Q3 2024 PPL Corp Earnings Call
[music].
Good day and welcome to the P. P. L Corporation third quarter 'twenty 'twenty four earnings conference call.
Speaker Change: All participants will be in listen only mode.
Speaker Change: Should you need assistance, please listen only conference specialist by pressing the star key followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: Please note this event is being recorded.
I would now like to hand, the call to Andy Ludwig Ludwig Vice President of Investor Relations. Please go ahead.
Andy Ludwig: Good morning, everyone and thank you for joining the PPL Corporation conference call on third quarter 2024 financial results.
Speaker Change: We have provided slides for this presentation on the investors section of our website.
Andy Ludwig: We'll begin today's call with updates from Vince Sorgi, PPL, President and CEO and.
Andy Ludwig: And Joe Bergstein, Chief Financial Officer.
Andy Ludwig: I will conclude with a Q&A session following our prepared remarks.
Speaker Change: 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.
Speaker Change: Actual results may differ materially from these forward looking statements.
Speaker Change: 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.
Speaker Change: We will also refer to non-GAAP measures, including earnings from ongoing operations or ongoing earnings on this call.
Speaker Change: Reconciliations to the comparable GAAP measures please refer to the appendix.
Speaker Change: Now I'll turn the call over to Vince.
Vince Sorgi: Thank you Andy and good morning, everyone welcome to our third quarter Investor update.
Vince Sorgi: Let's start with our financial results and a few highlights from our third quarter performance on slide four.
Vince Sorgi: Today, we reported third quarter GAAP earnings of 29 per share.
Adjusting for special items third quarter earnings from ongoing operations were <unk> 42 per share.
Vince Sorgi: Given the strength of our year to date performance, we narrowed our 2020 for ongoing earnings forecast to $1 67 to $1 73 per share.
Vince Sorgi: From the prior forecast range of $1 63 to $1 75 per share.
Vince Sorgi: As a result, we have increased the midpoint of <unk> to $1 70 per share.
Throughout the third quarter, we continued to make excellent progress on delivering our 2024 priorities.
Vince Sorgi: We're on track to complete approximately $3 $1 billion in infrastructure improvements this year to.
Vince Sorgi: To advance a reliable resilient affordable and cleaner energy future for our customers.
Vince Sorgi: And through our ongoing business transformation initiatives, we are on pace to achieve our annual O&M savings target of $120 million to $130 million this year compared to our 2021 baseline O&M.
Vince Sorgi: Looking ahead.
Vince Sorgi: We're well positioned to achieve our projected 6% to 8% annual earnings per share and dividend growth through at least 2027.
Vince Sorgi: We're focused on executing our capital plan, which includes $14 $3 billion in infrastructure improvements from 2024 to 2027.
Vince Sorgi: With continued potential upside driven by data center connections in Pennsylvania and Kentucky.
Vince Sorgi: New generation in Kentucky.
Vince Sorgi: New enterprise wide technology investments.
Vince Sorgi: And additional resiliency investments across all of our jurisdictions as we come back more frequent and severe storms.
And across PPL.
Vince Sorgi: We continue to drive efficiencies through our utility of the future strategy, keeping us on pace to achieve our annual O&M savings target of at least $175 million by 2026.
Vince Sorgi: Which again is compared to our 2021 baseline.
Vince Sorgi: Moving to slide five.
On October 18th.
Vince Sorgi: <unk> and Ku submitted their updated integrated resource plan or <unk> to the Kentucky Public Service Commission.
Vince Sorgi: AARP provides a robust analysis of a wide range of variables, including demand growth fuel prices supply side resource costs and pending environmental regulations, all to guide our resource planning.
Vince Sorgi: This year's IOP examined 300 potential resource portfolio and fuel price combinations.
Vince Sorgi: To arrive at a plan to most effectively meet forecasted demand over the next 15 years.
Vince Sorgi: It's important to note that the AARP is submitted for informational purposes only.
Vince Sorgi: That said.
The detailed analysis provides reasonable insights about future generation needs.
Vince Sorgi: It helps us to identify no regrets recommendations given there is uncertainty with some of the inputs.
Vince Sorgi: Key drivers in our latest IRB analysis includes stronger demand forecast and higher costs for new supply side resources from what we saw in our last IRB, which was filed three years ago in 2021.
Vince Sorgi: In terms of demand.
Vince Sorgi: Our mid load scenario reflects load growth of nearly one 5% annually through 2039.
Vince Sorgi: But more importantly projects annual load growth of over 3% through 2032.
Vince Sorgi: Which is significantly impacted by projected datacenter load.
Vince Sorgi: We evaluated several scenarios for datacenters ranging from zero to nearly two gigawatts of new load by 2032 with.
Speaker Change: With the mid load scenario, assuming just over one gigawatt.
Speaker Change: Based on the interest levels that LG, <unk> and Ku have already seen from developers.
Speaker Change: We view, no or low datacenter growth as unlikely.
Speaker Change: Regarding the cost of new generation.
Speaker Change: We've seen those cost increased markedly since our 2021 ERP except for batteries.
Speaker Change: That increases the relative value of our existing generation resources and significantly impacted the generation mix recommended in this year's IRB.
Speaker Change: Regarding the battery costs.
Speaker Change: This is the first time in our ongoing resource planning that the sum of capital and non fuel O&M costs for battery storage with tax incentives included.
Speaker Change: Is less than the cost of new simple cycle combustion turbines.
Speaker Change: For this reason our recommended plan includes the addition of 900 megawatts of battery storage.
Due to the price increases in solar generation, we are not assuming the 637 megawatts of solar Ppas that were approved by the PSC and our 2022 <unk> get built.
Speaker Change: As noted in our ERP.
Speaker Change: The impact of environmental regulations remains a key uncertainty as three major regulations or.
Speaker Change: Are the subject of current federal court challenges.
Speaker Change: Our IRB models for different environmental regulations scenarios, ranging from none to all of the regulations, becoming enforceable.
Speaker Change: The updated AARP assumes all resources and retirements approved in our last CPC and proceeding are completed as planned by 2028, except for the solar Ppas that I just mentioned.
Speaker Change: This includes our approved plans to retire 600 megawatts of Asian coal and 50 megawatts of aging, peaking units by 2027.
Speaker Change: In addition, it includes building a new 640 megawatt natural gas combined cycle unit 240 megawatts of company owned solar and 125 megawatts of battery storage.
Speaker Change: Above and beyond this generation.
<unk> lays out several resource plans, including two we've referenced on this slide.
Speaker Change: Our recommended resource plan as well as an enhanced solar plan applicable in certain scenarios.
Speaker Change: The recommended plan reflects our no regrets approach to planning much like our latest <unk> filing.
Speaker Change: That includes important generation development, even if scenarios that reflect high economic load growth or Cotr regulations do not come to fruition.
Speaker Change: This plant projects the need to build an additional 2700 megawatts of new generation from 2028 through 2035.
Speaker Change: To safely reliably and affordably serve future demand growth.
This includes two new 650 megawatt combined cycle natural gas plants, one in 2030 and another one in 2031.
It includes the addition of 400 megawatts of new battery storage in 2028.
Speaker Change: And 500 megawatts of additional battery storage in 2035.
Speaker Change: It also includes 500 megawatts of solar and 2035.
Speaker Change: The recommended plan also projects the need to add new environmental controls at the Gen and Trimble County coal plants.
Speaker Change: To ensure compliance with EOG and Nox regulations.
The enhanced solar plan. Meanwhile.
Differs from the recommended plan only in the timing and level of new solar generation at it.
Rather than adding 500 megawatts of solar in 2035 the.
Speaker Change: The enhanced solar plant would accelerate and boost solar additions to 1000 megawatts by 2032.
Speaker Change: To address potential data center interest in carbon free generation.
Or a faster than projected decline in solar prices.
Speaker Change: Based on our analysis of current factors, we see potential additional generation needs raging from 'twenty $702 3200 megawatts.
Speaker Change: With associated capital investments, including the environmental retrofits for the coal plants of 6% to $7 billion through 2035, using current pricing estimates.
Speaker Change: We also evaluated the prospects of joining in our <unk> and our review of options.
Speaker Change: Which concluded that we would be introducing significant unquantifiable risks to our customers, which is not surprising based on what we're seeing in other <unk>.
Speaker Change: Our next steps in the IRB process are to engage with the PSC over the next few months and discuss the various plans we've provided.
Speaker Change: We would expect to file an additional CPC and request as early as the first quarter of next year to address near term generation needs for our customers.
Speaker Change: Moving to slide six and an update on data Center development.
Speaker Change: Our Pennsylvania, and Kentucky service territories continue to attract growing interest from data center developers.
Speaker Change: In our Pennsylvania service territory, we now have over 39 gigawatts in our Q with eight gigawatts in advanced stages of planning upfront. The five gigawatts, we highlighted during our second quarter call in August.
Speaker Change: We estimate these eight gigawatts represent incremental PPL capital needs of $600 million to $700 million in the 2025% to 2029 timeframe, none of which are reflected in our current capital plan.
Speaker Change: Note that we have included these types of projects and our latest PJM large load forecast.
Speaker Change: It shows that PPL electric has the second highest projected peak load editions in PJM through the end of this decade.
Speaker Change: It's important to note that projects in the queue may include duplicate due to developers assessing multiple sites for the same project.
Speaker Change: And it's important to highlight that all the projects in our Qs or in front of the meter projects.
Speaker Change: Projects in the advanced planning stages have signed agreements they are in.
Speaker Change: Various stages of Pjm's review process with some having completed those reviews.
Cost incurred by PPL for these projects are reimbursable by developers, even if they do not move forward with the projects.
Speaker Change: Recall that each new data center connection will lower transmission costs for customers.
Speaker Change: The savings are expected to occur as the data center load ramps up over the next several years and the data centers begin to pay transmission charges.
Speaker Change: In terms of the amount.
Speaker Change: We estimate that for the first gigawatt of data center demand thats connected to the grid our.
Speaker Change: Our residential customers could save nearly 10% on the transmission portion of their bill assuming a PPL investment level of about $100 million.
Speaker Change: Which for the average residential customer and based on current rates would represent about $3 per month in savings.
Speaker Change: While additional datacenter connections will also lower transmission costs for customers. The amount of those savings will depend on a number of factors, including timing of load ramp the amount of investments required and the peak load on our system.
Speaker Change: Turning to Kentucky, we have about 400 megawatts in advanced stages of planning with potential to increase up to one gig.
Speaker Change: Active data center, a request in Kentucky now total nearly three gigawatts.
Speaker Change: Potential demand an increase from two gigawatts at the time of our second quarter call.
Speaker Change: As in Pennsylvania.
Speaker Change: Any transmission upgrades in Kentucky would be additive to our capital plan.
Speaker Change: Although the more significant capital investments in Kentucky would arise from any incremental generation investments.
Speaker Change: As I shared earlier the.
Speaker Change: The recommended plan in our IRB projects, a need for additional natural gas and battery storage beyond what was in our CPC unapproved last year to support longer term economic development and data center load growth.
Speaker Change: Moving to slide seven and several key operational and regulatory updates.
Speaker Change: <unk> and Ku responded well to the remnants of hurricane Helene, which knocked out power to more than 224000 customers.
Speaker Change: And resulted in 600 down wires and 160 broken Poles.
Speaker Change: This storm was the fourth most significant weather event for the region in the last 20 years.
Speaker Change: We restored 95% of our customers within four days and all customers capable of receiving service within 60 days.
Speaker Change: And a great example of our <unk> strategy crews from our Pennsylvania operations in more than 400 contract resources aided in the effort.
Speaker Change: We've since requested regulatory asset treatment for about $11 million in operating expenses tied to our restoration efforts.
Speaker Change: Once our restoration efforts in Kentucky, we're complete.
Speaker Change: We were proud to send over 400 employees and contractors from our utilities in Pennsylvania, Rhode Island in Kentucky to support our colleagues in Florida, Georgia, and Virginia. Following the significant damage sustained by Hurricanes Helene and Milton.
Speaker Change: Mutual assistance is one of those areas that makes our industry truly unique.
Speaker Change: And I. Thank all the men and women on our teams that provided that much needed support.
I also thank all the men and women from Comet Duquesne light NIPSCO and Centerpoint that helped us in our efforts to restore power to our Kentucky customers during hurricane Helene.
Speaker Change: In other updates from Kentucky.
In October we filed a request with the <unk> to recover $125 million and retirement costs associated with Mill Creek, one which is set to retire by the end of this year.
Speaker Change: We requested approval to recover the costs through the retired asset recovery rider or <unk>.
Speaker Change: In our first filing under this new mechanism.
Speaker Change: The rider provides cost recovery over a 10 year period upon retirement of such assets as.
Speaker Change: As well as a return on those investments at the utilities than weighted average cost of capital.
Speaker Change: The implementation of the <unk> rider if approved will result in a slight bill credit for customers beginning in May 2025 based on the current procedural schedule established by the commission.
Turning to Pennsylvania.
Speaker Change: Our disk waiver petition to increase the disc revenue cap from 5% to 9% continues to proceed through the process as expected.
Speaker Change: We have completed the briefing process and anticipate a recommended decision in November from the ALJ, that's assigned to the case with the PUC decision to follow in early 2025.
Speaker Change: Also in Pennsylvania, PPL electric utilities yesterday announced new price to compare rates effective December one.
Speaker Change: The new residential price to compare represents about a 2% decrease compared to last year's winter price to compare price.
Speaker Change: In all aspects of our business. Our company has remained very focused on affordability for our customers.
Speaker Change: This focus also extends to how we purchase power for non shopping customers NPA.
Speaker Change: With this in mind, we were pleased to reach a settlement with the parties to our latest default service program and procurement plan.
Filled with the PUC.
Speaker Change: We are seeking approval of our plan to procure electricity from June <unk> 2025 through May 31, 2029 to meet PPL electric's provider of last resort obligations.
Speaker Change: Our latest plan, which we filed in March <unk>.
Speaker Change: Includes modifications to the current product mix and auction timing that PPL electric uses to buy power.
Speaker Change: These modifications are intended to strengthen price stability and lower prices for customers, while supporting resource adequacy and fostering the continued growth of renewable generation.
Speaker Change: We expect a PUC decision on the settlement by the end of the year.
Speaker Change: Shifting to Rhode Island.
Speaker Change: I am pleased to report that we completed the integration of Rhode Island energy into PPL in the third quarter.
Speaker Change: Exiting the transition services entered into with National grid, when we acquired Rhode Island Energy in May 2022.
Speaker Change: I can't say enough about how well our teams rallied as one PPL to deliver this outcome.
Speaker Change: Which involved exiting more than 130 transition services in phases over the past two years.
Speaker Change: It was truly a team effort from Rhode Island to Pennsylvania to Kentucky, as well as everyone at National grid that worked so hard to make the transition possible.
Speaker Change: Excited to have Rhode Island energy now fully integrated to best serve our customers.
Speaker Change: Finally.
Speaker Change: In September the Rhode Island Public Utilities Commission approved the company's winter last resort service rates as filed.
Speaker Change: The rate for non shopping residential customers effective October 1st refer.
Speaker Change: It reflects an 8% decrease from last year's winter rate and we're pleased to be able to pass those savings onto our customers.
I'll now turn the call over to Joe for the financial update.
Joe Bergstein: Thank you Vince and good morning, everyone, let's turn to slide nine.
Joe Bergstein: Ppl's third quarter GAAP earnings were <unk> 29 per share compared to 31 per share in Q3 2023.
Joe Bergstein: We recorded special items of <unk> 13 per share during the third quarter.
Joe Bergstein: Primarily due to integration and related expenses associated with the acquisition of Rhode Island Energy.
Joe Bergstein: Adjusting for these special items.
Joe Bergstein: Third quarter earnings from ongoing operations were <unk> 42 per share a decrease of <unk> <unk> per share compared to Q3 2023.
Joe Bergstein: Turns on capital investments and higher sales volumes, primarily due to favorable weather in Kentucky were more than offset by higher operating and financing costs quarter over quarter.
Joe Bergstein: For Q3, 2024, we estimate that weather was about <unk> <unk> favorable compared to normal conditions with cooling degree days up about 13% and our Kentucky territories over the quarter.
Joe Bergstein: Turning to the full year.
Through the first nine months of 2024, our GAAP earnings are now at 96 per share compared to 85 per share through the same period last year.
Joe Bergstein: Adjusting for special items recorded through the third quarter.
Joe Bergstein: Earnings from ongoing operations totaled $1 34 per share for the first nine months of 2024.
This represents an improvement of <unk> 14 per share compared to the same period, a year ago, which puts us in great shape heading into the fourth quarter to achieve our financial targets for 2024.
Turning to the ongoing segment drivers for the third quarter on slide 10.
Joe Bergstein: Our Kentucky segment results were flat compared to the third quarter of 2023.
Joe Bergstein: These results were driven by higher sales volumes.
Joe Bergstein: Favorable weather.
Joe Bergstein: Offset by an adjustment to environmental cost recovery revenues that was recognized during the quarter.
Joe Bergstein: Our Pennsylvania regulated segment results decreased by <unk> <unk> per share compared to the same period a year ago.
Joe Bergstein: The decrease was driven by higher operating costs in several areas, including higher storm cost increased vegetation management and an increase in on collectibles.
Higher operating costs were partially offset by higher transmission revenues.
Joe Bergstein: Our Rhode Island segment results increased by <unk> <unk> per share compared to the same period a year ago.
Joe Bergstein: This increase was primarily driven by a favorable adjustment to property taxes.
Joe Bergstein: And finally results of corporate and other decreased by one seven per share compared to the same period, a year ago, primarily due to higher interest expense due to an increase in long term debt.
Joe Bergstein: In Q3, we were opportunistic amidst increased market volatility and issued $750 million of senior notes at PPL capital funding at a rate of five in a quarter that mature in 2034.
Joe Bergstein: We saw significant demand for the deal, which we believe is attributable to ppl's excellent credit position with one of the strongest balance sheets in the sector.
Joe Bergstein: With another solid quarter behind us we're on track to deliver on our financial targets for our shareowners.
Joe Bergstein: We expect to exceed the midpoint of our original 2020 for ongoing earnings forecast as reflected in our updated forecast range of $1 67 to $1 73 per share with a midpoint of $1 70 per share.
Joe Bergstein: And we remain extremely well positioned for continued long term growth.
Speaker Change: As Vince outlined we see an improving fundamental backdrop that we believe will require significant capital investments to advance our utility of the future strategy that can satisfy our customers' evolving needs and ensure we can continue to deliver safe and reliable service.
Speaker Change: We strategically positioned PPL with the financial flexibility needed to support these critical investments, while continuing to deliver on our earnings growth targets.
Speaker Change: But we're as excited as we've ever been for the prospects with PPL. This concludes my prepared remarks, I'll now turn the call back over to Vince.
Vince Sorgi: Thank you Joe.
In closing, we continue to deliver across the board on our commitments to shareowners and customers in the third quarter.
Vince Sorgi: This includes executing our capital plans on time and on budget to strengthen grid reliability and resiliency.
Vince Sorgi: Advancing sustainable efficiencies to help keep energy affordable for our customers completing.
Vince Sorgi: The successful integration of Rhode Island energy into PPL.
Vince Sorgi: Responding quickly and effectively to major storms to restore power and peace of mind for our customers and communities.
Vince Sorgi: And advancing our responsible generation investments in Kentucky, as well as responsible resource planning to deliver safe reliable affordable and cleaner energy mix.
Vince Sorgi: As we work to close out 2024, I continue to be very proud of our team here at PPL.
Vince Sorgi: I'm confident in our utility of the future strategy I am proud of the progress, we're making as we execute that strategy.
And I am excited about the opportunities ahead as we move into 2025.
With that operator, let's open it up for questions.
Speaker Change: We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: And our first question comes from Shar <unk> of Guggenheim Partners. Please go ahead.
Speaker Change: Hey, Vince.
Vince Sorgi: Joining shar.
Good morning, Good morning, Good morning, Vince I know sort of this resource adequacy topic has been kind of a perennial question with the eastern wires companies. During this earning season and obviously to your credit you've been one of the first to highlight the issues and kind of talk about the solutions over a year ago.
Vince Sorgi: The auction is now delayed I guess.
Speaker Change: I'm not sure you guys are all aligned but I guess, where do we stand with the solution. There could we see a bill introduced in Pennsylvania, effectively proposing to allow the wireless companies to own a certain amount of peaking assets in base rates is it Texas type energy fund enough I guess, what should we be watching for on the legislative side.
Should we be thinking about all the different pieces out there. Thanks.
Speaker Change: Yes, there is a lot there in that question.
Speaker Change: Sure Let me let me maybe just how im thinking about this issue broadly.
Speaker Change: So the auction itself.
Speaker Change: Hey.
Speaker Change: Look I think that just reinforces the need for the state to take control of this issue.
Speaker Change: So I truly hope that Pennsylvania continues to pursue state solutions.
Speaker Change: And does not slow that down as a result of the delay in the auction.
Speaker Change: I do think.
Speaker Change: And fully expect that PJM will make some improvements on the supply side of the equation with the.
Speaker Change: The delay, but I also expect them to include an uploaded an updated load forecast, which of course will include incremental data center load. So I would expect that to be higher as well. So at this point I can't predict whether capacity prices will be lower.
Speaker Change: And the next option, which is for the 26 seven planning year compared to the 270 that printed for the 'twenty five 'twenty six planning year.
Speaker Change: Just given the different moving parts on both the supply and the demand side in terms of.
Speaker Change: Timing of legislation, we've always been operating under an expectation that that would occur sometime in early 'twenty five anyway.
Speaker Change: Again hopeful that that would not be delayed as a result of the auction I think the need and the criticality of this issue and the urgency of this issue is such that we need to continue to move forward at.
Speaker Change: At the pace, we've been we've been working with we continue our discussions with all of the important decision makers the Governor's office the state legislature as well as the PUC in fact, the PUC is scheduled the resource adequacy Technical conference.
Speaker Change: Towards the end of this month, we'll be participating in that and then as we've talked in the past just thinking about what this legislation could look like obviously, we don't have anything.
Speaker Change: Out there right now to comment on but as I think about the options. Obviously there is the.
Permitting of utilities to invest in generation, which we've been talking about and they can support us in building that regeneration in the state putting it in rate base I think on the market side Shar. They can they can provide low interest loans to the generators similar to what they did in Texas with that low interest fund I.
Speaker Change: They can also create some incentives for utilities in the ICP is to enter into long term power purchase agreements.
Speaker Change: And what we are currently able to do under our default service plan. So we have some ability to do that but it's not as extensive as I think.
Speaker Change: Potentially they could incentivize us to do so.
Speaker Change: From our perspective, we continue to believe that allowing the utilities to directly invest in the generation would be the most impactful and getting generation built in the state.
Certainly in the timeframe necessary to address the gaps that we're seeing around resource adequacy.
I think it's reasonable to.
Speaker Change: Believe or expect that any new legislation in the state could include some or all of these ideas.
Got it Okay. That's helpful. I guess, we'll stay tuned there and then just the Kentucky side you touched on it a little bit on your prepared but if we look at all of this kind of advanced stage data center demand.
Speaker Change: I guess, how do we think about the capital requirements to these versus the current plan.
Speaker Change: Is there is there the same transmission sensitivity is Pennsylvania, there I know we have to wait for the capital update, but just maybe a little bit of color there would be helpful. Thanks.
Speaker Change: Yes, so generally the opportunity.
Speaker Change: Or the requirement really for additional.
Speaker Change: Capex around transmission related to the data centers is just less than it is in Kentucky.
As opposed to <unk> and that's primarily because.
We're dealing with those.
Speaker Change: Supply constraints with generation and so we're very opportunistic in where we build that generation and so taking advantage of our existing sites, where we have generation, where we may be retiring certain assets. We just don't need to make as much investment in transmission sharp.
Speaker Change: Really the material.
Capital requirement is around the generation, which you saw in the updated ERP.
Speaker Change: Got it perfect. Thanks, so much I'll pass it to someone else and see you in about a week.
Speaker Change: Looking forward to it.
Speaker Change: Okay.
Speaker Change: The next question comes from David Arcaro of Morgan Stanley. Please go ahead.
David Arcaro: Hey, good morning, Thanks, so much.
David Arcaro: Okay.
David Arcaro: Dave I'm wondering just as you think about this first CPC and it could come pretty soon but what maybe specifically might be included in that in that first one in Kentucky related to the ERP.
David Arcaro: Would you potentially be looking out to that 2030 generation need and would there be a gas plant potentially in this first round.
Speaker Change: Yes, thanks for the question Dave.
Speaker Change: Around timing as I said I think we could follow the IRB with CPC on filing as early as the first quarter.
Speaker Change: Under any scenario that we're looking at it's pretty clear that we need to at least get moving on the second CCT to be in service in 2030. So that's that's really driving I would say the need to get the CPC and filed as soon as we can.
Speaker Change: The team will be looking at all of the various.
Speaker Change: Supply recommendations to see what we include in the CPC and versus a future one, but clearly I would expect at least that that second CGT likely the one and 2031.
Speaker Change: Some of the other dispatch while Jen maybe in the 2008 timeframe.
Speaker Change: The batteries et cetera. So.
Speaker Change: When we look at.
Speaker Change: Really the batteries and the SCR on churn those are really.
Speaker Change: In there to create and extend dispatch of generation for what we see as more immediate demand increase is coming from the data center. So obviously it takes some time right now to get the combined cycles Bill right now we're looking at 2030, <unk> and then 2031.
Speaker Change: At the earliest so some of those again batteries in the SCR to keep that supply there while that demand is ramping up more near term.
Speaker Change: Yes got you, Okay, that's clear that makes sense.
Speaker Change: And then I guess as you.
Speaker Change: I guess in Kentucky, like how speculative as the data center outlook.
Speaker Change: You've described kind of what stage, it's at right now I'm just wondering.
Speaker Change: Is it far along enough to give the commission confidence now that these investments are needed that you do need this generation, obviously, it's a pretty big ramp up in the in the datacenter outlook, but probably.
Speaker Change: Maybe more uncertainty than usual.
Speaker Change: So yes, how are you thinking about that.
Speaker Change: Yes, sure I mean, clearly the data center load is not.
Speaker Change: The only.
Speaker Change: Large load that we're seeing come to fruition and Kentucky, especially with all of the economic development. That's been occurring there over the last few years. So the demand curve that mid low demand curve that we.
Speaker Change: Put in the in the recommended case, we feel really good about it.
Speaker Change: Terms of data centers protect in particular again, where we're seeing 400 megawatts of advanced stage.
Speaker Change: Active discussions to upsize that to a gigawatt. That's all we put in the mid low case. So we're obviously looking at three gigs overall that continues to grow quarter after quarter.
Speaker Change: So we're pretty confident with that one gig that we included in the Midland Basin.
Speaker Change: Okay, Great. That's helpful context, thanks, so much.
Speaker Change: Sure. Thanks.
Speaker Change: The next question comes from Jeremy Tonet of Jpmorgan. Please go ahead.
Jeremy Tonet: Hi, good morning.
Speaker Change: Good morning, Jeremy.
Jeremy Tonet: Just wanted to take a finer point to some of the conversation on data centers as you outlined there.
Jeremy Tonet: Specifically as far as the timeline of formal deal announcements.
Jeremy Tonet: Any thoughts on how that could materialize and just kind of the cadence over time, just trying to get a feel for when capex could really start to enter the plan incrementally based on what could happen there.
Yes sure so.
Speaker Change: I think we're actually getting close on some of these announcements.
Speaker Change: And.
Speaker Change: I think once you see the first one or two right.
Speaker Change: It'll probably prompt some others to make announcements as well obviously there is a huge competitive component at least on the hyperscale side.
Speaker Change: With these announcements and so.
Not not getting.
Speaker Change: Too far out and showing your competitive position around the region I think is a pretty critical.
Speaker Change: Kind of communication strategy on the Hyperscale is part, but I think once once those announcements start I would suspect that youll kind of see the floodgates open.
Again getting close on the first one.
Speaker Change: I would suspect by the end of the year at least on our first large one and then we'll see going into 25 what follows from that.
Speaker Change: Very helpful. Thank you for that and then shifting gears to Kentucky, we have observed a very constructive relationship I think with the.
<unk> on the commission over time here, but now that we have kind of a new composition. Just wondering if you could provide any updated thoughts on how you see that relationship at this point in time.
Speaker Change: Yes look I think the relationship is incredibly constructive as you said we've always.
Speaker Change: Operated under a constructive regulatory construct in Kentucky, I think part of that is.
Speaker Change: Because our team is thoughtful their analysis as deep it's well supported with.
Our conclusion is of our recommendations are well supported with the.
Speaker Change: The analysis and the depth and breadth of that analysis.
Speaker Change: As you know I think the commission uses are our operations as that's a model in the state.
Speaker Change: When they are dealing with some others. So generally it's been it's been quite positive we've met with.
Speaker Change: The New commission nothing coming out of that discussion would lead me to believe that that relationship would be anything different with this new commission moving forward.
Speaker Change: So we're feeling we're feeling good obviously the commissions at full staff now with the three commissioners.
Speaker Change: Angie Hatten, who was the vice chair is now the chair and then John Volt AC just joined in September So with that appointment we have we have a full complement and.
Speaker Change: Again, I would expect the constructive nature of that relationship to continue.
Speaker Change: Got it that's good to hear I'll leave it there.
Speaker Change: Great.
Speaker Change: The next question comes from <unk> Chopra of Evercore ISI. Please go ahead.
Speaker Change: Hey, good morning, Thanks for giving me good morning.
Speaker Change: Yes.
Speaker Change: Hey, good morning Lynn.
Speaker Change: Hey, just.
Speaker Change: On the comment.
Speaker Change: One of the strongest balance sheets in the sector totally agree there I was just kind of.
Don't want to front run your Q4.
Speaker Change: Update, but just can you talk to whether you think youll need to.
Speaker Change: Equity in the plan or not just given the cadence of Capex freezes, maybe any color you can share there would be helpful. Thank you.
Speaker Change: Yes, it does.
Speaker Change: Sounds like you are trying to front run the year end call.
Speaker Change: Sure.
Speaker Change: Sure. Thanks for the questions I guess, yes. So let me look there's numerous factors that go into determining our financing needs and we are going through the business planning process now and evaluating those factors, including.
Speaker Change: Additional capital needs and those needs are beyond what would.
Speaker Change: It would be in the next <unk> filing we're seeing additional needs for things like grid modernization grid.
Speaker Change: Grid resiliency, given the more severe and frequent storms that were seeing across all of our territories.
Speaker Change: Digital transformation transmission to support data centers and other load growth.
We've clearly been on a trend of identifying additional capital.
Spend which is driving higher rate base growth.
Speaker Change: I think in fact, each year since we've had the strategic repositioning our rate base growth has increased by about 100 basis points in each iteration of the plan and I certainly expect that trend to continue in our next update so we'll evaluate our financing needs in context of that broader plan update and provide you.
Speaker Change: Our expectations on the year end call, but we are in great shape, given our excellent credit position and we have flexibility to develop a plan that.
Speaker Change: Maximizes value for our shareowners.
Speaker Change: Continue to feel really good about our ability to achieve our earnings growth targets.
Speaker Change: Even with the additional capital needs that we expect in this next update.
Okay.
Speaker Change: That's excellent. Thanks, Thanks for that color, Joe maybe just a follow up to that capital allocation question and some of your peers have lowered dividend growth.
Speaker Change: To support higher EPS growth more again going back to your comments around very strong balance sheet to be today.
Speaker Change: Maybe give us your thoughts there.
Speaker Change: As you make those capital allocation decisions a dividend equity earnings growth.
Speaker Change: Yes, all of those things go into our consideration for our financing needs and the overall plan, but I think you are.
Speaker Change: Where we've seen that occurs in with companies that have had not.
The strength of our balance sheet that we have so.
Speaker Change: That is not that's not our intention at this time.
Very clear thank you.
Speaker Change: Great. Thank you thanks, guys.
Speaker Change: The next question comes from Paul Zimbardo of Jefferies. Please go ahead.
Paul Zimbardo: Hi, good morning team.
Speaker Change: Good morning, Paul.
Paul Zimbardo: I know you hit a lot on the generation and like the datacenter transmission needs as well I was just hoping you could frame the scope of the PJM or tap just looking at the.
Paul Zimbardo: The proposals there it seems like there could be a lot in ppl's zone like around three mile Island as well.
Hoping theres any quantification or details you can provide on potential incremental from that area as well.
Speaker Change: Yes, Thanks Paul.
Speaker Change: So we did submit a number of projects to resolve the issues that were.
Speaker Change: <unk> in the most recent window, we should know.
Speaker Change: What projects if any are selected from that window in the December January timeframe and of course, we'll be able to reflect those in our updated plan on the year end call.
Speaker Change: Look I would say regardless of what is selected in this window. We continue to believe that there will be significant transmission opportunities in Pennsylvania for the foreseeable future and that.
Speaker Change: That's really stemming from the strong economic development, including the data center.
Speaker Change: Load that we're seeing just the resources in the region, but.
Speaker Change: I think youre aware, but if not the vast vast majority of our transmission spend is not derived from these are opened.
Speaker Change: Open windows. So we really view these as incremental opportunities for us not not baked into our capital plan.
Speaker Change: For transmission.
Speaker Change: Okay, Yes, no definitely understood.
Speaker Change: On that point.
And then one other on the Kentucky IRB markets to partner.
Speaker Change: Did you disclose what the potential customer bill impact could be for the base plan Youre recommending and just more holistically, it's a lot of capital a lot of construction.
Speaker Change: Your comfort with ability to get the workers in Canada, the behind the scenes things to execute such a big plan.
Thank you sure.
Speaker Change: Yes, sure so all of.
Speaker Change: All of that will go into our filing of the CPC and so the.
Speaker Change: IRT is not it's not a rate case it is not.
Speaker Change: A filing where we're requesting.
Speaker Change: <unk> adjustments or anything like that so we will.
Speaker Change: Include and look at all of that as we're contemplating what we file in the CP CN.
Speaker Change: In the first quarter.
Speaker Change: We do have the coal plants.
Speaker Change: Retiring and continuing to depreciate.
Speaker Change: Which provides bill.
Speaker Change: The headroom there obviously, the IRR, which is the first.
In time, we are using that which is that retired asset recovery mechanism in Kentucky that takes the net book value at the date of retirement, and then spreads it out over.
Speaker Change: Our future 10 year period so.
Speaker Change: Any retirement associated with this plan would likely use that mechanism, which again reduces customer bills.
Speaker Change: So overall.
Speaker Change: When we look at our rate case timing and strategies, we're always thinking about affordability and making sure that we balance our ability to get these very critical investments.
Speaker Change: Proves but at the same time, making sure that we're keeping bill impacts.
Speaker Change: Inflationary.
Speaker Change: Amounts as best we can and I don't think well, we'll have an issue being able to do that as we implement the.
Speaker Change: The CPC on stemming from the IRB.
Speaker Change: Okay, Great and then just any overall thoughts on like labor construction execution ability.
Speaker Change: Yes, so no concerns on getting a battery installed in.
Speaker Change: In 2028, I think really what you're highlighting is the reason why the next season.
Speaker Change: CCT with would not be able to go in service until 2030, and then the one after that in 2031.
Speaker Change: So obviously, we used to be able to get combined cycle plants Don in the three ish time period. It's now five thats really due to supply chain constraints to your point not just on the turbines themselves, but with the EPC contractors and getting enough folks to do all this work so that is exactly in that dry.
Speaker Change: During that 2030 31 timeframe.
Speaker Change: Okay understood.
Speaker Change: Thanks for the update.
Paul Zimbardo: Thanks, Paul.
Speaker Change: The next question comes from Angie <unk> of Seaport. Please go ahead.
Speaker Change: Thank you so I wanted to talk about it.
Speaker Change: Good morning about that.
<unk>.
Speaker Change: Of datacenter low the potential data center load and I know that.
Speaker Change: You pointed out that some of it might be double counting of some of the.
Speaker Change: Load growth that you see in other areas spot.
Speaker Change: You asked one of the few companies in PJM.
Speaker Change: Right in the zone, which is heavily oversupplied with Tyler.
Speaker Change: You chose to.
Speaker Change: Have an amicable relationship with pharma companies and data centers and more importantly, you already have one large datacenter being developed in your service territory in Pennsylvania and Gino.
Speaker Change: As little as I know about Hyperscale, they tend to operate in clusters.
Any bodes well for the future.
Speaker Change: <unk> in your zone.
Speaker Change: Do you see it like that.
Speaker Change: Is there something that you're seeing come you don't you think that you actually have a strong competitive advantage versus other utilities across the PJM.
Speaker Change: So the 100 dollar savings from downloads.
Speaker Change: It's absolutely 100% so.
Speaker Change: First of all I would say that the duplicate projects, we don't see any duplicate in the 8-K.
All of those we think.
Speaker Change: Again those are in advance stages, we think those.
Speaker Change: Are very likely to come to fruition the duplicated in the 39 total interest that we have we do think there could be some of those that are duplicate, but I think the eight gigs. We're feeling we're feeling good about as those progress Andrew but to your point, the more especially when youre thinking about.
Speaker Change: All the points that you just made where we are in PJM, where we are with generation supply.
Speaker Change: But even just how the how the formula rate works and being in an <unk> and RTL.
Speaker Change: More generation you add.
Speaker Change: It actually.
Speaker Change: More load you have especially at these levels.
Speaker Change: It ended up bringing down kind of the average cost.
Speaker Change: Per gigawatt of load for the data centers so to your exact point the more you build the cheaper it becomes.
Speaker Change: On a per unit basis over time and so.
Speaker Change: 100% agree with you and that's why we're making sure that we.
Speaker Change: We can support this and we.
Speaker Change: We feel very good with our ability to connect this it's really on the generation side, which you know we've been active on that side within PJM to make sure outside of PAA and even with NPA, we're continuing to build generation, but on the on the transmission side, we do we.
Speaker Change: Feel very comfortable with our ability to to not only connect the eight gigs but to continue to connect beyond that.
And then and then separately on the.
Speaker Change: Quantification of the transmission benefits for customers I mean.
Speaker Change: So I mean, you wouldn't be able to retain it right. So that's not an earnings driver percent right because you're capped on on returns on existing transmission assets. It just provides.
Speaker Change: The customer bill room for either.
Speaker Change: Additional investments.
Speaker Change: Absorb rising energy and capacity prices is that fair.
Speaker Change: That's exactly correct.
Speaker Change: Okay. Okay. That's all I have thank you.
Speaker Change: Thanks, Andy.
Okay.
Speaker Change: The next question comes from David Paz of Wolfe. Please go ahead.
David Paz: Hey, good morning, Hey, good morning.
David Paz: Thanks.
Apologies, if you've already kind of addressed this maybe missed it but.
And as we think of.
David Paz: The things you are talking about on the significant capital investment opportunities.
David Paz: Our strong positioning.
David Paz: What are the headwinds that would keep you from.
David Paz: Maybe keep you at or below even the midpoint, maybe a six to eight.
Just trying to figure out why a lot of these things youre, saying won't translate into.
David Paz: Robust EPS growth. Thanks.
Joe Bergstein: Yes, Hi, David It's Joburg, yes.
Joe Bergstein: Yes, I think as I said earlier, we're going through the business planning process now we will give a full update on all of this.
Joe Bergstein: On the.
Joe Bergstein: Our year end call, but as you think about our earnings growth now on the drivers of that it's driven by a mix of of energy efficiencies and rate base growth and clearly we've been talking about.
Joe Bergstein: That transitioning to more of a traditional rate base growth driven by earnings growth profile I think.
Joe Bergstein: We've been seeing that through since the repositioning with each of the plan updates as I had indicated and I would expect that trend to continue where we'll be.
Joe Bergstein: Earnings growth will be driven by rate base growth.
Joe Bergstein: As we move forward and I think Thats, what you will clearly see that in the next iteration of the plan.
Speaker Change: Got it alright, so the six three years or so.
Joe Bergstein: Currently on the <unk>.
Speaker Change: Rate base growth that could arise, but your O&M savings.
Speaker Change: <unk> subside a little net net.
Speaker Change: Maybe I guess it depends on what Youre, adding.
Speaker Change: Which we'll find out in February but that.
Speaker Change: Thank you.
Speaker Change: Yes.
Correct.
Yes.
Speaker Change: We will continue on the O&M efficiency strategy, but we'll need to make capital investments to achieve those.
Speaker Change: O&M savings.
Great. Thank you and just on the resource Adequacy conference.
Do you anticipate.
Speaker Change: All of that.
Speaker Change: Feed into if at all of the legislative process.
Speaker Change: For.
Speaker Change: What are the solutions may be there in Pennsylvania cogeneration.
Speaker Change: Yes, I do think the PUC will have an active role in.
Speaker Change: Administering.
Speaker Change: Any legislation that.
Speaker Change: That could ultimately get approved there so I think the PUC.
Speaker Change: Engaging in this topic too.
Understand the nuances of it the magnitude of it and then potentially how they may have to alter their internal procedures et cetera to.
Speaker Change: To potentially administer some some law.
Speaker Change: I think it's really constructive so again, there's no law.
Speaker Change: On the books that were.
Speaker Change: Responding to or anything like that but I think the commission is is preparing accordingly.
Speaker Change: Events something happens there so that they can.
Speaker Change: Do their part again I would I would expect the commission will have a significant role in.
Speaker Change: Administering whatever this legislation could could look like.
Speaker Change: Great. Thank you.
Speaker Change: Thanks, Greg.
Speaker Change: The next question comes from Greg <unk> of UBS. Please go ahead.
Okay.
Greg <unk>: Yes, hi, thank you.
Speaker Change: What's the.
Hey.
Speaker Change: What's the latest thinking on the timing of.
Speaker Change: General rate cases in your jurisdictions.
Speaker Change: Okay.
Joe Bergstein: Yes, Thanks, Greg it's Joe So well I would say based on our current plan, which again, we're in the process of updating.
Joe Bergstein: We would have a rate case.
Joe Bergstein: You can talk to you in the first half of next year at the earliest we have a stay out.
Joe Bergstein: Provision from the last rate case that that ends at the end of June of next year So right.
Joe Bergstein: The rate case potentially or likely after that.
Joe Bergstein: Rhode Island, it's likely the fourth quarter of 2025 again, there we had an agreement.
Joe Bergstein: Part of the acquisition that we would not file a rate case until we were off of the TSA for 12 months and we did complete the TSA is in September.
Joe Bergstein: No.
Joe Bergstein: While it looks like the fourth quarter of next year and then in Pennsylvania based on the current plan. That's 2026 at the earliest but we will assess the timing of all of these as we're going through the business plan update and give you an update on the year end call.
Speaker Change: Thank you very much.
Speaker Change: Sure.
Speaker Change: Thanks, Greg.
Speaker Change: This concludes our question and answer session I would like to turn the call over to Vince <unk> for any closing remarks.
Vince Sorgi: Great. Thanks, so much to everybody for joining us today are really looking forward to seeing.
Speaker Change: Seeing many of you at EI.
Speaker Change: In the not too distant future. So we will see that thanks everybody.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Speaker Change: [music].