PPL Corporation

Good day, and welcome to the PPL Corporation second quarter 2024 earnings 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. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. 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 second quarter 2024 financial results. We provided slides for this presentation on the investor section of our website. We'll begin today's call with updates from Vin Sorge, PPL President and CEO, and Joe Bergstein, Chief Financial Officer. and we'll conclude with a Q&A session following our prepared remarks. 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. Actual results may differ materially from these forward-looking statements. Please refer to the appendix of this presentation and PPL's SEC filings for discussion of some of the factors that could cause actual results to differ from the forward-looking statements. We will also refer to non-gap measures, including earnings from ongoing operations or ongoing earnings on this call. For reconciliations to the comparable gap measures, please refer to the appendix. I'll now turn the call over to Vince.

Thank you, Andy, and good morning, everyone. Welcome to our second quarter investor update. Let's start with our financial results and a few highlights from our second quarter performance on slide four. Today we reported second quarter gap earnings of 26 cents per share. Adjusting for special items, second quarter earnings from ongoing operations were 38 cents per share. Backed by another strong quarter, today we reaffirmed our 2024 ongoing earnings forecast of $1.63 to $1.75 per share and expect to achieve at least the midpoint of our forecast range. In addition, we continue to make excellent progress in delivering on our 2024 priorities. We're on track to complete approximately $3.1 billion in infrastructure improvements this year to advance a reliable, resilient, affordable, and cleaner energy future for our customers. We're on pace to exit our remaining transition service agreements with National Grid in the coming weeks and to complete what has so far been a seamless integration of Rhode Island Energy into PPL. Lastly, we expect to achieve our annual O&M savings target of $120 to $130 million this year, which is compared to our 2021 baseline O&M. Looking ahead, we're well positioned to achieve our projected 6% to 8% annual earnings per share and dividend growth through at least 2027. We remain as focused as ever on executing our capital plan, which includes $14.3 billion in infrastructure improvements from 2024 to 2027. And across PPL, 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, again, compared to our 2021 baseline. Moving to slide five, I want to reiterate our utility of the future strategy. which in a nutshell is to deliver a net zero energy system by 2050, but one that continues to be reliable and affordable for our customers. The decarbonization strategy here in the U.S., and even globally, is to electrify as much of the economy as we can and generate the needed electricity with no or low carbon solutions. This will significantly increase the demand for electricity, currently estimated at two to three times our current levels. but it also requires the electricity grid to be significantly more reliable and resilient than it is today. Our utility of the future strategy addresses this challenge head on across multiple focus areas. First, we will improve the reliability and resiliency of our electric and gas networks through updated design criteria and system hardening to better protect against more frequent and severe storms. Through automation, AI, and smart grid technology that offers self-healing grid capabilities, through grid enhancing technologies that help us extract the most from existing infrastructure, and through robust and ever-evolving cybersecurity that protects against present and future threats. At the same time, we will continue to advance the clean energy transition affordably and reliably. We'll achieve this by transitioning to a reliable, affordable, and cleaner energy mix, one that includes an important role for dispatchable natural gas as we retire aging coal-fired generation. We'll do it by positioning the grid to connect increased renewables, including behind-the-meter resources. And we'll do it by continuing to lead, partner, and invest in R&D to accelerate the commercialization of low-carbon technologies needed to achieve net zero, technologies such as advanced nuclear, carbon capture, hydrogen, and long-duration energy storage. This includes the recent partnerships we've made with the Department of Energy to explore the feasibility of coal-to-nuclear transitions at some of our power plant sites in Kentucky, and a leading carbon capture R&D project at our cane-run combined cycle gas plant. Our Utility of the Future strategy also includes driving sustainable efficiencies to keep energy affordable for our customers as we invest in the clean energy transition. For every dollar of O&M we can take out of the business, we can invest about $8 in capital without impacting our customers' bills. This is why becoming more efficient is such an important part of our strategy and helps to keep the transition more affordable for our customers. We are also focused on using AI and other advanced technologies more broadly, which will drive further efficiencies and improved results. We are starting to see firsthand the power of AI and how transformational this technology will be to our business. This includes balancing the grid and peak shaving, empowering our customers and enhancing their experience with our utilities, and further improving reliability while lowering our costs. The applications of AI technology are tremendous for our industry, and we are extremely focused to unlock that potential to deliver real value. And finally, we'll continue to engage and lead discussions with a wide range of stakeholders to strengthen resource adequacy in the regions we serve, specifically including markets like PJM, which is even more critical following the capacity auction results that were just released this week. With increasing demand and tight supply, we need to do everything we can to protect our customers from such price volatility, including investing further in transmission upgrades to alleviate constrained zones, incorporating additional grid-enhancing technologies to get as much as we can from existing lines, and advocating for legislative changes in Pennsylvania that would drive needed generation development, including authority that would support regulated utility investments in new generations. Collectively, these actions will not only maintain reliability, but also power economic development, while at the same time support data center growth and expansion, which we consider critical to American competitiveness and national security. This is our Utility of the Future playbook to not only address the challenges of delivering a clean energy future that is affordable and reliable, but to enable us to thrive and grow in that ever-changing energy landscape. Moving to slide six. and a deeper dive on our support for data centers. Starting with Pennsylvania, we truly believe our Pennsylvania service territory is uniquely positioned to service large-scale data center connections. First, we've invested $6.5 billion over the last decade in our transmission network while leveraging advanced dynamic line rating technology, which together has improved the reliability of the network to top vessel performance nationwide. Our advanced transmission network is capable of connecting the current data center demand in our queue, and we are confident we can support even further demand should it materialize. This means we can respond very quickly to developer interconnection requests. Our team responds within six weeks. As a result, we now have a total of over 17 gigawatts of interconnection requests in Pennsylvania, and new requests continue to come in each month. While it is likely that some of these requests are duplicative due to developers assessing multiple sites at the same time, we have nearly five gigawatts of potential data center demand in advanced stages of planning, up from the three gigawatts we discussed during our first quarter update in May. These projects all have signed agreements with developers, are in various stages of PJM's review process, with some having already completed that review, and costs being incurred by PPL are reimbursable by the developers if they do not move forward with the projects. On the financial impacts of data centers, the primary upside is in the form of additional returns on transmission investments through FERC formula rates. We estimate that the 5 gigawatts of potential demand in the advanced stages represents incremental PPL capital needs of $400 to $450 million. Because we operate in PJM in Pennsylvania, this data center development will reduce net transmission costs for our existing retail customers. We estimate for every 1 gigawatt of data center demand that's connected to the grid, our residential customers would save about 10% on the transmission portion of their bill. For the average residential customer, that would represent about $3 a month in savings. For the 5 gigawatts in advanced stages of development, That would represent about $15 a month in savings for the average residential customer using 1,000 kilowatt hours a month of electricity. Turning to Kentucky, our service territory there is better suited for midsize data centers as we also have an abundance of land and water, have lower energy prices than much of the U.S., and provide for tax incentives in certain counties that we serve. We are also confident we can make the needed transmission and generation investments required to support continued data center and industrial growth in the Commonwealth. We continue to work with data center developers in our LG&E and KU service territories with active requests totaling more than two gigawatts in the 2027 to 2033 timeframe with about 350 megawatts in advanced stages. As in Pennsylvania, any transmission upgrades in Kentucky would be additive to our capital plan, although the more significant capital investments in Kentucky would arise from any incremental generation investments. Once our new Mill Creek 5 combined cycle gas plant is operational in 2027, we estimate that we will have approximately 400 to 500 megawatts of generation capacity available to support further load growth while maintaining our prudent reserve margins. With Kentucky coming off the best four-year period of economic growth in the state history, on top of this potential new data center demand, we continue to actively monitor our capacity needs to maintain a safe and reliable network for customers. Should new generation become necessary to serve higher electricity demand, we can use Mill Creek Unit 5 as a reference for pricing on potential new baseload generation. That unit, which was approved by the KPSC last year, has an expected cost of $1 billion. The updated integrated resource plan, which will be filed with the KPSC in October, will guide any further generation needs. Keep in mind there are many factors that go into our generation planning and reserve margin analysis. We will refresh that analysis this fall and will include updated load projections and related supply needs. As we think about possibly needing to build a second combined cycle gas plant to meet that load growth, it's important to note that we still have a spot in the queue for a second gas turbine from our prior solicitation. It is important to highlight that our rate designs in both Pennsylvania and Kentucky protect our customers from undue burdens related to data center connections. In both jurisdictions, the data centers are under tariffs that will benefit our non-data center customer rates. Bottom line, and as I shared last quarter, we're ready and eager to support prospective data centers, and we are well positioned to serve their needs. And the good news is that our customers, share owners, and the states which we serve all benefit from this development. Moving to slide seven and several key operational and regulatory updates. On July 11th, the Pennsylvania PUC approved PPL Electric Utilities' request to modify its current Long-Term Infrastructure Improvement Plan, or LTIT. The decision granted us permission to classify approximately $200 million of reliability investments through 2027 as capital eligible for recovery through the DISC, or the Distribution System Improvement Charge. While the PUC denied our request to classify $84 million of planned investments in predictive failure technology as being DISC eligible, the PUC viewed our predictive failure project favorably and indicated PPL Electric may seek recovery of these project costs in a future base rate case. Overall, the approved modification to our LTIP represents a positive outcome. that supports our continued investments to repair and replace aging infrastructure and strengthen grid reliability. Changes to the plan will be implemented during the current plan period, which extends through December 31, 2027. Also in Pennsylvania, our DISC waiver petition continues to proceed through the process, as expected. In June, an ALJ was assigned and a procedural schedule was created, which we have provided in the appendix. Based on that schedule, we continue to expect the proceeding to conclude later this year with a decision in early 2025. Shifting to Kentucky, we recently kicked off construction of our planned 650 megawatt Mill Creek Unit 5 combined cycle natural gas plant following several months of prep work. The new unit is part of more than $2 billion in planned generation investments over the next several years to economically replace 600 megawatts of aging coal generation with a reliable, affordable, and cleaner energy mix. In addition, all long lead time equipment deliveries remain on schedule. Overall, we're on track to complete construction and begin commercial operation of the unit in 2027. We will earn AFU DC on this capital project until it goes into commercial operation. In addition, we secured a site compatibility certificate from the KPSC in July for a planned 120 megawatt solar facility to be built in Mercer County, Kentucky. The approval helps pave the way for final site design and construction of the new facility, which we expect to begin commercial operation in 2026. Finally, just this week, we successfully completed another labor contract negotiation. This latest agreement covers about 60 employees in Kentucky and represents the fifth successful union negotiation over the last year, representing over 50% of our union workforce. We look forward to continued success in this area for years to come, balancing the needs of our employees and customers. That concludes my strategic and operational update. I'll now turn the call over to Joe for the financial update.