there. The next couple of years, while you're still under real one.
Yeah, that's correct Michael.
<unk>. Thank you guys much appreciate it can be you say.
Thank you you as well.
Hi next question comes from Julianne do do Mullins Smith US Bank of America. Please go ahead.
I had a good morning, everyone Hope you all are doing well and and.
Bill events, Oh, congratulations it's been a pleasure and then I I look forward to continue to work with you here.
Well, thanks, thanks, killing.
So, perhaps if I can pick it up a little bit where where are you guys left it off on the on the last question here.
And this might admitted that you'd be back handed way to ask about the uplift coming in 22 23 out of the U.K.
What are you reflecting in your updated expectations for the whole year, rather than just April in terms of low degradation.
And again I also want to just double check about this you talk about two thirds of that impact in April being allocated to the U.K.
That full year number how much of is coming from the U.K. as well just to to think about like what that uplifted they'll eventually is for 22 23, if if that's my goal here.
Sure. So you know Fortunately, we we are going to recover all the volume impacts as we see it from 2020 Cobot 19.
Games will be recoverable plus inflation in 22 and 23 as you as you noted.
So even if we ultimately would have to alter the 2020 forecasts due to lower sales in U.K. economically we'd be nowhere saw for investors. So very fortunate have that mechanism and and it is two thirds of the impact. So so it is notable in in terms of is it.
Impact Joe do you want to comment specifically on our expectation regarding a four year impact what's that could be.
Based on the sensitivities we provided.
Sure. So so we're not we're not projecting the the full year impact at this time you know as we we have the estimate for April and as I mentioned in prepared remarks, we don't have all of the data yet just as the normal lagging in getting that information from suppliers, so it'll be a little bit longer here till we get the actual result.
<unk>.
We are starting to or or the U.K. government starting to talk about reopening.
Hmm businesses, and see and I customers in the U.K.. So we could see that that number that impact number change as we move through the year, regardless, we would expect the same level recoverability for for any <unk> or the same ability to recover any shortfall later in the year. So trying to assess the full your impact that this time is a little difficult.
Given the uncertainty as when as to when the U.K. will will begin reopening.
Got it or maybe let me ask this Joe if I can keep going.
How do you think about cost mitigation efforts right. So everything's fluid I understand that the the sales side of the things are flute, as well the extent to which that we continue to see some amount of degradation insert whatever that ultimately is here. How do you think about your cost mitigation efforts in tandem at least as you see today through the course of this year.
Yeah go ahead, Joe you can call on with that one as well.
Sure. So so we certainly have lovers that we we can pull Julian as we do and typically years to face the challenges that we may see from from whether or other headwinds and obviously, we had a weather.
Impact a negative impact for the first quarter, yet we still were.
Competent in our forecasts through the first quarter results I think if you think of it in terms of our ability to manage in a weather year I think that's kind of what we were you know about five cents I'm short of our business plan for the first quarter I think it you know at least we have that level of of opportunity as we moved through the balance of the year.
Ultimately, we'll have to assess the full impact and again given the recoverability nature of the U.K. with their to coupling mechanism. It's really just a timing difference as we see it so from a cash flow or or credit or debit m. perspective over the next two years, we really don't see an impact so we'll have to just.
Continued to assess the situation and the impact.
As we move to the balance of the year, and decide which lovers and and how we want to flex them, but of course I think you know we'll have the normal lovers that we did we typically have and then in addition to that just given the current situation will have things like travel training.
Open positions Ah across the company and things like that that will take a look out as well.
Excellent.
Everybody. The last response, and then come come up a little bit earlier, but.
Why not just <unk> I suppose this is part of the option I'm contract itself, but.
Some kind of accounting to fully like pretty coupling here, given what seems sort of like an obvious transfer of a value one period to another but ultimately that sounds basically tantamount to be toppling during the ability to actually reflect that and the the 82 processors that counting election or.
Just to clarify there.
Oh really.
Yeah go ahead, Joe sorry, Yep, that's really just driven by the regulatory nature of of the U.K. So it's a revenue model. So we don't have we don't.
The advantage of regulatory accounting in under U.S. gap. So it's not an election that we chose and it's not something that would necessarily change in E.D. too.
Okay fair enough I understand well. Thank you all very much and that's the blocks they say.
Thanks very much.
Actually.
Our next question comes from Stephen Bird off Morgan Stanley. Please go ahead.
Hey, good morning, Hope y'all are doing well.
Good morning.
Building regulations on your retirement events. Congrats on your new roles look forward to working with you and your new role thanks very much.
I just wanted to a lot of topics have been covered but just hit on the the U.K. pension.
In the appendix C. you lay out the the current funded status and I guess you have a a finally mid year with with off Jim would you mind, just talking a little bit more about the approach to pensions funding and I'm, just give them, where you stand or where you stood at March 31st sort of just at a high level, what you're you're thinking is around that that pension funding.
Sure Joe do you want to take that one.
Sure so our our thinking around pension funding hasn't really changed as with respect to the try any old review process and future funding requirements from customers in the U.K.. We were we had already embarked on that process, we'll work with the pension trustee first were largely.
Through that process with them and then we moved to the U.K. pension regulator and we're in that phase now, we're getting ready to kick off that phase of review with the regulator will wrap that up and get to off Jim and get approval from off Jim later, this year and get that in in the November Tara for 2021.
So again are thinking there has not really changed with respect to the amount of funding required in the future from customers as we've talked about previously.
We expect that to declined by about five cents per share when we get to that period.
Just from the funded status in the lower collection that's required over the next several years.
Got it okay. Good that sounds like really nothing nothing change their great and then flipping just thinking about Kentucky. This is a broader question, but you know just given you know solar economics continue to improve and I was just crew sort of what you're seeing in terms of.
Are we close to sort of tipping points were solar would become more attractive relative to to your coal plants and just whether or not we're we're at an inflection point or could be seen one or if you know broadly you're you're thinking is unchanged there as well in terms of just your your generation mixing the change over time.
Yeah, I think Oh I'll start and then then she can pick up and add any color anymore. Overall, the the solar costs. As you know the curves are coming down we are not quite at the inflection point at this point.
It is getting closer.
You see in in this state a couple things dynamically happening already one is on the commercial industrial right. We've gotten a lot more requests for solar options, Fortunately and we've been able to provide those to both small large customers as well.
And and they are receiving those very well the economics at least in their view have gotten close enough that they believe based on you know their own corporate environmental objectives, and the economics that it makes sense for them to to begin placing solar under facilities at this.
Relative to the hopefully.
As a men's we're still not inflection point. However, we do see that on the what I would say the medium term horizon might be in the next say you know a couple of years to five years. We're beginning to think about you know how do we approach that you know from it not only.
From an economic standpoint, but also from an operational and generation mixed standpoint going forward. So this did you want to add anything to to that.
Yeah, Bill I think.
I agree with with those comments in the short term, we're not we're not quite at the inflection point, but we do have.
Hundred megawatt R.F.P. in with the Commission currently right now requesting approval as part of that we provided.
Number of a future scenarios around a cost curves for both you know gas and and call as well as renewables.
And over the long term the bulk of those scenarios you know would suggest that that that that's all of our contract is beneficial from a cost perspective, but it does take a number of years to get there. So you know depending on the time horizon Stephen that you're looking at you know it would really.
Dictate whether you view red renewables, particularly solar as economic in the state and that's exactly what we're going through with the commission right now.
So that's helpful, particularly good I finally, as well thank you very much.
Sure you're welcome.
Our next question comes from Durgesh Shopper Evercore I.S.I. Please go ahead.
Hey, good morning came in and Bill Invents I also want to extend my congratulations do both good luck Bill and rinse look forward to work with you.
Right.
Just yeah sure absolutely Joe don't hate me, but I I want to go back to to the decoupling in the in the UK. That's why I understand this perfectly so so confirm or deny you are going to see.
2020, U.P.S. hit it sort of you know the the demand destruction from covert continues right. That's right right I mean, you'll see and a hit any P.S. and then you will recover it in 2021 and going about Glenda calendar year 20 versus calendar year 21.
Correct and it would actually be recovered in in two years fan. So it's really in that 2022 in 2023 time frame because there's a two year lie.
Got it perfect and then the the you know so that so you reaffirmed the guidance I'm assuming.
What what is sort of built into that is any E.P.S. <unk> from from covered in the U.K. will be offset by cost savings and other medication efforts.
At this point.
We you know it's it's early in the process. So it's really hard to.
To predict exactly you know what lovers, we're going to poll to stay within the current range that that we have so that the impact in U.K. is is the reason we did it.
Necessarily adjust the guidance so.
The timing of the reopening is expected to be slower in the U.K. than than what we're seeing here in the U.S.
We've got a better line of sight domestically to see how that opening looks like it's going to pan out where we don't have that in the U.K. So as a result of that we we didn't change our current current a range for for earnings. So so I guess it remains to be seen which level.
Exactly we want a poll, you know and particularly looking at the U.K. being two thirds of the impact that will be the key thing to watch for us and foreign investors as as the months go by here.
Under so thank you guys okay sure.
Our next question comes from Steve <unk>, Oh, well if research. Please go ahead.
You can <unk> good morning, and.
Congrats Bill and Vince that's supposed to both of you.
So my so.
Just yeah, you bet and the the.
Different the monthly difference to two to three cents for load.
<unk>. They you saw in April versus the or three to four cents overall from quoted what what is the other.
One.
One son or one to two cents just sorry no.
Sure. So Joe do you want to cover that.
Sure. It's it's for other items that that may be related to cope with Steve. So we have additional interest expense relative to the original plan from the from the could go capital funding issuance that we did earlier, we did in April to shore up liquidity. It's if there's an extended severe locked down such.
<unk>, we could see an increase in in in bad debt. So it's just to cover some other areas that may be outside of what you see just didn't load.
Okay.
And then just to clarify in the in terms of the guidance for 2020 your.
You're basically not you just don't know yeah, what the impact is an you need to follow it you're not.
Saying.
You're not saying based on your view of the impact. The range is good you. Just you just don't know so you're not saying either way that.
Yeah pretty much I I'd say, we certainly still believe that are 2020 forecast can be a cheap which is why we didn't change okay. Reaffirming I guess in my mind implies a high degree of certainty and forecasting outcomes, which I think is challenging at this time being early on particularly with the more.
Stringent restrictions that we're seeing in U.K. and that lack of the line of sight that I mentioned not not having that in the U.K. where.
Versus where we are domestically where.
We at least know what the governors are thinking in Kentucky in Pennsylvania, and we can kind of.
More by time, we get to Q2.
Fortunately as as we mentioned any hit in the UK, which is expected to be our our biggest hit if we have one.
At least relative to 2020 earnings will be recoverable plus inflation in 2022 in 2023 so.
So even if we ultimately have to alter our 2020 forecast due to lower sales in the in the UK economically we're not going to be anywhere soft.
Right and I guess I guess to summarize everything then did.
Given that aspect of your comments about the dividend stability.
No matter what reflects.
Any outcome of.
The pandemic.
Thats correct, yes, benign, but I don't I don't expect any change in our dividend strategy or policy as a result of cobot 19.
Okay, and then the just in thinking about kind of.
Credit and just I don't know if you saw the agencies at all but given that economically.
The UK.
Protects you so well if your metrics are a little weaker this year, but then you get.
A boost that you know is going to happen two years from now or are you.
Do they kind of understand that.
In terms of believes they feel like.
I believe they do and we've had some recent.
Conversations with the rating agencies and all those have gone well, Joe I don't know if you want to add anything.
Sure sure. So we've been in regular dialogue with the rating agencies as they've been assessing the impact of covered on the utility sector and of course, we were in touch with them out of our PPL caf funding debt offering in April.
They did not express any specific concerns.
As it relates to PPL and of course, we remain on stable outlook across a family of companies at both the agencies and then I think Steve you're exactly right from a credit metric perspective first of all we'd be able to expect we expect to be able to manage the near term pressures from on our credit metrics as a result to covert but given the.
The forward view of metrics and cash flows at the agencies have into their assessment of credit over a multiyear period.
And much of the expected impact.
Gonna come from the UK will be recovered over the period of time that they look at Wal assessing our ratings and credit metrics. So we feel comfortable with that aspect as well.
Great. Thank you very much appreciate it.
You're welcome Steve.
This concludes our question and answer session I would like to turn the conference back over to Bill spends for any closing remarks.
Thank you operator, and thanks to everyone for joining us today and and all the best as you individually and collectively deal with the Cobot 19.
Issue and your families.
Safety and health.
Thank you.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.