PPL Corp Q3 2025 earnings call

Good morning, everyone, and thank you for joining the PPL Corporation conference call on third quarter 2025 financial results. We have provided slides for this presentation on the investor section of our website. We will begin today's call with updates from Vince Sorgi, PPL President and CEO, and Joe Bergstein, Chief Financial Officer, and we will conclude with a Q&A session following our prepared remarks. Before we get started, I will 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 will 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.

Thanks, Andy, and good morning, everyone. Welcome to our third-quarter investor update. Let's begin with highlights from our third-quarter financial performance on slide four. Today, we reported third-quarter GAAP earnings of $0.43 per share. Adjusting for special items, third-quarter earnings from ongoing operations were $0.48 per share. Building on this strong performance, we've narrowed our 2025 ongoing earnings forecast range to $1.78-$1.84 per share, maintaining our midpoint of $1.81 per share. We remain confident in our ability to achieve at least this midpoint, supported by our continued operational discipline and strategic execution. Throughout the quarter, we continued to advance our utility-to-the-future strategy, delivering meaningful progress across our operations. We're on track to complete approximately $4.3 billion in infrastructure improvements this year, critical investments that support reliable, resilient, affordable, and cleaner energy networks for our customers now and in the future.

Our continued focus on innovation and technology has us on pace to achieve our annual O&M savings target of at least $150 million compared to our 2021 baseline. Looking ahead, we continue to project $20 billion in infrastructure investments from 2025 through 2028, driving average annual rate-based growth of 9.8%. We also remain well-positioned to deliver 6%-8% annual EPS and dividend growth through at least 2028, with EPS growth expected to be in the top half of that range. Importantly, we expect to maintain our strong credit profile, with an FFO to debt ratio of 16%-18% and a holding company to total debt ratio below 25%. As is customary, we'll provide an updated business plan on our year-end call, including our formal 2026 earnings forecast and roll forward of our longer-term outlook. Turning to some regulatory updates beginning on slide five.

In Kentucky, LG&E and KU have reached a proposed settlement agreement with the majority of the intervenors in their base rate case proceedings. The agreement, filed with the Commission on October 20th, includes a revised aggregate increase of approximately $235 million in annual revenues and an authorized ROE of 9.9%. The agreement also features a base rate stay-out provision through August 1st, 2028, providing stability for our customers and our business. In connection with this stay-out, the settlement introduces two new rate mechanisms designed to balance customer affordability with the need for continued investment in Kentucky's energy infrastructure. The first, a generation cost recovery adjustment clause, or a GCR, will provide recovery of and a return on investments associated with new generation and energy storage assets already approved by the Commission but not yet in service. This would include the Mill Creek Unit 5 NGCC.

The Marion and Mercer County solar generating facilities, and the E.W. Brown Energy Storage Facility approved in our 2022 CPCN, as well as the recently approved E.W. Brown Unit 12 NGCC from our 2025 CPCN proceeding. The GCR does not cover Mill Creek Unit 6, as that unit's recovery was considered separately in our CPCN stipulation with intervenors. I'll cover the Commission's CPCN order in a few moments. The second rate mechanism agreed to in our rate case stipulation is a sharing mechanism adjustment clause. This mechanism would help to mitigate regulatory lag while protecting customers from potential over-earning during the final 13 months of the stay-out period, ensuring an ROE of no less than 9.4% and no more than 10.15%. The stipulation also includes support of a new tariff designed for customers with large demands and very high load factors such as data centers.

The tariff helps to attract these customers and continues to drive economic growth in our service territories while ensuring adequate safeguards are in place for all customers. While the stipulation agreement remains subject to Commission approval, we believe it represents a balanced result. It again underscores the collaborative approach we take with key stakeholders in Kentucky to achieve fair and constructive outcomes. New rates are expected to take effect no earlier than January 1st, 2026. Official hearings began earlier this week, and we anticipate a decision from the KPSC by the end of the year. Turning to slide six for a few additional regulatory updates. I'm also pleased to report that LG&E and KU received approval in a KPSC order for much of the company's July 2025 CPCN stipulation agreement.

This decision marks a significant milestone in our long-term generation investment strategy, and it again reflects our ability to work collaboratively with stakeholders to deliver reliable, cost-effective energy solutions. With this approval, LG&E and KU will construct two new 645 MW natural gas combined cycle units, Brown 12 and Mill Creek 6. These units will be similar to the Mill Creek 5 combined cycle unit currently under construction. In addition, LG&E and KU will install an SCR to mitigate NOx Emissions at Unit 2 of the Ghent Generating Station. These investments will ensure we continue to meet Kentucky's growing energy needs driven by record-breaking economic development and data center expansion, all while maintaining reliability and affordability for our customers. The approval also supports requests regarding regulatory asset treatment for AFUDC and recovery of the Ghent 2 SCR costs through the existing environmental cost recovery mechanism.

The KPSC decided not to approve two proposed cost recovery mechanisms for the recovery of Mill Creek 6 and the recovery of costs associated with keeping Mill Creek 2 open beyond its original retirement date in 2027. However, the KPSC encouraged LG&E and KU to provide additional evidence on such matters in separate proceedings, including the open rate case proceedings. We have decided to address the recovery of the Mill Creek 2 stay-open costs in the pending rate case proceedings and will address the Mill Creek 6 recovery in a future proceeding since that unit is not expected to come online until 2031. We appreciate the Commission's constructive feedback and remain confident in our ability to present compelling evidence in upcoming proceedings. Our team is committed to securing cost recovery that supports continued investment in reliable energy infrastructure to meet the growing needs in the Commonwealth.

In other updates, on September 30th, PPL Electric Utilities filed a request with the Pennsylvania Public Utility Commission to increase annual base distribution revenues, which would represent its first distribution base rate change in more than a decade. The requested increase supports our need to build and maintain a stronger, smarter, and more resilient electric grid to better withstand increasingly severe weather, prevent outages, and improve service to our customers. Over the past 10 years, we've been successful in avoiding base rate increases while creating one of the nation's most sophisticated and efficient grids. In fact, PPL Electric's operating and maintenance expenses have increased by only 7.4% nominally since 2015, compared to 32% inflation over that same period. We are requesting a net revenue increase of just over $300 million, or 8.6%.

As more than $50 million of the base rate request includes revenue that is already reflected in customer bills through riders like the DSIC. Also, as part of this base rate case, the amount of rate base included in the DSIC mechanism will reset to zero, and the cap on the DSIC revenue would also reset back to 5% of base distribution revenues. Our rate case application is supported by a fully forecasted test year that begins July 1st, 2026, and a requested ROE of 11.3%. We anticipate a decision from the PUC on our case in the second quarter of next year, with new rates effective on July 1st, 2026. Finally, in our last regulatory update, we continue to expect Rhode Island Energy to file a distribution base rate request before the end of this year.

Now let's turn to slide seven and our data center updates in Pennsylvania. There's a lot to unpack in this quarter's update, as shown on this slide. First. Momentum continues to build in PPL Electric Utilities service territory in terms of interconnection requests to our transmission network. Since our last update, the number of data center projects in advanced stages of planning, those projects that have either a signed electric service agreement, or an ESA, or a signed letter of agreement, LOA, have jumped more than 40% from 14.4 GW to 20.5 GW. This marks yet another increase in our Pennsylvania data center pipeline since we initially announced about 3 GW in advanced stages in the first quarter of 2024. Both of these agreements require significant financial support from the counterparties.

LOAs carry significant financial burden for counterparties as they agree to pay for all the engineering and long lead time materials, which could easily run into the tens of millions of dollars. The ESAs include all the commitments in the LOAs, plus customer commitments around additional credit support. They require the counterparty to pay a minimum load requirement based on 80% of their load forecast. Over 11 GW of the 20.5 GW under signed agreements have been publicly announced, including about 5 GW that have already begun construction. Overall, we're very confident that at least 20.5 GW of demand is real, especially given we have an additional 70 GW of demand in the queue.

I know there's a lot of discussion in the market about the quality of utility load forecasts related to these large loads, and I have a few thoughts on this issue as well. First, we know that load forecasting is a critical component of system planning, and it's also a fundamental part of the PJM capacity auction process. We are very supportive of efforts to ensure that load forecasts are reasonable and generally prepared in a consistent manner. We are actively engaged with PJM and the other PJM utilities to review and potentially improve the load forecasting process given the amount and pace of interconnection requests. I will also point out that PJM discounts the load forecast it receives from the utilities by as much as 30%. So the load forecasts that the utilities provide PJM are not the final forecasts used in the capacity auctions.

Thank you, Vince, and good morning, everyone. Let's turn to slide 11. PPL's third quarter GAAP earnings were $0.43 per share compared to $0.29 per share in Q3 2024. We recorded special items of $0.05 per share during the third quarter of 2025, primarily due to IT transformation costs and certain costs related to the integration of Rhode Island Energy.

Adjusting for these special items, third quarter earnings from ongoing operations were $0.48 per share, a $0.06 per share increase compared to Q3 2024. The increase was primarily due to several favorable factors, including higher revenues from formula rates and rider recovery mechanisms, as well as lower operating costs, which were partially offset by higher interest expense. As Vince mentioned in his remarks, with a strong quarter of the results, we've narrowed our 2025 ongoing earnings forecast range and remain confident in achieving at least the midpoint of $1.81 per share. During the third quarter, we took the opportunity to de-risk a sizable portion of our equity financing needs as we fund our substantial growth. In August, we entered into forward contracts to sell approximately $1 billion of equity. We completed these transactions under the ATM, which minimized fees and enabled efficient execution.

This brings the total amount of equity executed under the forward agreements to approximately $1.4 billion of the $2.5 billion forecasted equity needs through 2028. Approximately $400 million will settle at the end of this year, with another $500 million to settle at the end of 2026. The remaining $500 million settling in mid-2027. Turning to the ongoing segment drivers for the third quarter on slide 12. Our Kentucky segment results increased by $0.02 per share compared to the third quarter of 2024. This increase was driven by higher sales volumes, largely due to favorable weather in Q3 2025. Lower operating costs, and higher earnings from additional capital investments, partially offset by higher interest expense. Our Pennsylvania regulated segment results also increased by $0.02 per share compared to the same period a year ago.

The increase was primarily driven by higher transmission revenue from additional capital investments and higher distribution rider recovery, partially offset by higher interest expense. Our Rhode Island segment results increased by $0.01 per share compared to the same period a year ago. The primary driver of this increase was lower operating costs. Finally, results at corporate and other increased by $0.01 per share compared to the prior period due to several factors that were not individually significant. We are pleased with our performance through three quarters of the year and remain well-positioned to deliver on our commitments to share owners in 2025 and beyond. Our focus on providing real value to our customers underpins our robust business plan and our confidence in our long-term financial targets.

We continue to make excellent progress on de-risking that plan through constructive regulatory outcomes and financial discipline while driving initiatives that can support future growth. This concludes my prepared remarks. I'll now turn the call back over to Vince.

Thank you, Joe. In closing, PPL is delivering strong results today, and we're building a strong foundation for tomorrow. We've narrowed our earnings guidance. We remain confident in achieving at least the midpoint of that guidance, supported by disciplined execution and a clear vision. We're advancing our utility to the future strategy, investing in infrastructure, deploying technology, and driving innovation, all while maintaining affordability for our customers. PPL's disciplined execution and strategic investments, coupled with our focus on innovation, data center expansion, and operational efficiency, set us apart in the utility sector. That focus creates value for both our customers and our shareholders alike.

Thank you for your continued confidence in PPL and our team. With that, operator, let's open it up for questions.