Q2 2023 PPL Corp Earnings Call
Good day and welcome to the P. P. L Corporation second quarter 2023 earnings Conference call.
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I would now like to turn the conference over to Andy Ludwig Vice President Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining the P. P. L Corporation conference call on second quarter 2023 financial results.
We've provided slides for this presentation on the investors section of our website.
Well begin todays call with updates from Vince Sorgi, PPL, President and CEO .
And Joe Bergstein, Chief Financial Officer.
I will conclude with a Q&A session following our prepared remarks.
Before we get started I'll draw your attention to slide two in our brief cautionary statement.
Our presentation today contains 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's 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 on this call.
A reconciliation 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 second quarter Investor update.
Let's start with our financial results and a few highlights from the quarter on slide four.
Today, we announced second quarter reported earnings of 15 cents per share.
Adjusting for special items.
Second quarter earnings from ongoing operations were 29 cents per share.
Compared with 30 cents per share a year ago.
Overall second quarter results were in line with our expectations.
Part from the continued mild weather and storm activity in Kentucky and Pennsylvania.
This has been one of the most active storm years, we've ever experienced.
Between the mild weather and storm O&M.
Our year to date results were negatively impacted by about nine cents per share compared to our original plan.
But despite these impacts we remain confident in our ability to deliver on our 2023 ongoing earnings forecast of $1 50 to $1 65 per share with a midpoint of $1 58 per share.
We have identified several areas in which we can offset the headwinds from weather and storms and Joe will cover that in detail in his financial review.
As you know one area, we remain extremely focused on is O&M.
We are on track to achieve that $50 million to $60 million targeted reductions this year.
And despite the incremental storm expenses, we are tracking slightly ahead of our O&M forecast through June .
We expect that trend to continue and improve through the second half of the year.
In addition.
Today, we reaffirmed our projected earnings per share and dividend growth rates of 6% to 8% through at least 2026 as we remain confident in our low risk business plan.
This will be supported by our $12 billion of capital investment plan and targeted O&M savings of at least $175 million by 2026.
To advance a reliable resilient and affordable and clean energy future.
Turning to a few second quarter operational highlights.
We continued to deliver excellent reliability for our customers across our jurisdiction again, despite the increased storm activity in both Kentucky and Pennsylvania.
This is a direct result of our ongoing investments not only in system hardening that prevents outages.
But also smart grid technology and automation that enables us to respond more quickly when outages do occur.
On the integration of Rhode Island Energy, we remain well positioned to complete our transition services with national grid next year.
We also continue to make progress on an important filing before the Rhode Island Public Utilities Commission.
As we seek to deploy advanced metering functionality across our service territory.
They build a smarter grid that supports the states leading climate goals.
Hearings before the Rhode Island PUC were held in late July to review, our business case and cost recovery proposals.
We expect a decision on our a M F filing later this fall.
We also remain on track with the Kentucky, CPUC and process, which I'll cover in more detail on the next slide.
Finally, we continue to receive awards for our industry, leading approach in grid innovation asphalt the Edison Electric Institute and the southeastern Electric exchange recognized PPL electric utilities for its groundbreaking use of dynamic line rating technology.
PPL electric is the first utility in the nation to integrate this technology with its transmission management system.
DLR sensors provide real time information that enables us to better utilize our existing transmission line capacity and reduce congestion on the grid.
<unk> is also recognize the value that this technology can bring to the industry and better managing congestion on the transmission network.
Turning to slide five and an update on the CPC and processing Kentucky.
We remain focused on advancing our generation investment plan as we seek to replace 500 megawatts of aging coal generation within affordable reliable and cleaner energy mix by 2028.
We remain confident our plan represents the best path forward for our Kentucky customers.
As proposed it would replace several 19 seventies era coal units with over 200 megawatts of new combined cycle natural gas generation.
Nearly 1000 megawatts of solar generation.
125 megawatts of battery storage.
In addition, it would establish more than a dozen new energy efficiency programs.
In May the Kentucky Public Service Commission approved our request to consolidate the C. P C N filing and our generation retirement request.
As required by Senate Bill four.
The commission approved the consolidation, while keeping the C. P C N procedural schedule largely unchanged.
Part of the schedule Intervenor testimony was filed July 14th with no real surprises.
Next up is our rebuttal testimony due August night.
By an informal conference scheduled for August 15th to explore a potential settlement.
Public hearings are then set to begin August twenty-second could last several days.
Again, we are very confident that the plan, we've proposed us and our customers and the state's best interests, but we are also open to settlement discussions with the parties to the case.
Ultimately with or without a settlement, we anticipate a decision on our filings from the commission by November 6th.
That concludes my strategic and operational update I'll now turn the call over to Joe for the financial update.
Thank you Vince and good morning, everyone, let's turn to slide seven.
As Vince mentioned second quarter earnings from ongoing operations were 29 per share compared to 30 cents per share in Q2, 2022.
The primary drivers of the one cent per share decline from last year were lower sales volumes in both Kentucky, and Pennsylvania, driven by mild weather and as expected in our plan higher interest expense due to increased borrowings at higher interest rates to fund our growth.
Those factors were partially offset by lower O&M expense driven by our continued focus on operating efficiency and improved earnings at the Rhode Island segment from two additional months of results in Q2, 2023 compared to the prior year.
Overall, our teams performed well for the quarter and results were slightly ahead of expectations apart from the mild weather, which impacted results by <unk> <unk> per share compared to our forecast.
Degree days were lower by more than 20% in our Kentucky service territory and by over 35% in Pennsylvania. This.
It resulted in lower actual electricity sales volumes of 4% in Kentucky, and 8% in Pennsylvania compared to normal.
Turning to the ongoing segment drivers for the quarter on slide eight.
Our Pennsylvania regulated segment results decreased by one year over year.
<unk> were primarily driven by lower sales volumes and higher interest expense, partially offset by higher transmission revenue and higher distribution rider recovery.
Our Kentucky segment results decreased by <unk> <unk> per share year over year.
<unk> were impacted primarily by the lower sales volumes and higher interest expense, partially offset by lower O&M expense <unk>.
[noise] Island segment results increased by <unk> <unk> per share year over year, reflecting the additional two months of earnings this quarter.
Finally results of corporate and other increased <unk> per share compared to the prior year, primarily due to lower O&M expense and other factors that were not individually significant partially offset by higher interest expense.
Moving to slide nine.
Our Q2 performance puts P. P. L. GAAP earnings at 54 cents per share year to date through June 30th.
Adjusting for special items recorded through the second quarter, earning.
Earnings from ongoing operations totaled 77 cents per share in the first half of 2023.
Weather has unfavorably impacted our year to date results by a total of about eight cents per share compared to our plan due to lower sales volumes. In addition, we have experienced higher storm related costs of about one cents per share compared to our plan. So far this year due to the significant storm activity.
Importantly, we've been able to more than offset these increased storm costs and we are tracking favorably to plan on O&M through the second quarter.
And we remain confident in achieving our 2023 earnings forecast as we expect to offset the unfavorable weather and storm impacts due to the projected outperformance in several areas.
First the disc mechanism in Pennsylvania is projected to offset the lower sales volumes and higher O&M experienced in that segment.
We are tracking favorably on our integration of Rhode Island energy.
Which we expect to provide upside compared to our plan.
Third the convertible debt financing that we executed in the first quarter will reduce our annual interest expense relative to our plan and finally.
To optimize our discretionary O&M. This includes contractor and consultant spend and the timing of filling open positions and other discretionary O&M spend in.
In total these identified offsets present, a clear path to achieving the midpoint of our 2023 earnings forecast of $1 50 per share.
We have an excellent track record of achieving our financial targets, which we expect to continue in 2023.
Looking ahead at our plans to achieve at least $175 million of O&M efficiencies by 2026, we established a transformation management office or TMO to ensure we achieve our long term efficiency objectives.
The TMO, which I chair with support from our Chief operating Officer, and our Chief Information Officer, and with the engagement from our employees across the entire company is responsible for tracking our progress on savings initiatives as well as identifying and verifying additional areas of possible savings to date, we have identified.
In a fight over 100 initiatives with savings potential significantly above our $175 million target.
This structure and rigorous process gives us even more confidence that we will achieve the targeted savings assumed in our long term forecast and it will help us deliver a more affordable clean energy transition for our customers.
That concludes my prepared remarks, I will turn the call back over to Vince.
Thank you Joe.
In closing, we remain confident in achieving our goals for 2023, while mild weather and storms have created some headwinds we have plans in place to overcome those challenges and deliver on our commitments to shareowners.
We're also on target to complete more than $2 $5 billion in infrastructure improvements to provide safe reliable and affordable energy for our customers.
Our integration of Rhode Island Energy continues to go smoothly.
Continue to progress our regulatory filings in both Kentucky, and Rhode Island.
Last but not least.
We're solidly on track to deliver our targeted O&M savings as we execute our utility of the future playbook incorporate more technology and automation.
Centralize various functions across PPL to deliver better value for customers and shareowners alike.
With that operator, let's open it up for questions.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
The first question today comes from their desk Jokebook with Evercore ISI. Please go ahead.
Good morning, Hey, Good morning, Hey, good morning, Good morning, guys, a pretty straightforward quarter here I had two.
Housekeeping questions first.
Can you quantify what's the E.
Am I a.
Ask in Rhode Island.
Much investment that is.
In the $200 million range.
Yeah.
Got it.
And over what timeframe to $2 50 somewhere around there.
Okay.
Alright.
Sorry, Thank you or what timeframe is that the one or 250.
Well, we need to we need to get that approved right. So we just went through that.
The hearings late last month, we expect to have a disc.
<unk> by the commission up there in the fall of this year.
And then that'll that'll kind of dictate that the timeframe over which we did.
Deploy that capital.
Would that be incremental to your current Capex plan, Vince or do you have something.
No no that's in the that's in the Caribbean.
Right.
Okay, and then just in terms of.
Offsetting the headwinds in weather and storm.
And you mentioned in prepared remarks, Joe mentioned like integration savings can you elaborate on that how big that pie, obviously, it sounds like a lot of.
Opportunities in excess of $175 million.
But maybe just like you know, what's the upside on the integration and Oh in Rhode Island, and what might be the other opportunities.
Yeah, So the integration and Rhode Island are gosh, it's going very well really what where they will have been able to do is exit.
TSA is quicker than we had expected it at a lower cost.
Which is driving a lot of the performance we're seeing there also.
Mindful of the pace at which we're hiring.
The open positions we have there so we're fully staffing up that operations and looking to take over completely from Greg. So those are the areas that are driving driving the Rhode Island integration, where we would expect that to be about one to two for the year.
As far as the the progress on the $1 75, and the establishment of the TMO.
Going extremely well as I noted we have over 100 initiatives.
Totaling more than $175 million really it's driven by a significant employee engagement is we're developing.
Plans to implement and achieve the 175. The PMO also provides a forum for employees to share their ideas.
The areas that we could save on O&M and being more efficient across the company. So I don't want to give a dollar amount on that yet at this point.
As to where we are we've been.
Part of the process of that provide brings a lot of rigor to the to the savings we got about the mall.
Complete business cases, where we're needed what I can tell you is that we are confident in achieving the $1 75.
And potentially more than that and the development of the TMO really is is even enhance that confidence as we're working through this.
Got it solid guys. Thanks for the time.
Thanks again.
The next question comes from Paul Zimbardo with Bank of America. Please go ahead.
Hey, Bob Hi, Hi, good morning, Tim Thanks.
It.
To follow up on that last question for Jerry gas quickly is that the TMO and those savings more about derisking and extending the outlook or is that something that could be incremental in the planning period.
Yeah. So we will have to go through all of those items I mean, certainly de risked and gives us confidence in the 175 through the planning period, whether those items that are in excess of the 175.
We'll have to see whether they come into this period for execution, whether the longer dated items.
And look there there's headwinds that we have to offset as well, we still see inflation and interest rates. So we have a bank of ideas and opportunities to execute on should we see.
Those headwinds persist or or increase and then that just gives us confidence in the near term to achieve the 175 and the six to eight per cent earnings earnings growth and it gives us confidence in the longer term to continue to execute on the strategy.
I would reiterate that Paul I think it gives us Paul alright at AR.
Certainly.
Sure so the confidence in the 175, but likely gives us upside potential.
And beyond that.
Yeah.
Okay, great. Thank you very clear and then switching topics I noticed the the weather normalized sales volumes were decently down in the quarter and now trailing 12 months, both Pennsylvania, Kentucky, just could you give any color on what you're seeing on the ground and just expectations for the second half of the year.
Yeah, sure so well from a.
Yeah from a from a second half of the year. We would expect we have in our forecast normal weather from a longer term forecast we continue.
50 basis points of sale of low growth and our plans in total and we continued to be believed that that that's achievable growth forecast.
Some of the near term impact that were seeing particularly on the residential side has been due to energy conservation with the rising commodity prices.
I would expect that to be a short term anomaly given that we've seen a significant a significant decline in commodity prices already this year.
And we would expect longer term to see growth in residential usage as electric vehicles and electric electrification becomes more prevalent.
Lower industrial sales in Kentucky have not really impacted our margins those customers more on our demand driven than usage.
We think about longer term theres, a number of factors that give us confidence in our assumptions.
<unk> continued to see positive economic factors in Pennsylvania, and Kentucky, including continued low unemployment rates and strong GDP growth.
As we've discussed numerous times in Kentucky, we're coming off the back to back record years of economic development of over $10 billion of announced investments in each of 'twenty. One 'twenty. Two that includes the Ford EV battery plant initiative, which we've talked a lot about that's broken ground and well under construction.
The state is targeting another $8 billion of investment for 2023, so when we look at the 10 years. Prior to this period from 2010 to 2020, there was an average of about $4 billion per year and economic development, So to see $10 billion in each in 'twenty, one and 'twenty two and projecting eight this year highlights the.
Kentucky is a great place to do business and continued economic development there in support of our growth assumptions, but we continue to see strong industrial growth in manufacturing and agricultural sectors as well.
Yeah, we're not concerned with volumes at all other than the impact on weather I would say are our volume story is really weather driven.
Okay, great. Thanks for the detailed answer I appreciate it.
Sure.
The next question comes from David Arcaro with Morgan Stanley . Please go ahead.
Yeah.
Hey, good morning.
Good morning, Thanks for taking my questions, let's see I think just one here you know I was curious we're starting to see some easing of supply chain pressures in the solar industry.
Commodity costs coming down.
Module prices declining somewhat in PPA prices easing I was just wondering if.
If you if you think that could impact at all the outlook for your Kentucky, just the generation mix, maybe longer term or are there other opportunities to see lower PPA prices are lower costs in the current C. P C N filing or if you're.
Thinking and analysis has evolved at all for the longer term generation mix there.
Yeah look I think need the bigger issue in getting.
Our solar deployed in Kentucky, as more siting and permitting phase as opposed to necessarily to come the supply chain issues, although you're right they have been.
An issue across the industry and that is starting to abate in our case, though I think it is more siting and permitting which I think the company owned solutions make.
It makes that much easier because we can navigate that easier than third party developers have been able to so far.
So as you know our RCP CN has a combination of company owned and Ppas and it will continue to look at.
The executability of those Ppas.
If we continue to see issues, there that could actually push yes.
More to recommending more company owned where we had a higher degree of confidence that we can get them built.
Okay Gotcha.
Helpful color didn't appreciate that in the in the backdrop there that's all I had thanks.
Well.
The next question.
<unk> comes from Shar <unk> with Guggenheim Partners. Please go ahead.
Hey, good morning, guys.
Good morning.
I just wanted to starting with the Kentucky. So you can see in filing I mean, obviously, thanks for the incremental color in the prepared on the timeline.
As we look ahead to the prospects for settlement you mentioned August 15th formal conference I guess, what could that look like is it partial maybe the gas, but not the renewables just any additional color on how to think about that would be great.
Well look I think you can appreciate I don't necessarily want to get into.
Negotiating positions at this point on the call but.
What I'll say just around the.
The process itself and we're actively engaged right now.
With with various intervenors as you as you mentioned.
Is that on a comprehensive scheduled for the 15th if that goes well and we can get settlement on at least significant issues in the case with enough parties.
Then we may be able to present, a stipulation to the PSC for their consideration.
As you know the hearings are scheduled to begin on the 22nd of August that could become a forum for the PSC to take up the settlement agreement, if we're able to reach one.
But at this point I'd say, it's too early to tell if we'll be able to reach a settlement.
But if we don't of course, we are ready to defend the plan as filed as we've been indicating all along so a little early at this point to tell if we can get there but.
Certainly we are open to those discussions.
So let me let me just drill down a little bit on the funding side you know in in the off chance there are issues with the C. P. C N right.
I guess, Vince do you have avenues, either true pollution control, our T&D work to offset that space in your Capex plan I guess.
In a scenario where there is issues and then do me a favor can you just maybe frame what how much of that Capex, you could see being backfields right in that worst case scenario.
Yeah.
Well look I think the key takeaway is I'm not sure I would expect.
Whether we have a settlement.
Or probably mitigating our case that that would have a material impact on either our capital plan or or our EPS targets Kevin.
The different buckets of Capex, whether it's building replacement generation or environmental spend or other types of capex that we might deploy in Kentucky and elsewhere across the fleet.
Yeah, if you look at them.
The testimony and based on everything that has been filed today I don't think the outcome is going to be an all or nothing on the coal plant retirement.
But when you look at the Naval plan, which was consistent with what we were assuming in the CPC and that.
That would require <unk>.
On Gen. Two Mill Creek, One Mill Creek, two also a new cooling tower at Hail Creek one.
When you look at the math, right and EOG regulations, especially the EOG regs.
That could result in significant incremental investments required to do so.
No.
Even if it was.
Full rejection of the retirements, which again I don't I don't think that will be the outcome.
As we've talked in the past that's.
And then the 500 to a 1 billion five of environmental Capex that doesn't even include the amount of Oh.
Maintenance capital, we'd have to spend on those plants.
Going forward, so again I'm not sure of the outcome necessarily impacts the capex and EPS trajectory it might just be different pockets, where we're spending that capital.
And then just lastly, pockets that you couldn't be spending that capital. This was obviously the worst case scenarios.
Assuming this but in the case that it does turn out to be negative that incremental capital doesn't have a tightening lag right. So you can go ahead and recognize it fairly immediately where we wouldn't give it in your earnings growth.
In the near term.
Well some of that Capex would have to we'd have to start spending that right away to continue to operate those.
Those plants and that that to your point that would be the comparable under the environmental cost recovery, which does not require a base rate case for recovery.
Got it perfect. Thank you guys have a great week I appreciate it.
Great. Thanks.
Okay.
The next question comes from Gregg <unk> with UBS. Please go ahead.
Hey, Greg.
Hey.
Yeah. Thanks, this may be repetitive.
I know you you said that the testimony.
From Intervenors was.
In line with expectations did you did you.
Learn anything about.
You know their their positions that was incremental to the process that we're the process itself, but.
Youre willing to share.
Yeah.
Not really Greg I would say the testimony was was as expected I think we've talked about.
Expected intervenor positions when we when we rolled out the plan that we filed.
So we knew the call association would be.
Against retiring coal we knew the environmental intervenors would be.
Pushing more renewables.
Again our plan.
<unk> balances all of those interests, but more importantly, it <unk>.
Implies with S. Before it complies with our obligations to serve these costs reliable safe and.
It is increasingly clear.
What we're hearing a lot from our customers and from our two major cities and Louisville and Lexington.
So we were we were extremely thoughtful and took a lot of.
Actually intervenor input from that from the IRB process into coming up with what we proposed.
As I talked about however, we are willing to engage in settlement discussions with the parties and we'll see.
If we can reach something here in the next couple of weeks.
Into that the hearings beginning on the 22nd so.
I would say as expected and we incorporated most if not all of that into the original plan that we filed with the commission.
Alright. Thanks.
Right.
As a reminder, if you have a question. Please press Star then one answer the question queue.
The next question comes from crowd out let's move yourself. Please go ahead.
Hey, good morning, Vince Good morning, Joe just wondering.
I just wanted to follow up on <unk> question just one.
I am not sure you can answer it do you know do you know what the commission in Kentucky.
Would prefer the parties reach a settlement or given maybe with the closure of plants or whatever that they have more bias that they prefer a fully litigated track to have maybe a stronger records.
Oh, I don't know that they have a preference one way or the other anthony to be honest with you there.
They are they're going to uphold their obligation to ensure whether it's the settlement or our case that it meets the requirements. So that's before and again our obligation to serve.
In a in a lease cost reliable way, so they're going to they're going to do their duty regardless of what's in front of them, whether it's the settlement of our case.
I'm not sure if they have a preference on which one is you can find them I.
I mean, well they'll take a settlement as evidence in the case you know they don't they don't have to approve the settlement, but they will certainly take it as evidence in the case.
The authority really lies with them in terms of whether or not to accept that or not.
Great and then just lastly.
I believe the company has been successful in reaching settlements in.
In the past in Kentucky.
Hi.
Just I guess my memory is getting a little foggy I believe the commission has approved those settlement did not modify them is that accurate.
So you're right generally we have been able to reach settlement with the parties to our cases.
The commission has modified them slightly in the past nothing too.
Cereal at times, they've accepted them.
As as filed and other times they are modified them I would say slightly.
Great. Thanks for taking my questions I appreciate it.
Sure thing.
This concludes our question and answer session I would like to turn the conference back over to Ben <unk> for any closing remarks.
Just wanted to say thanks for thanks for joining us on the call.
Feeling good about our progress so far year to date looking forward to the second half of the year.
Have a great weekend, everyone and well, we'll see you soon at the next conference.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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