Q1 2022 PPL Corp Earnings Call
We remain focused on repositioning PPL for long term growth and success.
Moving to Rhode Island.
We received approval in late February from the Rhode Island Division of public utilities and carriers to acquire Narragansett electric from National grid.
And it's detailed decision the division found that PPL met the statutory standard for approval.
The Rhode Island Attorney General's Office appeal, the division's order to the states Superior Court and obtained a stay of the approval until the appeal could be hurt.
On April 26, the superior court heard oral arguments on the attorney General's appeal.
The attorney General contends that the division misapplied, the statutory standard for approval and in particular, the state's public interest requirement.
The attorney General also contents at the division fail to adequately consider Rhode Island's act on climate and its analysis and decision.
We disagree and believe the extensive record in evidence in this case demonstrates that the division properly apply the statutory standard incorrectly approve the transaction.
At the April 26th hearing.
The Attorney General's office asked judge Stern to remand the matter back to the division with instructions to address the issues raised by the attorney General.
The Attorney General's office did not ask the judge to reverse or vacate the decision.
We anticipate judge Stern will issue a decision on the appeal relatively soon because he publicly stated that a quick and timely resolution of this matter is in the best interest of all parties.
In the meantime, we are actively engaged in settlement discussions with the attorney General's office and remain prepared to close promptly with national grid.
As we've shared all along we are eager and excited about the opportunity to work with the talented team at Narragansett electric to drive significant value for Rhode Island customers and support the state's decarbonization efforts.
We continue to believe Narragansett electric is an excellent fit for PPL.
And that PPL is an excellent fit for the state of Rhode Island.
We remain confident that we will reach a positive outcome in the proceedings.
Given the pending litigation, we are not in a position to provide additional details at this time and I have said all I can say about this matter on today's call I.
I appreciate you respecting the process when we get to the Q&A session.
Turning to slide five and a few operational highlights.
Our Kentucky utilities continue to seek opportunities to advance clean energy options and support Kentucky's growing economic development.
In late February <unk>, and Ku joined the state's new hydrogen hub initiative.
Which focuses on making hydrogen or low carbon solution for the future.
The initiative is part of a new energy strategy announced last fall by Kentucky, Governor Andrew per share and the Kentucky energy and environment Cabinet.
<unk> commitment to promote hydrogen supports a key pillar of Ppl's clean energy strategy, which is to drive digital innovation and R&D to enable new technologies.
The commitment is also consistent with our sponsorship of <unk> low carbon resources initiative and.
And LG <unk> partnership with the University of Kentucky Center for applied Energy research.
<unk> low carbon resources initiatives seeks to advance clean energy technology, and low carbon energy carriers such as hydrogen.
Meanwhile, <unk> carbon capture partnership with the University of Kentucky includes a novel project focused on capturing Cotwo from natural gas combined cycle plants and directly from the air as well as producing hydrogen and oxygen is value added streams.
We're excited to join this new hydrogen hub initiative, and we will continue to engage with the Kentucky administration and other stakeholders as the state's clean energy strategy evolves.
We're also very excited to support continued economic development in Kentucky, which is coming off a banner year for attracting new business and manufacturing in the state.
As we highlighted on our third quarter call.
Kentucky success in 2021 included for its announcement that it will build a $6 billion battery manufacturing complex within our LG <unk> and Ku service territories.
The complex to be built in Glendale, Kentucky will help put the stay at the forefront of the auto industry's transformation to electric vehicles.
And the state has called it the single largest economic development project in its history.
In support of this effort in Glendale.
<unk> utilities recently requested regulatory approval to build two to 345 kv.
And to 138 kv power lines and two new Substations.
<unk> plans to construct an interconnection gas regulation facility and nearly half mile of gas lines to serve the Glendale project.
The estimated capital cost to support the Glendale economic development project is $150 million to $200 million.
The Kentucky Public Service Commission has set a procedural schedule that will support our ability to meet for its construction timeline.
In addition to these initiatives. We also remain focused on advancing technology and innovation.
Each of our utilities were recently recognized for these efforts by outbreak winning technology transfer awards.
In Pennsylvania PPL.
PPL Electric utilities received this award for application of an adaptive tool, which through automation further increases the overall safety reliability and efficiency of the electric grid.
This tool expands on one of the most advanced grids in the nation as we continued to develop a safer smarter self healing grid of the future.
In Kentucky.
LG <unk> and Ku were recognized for the use of <unk> electrification portfolio assessment tool.
To identify high impact electrification technologies to reduce natural gas Houston related emissions.
This technology research projects identified more than 1 million megawatt hours of electrification opportunities for LG, <unk>, industrial and commercial customers to reduce emissions and lower costs.
These awards are just another example of our continued efforts to lead in the research and development space, while progressing towards our sustainability goals.
Across our businesses. We are also very focused on improving the customer experience.
Expanding self service options and our progress in this area continues to be well received by our customers.
In February PPL electric utilities ranked first in J D. Power's annual utility digital experience study.
The study assesses how customers interact online and through mobile apps with the 36 largest electric natural gas and water utilities in the U S.
PPL electric score in the study improved significantly in 2022.
While the majority of the companies surveyed experienced declining scores.
Improving customers' digital experience is yet another way, we continue to use technology to drive value for our customers.
Shifting to our final update on slide five.
We continue to make progress across PPL, and advancing key environmental social and governance initiatives.
On April 14th we published our annual sustainability report.
Which addresses our approach to a wide range of ESG issues and highlights our 2021 performance and progress.
As highlighted in the report we have expanded on our commitment to achieve net zero carbon emissions by committing to not burn unabated coal by 2050.
This new commitment reflects our continued discussion and expectations around the future of our coal fleet and its transition.
Based on our current retirement schedule, we expect our coal capacity to be reduced from just over 4700 megawatts today to approximately 550 megawatts in 2015.
The 550 megawatts are associated with our highly efficient Trimble County, two coal fired facility, which was completed in 2011.
There are any number of technology developments regulatory mandates or circumstances that could impact the timing of the end of this plant's economic life.
We believe that research and development is the key to our clean energy future.
Fully expect that innovation technological advances in the relative economics of other cleaner energy sources we.
We will support the company's commitment to not burn unabated coal at this facility by 2050.
In other highlights from our sustainability report, we created and filled a new chief diversity officer position to lead our DDI strategy enterprise wide and build on the progress we made in 2021.
Finally, I would note that we have added political contributions to the oversight function of our boards governance nominating and sustainability Committee.
Ppl's transparent disclosures in this area have earned us a trendsetter ranking by the CPA Zechman index.
Which benchmarks, the political disclosures and accountability policies and practices of leading U S public companies.
Oversight by the governance nominating and sustainability Committee will further strengthen our governance in this area.
That concludes my strategic and operational overview I'll now turn the call over to Joe for the financial update John .
Thank you Vince and good morning, everyone.
I'll cover our first quarter segment results on slide six.
As Vince noted, we reported 2022 first quarter GAAP earnings of 37 per share.
Special items in the first quarter were <unk> <unk> per share primarily due to integration expenses associated with the planned acquisition of Narragansett electric.
Adjusting for these items first quarter earnings from ongoing operations were <unk> 41 per share.
Turning to the ongoing segment drivers are.
Our Pennsylvania regulated segment earned <unk> 19 per share a three.
<unk> year over year increase.
The improved earnings results in Pennsylvania were primarily driven by higher peak transmission demand.
Turns on additional capital investments in transmission at.
And higher sales volumes.
The increases were partially offset by higher operation and maintenance expense, including higher than expected storm costs.
Turning to our Kentucky segment.
We earned <unk> 25 per share in the first quarter.
700, <unk> increase over comparable results one year ago.
The increase was primarily due to higher base retail rates effective July one 2021.
Partially offsetting this increase was higher depreciation due.
Due to additions to PP&E.
Results of corporate and other were three times higher compared to the prior year.
Factors driving earnings results in corporate and other primarily included lower interest expense, primarily resulting from the recapitalization of the balance sheet. Following the sale of WPZ.
Finally included in the segment results as reflected on this slide is a <unk> increase in our first quarter 2020 to EPS due to share accretion, resulting from the $1 billion of buybacks completed in 2021.
That concludes my prepared remarks, and I'll turn the call back over to Vince for some closing comments.
Thank you Joe.
As I noted earlier in my remarks, we continue to work diligently through the state Appeals process in Rhode Island.
While the appeal has delayed the closing of the acquisition. We are confident we will complete this transaction.
And we look forward to introducing a new PPL.
PPL that is built for the future.
Innovative best in class utility, operator positioned to deliver competitive earnings and dividend growth.
Backed by one of the strongest balance sheets in our sector.
And poised to lead the clean energy transition, while keeping energy service affordable and reliable for our customers.
And we continue to look forward to sharing a strategic update including our long term growth projections at an investor day, following the Rhode Island closing.
With that operator, let's open the call for Q&A.
Ladies and gentlemen at this time well begin the question and answer session.
Ask a question you May press Star then one using a touch tone telephone.
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Again that is star then one to ask a question, we'll pause momentarily to assemble the roster.
And our first question today comes from Shar <unk> from Guggenheim Partners. Please go ahead with your question.
Hey, guys good morning.
Good morning.
So Vince starting I guess with Rhode Island.
The superior court rules in favor in your favor I guess, the AG could appeal to the state Supreme Court.
Any general thoughts on timing if that were to occur or is it an immediate filing and then would you wait for the court to deny or stay.
I assume you would not close while this process is still underway right.
Yes sure.
Let me just reiterate that.
We are in active litigation in Rhode Island, and as I said.
We're engaged in settlement discussions with below an ISP so.
I really can't say any more than what I've already said in my prepared remarks, I'll just reiterate that.
We're confident that we'll close the transaction in a timely fashion and again look forward to rolling out the <unk> Investor day. Shortly following the close look I. Appreciate that you may have some questions about the matter.
With respect where we are.
No that's fair I appreciate that.
And then just maybe a question for Joe.
On housekeeping can you just remind us what the approximate unallocated cash balances at this point following the buybacks, which you just highlighted in the <unk> Capex increase that you had I guess, how are you thinking about the toggle between buybacks and more capex as we approach the finish line here and bought out.
Yes.
Sure.
All of the details.
At the Investor day.
Clearly we have cash available.
Physician Nico.
With that process.
John will discuss at Investor day.
Okay got it and then just just one last one for me and I'll jump back in the queue is just as we're thinking about the analyst day.
The topic of Kentucky does pop up here and there and obviously, there's a trajectory that's out there.
With the prior RFP Thats filed but is there an opportunity to maybe take a slightly more aggressive approach.
Youre thinking about the coal outlook within that state versus what you just recently filed.
Well I'll, just say that at the Investor day, and we'll provide a comprehensive update.
The update on the company's outlook our strategy.
And again, where we're calling it the new PPL for a reason shar. So.
It's been awhile since we had some <unk>.
Some details of financial projections out there but.
We're really looking forward to laying all of this out for the market.
The investment opportunities in each of the jurisdictions.
Where we see the near term and long term growth going.
And really how that translates into our earnings and dividend growth projections.
Perfect will come from all of that at the Investor day for sure.
No. That's helpful. I mean, I think there is some trepidation around what the base earnings could be.
So off of that so it would be very welcome. So thank you. So much guys I appreciate it.
Yes, I'll, just say look we're focused on growing.
Our earnings growth.
Yes, very competitive.
And we'll lay all that out the Investor day.
Yeah.
Yes.
Fantastic guys I'll see you soon thanks again Vince right.
Thanks.
Yes.
Our next question comes from Nicholas Campanella from Credit Suisse. Please go ahead with your question.
Hey, everyone. Good morning, Thanks for taking the time.
Okay I just wanted to follow up on Kentucky, actually again, and just thinking through the portfolio and the amount of unappreciated book value, that's kind of still in rate base today.
Can you I don't know if you would be able to kind of quantify that now or not but that that would be helpful. And then just thinking through the options for long term retirements or even any potential acceleration.
Could you just discuss the framework that's in place there because I believe it's changed since you've come out since you came out of the the most recent.
Rate case there thanks.
Yes, so on the on the retirements, we enter 2020 for retirement and that additional retirements.
2028, and then the next.
Round are in kind of the mid 2000 thirty's.
As outlined in the AARP.
We are actively engaged with the commission and other parties.
Responding to questions.
Around the IOP.
But as we think about.
Really the 2028 retirements.
Going from kind of a theoretical that's it that was.
In the IRB again, Thats a point in time analysis.
You can actually put them together the generation replacement plan.
We're actively working on that now that will become part of the.
The interaction that we have with various stakeholders around the IRB ultimately that will culminate in a CPC yen.
Probably within the next year.
We think that generation replacement will look like but to your point. There is there is opportunity to look at those retirement dates.
Sure.
And potentially hold those in but those will all be part of the CCN request and.
We'll be working on here.
Joe anything you want to add on.
The rest of his question.
Okay. Thank you.
Your question was.
Correct.
Rate base.
Yes.
That's about $5 billion today.
Okay 5 billion. Thank you I appreciate that and then just.
Core business today, what are you seeing in terms of just inflation impacts how are you feeling on labor pressures financing costs.
Just how should we kind of be thinking about how that affects the base business today.
Yes, well, it's certainly an area that we're keeping an eye on in both PAA and Kentucky, we've seen some increase in prices due to inflation. However.
We expect to be able to manage that.
Really where youre seeing the.
Largest impact of inflation on our cost of energy so the.
The energy purchases the fuel purchases.
And even though that data.
Great.
Certainly impact the P&L and because those are pass through costs.
They certainly impact affordability for our customers and that continues to be a key area that we're focused on.
And ensuring that our our energy remains affordable for our customers. So one of the key aspects of our of our business plan and we will get into a lot more detail on this.
At the Investor day is to drive efficiency across the entire business. Some of the parts of that strategy are centralizing our shared services functions. We're further leveraging our supply chain function.
And as we've talked about continuing to use technology work optimization to reduce our overall costs.
On the affordability side.
In addition suggest.
Maintaining and driving efficiency across the enterprise on the cost side.
We are very focused on ensuring that our customers are aware of all the programs.
Our available to them as.
They think about paying their utility bills.
And we will likely need to provide and flexible payment plans to our customers just like we did during the pandemic so far.
All of these activities, Nick we think are going to serve us well in this inflationary environment as again, we continue to look to maintain affordability for our customers.
Thanks, a lot looking forward to the analyst day chat soon.
Thank you.
And our next question comes from Steve Fleishman from Wolfe Research. Please go ahead with your question.
Yes. Thanks, one brief one just.
When you talk to a competitive earnings and dividend growth rate I would.
I would say the average in the sector right now is.
The 7% generally is that.
Kind of a fair reflection of what you see as the average in the sector.
Sorry, Steve you cut out when you stated your range or number I say it.
Again.
5% to 7% generally viewed as the average I would say right now is that.
Kind of the bogie that you would be looking.
Yes, well thats.
Consistent with what we see as well yes.
Okay. That's it thank you.
Sure.
And our next question comes from Anthony <unk> from Mizuho. Please go ahead with your question.
Hey, great. Good morning, Thanks for taking my question.
Vin tough outcome on Tuesday, so hopefully get better luck Tonight.
Just I guess quickly on <unk>.
Slide four and I don't know if you could answer this and if you can.
Just tell me, but one of the bullets you highlighted that.
The attorney General is requesting just I guess for men with instruction versus vacating the approval decision.
I guess what is the distinction that you are.
Trying to make on that bullet.
Yeah, so anthony that chest.
That just means that the.
The Attorney General's office is not looking for.
The judge to strike down in totality the decision that <unk>.
The division may to approve the transaction and then we basically start from scratch.
What was requested was set the reman.
The decision back to the division with instruction to address the issues that.
Rhode Island Attorney General's office so.
It's just it's just.
Yes, making reference to what was being requested by the Attorney General's office is not a complete redo.
So they're so am I fair to say from that bullet that there's actually no challenge to actually Theres No challenge to the <unk> approval.
The PUC approved the transaction and right now there is no pending legal matter.
A matter that's challenging that approval the DP UC gave.
No no as I said in my prepared remarks really the two issues that the attorney General's office.
It is challenging within the decision.
Whether or not the act on climate was adequately.
Reviewed and analyzed in providing the approval and then whether the public interest requirements was net so.
Those were the two primary challenges that the attorney general and around the decision.
Great and then lastly, if I could just pivot I guess, maybe Pennsylvania.
It's all kind of customer bill impact.
We'll load growth be impacted if I think in Pennsylvania, I think customers have you had an increase in December due to higher commodity prices and then I believe new rates go into effect in June So you get a kind of a pancake of maybe.
Sizable increase I guess, one is what level of increase that you're forecasting customers may face in Pennsylvania in June versus maybe a year ago, and then do you think that could impact either customer load growth looks very attractive when I look on the slides, where maybe if it postpones any capex and I'll leave it at that.
Yes.
Greg do you want to you want to talk to I mean at a high level.
The increases.
Our significant as Youre, describing as we know commodity prices are way up this year versus last year and again, that's a pass through cost for us but it's.
Whereas this year versus last.
Around could be as much as 50%, 60%. So it is very significant we are actively reaching out to our customers to help them.
Whether it's shopping or as I talked earlier about flexible payment plans et cetera, so making sure that they have.
The full suite of options at their disposal.
When you look at the total increase it's really the generation side, Anthony I think Tvs actually going down.
So it's really it's really a generation issue.
But it's certainly an area that we're focused on helping our customers deal with but Greg any any further details or insight you have on yes.
Sure.
Vince's point.
Compared to June of last year.
Role Bill for residential go up about 30% and again, it's driven by basically a doubling of the generation costs.
So the impact on sales going forward.
And we will have to see.
<unk>.
That's a big impact.
We are really pushing for it because we're competitive state.
There may be generation providers that have a lower rate than that so in our communication to customers, we're really pushing for them to go shop and if there is a.
Lower.
Generation charge.
Our deal out there they should they should sign up for it.
Great. Thanks, so much for taking my questions and looking forward to the analyst day.
Great. Thanks Anthony.
And our next question comes from Paul Zimbardo from Bank of America. Please go ahead with your question.
Hi, good morning, Thank you.
I just wanted to clarify quick with the affordability question Theres no planned and moderating the capital plan, Pennsylvania, Kentucky that you've put out before.
Well, we'll lay out our new capital plan on the Investor Day.
But.
Specifically related to the old plans that are not they are not being impacted by that.
Okay, Great and then just wanted to check on that and then just.
Since all of the inflation question, what is the long term O&M targets for Pennsylvania and Kentucky.
As youre seeing more product teams.
<unk> that the rate case plan in Pennsylvania.
Well overall again, we'll get into the details on the Investor day, but as I as I mentioned part of our strategy.
Is too.
Become more efficient across the entire enterprise.
Especially after the close Rhode Island, and we're able to.
Really leverage the it systems that we have.
Here in Pennsylvania around the T&D operations as we've talked we need to just bring Rhode island onto those systems, they're not they're not coming with systems because they are integrated with national grid. So we will be able to take advantage of spreading the fixed cost of those those systems over more customers and more employees.
In addition to that like I said, we're centralizing our services organization or functions.
And looking to even further optimize our supply chain.
Efforts across the entire portfolio and again, bringing handy.
The opportunity with with Rhode Island will enable us to do that even further so we see a fairly significant opportunity there to reduce O&M.
Over the planning Horizon, and then again, we'll lay all that out.
Investor day, but it's significant.
And you had to just.
You had mentioned PPL electric utilities. So there is no plans.
The future for a rate case there.
Okay.
Thank you all appreciate it.
And our next question comes from Michael Lapides from Goldman Sachs. Please go ahead with your question.
Hey, guys easy question for you just curious if.
I thought you had a stay out in Kentucky for a number of years. So a few ramp up capital spend there do you have to wait until that next.
Case to get cash recovery of it or are there mechanisms you can utilize that would enable interim rate increases before that next case and can you remind me when do you file that next case there.
Yes, so last year's.
The rate case, we had a four year stay out provision.
We do have the environmental recovery mechanism in Kentucky. So if there are any.
Environmental related.
Our capital spend that does get.
Recovered Michael on a more real time basis.
More broadly we have.
Yes.
With this mechanism in Pennsylvania, so even.
Greg just mentioned we don't have.
A base rate case, we did have the disc mechanism there and then in Rhode Island they have the.
Their capital recovery mechanism as well that does not require a base rate case itself.
The plan that will lay out in Investor day, we will not rely on any near term rate cases across the entire portfolio.
Gotcha, Thank difference, which we think will differentiate our plan against some of the market.
Got it and can you remind me do you have like.
Like how much in the way of near term call. It next three to five years coal ash or LTE related spend do you have to do in Kentucky.
Okay, then we'd probably be better off.
Responding to that at the Investor day, we still have a couple of $100 million.
Period.
Not as not as much as well.
While we were showing the prior five years or so Michael but theyre still there is still a little bit to go there.
Got it thanks, guys much appreciate events.
Sure.
And ladies and gentlemen, with that we will be concluding today's question and answer session I would like to turn the floor back over to the management team for any closing remarks.
Yes, I just want to thank everybody for joining the call again versus first quarter I think I'd start to the year.
We remain confident in our ability to close Narragansett and.
Really looking forward to laying out the new PPL for everybody. Shortly after closing so I appreciate that I appreciate everybody's time.
And ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.