Q3 2022 PPL Corp Earnings Call
Thank you Andy and good morning, everyone welcome to our third quarter Investor update.
Turning to slide four.
We had another solid quarter of financial results as we execute our utility of the future strategy today, We announced third quarter reported earnings of 24 per share.
Adjusting for special items third quarter earnings from ongoing operations were <unk> 41 per share compared with 36 per share a year ago.
Based on our strong financial performance year to date.
Today, we increased the midpoint of our earnings forecast from $1 37 per share to $1 40 per share and narrowed our earnings forecast range to $1 35 to $1 45 per share.
Our 2022 earnings guidance reflects a partial year estimate of contributions from Rhode Island Energy, which we acquired on May 25.
Today, we also reaffirmed our projected compound annual earnings per share and dividend growth rates of 6% to 8% through at least 2025.
Our per share growth target is based off the midpoint of our pro forma 2022 forecast range of $1 40 to $1 55 per share or $1 48 per share.
The pro forma forecast reflects a full year of earnings contributions from Rhode Island energy.
We remain confident in our ability to achieve our growth projections, even in the current macro environment of rising interest rates high inflation and high commodity costs.
At a time when affordability is paramount for our customers our strategy and strong balance sheet provide PPL significant resilience.
Namely our current business plan does not rely on rate cases to achieve our stated growth targets.
We expect to recover about 55% of our current five year Capex plan through riders in formula rates.
<unk> regulatory lag and supporting continued strong credit metrics.
And our strong balance sheet will support growth without the need for equity issuances over the plan period, while providing financial flexibility to effectively manage market volatility.
We also continue to execute our business transformation initiatives.
On driving efficiency affordability and improve reliability for our customers.
As we outlined in our Q2 call. This includes hardening the system deploying smart grid technology, and leveraging data science across our T&D operations.
Optimizing our generation outage schedules and non outage maintenance cost and centralizing shared services, while deploying common systems and platforms.
We remain confident that we will achieve our planned O&M savings of at least $150 million through 2025 with the potential.
For additional upside beyond 2025.
Bottom line, we believe we are well positioned to weather current economic conditions, while driving substantial value for both customers and shareowners.
Shifting to a few operational highlights on slide five.
In Kentucky, we continue to evaluate opportunities to advance the transition of our generation fleet.
Transition that will offer long term value for our customers and help deliver the clean energy transition in Kentucky.
We continue to expect to retire 1000 megawatts of coal fired generation by 2028.
With the potential to retire an additional 500 megawatts due to the EPA has good neighborhood.
In connection with these expected retirements.
Following the RFP completed earlier this year, we're targeting a mid December filing with the Kentucky Public Service Commission.
Which would include requests for certificates of public convenience and necessity or CCN for any supply side assets that would be owned by us.
We're also updating our load forecast to reflect the recent economic development in our service territories, including for its EV battery plant as well as updating demand side management and energy efficiency programs to fully address the demand side of the equation.
As we evaluate our supply options, we're focusing on solutions that our lease cost and we will ensure the reliability our customers need and expect.
We anticipate these lease cost solutions will be a combination of company owned resources and power purchase agreements and will include solar energy storage and combined cycle natural gas.
We also expect this generation replacement strategy to significantly improve the carbon intensity of our Kentucky generation fleet.
Our mid December filing will begin a regulatory review process that will conclude with an order from the PSA.
While there is no statutory timing requirement for the PSC to review of CPC on filing we would expect to conclude the regulatory review process by the end of 2023.
In other updates our Rhode Island energy subsidiary expects to file several plans with the Rhode Island Public Utilities Commission by the end of Q4 that will support our customers' evolving energy needs.
We've already filed our annual energy efficiency plan in late September , which is critical to our reliability customer satisfaction and affordability and sustainability objectives.
Within the next couple of months, we will file the company's annual infrastructure safety and reliability plans for both electric and gas.
Which will outline our plans to enhance the reliability of the state's energy infrastructure.
At the same time preparing the electric grid for more renewable energy, including offshore wind and distributed energy resources.
Cost approved through the ISR plan will be recoverable through the ISR rider mechanism, which reduces regulatory lag for these investments between base rate cases.
By the end of the year, we also expect to file our advanced metering plan with the Rhode Island PUC.
Outlining the deployment of advanced meters to our electricity and gas customers in the state.
PPL has experience installing almost 3 million advanced meters and realizing the benefits that those meters can provide.
We will leverage this experience in Rhode Island, and deliver this value for our Rhode Island customers as well.
Our advanced metering plan will be foundational for our grid modernization plan, which we also plan to file by year end.
The GMP is a longer term strategic initiative, we are developing and supporting the needs of our customers as we deliver the grid capable of connecting 100% renewable energy by 2033, which is now law in Rhode Island.
And finally in late October we announced a strategic partnership with the <unk> group to support the development of transmission solutions for offshore wind in the New England region.
Specifically, PPL and <unk> signed a memorandum of understanding to jointly develop and propose innovative transmission solutions to integrate offshore wind to the onshore grid.
We believe PPL and Elliot are uniquely suited to support new England in this regard.
Elliot has been a clear pioneer in developing offshore transmission grid solutions through its subsidiaries in Belgium, and Germany as the company is connected 14 offshore wind farms to the onshore grid.
Meanwhile, PPL has established a proven track record of successfully sighting building and operating large transmission projects here in the U S.
Both of our companies are clear leaders in grid innovation and reliability.
And we both share a strong focus on advancing the clean energy future.
Keeping energy safe reliable and affordable.
Together, we recently responded to a request for information issued by five New England States that are seeking input on potential transmission system changes and upgrades to integrate future offshore wind generation with current estimates of as much as 30 Gigawatts by 2050.
Moving forward, we anticipate forming a joint venture with Elliott to pursue any potential offshore transmission opportunities that may arise after the rsi.
We expect an RFP for proposed transmission projects in new England could be issued as early as third quarter 2023.
Any offshore transmission projects stemming from this effort are expected to drive investments beyond 2026, and would be expected to be CRC jurisdictional projects under FERC formula rates.
And while we are in the early stages of this process. We're excited to be participating in the process and are optimistic that PPL and Elliot can develop innovative and cost effective offshore transmission solutions for new England.
Any investments made through this partnership would be incremental to the $27 billion of capital investment opportunities through 2030 that we highlighted at our Investor day.
With that I'll now turn the call over to Joe for the financial update Jeff.
Thank you Vince and good morning, everyone, let's turn to slide seven.
We reported 2022 third quarter GAAP earnings of 24 per share.
Special items in the third quarter were <unk> 17 per share primarily due to integration expenses associated with the acquisition the Rhode Island energy.
Commitments made during the acquisition process and impacts associated with the sale of Safari, which we announced in late September and closed on earlier this week.
Adjusting for these special items third quarter earnings from ongoing operations were <unk> 41 per share an improvement of <unk> <unk> per share compared to last year.
Another strong quarter brings our year to date GAAP earnings to <unk> 77 per share.
Adjusting for year to date special items was <unk> 36 per share our ongoing earnings results of $1 13 per share through nine months of 2022 compared to 83 in 2021.
Turning to the ongoing segment drivers on slide eight.
Our Pennsylvania regulated segment results improved by <unk> <unk> per share year over year, excluding share accretion the.
The increased earnings in Pennsylvania were driven by lower O&M expenses in the period.
Primarily from lower storm and support group costs.
Our Kentucky segment decreased by <unk> <unk> per share year over year, excluding share accretion.
The decrease was due to various factors that were not individually significant.
The addition of our Rhode Island segment increased earnings by <unk> <unk> per share for the quarter.
Results of corporate and other were <unk> lower compared to the prior year due to factors that were not individually significant.
Finally, our third quarter results were <unk> <unk> higher due to share accretion, resulting from the $1 billion of stock buybacks completed in 2021.
Turning to slide nine.
Our results to date support the <unk> increase in the midpoint of our ongoing earnings forecast to $1 40 per share.
As shown on the left of the slide the <unk>.
Primary drivers of the increase in our forecast are at our Kentucky, and Rhode Island segments with higher margins due to favorable weather compared to our forecast in Kentucky as well as lower O&M expenses in both jurisdictions as we execute on our business transformation.
Turning to the right part of the slide.
We've also narrowed our forecast increasing the bottom end of the range to $1 35 per share from $1 30 per share given our strong year to date performance and only a few months remaining in the year.
In closing our financial results to date reflect the improved low risk profile of the new PPL as we continued to deliver for both customers and shareowners.
Our strategic actions have well positioned PPL to achieve those results with an excellent financial foundation and a strong balance sheet to navigate the current macroeconomic environment and.
And we remain confident in our ability to deliver on our growth projections of 6% to 8% in earnings and dividends through 2025.
That concludes my prepared remarks, I'll turn the call back over to Vince.
Thank you Joe.
In closing I'm proud of how we continue to execute the strategy, we outlined at our Investor day in June .
Cross PPL, we are laser focused on creating technology enabled utilities of the future.
On delivering the clean energy transition reliably and affordably.
And on driving long term value for our customers and our shareowners our.
Our strategy delivers top tier earnings and dividend growth of 6% to 8% annually and as we said we remain confident in our ability to deliver this growth.
Our growth is supported by $27 billion in investment opportunities through 2030, and one of the strongest balance sheets in our sector.
It's anchored in operational efficiencies in the near term with stronger rate base growth driving earnings growth later in the decade.
And we firmly believe it's the right strategy at the right time to effectively manage the risks associated with the current macroeconomic environment, while continuing to deliver real value for our customers and shareowners.
Across our company, we continue to execute our plans for the new PPL and whereas excited as we've ever been about our future with.
With that operator, let's open it up for questions.
We will now begin the question and answer session.
I'll ask a question you May press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press star two.
At this time, we will pause momentarily to assemble our roster.
The first question today comes from Shar <unk> with Guggenheim Partners. Please go ahead.
Hey, good morning, Vince.
Good morning Shar.
So just a couple of quick ones here, you mentioned again today that a CCT and some renewables would be leading candidate support new energy and capacity.
The irate kind of change the calculus on your potential ownership of the ladders, so being renewables and I guess, how should we think about scale there.
Yes, it's clearly has so the IRS has clearly improved the competitiveness of company owned renewables.
<unk> third party PPA pricing Shar right.
The PTC Optionality, there plus the additional.
Tax attribute enhancements for certain types of labor apprenticeship programs in.
And then on our case reusing.
Coal sites et cetera, So clearly the economics are moving in the right direction from from where we were.
Before to now post IRI.
Yes, I don't want to get too far out in front of the filing in terms of how much of the resources we see.
But clearly I think there is an opportunity for.
For solar storage combined cycle on the solar and storage side I think we will see a combination of our Ppas and company owned there and then on the combined cycle, we would expect that to be company owned.
Got it perfect and then just on the Rhode Island filings Vince are these sort of the gating mechanisms to maybe potentially narrow that capex range. You have there I mean, when you rolled out your plan. The outer years had a roughly $200 million range between the bottom and top end now that you've been on the.
Our system is this something we could see narrowed or even raise next year.
Yes, I think Thats a good point I would say timing wise you are probably right I think we would see that maybe next year.
With our ability to narrow those ranges, we really want to get through this first regulatory process in the state. So these filings are our first filings in the state as you know and so we would expect to get get through those kind of mid next year and that will set us up for a much clearer view of 'twenty three 'twenty four.
Okay perfect. Thanks, guys.
The clear quarter seen a week.
Great.
The next question comes from Duane <unk> with Evercore ISI.
Go ahead.
<unk> good morning, Thank you for giving me Dave.
Hey, thanks, Thanks Vince.
Just.
Firstly just I.
I think.
And can you size the capex dollars for us or did I hear you say you don't want to get ahead of the filing in terms of what this might mean I'm thinking of just.
The Kentucky generation buckets separately, and then Rhode Island separately.
Yes, so for Kentucky.
I would say the opportunity is probably in the one five to $2 $5 billion range. The geis in total.
The piece that could pull into the five year period would probably be in the $1 billion to $2 billion.
So as you know we had generation replacement in the 15 billion bucket right the 27% to 30 bucket of our $27 billion and so as we look at.
What we're seeing now with with the <unk> filing.
I think we're going to see some of that pull into 'twenty five 'twenty six as we prepare for 2007 2028.
In service dates for some of these options so a $1 billion five to two and a half total one to two moving potentially into the five year period.
Got it and then how about just the Rhode Island.
<unk> here, you've got the MF the dnb.
Should we is there a way to kind of handicap, what the capex upside might be there.
I mean, I think the ranges that we provided incorporate what we're talking about with these current filings and again once we get through I think this first round.
In the state, we will be able to narrow that range. Following following next year's.
In next year's update.
Got it and then just one.
Hopefully quickly following up.
Have.
So am I right in thinking about the balance sheet capacity that whether its the Kentucky upside or the Rhode Island Capex upside that you can absorb that without having to issue equity.
Yes.
We size the balance sheet to not only.
Fund the Capex, we had in the plan, but those those two upsides as well yes.
Thanks, so much guys.
Sure. Thanks.
The next question comes from David Arcaro with Morgan Stanley . Please go ahead.
Hey, David Hey, good morning, Thanks, so much for taking my questions.
Morning.
Let's see I was just wondering.
Would you be able to talk about our size the potential upside in transmission Capex, that's outside of the offshore transmission opportunities if youre seeing any.
Are you, specifically, referring to two Rhode Island or more generally David.
More generally I was thinking.
Yeah. So we continue to look at transmission across the portfolio in all three of our jurisdictions.
Continue to see opportunity for additional system hardening as well as smart grid technology in.
In those networks, primarily in Rhode Island and Kentucky.
So definitely see additional opportunity there I would say in the 27 billion, we have that opportunity and there again thats, probably an area, where maybe some of that could get pulled in from the back half of the decade into the current five year plan, but that that will all be part of our more fulsome up.
Date, once we get through the regulatory filings in Kentucky.
And then come out with our our normal cadence with our update would be on the year end call in February but yes, those are all areas that.
Now we're looking at.
Okay understood. Thanks, and then wondering if you could give an update just level of kind of execution risk in achieving the O&M cost cuts in terms of the backdrop that you are seeing right now and just looking over the next 12 months, what's your level of confidence in being able to kick things off.
Aggressively on that path.
Yes, we're feeling very confident in our ability to hit at least the 150 by 2025 again, we talk about potential upside to that beyond 2025.
Joe talked about for the 2022 forecast.
Really two main areas there weather and then O&M.
The real source of O&M, Boston, Rhode Island in Kentucky is.
The results of our business transformation and centralization efforts and so where I would say we're ahead of schedule on that David which is great.
And so it just gives us further confidence that we will be able to at least hit the 150 going into 2025.