Q4 2024 PPL Corp Earnings Call
[inaudible]
Good day and welcome to the PPL Corporation's fourth quarter 2024 earnings conference call.
All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions.
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Please note this event is being recorded.
I would now like to turn the conference over to Andy Ludwig, Vice President Investor Relations. Please go ahead.
Speaker Change: Good morning everyone and thank you for joining the PPL Corporation conference call on fourth quarter and full year 2024 financial results.
We provided slides for this presentation on the investor section of our website.
Speaker Change: We'll begin today's call with updates from Vince Sorgi, PPL President and CEO, and Joe Bergstein, Chief Financial Officer.
Speaker Change: 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 2 and a brief cautionary statement.
Speaker Change: Our presentation today contains four looking statements about future operating results for other future events.
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: For reconciliations to the comparable GATT measures, please refer to the appendix.
I'll now turn the call over to Vince.
Vince Sorgi: Thank you, Andy, and good morning, everyone. Welcome to our fourth quarter investor update.
Turning to slide 4.
Vince Sorgi: I'm very proud of our PPL team and all we accomplished in 2024 in executing our utility of the future strategy.
Vince Sorgi: Most importantly, we continue to deliver electricity and natural gas safely, reliably, and affordably to our three and a half million customers in Pennsylvania, Kentucky, Rhode Island, and Virginia.
Vince Sorgi: This included top quartile transmission and distribution reliability in Kentucky, Pennsylvania, and Rhode Island, and generation reliability in Kentucky that remains among the nation's best.
Vince Sorgi: This was a fantastic result considering we saw some of the worst storms in our company's history.
Vince Sorgi: as our crews were called upon time and time again to restore power for our customers.
Vince Sorgi: To combat the more frequent and severe storms, we increased our vegetation management spending compared to plan to enhance reliability and reduce storm-related outages.
Vince Sorgi: And we'll continue to review our vegetation management programs going forward to effectively balance reliability versus cost for our customers.
Moving to our financial performance.
Vince Sorgi: We delivered ongoing earnings of $1.69 per share, the midpoint of our original 2024 guidance.
Vince Sorgi: While we are disappointed that we fell a penny short of the increased ongoing earnings midpoint guidance of $1.70 per share, due to some very mild weather in the second half of December,
Vince Sorgi: We're confident that the increased vegetation spend was in the best interest of all of our stakeholders in closing out the year.
Turning to other 2024 highlights.
Vince Sorgi: We executed $3.1 billion of planned infrastructure investments on time and on budget to strengthen grid reliability and resilience and advance a safe, reliable, affordable, and cleaner energy mix.
Vince Sorgi: We also continued our focus in becoming more efficient and keeping energy affordable.
Vince Sorgi: achieving the top end of our cumulative annual O&M savings target of $130 million from a 2021 baseline to continued deployment of smart grid technology, automation, and data science.
Vince Sorgi: As shared on our third quarter call, we completed the integration of Rhode Island Energy into PPL. Exiting the Transition Services Agreement, we entered with National Grid when we acquired Rhode Island Energy in May 2022.
Vince Sorgi: The integration involved exiting more than 130 transition services and phases over the past two years.
Vince Sorgi: with careful attention paid to minimizing any impacts on our customers and employees along the way.
Vince Sorgi: Overall, I'm immensely proud of the strong collaboration and teamwork that took place across PPL and with National Grid to achieve this success.
Moving to slide 5
Vince Sorgi: Today, we announce an updated business plan that strengthens and extends our runway for annual earnings and dividend growth while supporting the delivery of safe, reliable and affordable energy for our customers.
Vince Sorgi: In connection with this update, we announced our 2025 ongoing earnings forecast range of $1.75 to $1.87 per share.
Vince Sorgi: The midpoint of this range, $1.81 per share, represents 7% growth from our original 2024 forecast midpoint and year-end result of $1.69 per share.
Vince Sorgi: Looking beyond 2025, we are extending our six to eight percent annual earnings and dividend growth through at least 2028, which is based off the 2025 forecast midpoint.
Vince Sorgi: Given the strength of our updated plan, we are confident that we can achieve the top half of our targeted growth rate range over this period.
Vince Sorgi: Underpinning these updated targets is a refreshed capital plan that includes $20 billion in expected infrastructure investments from 2025 to 2028.
This compares to $14.3 billion in our prior plan period.
Vince Sorgi: Our updated plan includes a mix of investments aimed at strengthening the grid against current and future weather impacts, speeding up our ability to restore power when storms strike, and advancing a cleaner energy mix without compromising on reliability and affordability.
Vince Sorgi: These critical investments are expected to drive average annual rate-based growth of between 9.5% and 10% through 2028, up from 6.3% over the prior plan period, which strengthens the predictability of our growth targets.
Vince Sorgi: In support of customer affordability and a critical component of our strategy, we remain hyper-focused on improving operational efficiency across the enterprise. As for every dollar of O&M we can take out of the business, we can fund an average $8 of capital without impacting the customer bill.
Vince Sorgi: I'm very proud of how our teams across PPL have embraced the drive to innovate and work smarter and more efficiently for our customers.
Vince Sorgi: We continue to expect cumulative annual O&M savings of at least $175 million through 2026, based off the 2021 baseline.
Vince Sorgi: Given the significant increase in capital needs in our updated plan, we expect to need two and a half billion dollars of equity through 2028. This supports our strong credit metrics, which we expect to maintain throughout the plan period.
Vince Sorgi: This represents approximately a 6% increase from the current quarterly dividend, which is at the lower end of our target range, given the significant capital investment needs in our updated plan.
Turning to slide 6
Vince Sorgi: Over the past year, we've made substantial progress in our Utility of the Future strategy, which sets us up well heading into 2025.
Vince Sorgi: We've restructured our business and realigned departments and teams across PPL to better execute the strategy, implement best practices across the enterprise, increase operational efficiencies, and drive continuous improvement. These changes have already begun to yield significant benefits.
Vince Sorgi: We also kicked off an IT transformation initiative that will bring alignment of our systems across PPL.
Vince Sorgi: This included engaging with some of the world's leading technology companies, exploring new opportunities to apply cutting-edge technology to the utility industry to deliver a better experience for our customers and employees.
Vince Sorgi: As we continue to make decisions and plan for the future, we will increasingly use AI and other advanced technologies to inform our decisions, optimize our asset planning and maintenance, better manage supply and demand on the grid, and empower our customers through digital solutions and better service.
Vince Sorgi: I'm convinced our investments in technology will deliver better results at lower cost for our customers.
Vince Sorgi: Over the past year, we've also begun to execute our planned generation replacement strategy in Kentucky that will advance a reliable, affordable, and cleaner energy mix.
Vince Sorgi: Last fall, for instance, we broke ground on construction of a new 640 megawatt combined cycle natural gas plant at our Mill Creek facility.
Vince Sorgi: We continue to drive innovation and invest in research and development, partnering with more than 30 different organizations on over 175 R&D initiatives.
Vince Sorgi: including one of the industry's leading carbon capture projects at our Cane Run Combined Cycle natural gas plant in Kentucky.
Vince Sorgi: In addition, we've developed common design and operation standards across our utilities that will continue to bring advanced technologies, best practices, and more robust engineering and construction specifications for future grid designs.
Vince Sorgi: And while wildfire risks are low throughout most of the areas we serve, we take nothing for granted when it comes to public safety and in 2024 we implemented wildfire mitigation plans at all of our utilities.
Vince Sorgi: We remain committed to help drive economic development in our service territories, including supporting significant data center build-out, as we recognize that data center growth and expansion is key to America's future economic competitiveness and national security.
Vince Sorgi: Finally, we continue to engage with key stakeholders to strengthen resource adequacy in PJM.
Vince Sorgi: In Pennsylvania, specifically, we continue to advocate for a state-focused, no-regret strategy that addresses impending energy shortfalls and provides the state with additional tools to help protect customers from price volatility and reliability concerns.
Vince Sorgi: We believe one way to do this is to allow regulated electric utilities to invest in generation resources up to including owning and operating generation again.
Vince Sorgi: This would complement the competitive market by addressing resource adequacy gaps rather than relying solely on market forces to deliver a solution.
Turning to slide 7 and a brief regulatory update.
Vince Sorgi: We continue to advance on several key regulatory proceedings across our jurisdictions and expect to file a few more this year.
starting in Kentucky.
Vince Sorgi: LG&E and KU continue to advance their latest integrated resource plan through the Kentucky Public Service Commission's review process.
Vince Sorgi: Since it was filed last October, the process has proceeded as expected, with a public hearing scheduled for May 13th.
Vince Sorgi: Our analysis continues to support the need for additional generation capacity by the end of the decade, and we've updated our capital plans to reflect our recommended path forward.
Vince Sorgi: informed by this IRP, we expect to file a CPCN request later this quarter to address near-term generation needs.
Vince Sorgi: Finally, we anticipate filing a base rate case in Kentucky later this summer with our current stay out period ending on July 1st.
Vince Sorgi: As a reminder, LG&E and KU's last base rate increase was about four years ago in July 2021.
returning to Pennsylvania.
Speaker Change: PPL Electric Utilities continues to await a PUC decision on our petition to increase the distribution system improvement charge cap to 9% of revenue from the current cap of 5%.
Speaker Change: In late November, a PUC administrative law judge recommended the denial of our petition. Despite that recommendation, we continue to believe in the merits of our request.
Speaker Change: We've since filed exceptions to the recommended decision and await a final order from the Commission.
Speaker Change: Also in Pennsylvania, we continue to evaluate the timing of our next rate case.
Speaker Change: where we've not had a base rate increase since January 1st, 2016.
Speaker Change: The team has done an outstanding job of making critical investments while becoming more efficient, resulting in solid financial performance over that time period.
Speaker Change: We are evaluating the timing of a Pennsylvania rate case given increased capital investment needs, continued frequency and intensification of storms, and overall inflationary impacts.
Turning to Rhode Island.
Speaker Change: In late December, Rhode Island Energy filed its annual Electric and Gas Infrastructure Safety and Reliability Plans for fiscal year 2026, which covers investments from April of this year through March of 2026.
Speaker Change: Our electric ISR filing seeks a total budget of about 260 million dollars for infrastructure investments.
including nearly 90 million dollars for advanced metering functionality.
Speaker Change: which has already been approved by the Rhode Island Public Utility Commission as well as certain costs for vegetation management and other costs relating to maintaining safety and reliability.
Speaker Change: Our gas ISR filing, meanwhile, takes a total budget of about $225 million to sustain and enhance the safety and reliability of our gas distribution system.
Speaker Change: hearings on both plans will be conducted in March with a decision expected by April 1st
Speaker Change: Meanwhile, we continue to expect to file a base rate case in Rhode Island in the fourth quarter of 2025 following conclusion of our stay out period on October 1st.
Speaker Change: Remember that as part of our transition plans for Rhode Island Energy, we had agreed not to file for a base rate increase until we had been off the transition service agreement with National Grid for a full 12 months.
We completed the transition services in September of 2024.
Speaker Change: Moving to slide 8 and an update on data center development in our service territories.
Speaker Change: We continue to see substantial interconnection requests in Pennsylvania and now have over 56 gigawatts in our queue.
Speaker Change: While we continue to recognize that there's likely duplication in that figure, we have nearly 9 gigawatts in advanced stages of development.
Speaker Change: We estimate potential transmission capital investment of between $600 and $700 million for these projects.
Speaker Change: We have included about $400 million in our updated capital plan, which was prioritized based on the requested interconnection dates.
Speaker Change: As we've shared previously, we expect that each new data center connection in Pennsylvania will lower transmission costs for customers.
Speaker Change: with savings expected to ramp up over the next several years as data centers begin to pay more significant transmission costs.
Speaker Change: In Kentucky, we were pleased to announce our first Hyperscale Data Center customer in Jefferson County, the latest example of the state's success and our support in attracting economic development.
Speaker Change: The joint venture between powerhouse data centers and Poe companies will involve development of a 400 megawatt data center campus located in Louisville
Speaker Change: The first 130 megawatts are expected to come online in October 2026, with demand growing to the full 400 megawatts by 2028.
Speaker Change: Meanwhile, active data center requests in Kentucky continue to meaningfully increase.
Speaker Change: and have doubled since our Q3 call with nearly 6 gigawatts of potential demand in our queue.
Speaker Change: In summary, we continue to see robust demand in both states and look forward to continuing to support these important customers.
Speaker Change: 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 10.
Joe Bergstein: CPL's fourth quarter gap earnings were 24 cents per share compared to 15 cents per share in Q4 2023.
Joe Bergstein: We recorded special items of $0.10 per share during the fourth quarter, primarily due to integration and related expenses associated with the acquisition of Rhode Island Energy and IT transformation costs.
Joe Bergstein: Adjusting for these special items, fourth quarter earnings from ongoing operations were 34 cents per share, a decrease of 6 cents per share compared to Q4 2023.
Joe Bergstein: On an annual basis, our 2024 GAAP earnings were $1.20 per share compared to $1.00 per share in 2023.
Joe Bergstein: Adjusting for special items recorded throughout the year, our 2024 ongoing earnings were $1.69 per share, an improvement of nine cents per share compared to our 2023 results.
Joe Bergstein: Turning to the ongoing segment drivers for the fourth quarter on slide 11.
Joe Bergstein: Our Kentucky segment results were flat compared to the fourth quarter of 2023.
Joe Bergstein: Kentucky's results were driven by higher sales volumes, primarily due to favorable weather compared to last year.
Joe Bergstein: The favorable weather impact was offset by higher operating costs, which included the higher vegetation management costs, as Vince mentioned earlier.
Joe Bergstein: Our Pennsylvania regulated segment results were also flat compared to the same period a year ago.
Joe Bergstein: Pennsylvania's results were primarily driven by higher transmission revenues offset by higher operating costs in several areas including increased vegetation management costs and an increase in uncollectibles.
Joe Bergstein: Our Rhode Island segment results decreased by 3 cents per share compared to the same period a year ago. This decrease was primarily driven by lower transmission and distribution revenues, which included a favorable annual ISR true-up recognized in Q4 2023.
Joe Bergstein: finally results a corporate another decrease by 3 cents per share compared to the same period a year ago
Joe Bergstein: The decrease was primarily due to higher interest expense from increased holding company debt balances and higher income taxes Driven by higher tax credits that were recognized last year
Moving to slide 12.
Joe Bergstein: We continue to build a track record of delivering our 6-8% annual growth target and achieve 7% growth from $1.58, our original 2023 forecast midpoint.
Joe Bergstein: Looking ahead, we remain extremely confident in our growth and the plan we've rolled out today strengthens that even further.
Joe Bergstein: We've extended our 6-8% annual EPS growth target another year to 2028 and expect to achieve growth in the upper half of that range.
Joe Bergstein: At our updated plan, our growth will be driven by the significant investment needs and the corresponding rate-based growth across the enterprise.
Joe Bergstein: In connection with that investment, we do expect to experience some regulatory lag over this period while needing equity to support this meaningful growth, and we are shifting from earnings driven by rate-based growth and O&M savings to growth primarily driven by rate-based growth.
Joe Bergstein: Our updated plan clearly positions PPL to deliver strong, sustainable growth for shareholders and improve service for our customers for years to come.
Moving to slide 13.
Joe Bergstein: We've provided a walk from the midpoint of our original 2024 ongoing earnings of $1.69 per share.
to our 2025 forecast midpoint.
Joe Bergstein: Starting with our Kentucky segment, we project results to increase by five cents per share in 2025.
Joe Bergstein: The increase is projected to be driven by higher sales volumes due to a return to normal weather and modest weather normalized growth, lower operating costs, and higher AFUDC income related to new generation and AMI projects.
Joe Bergstein: These increases are expected to be partially offset by higher interest expense due to higher projected debt balances as we finance our capital investments.
Joe Bergstein: In Pennsylvania, we also project segment results to increase by 5 cents per share in 2025.
Joe Bergstein: Returns on additional capital investments in transmission and lower operating costs are projected to be partially offset by higher interest expense due to higher debt balances.
Joe Bergstein: Rhode Island segment results are expected to increase by four cents per share in 2025 compared to our 2024 results, primarily due to increased rider revenue from capital investments and lower operating costs, partially offset by higher interest expense.
Joe Bergstein: Finally, we project our corporate and other results to decrease by two cents per share in 2025, primarily due to higher interest expense.
Joe Bergstein: Our 2025 earnings forecast does not include the impact of any base rate cases in any of our jurisdictions, as we do not expect any rate increases to take effect until January 2026 at the earliest.
Turning to slide 14
Joe Bergstein: Over the next four years, we have planned capital investments of $20 billion to meet the growing demand needs on our networks, to continue to provide reliable service and enhance the overall customer experience, and to support economic expansion in our service territories.
This includes advancing industry-leading grid modernization.
Joe Bergstein: expanding and hardening our transmission and distribution networks, improving the safety of our natural gas networks, implementing our approved generation replacement plan in Kentucky, and building new generation that is necessary to support future load growth.
Joe Bergstein: This plan represents a $5.7 billion increase in capital investments compared to the prior four-year plan, with nearly $4 billion of that increase expected to occur between 2025 and 2027.
Joe Bergstein: Most of the increase in that time frame is projected to be in Kentucky and Pennsylvania.
Joe Bergstein: In Kentucky, we see nearly $1.3 billion of additional investments related to new generation to support the growing demands in our service territory and additional environmental retrofits on our coal fleet.
Joe Bergstein: The new generation investments assumed in our plan aligns with the recommended resource plans submitted in our IRP, including two combined cycle natural gas plants with 2030 and 2031 in-service dates, and 400 megawatts of battery storage by 2028.
Joe Bergstein: We also project about $500 million of additional transmission and distribution investment to strengthen and modernize the grid, which is critical given more intense and frequent storms, including significant impacts from tornadoes.
Joe Bergstein: In Pennsylvania, we see nearly $1 billion of additional distribution system investment needed to support grid resiliency and another $200 million of transmission investments to support data center growth.
Joe Bergstein: In addition, we added nearly $600 million of IT investments across the enterprise.
Joe Bergstein: These needed upgrades will enhance cybersecurity, improve our customers' experience, and enhance the efficiency of our back-office functions like finance, supply chain, and human resources.
Joe Bergstein: We continue to expect significant investment needs into the end of this decade as reflected in our 2028 forecast of $5 billion.
Joe Bergstein: This includes investments needed to continue to replace aging infrastructure, increase reliability and resiliency, and construct new generation in Kentucky to support growing demand and economic development in the region.
Turning to slide 15.
Joe Bergstein: As shown on the slide, two-thirds of our rate base relates to investments in our electric T&D networks, given the significant needs as we strengthen and modernize the grid.
Joe Bergstein: The percentage of our total rate base related to coal generation is expected to be less than 11% by the end of 2028, down from about 16% today.
Joe Bergstein: Coal will remain a critical generation resource for us in Kentucky well into the future, especially given the expected low growth in the region.
Joe Bergstein: However, as our coal plants reach the end of their useful lives, with the next significant tranche of retirements expected in the mid-2030s, we continue to expect to replace that coal generation with a mix of natural gas, renewables, and energy storage solutions.
Joe Bergstein: In summary, you can see the updated capital needs drive meaningful growth in the company's rate base.
Joe Bergstein: While we are transitioning to a more traditional rate-based growth driven model, delivering operating efficiencies will remain central to our strategy to continue to support customer affordability.
Joe Bergstein: We remain keenly focused on optimizing our business, which will allow us to continue to make prudent investments in the most efficient manner.
Joe Bergstein: Moving to an update on PBL's credit on our financing plan for 2025 on slide 16.
Joe Bergstein: We continue to believe that having one of the sector's strongest balance sheets is a clear strategic advantage that provides a company with significant financial flexibility.
Joe Bergstein: and our updated business plan maintains strong credit metrics throughout while supporting our earnings growth targets.
Joe Bergstein: We expect equity needs of 2.5 billion dollars over the planning period and fund the growth associated with the increased capital investments.
Joe Bergstein: We plan to establish an ATM program to support these financing needs, and may complement that with other equity-like financing structures to the extent they provide an efficient cost of capital.
Joe Bergstein: In terms of debt financing, we have limited near-term refinancing risk with only $550 million of total utility maturities in 2025.
Joe Bergstein: And we continue to maintain limited floating rate debt exposure with approximately 5% of total long-term debt at year-end.
Joe Bergstein: Our solid financial foundation keeps us very well positioned to execute our updated business plan and growth targets while we deliver value for customers and shareowners.
Moving to slide 17.
Joe Bergstein: We continue to view the dividend as an important piece of total shareholder return.
Joe Bergstein: Today, our Board of Directors declared a quarterly cash dividend of 27.25 cents per share to be paid on April 1st to shareowners of record as of March 10th.
Joe Bergstein: This results in an annualized dividend of $1.09 per share, compared to our prior annualized dividend of $1.03 per share, approximately a 6% increase.
Joe Bergstein: We continue to target future dividend growth within 6-8% per year.
Joe Bergstein: We expect dividend growth to remain at the lower end of the range through the current plan period given the meaningful CapEx plan.
Joe Bergstein: The combination of PPL's EPS growth and current dividend yield continues to provide investors with attractive total return proposition in the range of 9 to 12 percent.
Vince Sorgi: This concludes my prepared remarks. I'll now turn the call back over to Vince.
Vince Sorgi: Thanks Joe. In closing, I remain as excited as ever about PPL's future. We have positioned the company as an agile, forward-looking organization poised for long-term growth and success.
Speaker Change: That growth is backed by a robust capital plan featuring $20 billion in infrastructure improvements from 2025 to 2028.
Speaker Change: Through at least 2028, we offer investors visible and predictable long-term earnings per share growth in the top half of the 6 to 8 percent range, with dividend growth closer to 6 percent given the significant capital investments in the updated plan.
Speaker Change: It's also a plan that our customers can afford, and one where they can continue to expect reliable service and continued improvement to the overall customer experience.
Speaker Change: We maintain one of the strongest balance sheets in our sector, a clear strategic advantage that provides significant financial flexibility.
Speaker Change: And importantly, we have a strong track record of operational excellence, consistently delivering top quartile transmission and distribution reliability and top decile generation reliability.
Speaker Change: We have the right strategy for the right time. Our vision is to be the best utility in the U.S. and we're absolutely determined to achieve this vision. With that, Operator, let's open it up for questions.
We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your touchtone phone.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.
Speaker Change: At this time, we will pause momentarily to assemble our rafter.
Speaker Change: The first question today comes from Durgesh Chopra with Evercore ISI. Please go ahead.
Good morning, Jurgen.
Speaker Change: Hey, good morning team. Sorry, I was in mute talking to myself. Hey, congrats on the update here.
Speaker Change: and the capital plan raise. Just, I had two questions. One, on the Kentucky CPCN, maybe just updated thoughts there.
What are you, as we get closer to our filing?
Speaker Change: Yeah, Birgesh, so what we've updated in the capital plan is our recommended resource plan.
Speaker Change: that we had in the IRP that we had filed and is currently going through review with the Commission. In total for generation in the plan we've added about two and a half billion dollars. That includes two new combined cycle plants with a 2030 and 2031 in service date.
Speaker Change: Includes 400 megawatts of additional battery storage projects within service dates in the 2028 time frame that is
Speaker Change: needed to cover us before the CTGTs come online with expected load growth from large load customers in Kentucky. And then it also includes some additional environmental spend on the coal fleet, including the FCR on jet.
Thank you.
Perfect. Thank you. Thank you for that color.
Speaker Change: captured in the CPCN filings or are those going to be staged?
Speaker Change: Yes, that is consistent with the recommended resource plan, which will be the basis for the CPCN. We'll file that by the end of...
Speaker Change: The first quarter, we would expect a decision by the fourth quarter.
Speaker Change: Excellent, thank you. And just a quick follow-up question on the equity issuance. Just should we assume that radible two and a half billion or just any color and timing on how you issue that equity?
Speaker Change: Yeah, I guess it's Joe, so I mean look we have flexibility on the timing of those issuances given the quality of the balance sheet and as I indicated we may complement that ATM with other equity like financing structures.
Speaker Change: So, but, I mean, look, I think for modeling purposes, you could assume something in the order of...
Speaker Change: four to five hundred million dollars this year and then sort of tracking the capital plan as we go through the the plan period But again, we'll we'll be flexible and we'll take advantage of the market conditions as we have the funding needs
Excellent, thank you guys, I appreciate the talk.
Thank you.
Thanks again.
Speaker Change: The next question comes from Paul Zimbardo with Jeffreys. Please go ahead.
Hi, good morning. Thank you very much.
and I'm off, goodbye.
Speaker Change: To follow up on the the equity side of the equation If you could help unpack the the comments you had about complement with other equity like financing structures
Speaker Change: Is that that there's other equity linked in the debt, that's something you could do to reduce equity financing. If you could just explain that a little bit, please.
Speaker Change: Yeah, sure, Paul. I mean, yeah, and you're right. There's obviously hybrids get 50% equity treatment from from the agencies and so
Speaker Change: You know, I think from a base assumption, we view the ATM as a cost-effective tool to issue that equity, but there's other means to do that. And so we'll be, as I said, opportunistic around that, and there's, you know, points and times that there's funding.
Speaker Change: means that are more efficient than others. And so, given the balance sheet and the position that we're in, we have the flexibility to do that. So, we'll take advantage of market conditions as they come.
Okay, I understand there.
Speaker Change: And then shifting back to Kentucky generation and just the data center opportunity set now that you kind of have filled the entire 400-megawatt bucket, if hypothetically there was a 1-gigawatt data center in Kentucky, could you just describe what kind of length, ability to serve you have pro forma for the new combined cycles that you're adding?
Speaker Change: Yeah, sure. So our, just when we think about reserve margins in Kentucky, right, our summer margins for this year are just over 20 percent, fall and then winter is around 27-ish percent.
with the in-service date of our Mill Creek.
Speaker Change: CCGT Mill Creek 5, which is expected to go in service in 2027, we would be able to accommodate the 400 megawatts of data center load that we recently announced, but not much more.
Speaker Change: As you know, with the load row that we're projecting, right, and with what we filed in the IRP,
Speaker Change: for the two additional CCGTs to go into service in 30 and 31.
Speaker Change: That's why we're also including 400 megawatts of batteries to provide an interim solution between that first ECGT going online in 27 and then the second two in 30 and 31. So that's really the basis for that battery
solution in the in that 2028 timeframe.
Speaker Change: Okay, so if there is a pickup in Kentucky load whatever class that that would require more generation, is that fair?
Yeah.
Okay, thank you very much.
Sure.
Speaker Change: The next question comes from James Kennedy with Guggenheim. Please go ahead.
Hey guys, good morning. Congrats. Thanks for taking the questions.
James Kennedy: So Vince, if I could just come back to resource adequacy in Pennsylvania. You mentioned regulated generation and the preparedness. It seems like some stakeholders still want to wait for competitive entry.
James Kennedy: So, I guess, you know, maybe just some more color on what you see as the pathway forward here in this legislative session, and in your view, how much of a time cushion really remains.
James Kennedy: Yeah, look I would obviously this is a major legislation around energy policy in the state we are
James Kennedy: really the state that drives most of the generation in PJM as we know. So energy policy in PA will be critical as we think about state resource adequacy but also PJM.
James Kennedy: We would expect some proposed legislation to be proposed in this legislative session, perhaps as early as the spring or summer. We've talked a bit about what could be in that legislation.
James Kennedy: I think there's a number of things that we've heard from various legislators.
talking quite a bit about permitting utilities to
James Kennedy: invest in and ultimately own and operate generation again in rate base so that could be one. They could create incentives within the bill for utilities and the market, i.e. the IPPs.
You know, we've seen ideas floated with...
proposals like the Texas Energy Fund.
James Kennedy: Senator Yaw has the Baseload Energy Development Fund, very similar to the Texas Energy Fund, low-cost financing to help lower the cost of new entry for generation. So I could see, you know, any or all of those potentially making it into
James Kennedy: legislation and again will support ultimately whatever that the state wants to do that supports getting generation built in Pennsylvania and supporting PJM resource adequacy.
James Kennedy: Okay, got it. And then just on the Pennsylvania data center spends, you rolled in $400 million, I think, with this update, but there's more to go. So just, you know, how should we think about cadence of updates on that balance? Will you update throughout the year?
James Kennedy: Yeah, sure. We'll certainly be able to provide updates on that as we go through the year.
Try to think about Pennsylvania and, uh,
James Kennedy: six gigawatts or so that's in the queue obviously we we believe there's duplication in that number but as we kind of peel that back a bit right we have the nine gigawatts of projects
James Kennedy: in advanced stages, so we have a higher degree of confidence on those.
James Kennedy: But you know kind of if I take up, you know, like a 50-50 probability
James Kennedy: The projects that would kind of fit in that 50-50 bucket, that nine goes to like 12 or 13.
James Kennedy: will certainly be keeping an eye on those projects as they
James Kennedy: progress through the development process and move up into that advanced stage.
James Kennedy: But you're right, of the six to seven hundred million, we've only included four hundred in the plan. And clearly we'll provide updates to that as those projects continue to move in the development phase.
Perfect, thanks guys.
Speaker Change: The next question comes from Jeremy Tonin with J.P. Morgan. Please go ahead.
Hi, good morning.
Speaker Change: I just wanted to, I guess, circle back on customer bills and how you think about that at this point in time, the amount of headroom there, you know, given a big step up in capital, just wondering how you feel about that dynamic going forward.
Speaker Change: Yeah Jeremy it's a great question right and I'll just reiterate and you guys know this about us and our strategy all along that we keep
affordability top of mind and front and center.
Speaker Change: It is such a key component of our strategy. It's why we remain so focused on driving efficiencies across the business, right?
Speaker Change: We've talked about that 8 to 1 ratio for every dollar of O&M we can take out of the business.
Speaker Change: We can fund on average $8 of CapEx and not impact the customer bill. So even beyond the $175 to $226, we will remain laser focused on continuing to drive cost out of the business.
primarily for affordability reasons.
Speaker Change: When we look at this plan update, we believe that we can execute the updated plan without unduly impacting affordability as we would expect average bill increases to generally remain within the rate of inflation. So again, we think our customers can afford this plan.
Speaker Change: Got it, thank you. And then ahead of upcoming filings in Kentucky, just wondering any more thoughts you could provide with conversations with the Commission, stakeholders there, given the newer composition of the Commission, just wondering any other thoughts there?
Speaker Change: Something out of the ordinary. This should be a clean CPCN. It'll track the IRP recommended resource plan. So obviously the commission is reviewing the IRP right now.
Speaker Change: We would expect them to issue their order on the IRP by mid-July. That's just how that process progresses. Obviously, we're not waiting for that decision necessarily before we would file our CPCN, but a lot of consistency there.
Speaker Change: Not expecting there to be any surprises at the commission level with these filings.
Thank you.
Speaker Change: Got it, and just a quick last one if I could, of the 6-8% EPS kicker you outlined there, just wondering, I guess, how you see the cadence of growth across that? When do you expect 7% next year, or just wondering if there's any dynamics to that trajectory?
Speaker Change: Yeah, generally I would say it's linear, so we're continuing to maintain linear growth off of our new midpoint for 2025.
Got it. That's helpful. I'll leave it there. Thanks.
Great.
Paul Patterson: Our next question comes from Paul Patterson with Glenrock Associates. Please go ahead. Hey, good morning.
Martha
Thank you.
Paul Patterson: So just to sort of follow up here, with the potential for new generation, you know, utility-owned generation,
Thank you.
Paul Patterson: It would appear in the current auction environment that that could substantially lower costs, wholesale costs. And I'm just sort of wondering how you see that working.
Paul Patterson: when the soonest, I mean, assuming that, let's say you did get legislation this year, when that could show up, if you follow what I'm saying, just sort of a timing on that.
Paul Patterson: Yeah, so if we think about the capacity options maybe more broadly, Paul, right?
Speaker Change: Our governor actually negotiated a settlement with PJM to cap the auctions at a ceiling of $3.25 per megawatt day and a floor of $1.75. That's for the next two auctions.
and love.
Speaker Change: I don't think it's unreasonable to believe that those auctions wouldn't clear at the caps of $325,000. A lot will go.
load curves coming from data centers across all of PJM.
Seeing a lot of interest, as we know.
clearly from from us but also our peers so
Speaker Change: Clearly, we're expecting that demand curve to go up. Look, at those higher prices, though, I would expect some of the generation that was in the queue to retire in the prior auction would would likely come back in, so that could help mitigate some price increases, but ultimately over the next
Speaker Change: I'm going to go through this year with getting legislation approved where utilities could own again. There would be some period of time where
Speaker Change: regulatory body that needs to kind of administer that new law would need to get stood up and and kind of figure out how they're going to go through the process to approve.
Speaker Change: generation, not exactly sure how long that would take, but I would expect, you know, six plus months for that to happen. And then, of course, we know what the supply constraints are with
Speaker Change: getting new turbines installed. If you're talking about combined cycle plants, obviously it's a little bit less if you're talking about peakers, but, you know, so figure, you know, kind of three to five years to get generation then built. So,
Speaker Change: It's certainly a long-term game, but obviously once we start to be able to put new generation in those future auctions, that's what could help temper the pricing, as you know.
Okay, and then with respect to the...
Speaker Change: The DSIC, the D-S-I-C, I apologize if I missed this, but at least from what I was thinking, I was thinking it was going to maybe be addressed a little bit earlier. Is there any time frame, if we could just give us a little update in terms of what that...
Speaker Change: What you expected to be? I apologize if this was answered already, but if you could just help me on that.
Joe Bergstein: Yeah, Paul, it's Joe. Yes, we're still waiting for the Commission decision on the on the DISC waiver. You know, I don't know when that will be and so we'll just wait for the Commission to make a decision there. There's nothing scheduled at this point that I could point you to, so we just continue to wait.
Joe Bergstein: And there's no issue, though, or anything that's come up that we should be aware of.
Speaker Change: No, not from the commission perspective. We're just awaiting the decision.
Okay, great. Thanks so much.
Thanks.
Speaker Change: As a reminder, if you have a question please press star then 1 to be joined into the question queue.
Speaker Change: The next question comes from Angie Storowczynski with Seaport. Please go ahead.
Angie Storowczynski: Thank you. I'm not going to ask about Pennsylvania or the legislative session. I'll let that go for now. So, but instead, okay, so you have this very meaningful increase in the rate-based growth.
Angie Storowczynski: and yes it comes with additional equity and I'm actually surprised that it doesn't result in an increased growth, earnings growth trajectory.
Speaker Change: And also speaking about the equity, I mean, you have this, you know, particularly strong balance sheet in the utilities industry, where you're not leaning into it to finance the growth, hence the incremental equity. And I'm just...
Speaker Change: Again, it's hard to believe that the rate base is accelerating so much and yet there is no commensurate increase in the earnings growth.
Speaker Change: Yeah, Angie, it's Joe. Maybe let me touch on the balance sheet first and then we could we could talk about growth. I mean, look, we have a strong balance sheet and we think that gives us a strategic advantage that we certainly want to
maintain and
Speaker Change: We believe that the strong earnings growth that we have, along with the strong balance sheet, puts us in a great position to deliver value for shareholders over the long term.
Speaker Change: and mitigate risks that could come, risks and uncertainties that we could see in the future. And so our focus is on the long-term, not short-term.
Speaker Change: maybe, you know, pops or what have you in an earnings growth rate, but to deliver for the longterm. And we think about the combination of that growth and that balance sheet allows us to do that. And that's why we wanna have, you know, the equity in the plan to finance the growth that we've talked about today.
Speaker Change: as far as where we are within that growth rate range. I mean, look, I think having a...
Speaker Change: A gap between rate-based growth and earnings growth certainly is not uncommon, and some of that is obviously driven by the equity financing needs, but as we put together our business plan, there's a lot of assumptions that go into developing a business plan, and I think we've made
Speaker Change: reasonable assumptions there, and those reasonable assumptions give us the confidence.
Speaker Change: in our growth rate, but as always, we'll be laser-focused on optimizing around those. That's execution of the capital plan, execution of the financing plan, regulatory outcome, O&M management, storm response, and that's just to obviously name a few.
Speaker Change: Certainly, that gives us the ability to offset any uncertainties if they arise, and if not, and we're successful in optimizing that, then we would certainly do better than our base assumption, and that's where our focus lies.
Speaker Change: Okay, and then on the 2024 results, so the HODCO drag,
Speaker Change: was probably the biggest surprise here. I understand the interest rate angle, but is there, so when I look at 24 and like the future years, is there like an additional tax component, which the benefit, which will go away, which would sort of exacerbate the drag, especially beyond 25?
Speaker Change: I'm sorry, I missed the first part of your question? No, because you said that the reason why there was such a, that there was such a, you know, increase in the HODCO drag or the corporate and other drag versus 23 was because there was some tax benefit.
Speaker Change: reflected in 23 results versus 24. So I'm asking if there is any remaining tax shield that will go away that will exacerbate the drag beyond 25.
Speaker Change: Sorry, yeah, sorry, I understand the question. No, what there isn't on the year-on-year results is we did have some tax benefit in 2023 with the transferability of tax credits and our ability to utilize those from prior periods, particularly around the sale of WPD, and so that's just a year-on-year variance that you're seeing.
Speaker Change: I wouldn't expect that to go forward, right, in that regard.
Okay, thank you. Thanks. Sure.
Speaker Change: The next question comes from David Paz with Wolf Research. Please go ahead.
David Paz: Good morning. Thanks for the time. Actually, before I get to my question, just a clarification on the EPS growth annual cadence question earlier. When you said you expect to be linear, is that fair to say each year you expect to be on the upper half?
of that range, so like, you know, seven to eight.
Speaker Change: each year, or do you mean just with the six to eight? Okay.
Yeah, David, it's Joe, maybe just obviously for...
Speaker Change: 2025, we're showing a 7% growth rate there, and that's kind of what we've delivered since we're strategic repositioning, and we've come out with a new plan. And we've done that without rate cases, and there's no rate cases effective in 2025 in this plan, and we certainly don't expect to have any. So I think once we get beyond the rate case period, that's where we see the growth in the upper half of the range.
Speaker Change: 25, 25 is really the year, the last year that we're, you know, kind of in the stay outs across all three jurisdictions. So moving from earnings growth coming from rate base and
Speaker Change: O&M efficiencies to more rate-based driven. So as Joe said, you know, kind of delivering that 7% the midpoint through 25 and then being able to do better than that once we kind of get back into a normal rate case cycle.
Speaker Change: Great, that makes sense. Actually, just on rape cases, or more specifically, your earned returns, just what are they, what are you embedding for Kentucky and Pennsylvania in your long-term outlook? If you don't want to get specific, just get a sense of how, you know, they compare relative to where we currently see ROEs in those segments.
Speaker Change: Yeah, so we've obviously, you know, through this period of staying out of rate cases, done a great job in managing O&M for the, you know, ultimate benefit of customers and affordability and
and let's help support.
Speaker Change: that are out or near the allowed, obviously with the significant increase in the capital plan, that will put some pressure on those.
Speaker Change: We are going into rate cases kind of across the board here over the planning.
Speaker Change: I don't want to get into specifics around rate case or rate ROE assumptions. I think, again, they're reasonable to that point. We do experience some level of lagging between rate cases, but that's something that we'll stay focused on and work to address.
to minimize and earn around our allowed ROEs.
Speaker Change: Great, thank you. And then just actually on the cost of your gas.
Speaker Change: Do you have a rough estimate of what the dollar per kilowatt is in the ballpark of the Mill Creek Fives?
update or the higher
Speaker Change: The cost of the CCGTs in 2030 and 31, is that what you're asking? Yes.
Speaker Change: Yeah, we would, right now, I mean, you'll see those in the CPCN. We're kind of refreshing all of that right now, so I don't want to get...
Speaker Change: in front of that but ultimately you know it's they're similar to what we're seeing with Mill Creek HOT.
Great, thank you.
Thank you very much.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Vince Sorgi for any closing remarks.
Vince Sorgi: Great, thanks everybody for joining us. Looking forward to getting out on the road and seeing you all to discuss this in more detail. So thanks again for joining us and we'll see you soon.
Vince Sorgi: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.