Q1 2021 PPL Corp Earnings Call
Good day.
Both of them because of the PPL Corp, first quarter earnings conference call.
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Net of Investor Relations. Please go ahead.
Thank you good.
Good morning, everyone and thank you for joining the P. P. L conference call on first quarter 2021 financial results.
We've provided slides for this presentation and our earnings release issued this morning on the investors section of our website.
Before we get started I'll draw your attention to slide two in our brief cautionary statement.
Our presentation and earnings release, which we'll discuss during today's call.
Contain forward looking statements about future operating results or other future events.
Actual results may differ materially from these forward looking statements.
Please refer to the appendix of this presentation and PPL SEC filings for a discussion of some of the factors that could cause actual results to differ from the forward looking statements.
We will also refer to non-GAAP measures, including earnings from ongoing operations and adjusted gross margins on this call.
For reconciliations to the comparable GAAP measures please refer to the appendix.
Participating on our call. This morning are Vince Sorgi, PPL, President and CEO.
Joe Bergstein, Chief Financial Officer, Greg.
Greg Dunkin', Chief operating officer, and Paul Thompson, the head of our Kentucky utility business.
With that I'll now turn the call over to Vince.
Thank you Andy and good morning, everyone. We appreciate you joining us for our first quarter earnings call.
Moving to the agenda for todays call on slide three I'll begin this morning with a brief overview of first quarter financial performance.
I'll share a few operational highlights as well as an update on the two strategic transactions, we announced in March.
Joe will provide a more detailed overview of first quarter financial results.
And as always we'll leave ample time for your questions.
Turning to slide four today.
Today, we announced the first quarter reported net loss of $2 39 per share. This reflects special item net losses of $2 67 per share primarily related to reporting W. P. D as discontinued operations this quarter.
Adjusting for special items first quarter earnings from ongoing operations were 28 cents per share compared with 27 per share a year ago. These results were in line with our expectations for the quarter.
Compared to last year improved margins were the most significant driver of the increase.
Primarily due to more favorable weather compared to the mild winter we experienced in 2020.
Shifting to a few operational highlights.
Now over a year into the pandemic I'm pleased to report that operationally all seven of our utilities continue to perform extremely well with no operational issues to report.
We continue to operate in a very similar manner to last year with many of our team members continuing to work from home.
We continue to stress the importance of social distancing and mask wearing within our facilities and out of our worksite.
With vaccinations in full swing, we are beginning to turn our attention to return to office planning and protocols.
However, we are not expecting to deviate from our current mode of operations for at least a few more months and perhaps until end of summer for some of our locations.
We've been able to operate extremely well during this virtual working environment as evidenced not only by our strong operational performance, but also our ability to execute two significant strategic transactions simultaneously and of fully virtual manner.
Our number one priority has been and will continue to be the safety of our employees and our customers. So we will be very diligent in our return to office planning.
Moving to an update on the Kentucky rate case proceedings, we reached unanimous settlement agreements subject to Kentucky Public Service Commission approval with all parties in our rate reviews for both <unk> and Ku.
The agreements cover all of matters in the review of except for net metering.
We have a long track record of working constructively with the parties to our rate reviews to achieve positive outcomes that balance of the interest of all our stakeholders and this time is no exception the.
The settlement agreements were filed with the K P. S. C. On April 19th and hearings were held last week.
We expect K P. S E orders on all settled matters by June 30th with new rates effective July one.
I'll review the terms of the settlement agreements and a bit more detail on the next slide.
Moving to Pennsylvania.
PPL Electric utilities recently received the 2021 energy Star partner of the year Award from the EPA and department of energy.
This award recognizes outstanding corporate energy management programs and its the epa's highest level of recognition.
It reflects <unk> commitment to protecting the environment and helping customers save energy and money.
In April we also made a number of leadership changes to help further position the company for long term success, especially as we plan for the integration of Narragansett electric into the PPL family of regulated utilities.
Greg debt, Ken was promoted to Chief operating officer of PPL from his prior role as president of PPL Electric utilities.
Greg's leadership over the past decade, PPL electric utilities has been focused squarely on creating the utility of the future.
The business has developed one of the nation's most advanced electricity networks has consistently delivered award winning customer satisfaction and has firmly established itself as an industry leader in reliability.
This advanced grid that we built that PPL electric utilities uniquely positions us to partner with the state of Rhode Island in support of their ambitious decarbonization goals of net zero by 2050, and potentially driving toward 100% renewable energy by 2030.
We continue to be very excited about the opportunity to bring our experience and expertise to an already very strong utility of Narragansett electric.
Greg will also focus on driving continuous improvement and best practices across all of our already strong regulated utility operations.
Stephanie Raymond of succeeding Greg as the President of PPL Electric utilities.
Stephanie has been a key member of PPL electric utilities leadership team for nearly a decade and has led both the transmission and distribution functions.
She has played a central role in spearheading our operational excellence in Pennsylvania as.
As well as our forward looking investments to strengthen grid resilience and prepare for increased distributed energy resources from <unk>.
Pennsylvania customers are in very good hands with Stephanie now at the helm of PPL electric utilities.
We also hired Wendy Stark as our new senior Vice President and General Counsel.
Wendy replaces Joanne Raphael, who announced her retirement from the company effective June 1st after an impressive and distinguished 35 year career with our company.
We certainly wish Joanne all of the best as she transitions to this new phase of her life.
Wendy joins PPL from Pepco holdings.
She served as senior Vice President legal and regulatory strategy and General counsel.
Wendy is an excellent addition to our team and she is already making her presence known as we prepared for the regulatory approval process for the Narragansett acquisition.
She brings to PPL significant experience in leading legal teams and extensive background in regulatory matters and a deep knowledge of our industry.
I am very excited about the strong leadership team that we've assembled here at PPL.
I believe it's the right team at the right time, as we strategically reposition PPL for long term growth and success.
Finally, I'll note that we continue to make good progress on the regulatory approval processes related to both the WP day sale and the Narragansett acquisition.
In the U K, we remain on track to close the W. P. D sale by the end of July.
On April 22nd National grid, Shareowners voted overwhelmingly to approve the transaction.
On May 4th we received the guarantee approval, leaving just the financial conduct authority approval outstanding of the UK.
While we have no assurance as to the timing of this final approval the WP day sale could close as early as this month.
In the U S. We've made all of the required regulatory filings to secure approval for the Narragansett Electric acquisition.
We have requested the Rhode Island Division of public utilities and carriers to decide on our petition by November one 2021.
While we cannot be assured the division will decide on our petition in that timeframe. We remain confident in our ability to close on the acquisition by March of next year.
The transition teams for both PPL and National grid had been formed.
And have actively begun planning to ensure a seamless transition for both employees and Rhode Island customers upon the approval and closing of the transaction.
The PPL transition team is being led by Greg Dutkiewicz with strong executive presence and experienced leaders on the team who will oversee the eventual integration of Narragansett electric into PPL.
I'll also note that we've had very constructive discussions with public officials in Rhode Island since our announcement.
These interactions have only strengthened my belief that PPL is well positioned to drive real value for Rhode Island customers and their communities and to play a key role in helping the state achieve its ambitious decarbonization goals.
Turning to slide five and a bit more detail on the settlement agreements in Kentucky.
We believe the agreements, which again require approval of the K P. S. C represent constructive outcomes for all stakeholders and that the minimize the near term rate impact on customers, while still providing LG inning of ku the opportunity to recover their cost of providing safe and reliable service.
The settlements proposed of combined revenue increase of $217 million for LGD Ku within allowed base Roe of 955%.
These revenue increases enable LG <unk> and Ku to continue modernizing the grid strengthening grid resilience and upgrading lgd's natural gas system to enhance safety and reliability.
They include LGD NK use proposed $53 million economic released our credit to help mitigate the impact of the rate adjustments until mid 2022.
The stipulation reflects the continuation of the currently approved depreciation rates from Bell Creek units, one and two and Brown unit three for ratemaking purposes.
Rather than using the depreciation rates proposed in our original applications.
We had initially requested the depreciation rates for these units to be updated with their expected retirement over.
Over the next decade as they reached the end of their economic useful lives.
This adjustment reduces the requested revenue increases by approximately $70 million.
And of related provision the settlement agreements also propose the establishment of a retired asset recovery rider to provide recovery of and on the remaining net book values of retire generation assets as well as associated inventory and decommissioning costs.
The rider would provide recovery over a 10 year period upon retirement as.
As well as a return on those investments at the utilities than weighted average cost of capital.
As we announced in January of Mill Creek unit, one is expected to retire in 2020 for.
The Mill Creek unit, two and EW Brown unit three are expected to be retired in 2028 as they reached the end of their economic useful lives.
These units represent a combined 1000 megawatts of coal fired generating capacity.
The settlement also proposed full deployment of advanced metering infrastructure all.
Note that the capital cost of the proposed day of my investment is not included in the revenue requirements in these rate cases.
We will record our investment in the Ami project and see it.
And the crew a of few D C. During the implementation period.
Finally, the settlement agreements include commitments that LGD and Ku will not increase base rates for at least four years subject to certain exceptions.
I will turn the call over to Joe for a detailed overview of our first quarter financial results Jeff.
Thank you Vince and good morning, everyone.
I'll cover our first quarter segment results on slide six.
With the U K now reflected as discontinued operations, we removed the UK regulated segment from our quarterly earnings walk.
In connection with this change we've also updated our ongoing segment presentation for certain items.
First we have adjusted the 2020 corporate another amount to reflect certain costs previously reflected in the U K regulated segment, which was primarily interest expense.
The total amount of these costs was about <unk> <unk> per share for the quarter.
In addition, beginning with our 2021 results corporate level of financing costs will no longer be allocated for segment reporting purposes.
Those costs were primarily related to the acquisition financing of the Kentucky regulated segment and will also be reflected in corporate and other moving forward.
Now turning to the domestic segment drivers.
Our Pennsylvania regulated segment results were flat compared to a year ago.
During the first quarter, we experienced higher distribution adjusted gross margins, resulting primarily from higher sales volumes due to favorable weather compared to the prior year a year in which we experienced a mild winter.
Whether in Pennsylvania was essentially flat to our forecast for Q1 2021 with.
With quarterly heating degree day slightly below normal conditions.
Adjusted gross margins related to transmission were slightly lower for the first quarter.
Returns on additional capital investments were offset by lower peak transmission demand and of reserve recorded as a result of the challenge to the transmission formula rate return on equity.
Settlement negotiations related to the challenge of currently proceeding, but there can be no assurance that they will result in the final settlement.
Finally, we experienced lower O&M expense of about a penny per share in Pennsylvania during the first quarter compared to 2020.
Turning to our Kentucky regulated segment results were <unk> <unk> per share higher than our comparable results in Q1 2020.
The increase was primarily driven by higher sales volumes, primarily due to favorable weather and similar to Pennsylvania weather was flat compared to our forecast.
Partially offsetting the increase from higher sales was higher operation and maintenance expense, primarily at our generation plants.
The results of corporate and other were one set lower compared to a year ago driven.
Driven primarily by higher interest expense from the additional debt we issued at the start of the pandemic to ensure we had adequate liquidity to navigate the uncertainty.
We expect our interest expense to be reduced significantly after we complete the liability management following the closing of the W. P D sale.
That concludes my prepared remarks, I will turn the call back over to Vince.
Thank you Joe in summary, we continue to deliver electricity and natural gas safely and reliably for our customers during the pandemic.
We're on pace to close our strategic transactions within the expected timeframes, while making good progress on the integration and transition planning for Narragansett Electric and we remain very excited about the opportunity we have in front of us to reposition PPL for future growth and success with that operator, let's open the call for Q&A.
Thank you we will now.
Ill begin the question the answer session.
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Today's first question comes from Julien Dumoulin Smith with Bank of America. Please go ahead.
Good morning.
The index with diamond of opportunity.
Congrats on continued progress on the transaction.
Thanks.
Okay.
The first.
First of all you can can you talk a little bit more as to how you think about the.
The the trajectory of Rhode Island here I mean, obviously, you've got the clean energy mandates net state.
I know, we're still early I know you filed the.
As it related documents here recently, but can you speak at least a little bit more as to how you're initially thinking about the clean energy mandate I know last time, we spoke about this initially any updated thoughts.
How that reconciled against the shall we say historical rate base growth.
Yes, you cut out a little bit throughout that I think your question was how are how are we thinking about Rhode Island trajectory given the the clean energy mandates there so yes.
The state.
Has enacted a net zero by 2050 goal day.
True executive order with the prior governor.
Have had aspirations for 100% renewable generation by 2030, the SBA executive order or not legislation. However.
We feel very very positive and very comfortable about the.
Opportunity in front of us to partner with the state to really hedge.
All of them reposition that that growth to be ready for those ambitious goals and.
Yes, we in our conversations we had many conversations with public officials up there.
Round.
What our value proposition is to the state and why we think we're uniquely positioned on these assets at this point in time and to your point Julian I think what we've been able to create in Pennsylvania with.
We use the term create the future utility of the future.
The automation and really having that created set up for.
The distributed energy resources and being able to.
Not only the connect significantly more renewable energy and behind the meter of renewable energy, but the also.
The up to have the insight of the ability to control of those resources to ensure we can maintain power quality.
Many of the grade and so.
As we've been talking with the.
The constituents in Rhode Island, and stressing that.
That we've already built a lot of what they are kind of need to achieve those objectives and.
Obviously doing it the second time is easier and faster than doing it the first time and so.
We think there is an incredible opportunity not only to support their 2050 ambitions, but.
John.
There are 2030 ambitions I think are potentially achievable as well given what we've been able to do in Pennsylvania, and our confidence in our ability to replicate that in the island so to you.
To your earlier points you mentioned in one of your question, we need to obviously, we talked about that in our market.
Titian.
And we've been very open.
And our discussions with the.
With the commission in the division as well.
Just some of the public officials.
To your point, we need to close on the transaction and then really work on the capital investment plans with both the division and the commission up there.
Demonstrate what we've done we will be doing that through the petition process sure true.
The inner ear and testimony so well.
Of our two engaging with the constituents in Rhode Island to demonstrate our ability there.
But to your point, we absolutely see that as an opportunity for us.
As importantly for from the state of Rhode Island.
Indeed, if I can follow up.
A question on on the.
Acquisitions here in brief.
We've seen a number of transactions across the space, probably higher at a higher valuation than perhaps one would have expected a few months ago.
Does that put pause at all with respect to your strategy, especially as you think about competing against the infrastructure funds et cetera here just any open commentary you might provide.
The differentiate your strategy might be helpful. I think.
Yeah, I don't think we have much.
In terms of further details to talk about versus what we talked about in March when we announced the transactions we do.
Continue to explore various options for the best use of the remaining proceeds.
We will certainly update the market at the appropriate time, when we make a decision on that.
In terms of.
M&A, that's one of the options that we will look at we continuously look at M&A opportunities as you know.
Our track record has demonstrated a disciplined approach there including.
The two transactions that we did with national grid at both on the valuation we got for WPZ, but the valuation that we paid for Narragansett.
It does demonstrate.
The discipline and so.
We will continue that disciplined approach as we look at potential strategic acquisitions with the remainder of use of proceeds but the others all sell opportunities.
We're looking at for potentially further investments in the utility and we talked about the opportunity in Rhode Island.
We will also continue to look at those opportunities in Pennsylvania and Kentucky.
Additional investments in renewables, we talked about that in March as well.
I think when you look at the buying plans.
Whether it's the infrastructure plan of the clean energy plant that will certainly.
Continue to be the tailwind for renewable investment and we think we're poised very well to take advantage of that with our with our distributed energy resource group.
And then potentially share buybacks could be again, the use of those proceeds but well.
That kind of creates the base case that we'll look at these other opportunities and also stressed Julian that will continue the disciplined in that analysis.
Work with the board on those various options.
Of course, we will update the market when we make a decision there.
I think the key for us is maintaining that level of discipline.
Which I think we've demonstrated a track record.
Excellent. Thank you best of luck here.
Thank you.
And our next question today comes from Paul Patterson with Glen Rock Associates. Please go ahead.
Hey, good morning good.
Good morning.
Just the sort of follow up of Julians.
Question with respect to the network.
Is it.
Is it the case that you guys feel that.
I guess rate base growth.
You know it will pretty much be on the same trajectory that the there has been historically there or do you think of it.
Might increase.
Well again Paul.
So we start day.
Our sales in terms of putting the investment.
Sure.
After we made the acquisition.
The.
The type of opportunity.
Okay.
Okay.
It's been previously.
Especially it.
And the state.
The more aggressive targets.
Hi, Brian.
And that's the challenge for us.
Andy Thanks Alan.
<unk>.
The division.
Commissions.
Yeah.
Yes.
Thanks, Paul.
That will likely.
They come from.
Alright.
Yes.
Necessarily driving up.
Customer growth.
Yes.
That's the opportunity.
And that we see today.
The details of it.
That's all the patient.
The statements.
Most of the deal.
Okay.
Okay.
Just moving up.
The just all the transmission.
The comments.
Okay.
Could you elaborate a little bit from London.
Pretty much of the man.
And how much.
How much of that was versus the.
The reserve the.
She worked.
The true bookings with the filter.
The proposed rules for the time.
Hold on the road.
And then just the.
Associated with the challenging negotiations associated with it.
Yes.
I mean, the sort of.
The impact associated with them.
Uh huh.
Good day.
For.
No.
<unk>.
The Rd of water.
I'm just wondering if that's how the knees.
The impact.
Oh no.
The news.
The negotiations with Paul.
Yes, I'll answer the last part of the last job of adjusting.
For the details.
The P&L.
So between.
Of the transmission, but on the on.
On the negotiations Paul I don't think Theres anything of size starting in November.
And the.
Or sort of the counterparties.
Negotiating in good faith, all the way true.
It's been fairly constructive.
<unk>.
And again as Joe said.
Sure.
Congratulations Paul.
Yes.
Yeah.
The bulk of Rfps are.
Thank you very comfortable of that.
Okay.
And I don't necessarily the.
Okay.
The impact.
Of this negotiation.
Hey, guys how are the right.
One of the changes.
Sure. So the lower transmission demand was about <unk> <unk> per share quarter Andy.
Then the reserve.
The recorded there was.
In total of about $19 million pre tax.
The five of that was related to this year and 14 of that was related to 2020.
So about a penny.
If I might note as of about a penny for the quarter.
Okay, great. Thanks, John.
Sure.
Thanks, Paul.
As a reminder of a few bucks to the ask a question. Please gross.
Today's next question comes.
As for research.
The research. Please go ahead.
Hey, good morning Vincent.
Good morning, Steve.
Hey.
Just one.
Given that you still have a lot of.
Potential money to be put to work.
Non strategic question.
How.
Willing are you to.
The more coal to your mix as part of any.
Our strategic option.
As you look out there.
Yes.
To add more coal.
So the portfolio really.
It depends on the specific asset.
Whether or not.
I think the transition plan.
Paul.
We are very mindful of our ESG profile so.
Of that would certainly be something that we can take into consideration Paul.
The management and the board is evaluating.
Any particular M&A transactions.
The profile.
But I would say, that's probably very asset specific whether or not we would.
The willing today.
Okay.
That was it from me thank you.
Ladies and gentlemen, this concludes our question and that's the session I'd like to turn the conference back over to the management sales when you spend all of them.
Works.
Great. Thanks, again for joining John joining us on our first quarter call and.
Everybody have a great day, thanks, so much.
This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.