Q4 2022 PPL Corp Earnings Call
Good morning, and welcome to the P. P O Corporation fourth quarter and year end 2022 financial results Conference call.
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I would now like to turn the conference over to Andy Ludwig Vice President of Investor Relations. Please go ahead.
Morning, everyone and thank you for joining the PPL Corporation conference call on fourth quarter and year end 2022 financial results.
We have provided slides for this presentation on the investors section of our website.
We'll begin today's call with updates from Vince Sorgi, PPL, President and CEO , and Joe Bergstein, Chief Financial Officer.
And we'll conclude with a Q&A session following our prepared remarks.
Before we get started I'll draw your attention to slide two and a brief cautionary statement.
Our presentation today contains forward looking statements about future operating results or other future events.
<unk> results may differ materially from these forward looking statements.
Please refer the appendix of this presentation and P. P O S. T 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.
I'll now turn the call over to Vince.
Thank you Andy and good morning, everyone.
Welcome to our fourth quarter and year end investor update.
Well keep our remarks brief this morning, given the comprehensive update we shared with you on January 11th.
We continue to be extremely excited for P. P L bright future.
We intend to deliver for our customers and shareowners.
Turning to slide four.
2022 was a remarkable year in Ppl's history.
That is completely redefined our company.
It marks the beginning of a new era as we are now positioned as a premier pure play U S regulated utility holding company.
Our strategic repositioning began with the sale of our U K business in 2020 one.
And concluded in May of 2022 with the addition of Rhode Island energy and its almost 800000 customers.
I'm very proud of the execution from our team to close this transaction and complete the transition activities to date with national grid.
We are on schedule to complete all of the TSA is in 2024 as originally planned.
The acquisition of Rhode Island Energy also enhances our scale and enables P. P L to be a leader in our sector for years to come.
This concludes positioning our company to deliver top tier, 6% to 8% earnings and dividend growth through at least 2026.
With one of the best credit profiles in our sector, our balance sheet can support our growth without equity issuances throughout the planning horizon.
And while we executed on our strategic repositioning we remain steadfast in our pursuit of delivering excellent financial and operational results in 2022.
First and foremost.
We achieved ongoing earnings of $1 41 per share.
Beating the midpoint of our forecast, which we had increased in November .
This is a fantastic accomplishment considering all the extra work our teams completed this past year in connection with our strategic repositioning.
In addition to delivering solid financial results. We also laid the groundwork for capital investments, we need to make for years to come.
Our pursuit of delivering an exceptional customer experience at an affordable price.
Specifically, we presented a balanced investment plan in Kentucky to replace nearly 1500 megawatts of retiring coal generation.
This plan best positions, our utilities in Kentucky to serve our customers with safe reliable affordable and sustainable energy, while the state's foster significant economic development and growth.
We also designed a series of plans for our newly acquired Rhode Island Energy.
Strategies to deliver the energy grids necessary to achieve the state's impressive clean energy goals of a 100% renewable energy by 2033.
These plans include advanced metering.
Grid modernization and our first infrastructure safety and reliability plans under our ownership.
These plants emphasize just some of the robust investment opportunities at our utilities.
We're also looking at potential regulated investment opportunities beyond our four utilities.
Leveraging our expertise in transmission development to open new doors for potential growth.
This includes our strategic partnership with wind grid.
In Italy, our subsidiary, where we are exploring offshore transmission solutions in new England.
Any investment opportunities stemming from this partnership are not included in our capital forecast and represent potential upside to our long term growth plan.
On the operational front.
During 2022, we maintained our top quartile reliability in Pennsylvania, and Kentucky, Despite the increased frequency and severity of storms in our service territories.
And in just a few months of ownership, Rhode Island Energy has experienced a marked improvement in reliability and exceeded 2022 expectations by more than 10%.
One example of this excellent performance was during winter storm Elliot.
Rhode Island Energy was the first major new England utility to achieve full customer restoration in the early morning of Christmas day.
We also maintained our top quartile customer satisfaction at PPL electric utilities, and Kentucky utilities.
And while we're proud of these achievements we are sympathetic to the concerns of our Pennsylvania customers, who experienced increases in their December bills as a result of higher energy prices.
While we don't control the price of electricity supply, we know that it can have a meaningful impact on our customers.
And while the default rate for PPL Electric's non shopping customers increased in December many of our customers who have chosen third party suppliers saw even higher price increases and are paying significantly more than our default rate of approximately 14 and a half that.
Our most recent review of shopping results found that in November over 40% of our residential shopping customers paid a higher rate than our default rate.
Over 100000 customers paid a rate between 25% and 100% more than the default rate and nearly 20000 customers paid more than double our default rate.
For the last two years PPL electric has been a vocal advocate on behalf of our customers for greater safeguards and other actions to protect them from overpaying for their electricity supply.
We propose various consumer protection reforms with our Pennsylvania legislators and regulators and are again, having discussions with them for the benefit of our customers.
In addition to higher bills from these increased energy prices are low.
Large number of our PPL electric utilities' customers received estimated bills in December due to a technical issue.
The timing of higher electricity bills and the increased number of estimated bills created some confusion and concern for customers.
We have since fixed the technical issue and have temporarily doubled the resources that are call centers to address customer questions and significantly reduce call wait times.
And in further support of our customers, we've waived late fees and expanded our no shutoff practice over the winter to include all residential and small business customers.
We're also focused on communicating even more with our customers about high energy prices and what customers can do to minimize their energy bills.
While this is an important topic for us and our customers that I wanted to address today I want to be clear that we do not expect this matter to have a significant impact on our financial results.
As we have discussed at length, one of the key aspects of our strategy is to drive operating efficiencies across the entire business.
In developing our strategy, we anticipated affordability being a key area of focus for our customers and regulators even before we saw the effects of inflation and high commodity costs.
We all know the energy grids needs significant investment to ensure reliability and resiliency, while preparing for renewables.
And more electrification.
This is why our plant best positions P. P L to achieve our goals, while focusing on affordability for our customers.
Turning to slide five.
<unk> outlook for 2023 is one that is simply focused on executing our utility of the future strategy.
And by 2020 to recap I discussed that we are on track with our integration activities with Rhode Island energy.
An obvious top priority for 2023 is to remain on track with our Rhode Island integration setting us up for completion in 2024.
We have a $2 $4 billion capital plan that improves the safety reliability and resiliency of our networks, while addressing our customers' evolving needs.
We're on track to deliver the first leg of our $175 million O&M savings target by 2026.
With $50 million to $60 million of savings in 2023, as we deploy our playbook and continue to optimize our operation.
These savings will provide a strong basis for us to deliver the midpoint of our 2023 earnings forecast of $1 58 per share.
Recall this forecast represents a 7% increase from our pro forma 2022 forecast of $1 48 per share.
We will also focus on the regulatory filings in Kentucky in Rhode Island to deliver lease cost and reliable energy for our customers and help to advance the clean energy transition.
Turning to slide six.
As we executed our strategic repositioning over the past few years, we took a hard look at how we want it to be defined as a company and management team.
Simply put we want to be the best utility company in the U S.
The best at delivering safe reliable affordable and sustainable energy to our customers.
And competitive long term returns to our shareowners.
We've included on the right side of the slide the categories that we will use to measure our success against our peers.
In short.
We will be targeting top decile or top quartile performance in safety reliability customer satisfaction and cost efficiency, while at the same time targeting a premium stock valuation.
While we're not there yet in all categories I firmly believe we are on the right path to get there and I'm excited to see us advance down this path.
With that I'll now turn the call over to Joe for the financial update John .
Thank you Vince and good morning, everyone, let's turn to slide eight.
Our solid fourth quarter financial results closed out a great year for the company.
Fourth quarter GAAP earnings were <unk> 26 per share special.
Special items in the fourth quarter were <unk> <unk> per share primarily due to integration and related expenses associated with the acquisition of Rhode Island energy, partially offset by a tax benefit due to the Parisian to final 2021 tax return adjustments primarily related to the sale of W. P D.
Adjusting for these special items fourth quarter earnings from ongoing operations were 28 per share an improvement of <unk> <unk> per share compared to 2021.
With a strong fourth quarter results, our 2022 GAAP earnings totaled $1 two per share.
Special items for the year were <unk> 39 per share primarily.
Related to integration and related expenses associated with the acquisition of Rhode Island Energy.
Our ongoing earnings for the year were $1 41 per share compared to $1 five per share for 2021 exceeding the midpoint of our earnings forecast for 2022.
Turning to the ongoing segment drivers for the quarter on slide nine.
Our Pennsylvania regulated segment results improved by one year over year.
Results were primarily driven by higher sales volumes due to milder than normal weather last year.
And increased returns on additional capital investments in transmission.
These improvements were offset partially by higher O&M expenses.
Our Kentucky segment decreased by one cent per share year over year.
Improved sales volumes in Kentucky also due to milder than normal weather experienced last year were more than offset by higher O&M and interest expense.
The addition of our Rhode Island segment increased earnings by <unk> <unk> per share for the quarter.
Results of corporate and other increased <unk> <unk> per share compared to the prior year, primarily due to lower O&M expenses lower income taxes and other factors that were not individually significant.
These favorable drivers were partially offset by higher interest expense.
Our strong performance in the fourth quarter reflects another proof point of delivering on expectations since our repositioning last year.
Our results for the full year are on slide 10.
We reported improved results across each business segment in 2022.
The operating segment results presented here exclude the impact of share accretion, which we've shown as a separate bar on the far right of this slide.
Recall that we used a portion of the U K business sales proceeds to repurchase $1 billion of shares back in the fourth quarter of 2021, resulting in five cents of accretion in 2022.
We also used another $4 billion of the UK sales proceeds to reduce our holding company debt.
Strengthening our balance sheet to one of the best in the sector.
This reduction of debt was the primary driver for the 10 cent and improvement in our corporate and other segment for the year.
Turning to the operating segments.
Our Pennsylvania regulated segment delivered a six cent per share increase for the year compared to 2021.
The year over year increase was primarily driven by returns on additional capital investments in transmission.
Higher peak transmission demand and improved sales volumes.
These favorable drivers were partially offset by higher O&M expenses, including increased on collectibles Adil.
Additional vegetation management costs and amortization costs.
Our Kentucky regulated segment earnings increased by seven cents per share for the year compared to 2021.
Our improved results in Kentucky were primarily driven by a full year of higher retail rates that went into effect in July 'twenty, 'twenty, one and higher sales volumes.
These favorable drivers were partially offset by higher O&M expenses.
Vegetation management plant outages storm costs and higher depreciation expense.
Our Rhode Island segment added eight cents per share to ongoing earnings for the year, reflecting the period from our acquisition in late may through the end of the year.
This was a great year for the company and is yet another demonstration of our commitment to deliver on that exceed our financial goals.
Turning to slide 11, we expect to keep that momentum heading into this year.
Today, we are reaffirming our 2023 earnings forecast range of $1 50 to $1 65 per share.
And the midpoint of $1 58 per share.
We remain confident in our ability to deliver our forecast by leveraging our proven operating model a strategy focused on driving cost efficiencies to reduce O&M, which enables investments necessary to advance our energy networks and the most affordable manner.
Our Pennsylvania segment results are expected to increase by <unk> <unk> per share in 2023.
Primarily due to returns on additional capital investments in transmission and.
And lower O&M, partially offset by higher interest expense.
We project, our Kentucky segment results to increase by <unk> <unk> per share in 2023.
Primarily due to lower O&M, partially offset by higher interest expense.
Our Rhode Island segment results are expected to increase by eight cents per share in 2023, primarily due to the impact of a full year's earnings.
We project corporate and other results to be flat year over year.
Moving to slide 12.
In connection with the requests from many of our investors, we've reallocated, our Kentucky holding company financing costs, the corporate and other beginning January one.
This reallocation provides a clearer view of the utility earnings for our Kentucky regulated segment and is consistent with how we report the Pennsylvania and Rhode Island segments.
We've illustrated the impact of this reallocation to our actual 2022 ongoing earnings on this slide to show the 2022 segment results on a consistent basis with our 2023 segment forecast.
Moving to slide 13.
Our board of Directors has declared a quarterly cash dividend of 24 cents per share to be paid on April 3rd to shareowners of record as of March 10.
As we discussed in January the 24 cent dividend is a 7% increase that aligns with our predictable linear and competitive annual EPS growth of 6% to 8%.
This is also within our targeted dividend payout range of 60% to 65%.
Combining our targeted EPS growth with our dividend yield provides investors with a compelling total return proposition in the range of 9% to 11% per year.
This is consistent with our mission of delivering long term returns to shareowners.
That concludes my prepared remarks, and I'll turn the call back over to Vince.
Thank you Joe.
Over the past two years, we've taken bold steps to transform PPL for long term growth and success and.
And to improve shareowner return, while building on our core strengths.
Since then we have continued to deliver on the goals we set.
Exceeding the midpoint of our 2022 earnings forecast advancing industry, leading grid modernization, providing highly reliable electricity and gas service and economically advancing our clean energy strategy.
And our plan provides investors with an attractive return proposition.
One that the entire management team and I intend to deliver.
With that operator, let's open it up for questions.
We will now begin the question and answer session.
I ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And our first question will come from Shar <unk> of Guggenheim Partners. Please go ahead.
Hey team.
Sure Vince.
Just two quick ones here. After you guys, obviously had a comprehensive update.
Little while ago, but.
And then just I know you guys are obviously targeting 50 to 60 million of O&M savings this year, but it's been kind of a supermodel winter Q1 looks to be a little bit rough I guess, how comfortable are you around the 158 midpoint when you're also layering in sort of interest expense pressures and some of the externalities.
These were seeing out there so I guess, if the tail risks don't abate can you sort of pull forward some of that incremental $70 million in O&M savings next year into this year I guess can you just talk a little bit about the contingencies here. Thanks.
Yeah sure look I would just say.
We still remain incredibly confident in our ability to hit the 23 forecast.
As you've mentioned and with many of our peers right I would say the most significant potential headwinds are factors that we're looking at today are interest rates and inflation and then of course weather, which you, which you referenced and its impact potentially on sales or where our storm costs I would say regarding inflation.
And interest rates at this point, we're really not seeing anything significant enough that we don't think we can manage.
As we look forward for not only 23, but going forward.
I would just reiterate that we built a plan to withstand volatile markets and still enable us to hit the targets.
We've laid out for you all set where we're still.
Very confident don't necessarily see the need to really accelerate O&M, but that's always a lever we have at our disposal.
And then just lastly, Vince that's helpful.
Just on the Kentucky C. P. C. N process intervenors are obviously starting to line up it looks like there's been some delays on solar ppas and and the PSC just engage the consultant right to do an analysis earlier. This week can you just speak to the process a little bit more broadly and what we should be watching for from intervene.
<unk> and procedurally between now and your next update in the spring.
Yeah, Yeah sure so.
The CPUC on process does continue I would say really on plan as was laid out in the procedural schedule.
Last week, the Kps C granted several intervenors their motions to intervene.
None of those were a surprise to us so I would say everything again progressing as we would have expected. There. The next step is for us to get the data requests from the intervenors, which are due to us by the end of today actually.
This will then start.
Series of requests and testimony that our that our schedule is really to continue through mid August .
And then once we get through that that will culminate with the public hearing during the last week of August and then.
The Commission has.
<unk> indicated that they expect it provides a decision by.
November six.
Got it terrific fantastic, that's all I had and congrats on when we'll be seeing you real soon I appreciate it.
Great. Thanks Chuck.
Yeah.
The next question comes from their guests with Chopra of Evercore ISI. Please go ahead.
Hey, Doug.
Hey.
Good morning team and it's really helpful. Thank you for your commentary on the on the Pennsylvania billing issue, we're getting some questions on that so appreciate the color just I just had one quick follow up.
Everything is pretty clear the you asked for a a few D C in Kentucky.
Is that part of this CPUC and filing or is that a separate this is youre not what should we be looking for they are and how to attract that specifically.
Yes, that'll come out through the CPC and process, so that will be resolved all at the same time.
Got it okay perfect. That's all I had guys. Thank you so much and go Eagles for 2024.
[laughter] not an eagles fan, but that's okay.
[laughter].
The next question comes from Paul Patterson of Glen <unk> Associates. Please go ahead.
Paul Hey, How's it going.
Okay.
I think you were in your prepared remarks, you were talking about like discussions with regulators about affordability and what have you I was just wondering if you could give a little more color as to what.
They might be looking at in.
If you have a little a little bit more discussion about Kentucky, and Pennsylvania with what you're hearing there.
Yeah. So some of the things that we were we've been engaged in in Pennsylvania.
Really with our with our with the state legislature as well as our our regulator the PUC.
Most significantly Paul we've requested to have customers rich.
Return to the EDC, so right the companies like PPL electric and to return to our default rate when when they come off the standard offer program.
That's where we've seen our customers gouge the most when when they come off the standard offer plan in some cases, our customers rates have increased by more than 300% in the months following coming off the standard offer program. So we our recommendation was just to have folks once this the standard offer program ends.
If they hadn't already signed up for a new plan that they would just default.
Our default rate, which would limit how much the price could increase as opposed to like I said, this 300% or more which we had seen some of our customers get did with <unk>.
We've also requested that suppliers provide detailed information about their agreements to our customers both to the electric companies. So again companies like PPL electric as well as the PUC. So that we can augment any supplier notifications.
And make sure that our customers understand.
Some of these plans that they are signing up for it. We've also asked for tighter restrictions around introductory or a teaser rates as well as variable rates again, our customers have been impacted significantly.
Some of those areas. So overall I would just say, we're really trying to see greater accountability.
With our suppliers.
Okay that makes a lot of sense. This is kind of a problem that's.
Sort of plagued a.
Choice retail choice.
Jurisdictions around the country I mean, if you look over the years is.
There's some places that are talking about.
Limiting.
You know customer choice to more sophisticated customers in other words are there just doesn't seem to be a lot of value that's being driven by these third party providers in many cases are in.
Is there any talk about that and anywhere in any of the areas that you operate.
I'm not I'm not seeing that yet Paul.
But again, we've been engaged with.
With our public officials over the last couple of years on trying to get some of these measures implemented and they happen.
To date, we are continuing to engage with them.
I think it's more pronounced now with what we've seen with wholesale.
Prices in natural gas prices. So we will continue to to engage on behalf of our customers to try.
Try to get try to get these wholesale or not the wholesale rates, but the rates that third party suppliers are charging our customers.
And in many cases as I said in my prepared remarks customers are paying a lot more even more than double our default rate.
And you can go out on the Puc's website, and actually get prices that are even cheaper than our default rate and so it's a huge it's a huge issue as you mentioned and it's.
Why were spending a lot of time right now on educating our customers to make sure that they know what what plans are available, but also to just make sure. If they really read the fine print and understand the plants out there that theyre entering into doing what's best for them and their families.
Okay awesome. Thanks, so much have a great one.
Thanks, Paul.
The next question comes from Angie <unk> of Seaport. Please go ahead.
Hi, Angie.
Hi, how are you. So I have a question about Kentucky and it's.
I understand that.
It's premature.
Premature I guess, but.
Given given the timeline for the approval by FERC, the Kentucky power sale I think it's increasingly likely that that transaction doesn't happen and I'm just wondering.
You know if this asset stays within AEP that theyre, probably going to try to.
You know boosted growth profile, which that could result in additional coal plant retirements or plans to retire coal plants and I'm just wondering.
How do you think that could impact your <unk>.
Pending proposal I mean, we've been hearing some noise in our newspapers in the state about.
Reliability concerns on the back of coal plant retirements and again, just just thinking bigger picture. If there were to be more large state utilities with that.
Similar growth path for towards Central time to time, if that could actually derail the process or are you seeing next year that could be helpful.
Yeah.
Yeah, I'm not sure I think it would impact us one way or the other Angie I think again, our CPC and has been designed to strike.
And appropriate balance with different fuel sources to provide that safe reliable.
And affordable energy, while they're replacing.
500 megawatts that is reaching our end of lives.
Ben.
Very clear that we have not accelerated the retirement of our coal plants. These are plants that are that are end of life and.
So our CPM or CPC and with the commission is really how best to replace that retiring coal generation with the least cost.
Most reliable sources of energy and as you know we have a balance of combined cycle plants in there with that with solar with some storage et cetera. So.
I don't know that I would see the.
Whether the sale process or whether the asset remains with AEP is really impacting our process.
Okay, and then secondly, assuming that you do get the the <unk>.
The approval of the certificate.
The certificates.
Lucky Commission would you then.
File a rate case to recover the investment or the plan would be.
He does seek rider recovery or basically.
Further cut cost to pay for.
Capital spending and a return on it.
Yes. So we do we are requesting a few D. C coverage for the capital investments, we would be making under the CPC and so that would provide us with.
With the earnings aspect.
Of making those investments before they go in service.
From a from a cash perspective again, one of the reasons why we have the balance sheet that we have as it enables us to engage with our regulators to mitigate near term rate impacts, but at the same time get the investments John that we know we need to get done and then we would pick that up in a in a rate case.
Sometime in the 'twenty six four later timeframe.
Okay.
Okay, and then lastly, the states at this point that you brought up about retail choice. So it's kind of an interesting time right because if you think I mean.
I'm, assuming that you guys had procured electricity ahead of time, so you had likely.
Locked in elevate it.
Power prices, so I wouldn't it's actually a retail choice makes sense to residential customers in this type of.
Price environment, where power prices had fallen pretty dramatically and as such that there should be.
Positive differential between what a retailer can offer versus what the.
But the incumbent utility I'll first snow.
Yeah, you would think so angie so our price to compare is about 14 and a half cents.
There are suppliers out there that are below 10 cents exactly to your point, we've we've had to procure that power over 612 18 months.
Time horizons in accordance with the PUC process. So, yes, so we're not necessarily getting the.
The immediate impact of the precipitous decline in energy prices over the last month or two.
Some of our suppliers are which they're able to provide like I said sub 10% 10.
Contracts it it makes it interesting that many of our customers were paying 20 and over 30 in December for their third party supplier of energy So great great point.
Okay. Thank you thanks for taking my question.
Sure.
The next question comes from David Arcaro of Morgan Stanley . Please go ahead.
Oh, Hey, good morning, Thanks for taking my questions.
Hey, just a couple of minor hey, a couple of minor questions here I just wanted to check on the reallocation of the Kentucky Holdco drag I was just wondering are there any implications there either from a regulatory perspective or from like a debt refinancing perspective.
As you as you shift that into corporate and other or is it really just as simple as moving around that EPS drag.
Hey, David It's Joe it's there's no implications to either of those it's really just.
The reallocation of those costs that we were we had been allocating to the Kentucky segment too.
And really from an investor perspective, too to align the Kentucky segment to the similar way that we had been reporting, Pennsylvania, Rhode Island, So no applications there.
Okay got it great that's helpful.
And then I was just curious would you expect any ongoing elevated costs or personnel activity or anything like that on the back of the billing issues in Pennsylvania in terms of the call.
Call Center, our resources or anything like that or is it going to be just temporary in terms of response there.
Yeah, now that'll be temporary David we do have third party contracts that we can lean on in times of need which we've done we've also reallocated some of our existing.
Folks in other departments and train them up on on the call center activity. So yes.
Of course, the third party contracts, we can dial them up and down as needed and then our our internal resources they'll just go back to their other departments when that when we're through with that.
So Paul call center duties that we have out there.
Okay understood. That's all I had thanks so much.
The next question comes from Greg oral of UBS. Please go ahead.
Yes. Thank you.
Hey.
Just with regard to the C. P. C N. How does how does the impact of of inflation play.
Play into that with you know inflation.
Inflation plus.
Plus supply.
Constraints.
So those price estimates that are in our CP CN or are all based on current.
Pricing and.
We ran the rfps.
In the summer time, so those RFP prices are included four for solar projects.
And again, we're using our internal cost estimates for the combined cycle units in any of the solar that we're proposing that we build so I was I would say cost estimates are up to date there.
No major issues with.
Having to adjust this with Watson CPC.
Alright congratulations.
Thanks, Greg.
The next question comes from Paul Zimbardo of Bank of America. Please go ahead.
Hi, good morning, Thank you good.
Morning, Paul.
And good to hear about the Rhode Island reliability improvements so quick off the bat is.
Shifting to the big of course shifted to the gas side in Rhode Island, I know, there's that future of gas proceeding ongoing just could you talk at a high level, how that could impact the spending plans whether in terms of the magnitude or timing.
Yeah. So we're early in that process, Paul as you know.
We did put a capital plan together to ensure the safety and reliability of the gas network, while we were.
Work with the state on the future of gas.
Docket that will take that will take some time to get through.
Again, as we think about.
The gas networks, not only in Rhode island, but across the country.
We certainly see a future for those as due.
It looks like <unk> and other <unk>.
Dependent.
Research agencies in terms of the fuel that's flowing through those.
<unk> may be may be different they may not be 100% natural gas you could have renewable natural gas or hydrogen we could have other sources of fuel flowing through them, but there are certain processes that just don't lend themselves to electrification.
And so long term.
<unk>.
Certainly support and expect there to be a lot more electrification. We also expect there to be a need.
It used for gas LDC networks, and so making sure that those networks are safe and reliable now continues to be top priority, but.
We will we will certainly be engaged with the state on the long term future of that network.
Okay excellent. Thank you and one unrelated and I know you may be a little limited in what you can say, but just is there any update on the the Talon litigation or arbitration now that that bankruptcy process is wrapped up I know, it's a legacy one but just hope that we can put that one to pet sooner rather than later.
Yes, there is actually we are entering into mediation next week on February 22nd that'll be before one of the judges in the Texas bankruptcy Court. So yes that there is an update there will be we'll be heading intermediation next week.
Okay. Thank you very much.
Sure.
The next question comes from Neil <unk> of Wells Fargo. Please go ahead.
Okay.
Hi, guys.
Just a question on Rhode Island, it looks like based on the guidance for 2023 that if my math is right that might not be that you will be significantly under earning the Roe.
So my question is are the cost savings coming in as expected.
And then in terms of bridging that gap is this something that is ultimately going to require regulatory relief in 2026 or can it be accomplish that.
Hey, Neil it's Joe So a couple of points there first on the Rhode Island guidance for 2023.
We've discussed in the past a few times that we expect to experience some variability or noise in our Rhode Island earnings as we work through the transition period, and standup, Rhode Island on on our systems and processes and so thats, what youre seeing here. The primary driver of those lower earnings due to cost as we work our way off the TSA.
There are costs, such as staffing up our operations training, our new full time employees things like that I do expect that to normalize once we've completed the TSA period in 2024.
Again, we expect that this from the outset and it's been embedded in our projections and so.
Our outlook for Rhode Island remains very positive as we execute the plan and I certainly expect to see growth there in 2024 as far as the O&M savings that we're projecting for 2023 that $50 million to $60 million those come predominantly from Pennsylvania and Kentucky.
The same reasons I talked about in Rhode Island, we're still working our way off those TSA. So until we're on our systems and processes, we can't really drive O&M savings are through the transition period.
Okay understood and do you think by 2025, we're going to be adding close to the allowed there or or.
It might take a little bit more.
No I think 25 is certainly a normal year, we will be off the TSA is by that period.
Sometime in 2024, so you get a clean year and 25. It will have been some time since the last rate case, there I think national grid's less rate case was 2018.
So certainly.
Certainly expect to see an improvement in Roe.
We may need a rate case.
Following that but I think we'll continue to work through the plan and execute what we have in store there and see where we are but we feel again feel good about the growth prospects in Rhode Island.
Got it thank you.
Sure. Thanks Neal.
This concludes our question and answer session I would like to turn the conference back over to Vince Sorgi for any closing remarks.
Thanks to everybody for joining us just want to reiterate.
Again really pleased with our 2022 results, where we ultimately came in.
What we accomplished in 2022 to set us up for 2023 and beyond and just really remain confident in our ability to deliver on what we've laid out for you all and I can tell you. The entire management team is aligned around the new strategy and we're really looking forward to delivering it so with that hopefully we will see.
Are you guys on some of that.
The conference circuits or on a N D R's and look forward to chatting with you then.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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Yes.
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Okay.
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