PPL Corp Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: Third quarter GAAP earnings were $0.29 per share; adjusting for special items, ongoing operations earnings were $0.42 per share. Narrowed 2024 ongoing earnings forecast to $1.67 to $1.73 per share from prior range of $1.63 to $1.75 per share, increasing the midpoint to $1.70 per share.
• Infrastructure Improvements: On track to complete ~$3.1 billion in infrastructure improvements in 2024 to advance a reliable, resilient, affordable, and cleaner energy future. Focused on $14.3 billion in infrastructure improvements from 2024 to 2027, with potential upside from data center connections, new generation in Kentucky, technology investments, and resiliency investments.
• Business Transformation: On pace to achieve annual O&M savings target of $120 million to $130 million in 2024 (vs. 2021 baseline) and on track to achieve at least $175 million in O&M savings by 2026 (vs. 2021 baseline) through Utility of the Future strategy.
• Kentucky IRP: LG&E and KU submitted updated Integrated Resource Plan (IRP) to Kentucky Public Service Commission. IRP analyzed demand growth, fuel prices, etc. Recommended plan includes retiring aging coal and peaking units, building new gas combined cycle unit, solar, and battery storage; projects need for additional 2,700 MW of new generation by 2028-2035.
• Data Center Development: Pennsylvania service territory has over 39 GW in queue, 8 GW in advanced planning (2025-2029, ~$600M to $700M capital needs). Kentucky has ~400 MW in advanced planning, potential to increase to 1 GW; active data center requests total nearly 3 GW.
• Operational Updates: Responded to Hurricane Helene, requested regulatory asset treatment for restoration expenses; sent teams to support Florida, Georgia, Virginia post-hurricanes. Filed request to recover $125M in retirement costs for Mill Creek 1 in Kentucky; completed Rhode Island Energy integration; announced new price to compare rates in Pennsylvania; Rhode Island PUC approved winter last resort service rates with 8% decrease.

Segment Performance

• Kentucky segment: Flat compared to third quarter 2023. Driven by higher sales volumes due to favorable weather, offset by an adjustment to environmental cost recovery revenues recognized during the quarter.
• Pennsylvania Regulated segment: Decreased by $0.01 per share compared to same period a year ago. Driven by higher operating costs (e.g., storm costs, increased vegetation management, increase in uncollectibles), partially offset by higher transmission revenues.
• Rhode Island segment: Increased by $0.01 per share compared to same period a year ago, primarily due to a favorable adjustment to property taxes.
• Corporate and Other: Decreased by $0.01 per share compared to same period a year ago, primarily due to higher interest expense from an increase in long-term debt.

Guidance

• Narrowed 2024 ongoing earnings forecast to $1.67 to $1.73 per share from prior range of $1.63 to $1.75 per share, increasing the midpoint to $1.70 per share.
• Focused on $14.3 billion in infrastructure improvements from 2024 to 2027, with potential upside from various initiatives.
• Projected 6% to 8% annual earnings per share and dividend growth through at least 2027.
• On pace to achieve annual O&M savings target of $120 million to $130 million in 2024 and at least $175 million by 2026 (vs. 2021 baseline).

Risks

• Uncertainty with environmental regulations: Three major regulations subject to current federal court challenges.
• Potential risks in RTO participation: Introducing significant unquantifiable risk to customers.
• Supply chain and labor challenges: Impacting timeline for completing large capital projects like combined cycle plants.

Question and Answer

Q: Shar Pourreza of Guggenheim Partners asked about resource adequacy, auction delay, and legislative outlook in Pennsylvania.

A: Vince Sorgi responded that state should take control of resource adequacy issue, PJM may make improvements but timing of capacity prices uncertain; legislation expected in early 2025, PUC to participate in technical conference.

Q: David Arcaro of Morgan Stanley inquired about first CPCN in Kentucky related to IRP and gas plant potential.

A: Vince Sorgi said CPCN filing as early as first quarter, likely includes second CCGT by 2030 and 2031, batteries and SCR for immediate demand.

Q: Jeremy Tonet of JPMorgan asked about data center deal announcements timeline and Kentucky commission relationship.

A: Vince Sorgi said close to data center announcements, relationship with Kentucky commission constructive and expected to continue.

Q: Durgesh Chopra of Evercore ISI asked about equity needs and capital allocation.

A: Joe Bergstein responded that financing needs evaluated in business plan, rate base growth increasing, flexibility to maximize value for shareowners.

Q: Paul Zimbardo of Jefferies asked about PJM RTEP projects and Kentucky IRP customer bill impact/execution comfort.

A: Vince Sorgi said RTEP projects to be known in December/January, IRP not a rate case, bill impacts balanced with affordability; execution depends on workforce availability.

Q: Angie Storozynski of Seaport asked about transmission benefits for customers and quantification.

A: Vince Sorgi confirmed transmission benefits not an earnings driver, but provide bill room for investments or absorbing price increases.

Q: David Paz of Wolfe asked about headwinds to EPS growth.

A: Joe Bergstein responded earnings growth driven by rate base growth, transitioning from O&M efficiencies to traditional rate base growth profile.

Q: Gregg Orrill of UBS asked about timing of general rate cases.

A: Joe Bergstein said Kentucky rate case likely in first half 2025, Rhode Island in fourth quarter 2025, Pennsylvania in 2026 at earliest, updated on year-end call.