PPL Corporation

Good day and welcome to the PPL Corporation second quarter 2025 earnings conference call. All participants will be in the listen early 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 touchtone phone. To withdraw a 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, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining the PPL Corporation conference call on second quarter 2025 financial results. We provided slides for this presentation on the investor section of our website. We begin today's call with updates from Vince 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 a discussion of some of the factors that could cause actual results to differ from the forward-looking statements. We'll also refer to non-GAAP measures, including earnings from ongoing operations or ongoing earnings on this call. For reconciliations to the comparable GAAP 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 25 cents per share. Adjusting for special items, second quarter earnings from ongoing operations were 32 cents per share. While the timing of certain expenses in milder weather than last year contributed to lower period over period results, as Joe will discuss in his remarks, we remain confident that we will achieve at least the midpoint of our 2025 ongoing earnings forecast of $1.81 per share, as our plan assumed stronger earnings growth in the second half of 2025, resulting from higher returns on capital investments and lower O&M year-over-year. We're solidly on track to complete over $4 billion in infrastructure improvements in 2025 to strengthen grid reliability and resiliency and advance a cleaner energy mix without compromising on affordability for our customers. We continue to incorporate new technology and explore the use of artificial intelligence in all aspects of our business, from the field to the back office, to drive better results and greater efficiency. As a result of our investments, we expect to build on our prior year's success and deliver cumulative annual O&M savings of $150 million this year compared to our 2021 baseline. We also continue to project $20 billion in infrastructure improvements from 2025 to 2028 resulting in average annual rate-based growth of 9.8%. This does not include any capital expenditures that may be required under the new joint venture agreement with Blackstone Infrastructure to build new generation in Pennsylvania to directly serve data centers. Lastly, we're well-positioned to achieve our projected 6% to 8% annual earnings per share and dividend growth through at least 2028, with EPS growth expected in the top half of that range. And throughout our plan, we expect to maintain our excellent credit profile with an FFO to debt ratio of 16 to 18% and a holding company to total debt ratio below 25%. Turning to slide five, we have a number of positive business and regulatory updates this quarter. Let me begin with some key regulatory updates, starting with the stipulation agreement that we just filed with the KPSC earlier this week, related to the CPCN proceeding to construct much needed generation in Kentucky. We were pleased to have announced a very constructive stipulation with many of the intervening parties to the case. The stipulation strikes the right balance between building new generation needed to support economic development in the state, including supporting anticipated data center load, and ensuring we maintain affordability for our customers. The stipulation supports approval of two 645 megawatt natural gas combined cycle units, Brown 12 and Mill Creek 6, as well as an SCR for our GENT unit to coal plant, as we requested. It also supports mechanisms that reduce lag on these investments, including recommending approval of AFUDC treatment on both NGCCs during construction as well as cost recovery of the GEN2 SCR via our existing environmental cost recovery mechanism or the ECR. The agreement also supports a new tracker to recover costs of the Mill Creek 6 NGCC over the life of the plant, allowing for recovery of operating costs and returns of and on capital investments. The stipulation also supports the life extension of the Mill Creek 2 coal unit from the current retirement date of 2027 to 2031 when Mill Creek 6 is placed into service. Related to this plant life extension, the stipulation supports a new ECR-like mechanism to recover incremental O&M and capital costs required to keep Mill Creek 2 open, including any costs we incur in the remainder of this year. We also agreed to provide an analysis of operating Mill Creek 2 beyond 2031 as part of our next integrated resource plan in 2027. With the life extension of the Mill Creek 2 coal unit, the stipulation also requires the companies to withdraw the request for the cane-run battery storage project without prejudice. This means we can file another CPCN for the battery storage project at any time, if needed. Should the Commission approve the stipulation, we do not expect a significant change to our overall CapEx plan or rate-based growth projections, as we see additional investment needs across our networks that are not currently in our plan. We will provide a full CapEx and rate-based refresh per normal course on our year-end call. The stipulation is subject to approval of the KPSC, and a hearing is scheduled for next Monday, August 4th. We continue to anticipate a final decision by November 1st of this year. Turning to slide six and a few additional regulatory updates. On May 30th, LG&E and KU filed a request with the KPSC for a combined $391 million increase in annual electric and gas revenues to support continued safety, reliability, and resiliency investments in our systems and approve service to our customers. Our applications are supported by a fully forecasted test period ending December 31st, 2026. It has been nearly five years since we saw the base rate increase in Kentucky. During the period from 2021 through 2024, the cumulative amount of inflation was 19.7 percent, which is significantly higher than the overall percentage increase of 10.7 percent that the companies are seeking in these cases. We expect a decision from the Commission by the end of the year and new rates to be effective on January 1st. Turning to Rhode Island, Earlier this month, we agreed with the advocacy section of the Division of Public Utilities and Carriers to settle the hold harmless commitment related to our acquisition of Rhode Island Energy. In summary, the acquisition accounting resulted in the elimination of certain accumulated deferred income taxes, which resulted in an increase in rate base. At that time, we made a commitment that we would make bill credits that could extend nearly 40 years to hold our customers harmless from this accounting change. The settlement computed the net present value of those future bill credits to be $155 million. We agreed to credit our customers that $155 million in January, February, and March of 2026 and 2027. This is a very constructive solution that significantly improves affordability for Rhode Island customers when bills are at their highest in the winter, while at the same time satisfying a significant acquisition commitment. We expect a final decision on the settlement in the coming weeks. And shifting to Pennsylvania, we now expect to file a base rate case by the end of this year, our first PA rate case in a decade. The fact that we've been able to go so long without a base rate increase in Pennsylvania is a testament not only to the constructive regulatory framework in the Commonwealth, but also, and importantly, our strong focus on efficiency and affordability. We've created one of the most sophisticated grids in the nation in PPL electric utility service territory, and that in turn has driven not only substantial reliability improvements, but also significant value for our customers, including the ability to quickly connect large load customers like data centers and manufacturing facilities. Our expected rate request in Pennsylvania will support our continued efforts to strengthen the grid against future storms, and incorporate advanced technology that allows us to work smarter and more efficiently while delivering a better experience for our customers. Now let's turn to slide seven and the exciting economic growth in Pennsylvania that is currently being powered by data centers. As we've said before, we have made it a strategic priority at PPL to serve data centers across our service territories as AI will be critical to America's continued competitiveness and national security, as well as the execution of our utility of the future strategy. There are two main components to our data center strategy. First, we are enabling speed to market for the data centers by being able to connect them to the grid faster than they can get the data centers built. And second, we are supporting several initiatives to develop new generation to serve this massive new load coming onto the grid. This includes our new joint venture with Blackstone Infrastructure that was announced at the inaugural Pennsylvania Energy and Innovation Summit held in Pittsburgh by Senator McCormick earlier this month. At the summit, state and federal officials, as well as technology leaders, highlighted Pennsylvania's unique position to lead the next wave of data center expansion. And in total, over $90 billion of project commitments were announced. Our Pennsylvania subsidiary, PPL Electric Utilities, is particularly well suited to meet this demand. We've already invested $13 billion in our Pennsylvania grid since 2013, and our current capital plan includes another $7 billion through 2028. That means we can connect data centers as quickly as developers can build them. It also means that we are not holding up data center development in Pennsylvania, which is a clear strategic advantage. We now have about 14 and a half gigawatts of data center projects in the advanced stages of development, with nearly five gigawatts being publicly announced. This includes Amazon's planned data center expansion in Pennsylvania, a data center project announced in the Carlisle area by PA Data Center Partners and Powerhouse Data Centers, and a data center announced by CoreWeave. With these advancements, we've increased the projected transmission capital investment needed to meet these demands to a range of $750 million to $1.25 billion, with only $400 million included in our current $20 billion capital plan. Meeting this unprecedented demand growth will require an unprecedented response and will require all market participants to be part of the solution. And that brings me to our next slide and the generation part of our data center strategy. Moving to slide eight and a discussion of the joint venture with Blackstone Infrastructure. As a company, we've been very vocal about the need for new generation to supply data centers, and we're committed to help meet that challenge. This new joint venture plans to enter into long-term energy services agreements, or ESAs, with hyperscalers. Those ESAs will have regulated-like risk profiles that do not expose the companies to merchant energy and capacity price volatility, as PPL is not getting back into the merchant generation business. Therefore, construction of any new generation will require the successful execution of ESAs with hyperscalers. The joint venture is actively engaged with hyperscalers, landowners, natural gas pipeline companies, and turbine manufacturers, and has secured multiple land parcels to enable this new generation build-out. PPL owns 51% of the joint venture interest, with Blackstone Infrastructure owning 49%. The joint venture does not include PPL electric utilities or any of PPL's regulated subsidiaries. I can say with confidence there's a lot of activity and excitement in Pennsylvania in bringing new generation online in support of data centers. And importantly, this is about building new generation resources, not just diverting existing resources to data centers like we are currently seeing in the market. It's also why we continue to support legislative solutions in the state to enable more generation to be built by anyone who can do it. There are two pieces of critical legislation, House Bill 1272 and Senate Bill 897, that have been introduced in Pennsylvania to facilitate this much-needed investment in new dispatchable generation. Both the House and Senate bills would allow regulated utilities like PPL Electric Utilities, to build and own generation again to solve a resource adequacy need. And both pieces of legislation would also encourage utilities to enter into agreements with IPPs to help de-risk their new generation investments. As a company, we are primed to act quickly once this proposed legislation becomes law. In PPL electric utility service territory alone, We now estimate the new generation need to be about seven and a half gigawatts over the next five to seven years, assuming all the projects in advanced stages are developed. That represents a total investment need of between $17 and $19 billion, assuming combined cycle natural gas plants are used to meet that need. And again, that is just in our service territory. This new generation could be built by a combination of existing IPPs, our newly formed joint venture with Blackstone Infrastructure, and if allowed, PPL electric utilities. Given both federal and state support for new natural gas plants, natural gas pipeline expansion, and streamlined siting and permitting, we are optimistic this generation can get built. But in large part, this will depend on the hyperscalers being willing to sign long-term ESAs to support new generation build. I think that is true regardless of whether we're talking about the IPPs building this generation or our newly formed joint venture. especially given the limitations of PJM's capacity in energy markets to incentivize the construction of new dispatchable generation. And this generation strategy will actually lower customer utility bills, which is critically important to us and obviously to our customers. While we do not have any signed ESAs with hyperscalers to date under the JV, we will provide additional details once we have those ESAs signed. I'll also reiterate that we are actively negotiating with multiple parties, and therefore we will not get into further details on our strategy or our proposed VSA structure. Moving to slide nine and taking a step back from the structure of the JV, I wanted to provide some color as to why this strategic partnership is so exciting. First, in terms of Blackstone, I can't think of a better partner for this type of joint venture. The specific team that we are partnered with is Blackstone Infrastructure. Blackstone Infrastructure has an open-ended investment horizon and can be a partner to us for the life of the assets. And they are very supportive of the regulated like risk profile that we want to take with this JV. Blackstone also has an excellent track record of success. It has tremendous data set experience with their QTS investment and developing and owning generation assets. So for us, Blackstone is more than just a financial partner in this venture. They bring real expertise alongside our own expertise in power generation. As for PPL, we bring a lot to the table that complements the strengths of Blackstone. We're uniquely positioned as the largest electric and gas utility holding company headquartered in Pennsylvania. We have excellent relationships in the state and have the support of the governor and other state officials in this new venture. While we do not participate in the merchant power markets, our prior experience there provides key insights into the PJM market. We've also been a leader in the state as it relates to supporting data center development with over 60 gigawatts of data center projects in our Pennsylvania queue. We also run one of the best generation fleets in the U.S. and Kentucky, and our team has experience developing and operating generation assets. Our engineering and construction team is currently managing over $3.5 billion of construction projects on time and on budget. And if the CPCN stipulation is approved by the KPSC, that will add another $3 billion worth of projects. Our team is very skilled at delivering large projects, and I have complete confidence that we can execute the JV strategy to build and operate this generation as well. The last piece that differentiates this JV from many other market participants is that we are willing to build generation now. We won't cannibalize the value of other assets we own in PJM like some of the other merchant power companies. So we're in a fantastic spot and believe that this JV can create significant value for share owners while also protecting our Pennsylvania customers for higher prices with no added benefit. Now moving to slide 10 for a discussion of the economic development opportunities in Kentucky, which expand well beyond just data centers. We continue to engage with a wide variety of customers in Kentucky, which has powered record-breaking economic growth in the Commonwealth. From 2020 to 2024, roughly $36 billion in new investments have been announced in the state, nearly half of which are in LG&E and KU service territories. And the economic development pipeline remains robust, fueled in large part by access to the reliable, affordable electricity that LG&E and KU provide. A recent example includes GE Appliances' announced $490 million planned investment in LG&E service territory. According to the announcement, the new product lines are scheduled to be in production by 2027. Our latest forecast in Kentucky estimates 8.5 gigawatts of economic development load potential in our service territories. This includes 5.7 gigawatts of potential data center load, so we continue to field new inquiries from hyperscalers and data center developers. On a positive note, the 400 megawatt powerhouse data center that we previously announced has recently been upsized to 525 megawatts. The forecast also includes 2.8 gigawatts of manufacturing and other potential non-data center load as we continue to see new and expanded manufacturing in our service territories. The CPCN included roughly 1.8 gigawatts of demand growth through 2032. We recently refreshed these projections and now assume about 2.5 gigawatts of demand growth, nearly 700 megawatts of additional load than estimated in our original forecast just six months ago. If this potential growth continues to materialize, additional generation resources from what is included in the CPCN stipulation will likely be required. So again, just tremendous growth potential in our Kentucky service territories that can further bolster the local economies with well-paying jobs and local tax revenue. That concludes my business update. I'll now turn the call over to Joe for the financial update.