PPL Corp (PPL) Q2 2024 Earnings Call Transcript Highlights: Strong Earnings and Strategic Investments

• Kentucky: Increased by $0.05 per share.
• Pennsylvania Regulated: Increased by $0.05 per share.
• Rhode Island: Increased by $0.01 per share.
• Corporate and Other: Decreased by $0.02 per share.

Release Date: August 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• PPL Corp (PPL, Financial) reported second-quarter GAAP earnings of $0.26 per share, an increase from $0.15 per share in Q2 2023.
• The company reaffirmed its 2024 ongoing earnings forecast of $1.63 to $1.75 per share and expects to achieve at least the midpoint of this range.
• PPL Corp (PPL) is on track to complete approximately $3.1 billion in infrastructure improvements in 2024, enhancing reliability, resilience, affordability, and cleaner energy.
• The integration of Rhode Island Energy into PPL has been seamless, and the company is on pace to exit remaining transition service agreements with National Grid.
• PPL Corp (PPL) is well-positioned to achieve its projected 6% to 8% annual earnings per share and dividend growth through at least 2027.

Negative Points

• Higher interest expenses due to increased debt balances have partially offset the positive earnings drivers.
• The Pennsylvania PUC denied PPL's request to classify $84 million of planned investments in predictive failure technology as DSIC eligible, impacting potential cost recovery.
• The company faces potential customer bill increases of $10 to $15 per month due to higher capacity prices in the PJM market.
• PPL Corp (PPL) may need to consider equity financing for future capital expenditures, depending on interest rates, inflation, and other factors.
• The construction of new generation facilities, such as combined cycle gas plants, may take several years, potentially delaying the benefits of increased capacity.

Q & A Highlights

Q: Vince, just trying to get a sense on the transmission side. Looking at $400 to $450 million incremental for this update. We've also seen a blowout print capacity auction potentially foreshadowing more RTEP work. What does all this start to add up as we look at your $725 million placeholder for 2027, how should we think about the timing of the shape of that spend as we update our models for 2028 and beyond versus that 2027 placeholder you have in plan? Thanks.
A: Yes, Shar. I think what you're bringing up is a good point in terms of what is capacity auction signifying, right? And clearly, I think it's showing that there's a clear signal that we do generation and transmission investments needed in PJM. In terms of ability to invest in transmission, I think that's in a few areas. Obviously, there were the two zones that broke out above the RTO. Clearly, I think there's opportunity for additional transmission solutions going into there. So I think we could probably expect there to be an open window to try to resolve some of that. As you know, in the past, we've been successful in winning some projects going down into the Maryland, Virginia area. So it could be additional opportunity there in addition to just investments in our own area. I would say that from a broader strategic perspective, I think those auction results also would reinforce our strategy in working with the state of Pennsylvania and the other EDCs in the state to help resolve the resource adequacy concerns that many of us have been talking about for a while now, in particular, in PJM. And so we're not going to just sit back and wait for this issue to resolve itself. We have an obligation to serve and do everything that we can for our customers, whether it's these additional transmission investments, I think we can do additional grid-enhancing technologies on the existing grid and then continuing to advocate for legislative change. So we'll continue to push that agenda to ultimately lower the price of electricity for our customers and reduce the volatility.

Q: Vince, just on the broader resource question to BR. A lot of your wire's peers have commented on it this week you just did. In the past, we've had similar attempts on this reregulation of certain amount of generation over 13 years ago in New Jersey and Maryland with the LCAP and MCAP program, which ultimately got struck down by the courts. It was a little bit more on the capacity side versus energy. But I guess, what's different focusing on potential generation request by the wireless companies? Where are the conversations at with policymakers? Are they waiting for the IP piece to step up and build? What's your trigger point? Should we be watching a legislative window next year, I guess, just elaborate a little bit on some of the dialogue you guys are having?
A: Yes. Well, look, I think the biggest difference, Shar, is what's in the queue, right? And what we right now is significant amounts of dispatchable generation being retired with very little dispatchable generation coming on. And so I think that's the big -- the big issue is not so much the energy play. It's the capacity play and having -- making sure that we have enough capacity to serve 24 hours a day, 7 days a week, 365. So that's really the big difference, I would say, from what we're seeing now. And so what's being left in the market is creating real concerns around resource adequacy, I think there's a few signposts that we're certainly watching to determine what the long-term impact of this capacity option will be in terms of our customer bills, but also just on resource adequacy, we want to see what the auction results are for the 2026, 2027 planning year, which will happen in December. Same thing for the 2027, 2028 planning here. That will occur next June. I want to see if there's any new dispatchable generation entering the queue between now and December, right? We suspect that the IPPs will want to see more than just this one data point before they're committing to building new dispatchable gen like natural gas. So we'll be keeping an eye on that. So there's a few things that we'll be looking at. This, of course, is one data point, but I think it clearly supports our strategy, which is we sure we keep resource adequacy front and center. We think the states are going to have to play an active role in that. Unfortunately, I think Pennsylvania is taking this seriously, and we look forward to continuing to work with all the stakeholders in the state to see what we can do to show this up.

Q: Hey, good morning, Vince. Thank you for taking my questions. Hey, I just want to continue the discussion on the PJM auction results. You mentioned that IPPs probably want another signal before they can commit capital here. This is a pretty dramatic signal in terms of price increases. One of the things we're consistently getting asked from investors is what does it do to utility builds? Your peers talked about double-digit increases in some of their services. I know this is not 9 times translates into that large a bill increase, but just maybe can you discuss that a bit what does this mean for customer bills?
A: Yes, of course. So I would say for the near-term impact for customer bills -- and this, of course, assumes all else equal, which never is the case. But all else equal, we would estimate that these higher prices would impact the generation portion of the bill for an average customer by about $10 to $15 per month. That represents roughly 5% to 10% of the total bill. We would expect that to begin in 2025 as our suppliers start to reflect these higher prices in their solicitation bids. I did talk in our prepared remarks, fortunately, in addition to the other actions that I just talked about with Shar, that we're taking on this issue. We are seeing that substantial data center load. And if we just stick with that 5 gigs in advanced stages, that would reduce our customer bills over time by a similar amount that we're talking as a result of the capacity price increases once that demand all comes online. So lots of moving parts on here. Obviously, the capacity prices will have a near-term increase impact and then we'll look to mitigate that over time with various actions, including the data center look coming online.

Q: Just switching gears on the balance sheet. Just thinking about the $400 million to $450 million you mentioned and other opportunities across the different states. How should we think about your balance sheet capacity? What CapEx could be done with debt? And at what point you might consider equity as we think about you rolling forward your plan here into 2029 now?
A: Sure. Hi Durgesh, it's Joe. So look, I'd just say that our balance sheet is in really good shape, and we expect to be within the FFO to debt range of 16% to 18% through the planning horizon. Capital is just one factor that goes into

For the complete transcript of the earnings call, please refer to the full earnings call transcript.