PPL Corp Q4 2025 earnings call

Good morning, and thank you for joining the PPL Corporation Fourth Quarter and Full Year 2025 Earnings Call. We provide you presentation materials on the investor section of our website. This morning, you'll hear from Vince Sorgi, PPL President and CEO, and Joe Bergstein, Chief Financial Officer. We'll conclude with a Q&A session following our prepared remarks. Before we get started, please turn to Slide 2 for our cautionary statement. Today's presentation contains forward-looking statements subject to risks and uncertainties. Actual results may differ materially. Please refer to our SEC filings and the appendix for additional information. We will also refer to non-GAAP measures, including earnings from ongoing operations. Reconciliation to the corresponding GAAP measures are provided in the appendix. I'll now turn the call over to Vince.

Thank you, Andy, and good morning, everyone. Let's begin on Slide 4 with a look back at 2025. I'm proud to report that we finished the year exactly where we said we would: delivering safe and reliable electricity and natural gas service to more than 3.5 million customers and achieving our stated financial targets for investors. Operationally, our teams performed at an extremely high level across the company, directly resulting from years of intentional investment in our infrastructure, combined with strong day-to-day execution by our workforce. We achieved first quartile or near first quartile T&D reliability in all of our jurisdictions and top decile generation performance in Kentucky. I will say first quartile T&D performance is trending worse overall for the industry as a result of more frequent and severe storms as well as more extreme weather events.

This is causing utilities across the country to increase their capital investment plans significantly to combat Mother Nature, and the same applies here at PPL. During 2025, we continued to clearly focus on innovation as this will be a significant source of continued operating efficiency across our business in support of customer affordability. We are developing several digital solutions to improve customer service, including an agentic AI digital customer service agent and a recently released customer app at PPL Electric Utilities. We will expand the rollout of these and other digital solutions across our business in the coming years, and we're really excited about the digital future for utilities. From a financial perspective, we achieved ongoing earnings of $1.81 per share, 7.1% growth from our prior-year results and in line with the midpoint of our forecast.

From a capital investment standpoint, we executed $4.4 billion of planned investments focused on grid hardening and modernization, advanced metering, pipeline replacement in our natural gas businesses, and the initial stages of building new generation in Kentucky. These investments directly support reliability, resilience, and long-term affordability for our customers. On the cost efficiency front, we outperformed our O&M savings target by about $20 million, achieving approximately $170 million in run rate savings from our 2021 baseline, about a year ahead of our $175 million target for the end of 2026. Our O&M efficiency strategy has been a key component of our affordability strategy here at PPL, and that will continue to be the case as we move forward beyond 2026.

Finally, we engaged extensively with a wide range of stakeholders to power economic development in our territories. These actions have supported the growth of our significant data center pipeline while fueling some of the largest economic development projects our territories have seen, including the $3.5 billion advanced manufacturing investment by Eli Lilly, announced earlier this month, right here in Allentown, Pennsylvania. In summary, this past year reflects what we strive for as a company. Consistently high levels of execution, disciplined financial performance, a forward-looking strategy, and results that create value for both customers and shareowners. Let's turn to Slide 5. Building off our strong year in 2025, today, we announced an updated business plan that extends our growth outlook while keeping customer affordability and our strong credit profile front and center.

For 2026, we're issuing ongoing earnings guidance of $1.90-$1.98 per share, with a midpoint of $1.94 per share, representing 7.2% growth from 2025. We're extending our 6%-8% annual EPS growth target through at least 2029, expecting the EPS CAGR through 2029 to be near the top end of that range based off of our 2025 ongoing earnings. We're expecting stronger growth beginning in 2027 and continuing through 2029 compared to the midpoint of our 2026 growth range, since the full year impacts of our current rate cases don't kick in until next year. Importantly, beyond this strong base plan, we see several identifiable upside opportunities to further enhance or extend our earnings growth over time.

These include earnings from competitive transmission projects, additional transmission and distribution investments to support the significant economic development that we're seeing in both Pennsylvania and Kentucky, and additional generation needs in Kentucky. It also includes earnings from our joint venture with Blackstone, which I'll cover in more detail in a few slides. Our earnings growth is supported by our capital investment plan. We project capital investment needs of $23 billion from 2026 through 2029, up from $20 billion in our prior plan period. Our updated plan includes the critical investments that strengthen our networks against those more frequent and severe storms and other extreme weather impacts.

These investments will accelerate our ability to restore power when storms do strike and deliver the new generation resources approved by the Kentucky Public Service Commission last year, ensuring we continue to deliver safe, reliable, and affordable energy for our customers. The result of these investments is an estimated rate base CAGR of about 10.3%, providing a strong foundation for predictable and durable earnings growth. Our updated plan supports PPL's strong credit metrics, including 16%-18% FFO to debt throughout the plan period. In support of our expected capital expenditures, the plan reflects total equity needs of about $3 billion from 2026 to 2029. Importantly, we already executed about $1 billion of that equity need last year, leaving about $2 billion of equity to be issued going forward in support of this updated plan.

Finally, in connection with the updated capital needs, we modified our annual dividend growth rate target to 4%-6%, while we are issuing equity to fund our capital plan. Overall, our updated business plan balances growth, affordability, and financial discipline, while continuing to provide top-tier returns for shareowners relative to our peers. Turning to Slide 6 and an update on the final Kentucky rate case orders that were issued earlier this week. Overall, the outcome of these cases allows us to deliver on the business plan we've outlined for you today. The commission approved an aggregate increase of approximately $233 million in annual electric and gas revenues, which is within $2 million of the stipulation we had agreed upon with most interveners in the case.

In addition, the KPSC approved allowed ROEs of 9.775% for both utilities, with 9.675% for our capital-related mechanisms. These ROEs are 35 and 32.5 basis points higher, respectively, than our previously approved levels. Importantly, the commission approved the pilot generation recovery mechanism, which enables recovery of and a return on investments associated with new generation and energy storage projects that were previously authorized by the commission. This mechanism supports improving reliability and resilience of our networks, as well as our ability to meet growing demand on the system. The mechanism also provides for the recovery of and on certain costs related to keeping the Mill Creek Unit 2 plant online beyond its original retirement date, which was originally scheduled for 2027.

We were also pleased to receive approval for our extremely high load factor tariff, which is designed to protect existing customers from the impacts of large data center loads. One element not approved was the proposed earnings sharing mechanism, which had been tied to our agreement to stay out of rate cases through mid-2028. As a result, we are reassessing the timing of our next Kentucky rate case to ensure we continue to balance customer affordability and the capital required to support system needs. While we are disappointed that the commission modified a settlement that we and the intervening parties worked very hard to achieve, overall, the revenue requirement remained effectively unchanged from the stipulation. From here, we will move forward with implementing the new rates, issuing required refunds related to interim rates, and filing a motion for reconsideration with the KPSC on several items.

Moving to Slide 7, we continue to advance progress on our ongoing rate case in Pennsylvania. Earlier this week, evidentiary hearings were held and concluded in one day. We are also actively working towards a settlement with interveners. If we cannot agree to a settlement, we remain very confident in the strength of our case and are well prepared to fully litigate if necessary. Our case balances PPL Electric's need to make critical distribution system and IT investments to maintain and improve reliability, customer service, and storm response, while providing important customer protections and maintaining affordable rates for our customers. A decision is expected in June, with new rates effective on July 1st, 2026. Continuing with Rhode Island regulatory updates on Slide 8.

In the fourth quarter, Rhode Island Energy filed its first base rate request since 2017, seeking a two-year phased increase aligned with the cost of delivering safe, reliable energy while supporting critical infrastructure improvements and affordability programs. This includes a redesigned low-income rate, offering deeper, targeted support for those in greatest need, importantly, without raising costs for our other customers. The decision is expected this summer, with new rates effective on September 1st, 2026. We also filed our annual electric and gas ISR plans in late December, totaling about $350 million, which primarily relates to capital investments to sustain and enhance the safety and reliability of our electric and gas distribution systems. We expect a PUC decision on the ISR filings by the end of March.

Thank you, Vince, and good morning, everyone. Let's turn to Slide 15. On a full-year basis, our 2025 GAAP earnings were $1.59 per share, compared to $1.20 per share in 2024. Excluding special items, our 2025 ongoing earnings were $1.81 per share, an improvement of $0.12 and in line with expectations. From an earnings quality perspective, the year-over-year growth was driven primarily by incremental returns on capital investments across our regulated businesses, supported by higher transmission revenues, rider recovery, and continued cost discipline, resulting in lower O&M. Those benefits were partially offset by higher interest expense, reflecting the additional financing to support our CapEx plan. Kentucky results increased by $0.09 per share, driven by higher sales volumes, largely due to weather, higher earnings from additional CapEx, and lower O&M, partially offset by interest expense.

Pennsylvania results increased by $0.04 per share, led by higher transmission revenue and distribution rider recovery, along with higher sales volumes and lower operating costs, partially offset by higher depreciation and interest expense. Rhode Island results decreased by $0.02 per share compared to 2024. This was due to higher operating costs and other factors that were not individually significant, partially offset by higher distribution revenue. When compared to our 2025 forecast, the Rhode Island segment decreased by $0.06 per share due to several true ups and higher operating costs related to system costs, non-recoverable storm costs, and several miscellaneous costs. We do not expect those items to reoccur and therefore do not expect these pressures to carry forward into future periods.

Finally, Corporate and Other was $0.01 better than last year, driven by lower income taxes and other factors, partially offset by higher interest expense. Turning to the ongoing segment drivers for the fourth quarter on Slide 16. Our Kentucky segment results increased by $0.02 per share compared to the fourth quarter of 2024, driven by higher sales volumes due to favorable weather and higher earnings from additional capital investments, partially offset by higher interest expense. Our Pennsylvania regulated segment increased by $0.01 compared to the same period a year ago, primarily driven by higher transmission revenues, higher distribution rider recovery, and lower operating costs, partially offset by higher interest expense and other factors. Our Rhode Island segment results increased by $0.01 per share compared to the same period a year ago, driven by higher distribution revenue.

Finally, results at Corporate and Other increased by $0.03 per share compared to the same period a year ago, due to lower interest expense and lower income taxes. Moving to Slide 17. We continue to execute a plan that has consistently delivered at least the midpoint of our 6%-8% annual growth target since our strategic repositioning three years ago. Over that time period, we achieved a 7% EPS CAGR, and the plan we announced today further strengthens our growth outlook. Turning to Slide 18. We are extremely confident in the growth outlined in our updated plan. As Vince noted, we've extended our 6%-8% annual EPS growth target through 2029, and we expect to deliver a compound annual growth rate near the top end of that range over the period.

We see several upside opportunities to bolster that growth even further. These include transmission investments, where we continue to see potential investment needs to further guide reliability and support growth in large load customers. While much of the material transmission upgrades to support our current data center pipeline are reflected in the plan, additional interconnections could enhance our outlook. We also see opportunities in competitive transmission. Last year, we were awarded almost $600 million of competitive transmission projects in our PPL Electric Utilities territory, and we believe we can be competitive more broadly in PJM and even in MISO. On the Kentucky generation side, should economic development continue to come to fruition, as our pipeline would suggest, we will need to build even more generation in Kentucky to meet the increased demand, especially if it is data center demand.

Depending on the type of resources needed to meet that demand, this could result in upside to our current plan or support capital spend and earnings beyond 2029. Finally, on the Blackstone JV, as we have said, we are not assuming any earnings contribution from the partnership in our updated plan. However, depending on the timing of when we sign agreements with hyperscalers and what type of generation they desire, we could see some upside in the back end of the plan. Importantly, most of these upsides do not necessarily drive customer bills higher, but could actually lower them over time. Overall, our updated plan supports a disciplined approach to capital deployment, providing safe, reliable, affordable service for our customers and a focus on delivering strong, sustainable growth for shareowners with a number of upside opportunities. Moving to Slide 19.

We've provided a walk from our 2025 ongoing earnings results of $1.81 per share to our 2026 forecast midpoint of $1.94 per share. Across our business segments, we project this forecast midpoint to be primarily driven by improved rate recovery and higher revenues associated with ongoing capital investment programs. We expect these drivers to be partially offset by higher depreciation and higher interest expense. Taken together, these drivers underscore our continued ability to deliver steady, predictable earnings growth across our segments, despite operating in a higher cost environment. Turning to Slide 20. Our updated capital plan supports customer-focused investments of $23 billion over the next four years, a $3 billion increase in CapEx needs compared to our prior plan.

Overall, the primary areas driving the increase relate to electric transmission and distribution investments. On the transmission side, we're projecting an increase of nearly $2 billion, with nearly $1.3 billion supporting Pennsylvania's data center development and reliability projects. The remaining $700 million of that increase will support system hardening and smart grid deployment in our Kentucky service territory. We're also projecting an $800 million increase in electric distribution investments, with the majority of that focused on strengthening and modernizing the grid across Pennsylvania and Kentucky. And in Rhode Island, we've adjusted some of the timing of our prior planned spend, which lowers our capital expenditures throughout this time period. Turning to Slide 21. Our updated capital investment plan supports annual rate-based growth of 10.3% from 2025 to 2029.

As shown on this slide, two-thirds of our rate base relates to investments in our electric transmission and distribution networks, and about 80% of our expected generation rate base increase is based on projects that have already been approved by the KPSC. Moving to an update on PPL's financing plan on Slide 22. We continue to believe that having one of the sector's strongest balance sheets is a clear strategic advantage that provides the company with significant financial flexibility, benefiting both customers and shareholders. Our updated business plan maintains strong credit metrics throughout, while supporting our updated earnings growth targets. This includes maintaining a 16%-18% FFO to debt ratio and a holding company to total debt ratio below 25%. We have included a new funding sources chart outlining how we plan to finance approximately $23 billion of capital investment needs.

We expect roughly half of the plan to be funded through cash flow from operations, which is net of common dividends, with approximately 40% financed through debt, primarily at the utilities. This results in total equity needs of about $3 billion over the 2026-2029 period, including about $1 billion of forward equity transactions already executed in 2025. That leaves approximately $2 billion of equity that will opportunistically execute through 2029. We expect to continue utilizing our established ATM program and may supplement it with other equity-like financing structures where they provide an efficient cost of capital consistent with our approach in 2025. Moving to Slide 23. The dividend remains a key component of PPL's total return proposition.

As such, our board of directors declared a quarterly cash dividend of $0.285 per share to be paid on April 1st to shareowners of record as of March 10th. This represents a nearly 5% increase from our previously issued quarterly dividend, resulting in an annualized dividend of $1.14 per share. The increase aligns with our updated dividend growth target of 4%-6% per year. We expect the dividend payout ratio to remain within a 50%-60% range over the plan period. The combination of PPL's EPS growth and current dividend yield continues to provide investors with a top-tier total return proposition in the range of 10%-12%. This concludes my prepared remarks. I'll now turn the call back over to Vince.

Thank you, Joe. Let's move to Slide 25. In closing, I'll leave you with a few thoughts. First, 2025 was a year of delivery. We told you what we were going to do, and we did it operationally, financially, and strategically. That consistency is the foundation of who we are as a company. Second, our long-term outlook has never been stronger. The updated business plan we introduced today extends our growth trajectory, strengthens the predictability of our earnings, and does so with continued discipline around affordability and credit quality, keeping our customers front and center in everything we do. We're entering 2026 with a clear line of sight to the investments, cost structure, and regulatory frameworks that will support sustained, durable value creation. Third, the trends shaping our industry, data center growth, electrification, and the need for new generation, are all moving in our favor.

The momentum we highlighted today across Pennsylvania and Kentucky, and through our joint venture with Blackstone, reinforces the central message you've heard from us for more than three years: The system needs new, reliable, dispatchable generation, and the market is now aligning around that reality. We are positioned exactly where we want to be as these forces accelerate and converge. And finally, none of this happens without our people. Our teams continue to deliver for our customers with professionalism, skill, and care. Whether it's restoring power and natural gas during severe weather, operating one of the nation's most reliable grids, or advancing the technology and partnerships that will define the next decade of energy delivery, I can't thank our electric, gas, and generation crews enough.

They are the unsung heroes of our industry as they work in some of the worst conditions possible to ensure our customers have the energy they need to power their lives and businesses. So we enter 2026 with confidence. Confidence in our strategy, confidence in our execution, and confidence in the opportunities ahead of us. And we are focused on the long game. We're aligned around the right priorities, and we're committed to delivering value for both customers and shareowners. And for our shareowners, we offer you a top-tier 10%-12% total return proposition, a return grounded in long-term earnings growth, with expectations to achieve compound annual growth near the top end of our 6%-8% target through at least 2029.

That earnings growth is supplemented with a dividend that we have paid consistently for every quarter over the past 80 years and expect to grow in the 4%-6% range over the planning horizon. This growth is driven by the rate-based growth being generated by the critical investments we need to make to stay ahead of mother nature, resulting in a rate-based growth of over 10%. None of this is achievable if our customers cannot afford to pay their bills, and that is what sets PPL apart from our peers. We have been, and will continue to be, laser-focused on minimizing bill increases or even reducing overall bills for our customers. We'll do that through our actions over those areas of the bill that we directly control and even attacking those parts of the bill that we don't.

All of this creates the balance between customers and shareowners that we believe utility investors are focused on. We thank you for your continued interest and support of PPL. Operator, let's open it up for questions.