PPL Corporation — 2023 Q3
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good morning, and welcome to the PPL Corporation Third Quarter 2023 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Andy Ludwig, Vice President of Investor Relations. Please go ahead.
Good morning, everyone, and thank you for joining the PPL Corporation conference call on third quarter 2023 financial results. We have provided slides for this presentation on the Investors section of our website. Begin today's call with updates from Vince Sorgi, PPL President and CEO; and Joe Bergstein, Chief Financial Officer and conclude with a Q&A session following our prepared remarks.
Thank you, Andy, and good morning, everyone. Welcome to our third quarter investor update. Let's start with an overview of our financial results on Slide 4. Today, we announced third quarter reported earnings of $0.31 per share. Adjusting for special items, third quarter earnings from ongoing operations were $0.43 per share compared with $0.41 per share a year ago. These results position us well to deliver our 2023 earnings guidance, despite the significant impact of mild weather and storms in the first half of the year.
Thank you, Vince, and good morning, everyone. Let's turn to Slide 8. PPL's third quarter GAAP earnings were $0.31 per share compared to $0.24 per share in Q3 2022. We recorded special items of $0.12 per share during the third quarter, primarily due to the integration and related expenses associated with the acquisition of Rhode Island Energy. Adjusting for these special items, third quarter earnings from ongoing operations were $0.43 per share, an improvement of $0.02 per share compared to Q3 2022.
Thank you, Joe. In closing, I'm proud of the work our team has done this year to keep us on track to deliver on our commitments to both customers and shareowners. As highlighted, we've narrowed our ongoing earnings forecast achieved significant success in offsetting this year's headwinds from mild weather and storms, and remain confident in our ability to achieve the midpoint of our earnings forecast of $1.58 per share.
[Operator Instructions] Our first question will come from Nick Campanella of Barclays.
Hey, I just want to start right off the bat. Sorry if I missed it, but I know that there has been some sales volume declines this year. Obviously, higher interest rates is hurting everyone. To your point, no major maturities in '24, which is great across the business. But can you just confirm, as you kind of wrap this all together that you can continue to kind of grow the business from an EPS perspective linearly, '24 and '25? And how we should kind of think about that?
Yes. Hey Nick, it's Joe. Thanks for the question. Yes, we expect linear growth through our plan period, as we've talked about before. Obviously, there's market forces at place, as you mentioned, but we think that they're manageable and can deliver that linear growth.
That's helpful. And then I know that on the current plan today, there's no rate cases and you'll be staying out. But can you just help us understand what would force you to file if you had to in the next few years? Is it more dependent on current regulatory proposals in front of you in Rhode Island and Kentucky and how those go? Or is it more dictated by the size of the capital plan and ROEs?
Yes, sure. Well, you're right. In our current plan, we just have one rate case in Rhode Island in the back half of 2026. There's obviously a lot of factors that go into determining rate case timing, including -- and you named a few of them, capital plans, interest rates, regulatory lag on capital that doesn't run through some sort of mechanism and many, many more. We're going through our business planning process now, Nick, and we assess all of those factors as we do so. We'll provide views on what we think about rate case and potential timing when we give an update on our year-end call.
All right. Thanks a lot. We'll see you in Arizona.
Yes. Great.
The next question comes from David Arcaro of Morgan Stanley.
Let's see. With the CPCN, I was wondering, we've seen inflation across supply chains fairly broadly and a lot of components. Wondering if costs have risen for the solar that you're requesting and for the CCGTs that you've got in the plan in front of Kentucky since your initial filing.
Yes, David, we have seen cost increases for the replacement generation plan. We updated all of that in our testimony for the commission. So they have the latest CapEx estimates for our plan. Those are confidential, so I can't disclose here at this time how much those went up. But even with those higher costs, where our analysis is showing that our proposed generation replacement plan is still significantly NPV positive and is, again, the best option that we're showing for customers. So the commission has all of that in the record as they're looking at it.
Yes, makes sense. So it's still economic, and I presume, so a higher CapEx essentially for kind of the full plan that's in front of the commission now.
That's correct. If the whole plan is approved, it would be incremental to what we have, yes.
Yes. Okay. Yes. And then as you look forward toward rolling the capital plan forward a year, should we expect equity to be incorporated into the financing strategy? Or is there still balance sheet headroom as you look out to add more CapEx and rate base growth?
Yes, Joe, do you want to talk about that?
Yes, sure. So as I talked about in my prepared remarks, Dave, the balance sheet is strong, and we expect to operate in that 16% to 18% FFO or CFO to debt range that we've been talking about. Clearly, we can finance the current capital plan without any need for equity even in today's market. We'll see as we roll the plan forward what that looks like.
Next question comes from Shar Pourreza of Guggenheim Partners.
So Vince, I know you mentioned that the O&M savings year-to-date is tracking ahead of the original forecast. It obviously was a key point of the talking points. I guess maybe taking that a step further, can you speak to how you're tracking for the total $175 million by '26. Is there room to exceed now that you've gone further into it?
Well, overall, Shar, we're tracking very well against the $175 million. So obviously, we have that layered in '24, '25, '26. Joe, I'll let you cover a little more detail on kind of the outperformance for '23. Of course, when we're looking at the additional storm costs and weather, those are anomalistic. And so some of the areas that we targeted to help offset that are things like open positions looking at our maintenance schedules, et cetera. So some of those things will not be permanent, Shar, but we're tracking very well on the $50 million to $60 million, which obviously are permanent on our way to the $175 million.
Yes, got it. I would just add that we -- as we talked about, we're on track to achieve at least the $50 million to $60 million of efficiencies this year, which gives us confidence in our ability to achieve the $175 million. We have a robust pipeline of initiatives that we're working on. So the team has clearly been extremely focused on delivering on the initiatives that we've established, which is why we're tracking ahead. So we feel really good about where we are today and our ability to hit that $175 million.
Got it. Perfect. And then Vince, I know -- just to maybe reiterate our conversation from the prior call. I mean at this point, are you prepared to be flexible in your plans, depending on how the Kentucky PSC ultimately rules on the CPCN next week? Is that something, I guess, you will be prepared to talk about right after that at EEI? Or you have to wait for the 4Q update?
Sure. So from a communications perspective, Shar, in a very timely fashion, we'll respond to the decision coming out, what we expect would be next Monday. So you'll hear from us shortly after that. Of course, we'll see many of you all investors and analysts at the EEI Conference the week after that. So likely, I'll be able to get into more detail there. And then we'll do the full business plan update incorporating all of this plus all the other business plan refreshes at our normal cadence of the year-end call.
The next question comes from Angie Storozynski of Seaport.
So I only have 1 question about the fraudulent conveyance lawsuit from Talen. It's -- you guys have tried to have a dismiss. It goes back to 2014. We're talking about potentially very large amounts. And I just wonder if you have any comment.
Yes, Angie, no real update since our last call. As you know, the trial date has been set for February of next year. We're looking forward to that trial. As we said all along, we fully believe the distribution of those proceeds were in compliance with all applicable laws, and we stand ready to vigorously defend that position. So nothing really, really new. It being in bankruptcy court, not surprising that some of our motions were not accepted. So not surprising there, but still feel very confident in our case..
The next question comes from Paul Zimbardo of Bank of America.
Just to follow up a little bit on the transmission opportunity side. I know you addressed Kentucky pretty well, but what about the Eastern side, the PJM footprint? Like I think there was like a $145 million award. And just holistically, if you could talk about some of the opportunities from Pennsylvania, PJM broadly transmission.
Yes. We'll continue to see opportunity for transmission investments in and throughout PJM to your point, that's an area that we think there's additional opportunity in PPL Electric Utilities, not only supporting within our territory, but also some of the solicitations that are happening to support constraints that are outside of our territory. And as you know, we're active in pursuing those. And so we'll continue to do that. To your point, I think there's additional opportunity beyond what's in the plan.
Okay. And then another one, probably fairly obvious, but I just want to check the box there. On the long-term emphasis on long-term refinancing for cap funding, like you're assuming kind of a market interest rate on those maturities with the CAGR purposes?
We are, yes.
The next question comes from the line of Anthony Crowdell of Mizuho, please go ahead.
Just one quick one. You talked about the RFP for offshore wind in Rhode Island. Just curious how committed the state is to offshore wind, as you've noticed some other states, particularly New York seems to be bulking at the higher power prices.
Yes. Look, I think New England in general, Anthony, is committed right -- their strategy is heavily relying on offshore wind for their clean energy future. We're committed to helping certainly Rhode Island helped to achieve those goals. I think what you saw in New York was as much procedural as it is pricing, where I think the states have concerns just modifying existing PPAs without reopening those up for bid because you may get better pricing if you reopen them. So I think it's more process driven than it is just the price.
The next question comes from Ryan Levine of Citi.
Quick question. In terms of the 2.3% industrial load decline in Kentucky for the quarter on a weather-normalized basis, what was the driver of that? And what's your longer-term outlook for industrial growth in Kentucky ahead of the CPCN decision next Monday?
Yes. Ryan, it's Joe. Yes. The -- what you're talking about in Kentucky is that variance is really driven by one large steel manufacturer that's experiencing usage normalization after they saw a large spike during COVID. So they're just normalizing back to where they had been prior to that. And you're seeing that in the year-to-date or the quarterly variances. As we think about longer term for Kentucky, there's been -- and we've talked about it a number of times, significant economic development over the last 2 years or more really 2021 and 2022 at $10 billion of economic development each year.
Yes. And Ryan, generally, the industrial class, especially in Kentucky, the margins are not as affected by kilowatt hours as they're predominantly driven on demand and fixed charges. So as Joe said, that was pretty much one customer driving that, but very little impact on margin.
This concludes our question-and-answer session. I would like to turn the conference back over to Vince Sorgi for any closing remarks.
Thanks, operator, and thanks, everybody, for joining us today. As I said, you'll hear from us next week following the decision from the KPSC on the CPCN and then look forward to seeing you all at EEI the following week. So thanks again for joining us.
Conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.