PPL Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 16, 2024

Key Takeaways

  • PPL delivered $1.60 in 2023 ongoing earnings per share, beating the midpoint by $0.02 and achieving over 8% growth despite weather and storm headwinds.
  • The 2024 ongoing EPS forecast was set at $1.63–$1.75 per share (midpoint $1.69), and the quarterly dividend was raised 7.3% to $0.255 per share.
  • The updated capital plan calls for $14.3 billion in investments from 2024–2027, driving average annual rate base growth of 6.3% and no equity issuances needed.
  • PPL achieved $75 million in O&M savings in 2023—exceeding its target—and remains on track for at least $175 million in annual savings by 2026.
  • The company plans to file a waiver to modify the DISC mechanism in Pennsylvania to support accelerated infrastructure investments, deferring any base rate cases until at least 2025–26.
AI Generated. May Contain Errors.
Earnings Conference Call
PPL Q4 2023
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good day, and welcome to the PPL Corporation 4th Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, 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.

Speaker 1

Good morning, everyone, and thank you for joining the PPL Corporation conference call on Q4 and full year 2023 financial results. We have provided slides for this presentation on the Investors section of our website. We'll begin today's call with updates from Vince Sorgi, PPL President and CEO and Joe Bergstein, Chief Financial Officer, and conclude with a Q and A session following our prepared remarks. Before we get started, I'll draw your attention to Slide 2 and a brief cautionary statement. Our presentation today contains forward looking statements about future operating results or other future events.

Speaker 1

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.

Speaker 2

Thank you, Andy, and good morning, everyone. Welcome to our Q4 year end investor update. I'm excited for today's call as we closed out 2023 in strong fashion and our future continues to look very bright. And I look forward to highlighting why that is on today's call. Turning to Slide 4.

Speaker 2

I'm very proud of what our PPL team was able to accomplish in 2023. In short, it was a year of challenges met and promises kept. Most importantly, we delivered electricity and natural gas safely and reliably to our more than 3,500,000 customers. This included top quartile T and E reliability at each of our utilities, including record reliability for our companies in Kentucky and Rhode Island and top decile performance in Pennsylvania. Our generation reliability in Kentucky was among the very best in the nation.

Speaker 2

We achieved all this despite heightened storm activity in each of our service territories. At the same time and despite over $0.10 per share impact from mild weather and storms, we delivered on every one of our financial commitments to our share owners. Namely, we achieved ongoing earnings of $1.60 per share, exceeding the midpoint of our ongoing earnings forecast by $0.02 and delivering over 8% growth from pro form a 2022. We achieved this through our strong focus on operational efficiency and outperformance in key areas that Joe will cover in his financial review. We also executed $2,400,000,000 in planned capital spend on time and on budget to advance a reliable, resilient, affordable and cleaner energy future.

Speaker 2

We exceeded our annual O and M savings target for 2023 through our strong enterprise wide focus on technology and business transformation, achieving $75,000,000 in savings from our 2021 baseline, reinforcing our continuous improvement mindset and putting us solidly on track to deliver our targeted $175,000,000 in O and M savings by 2026. These operational and financial achievements were matched by strong results elsewhere in the business that position us for future success. Underpinned by sound planning and effective management of regulatory proceedings, we secured constructive regulatory outcomes in Kentucky and Rhode Island. In Kentucky, we secured approval for about $2,000,000,000 in generation replacement investments as part of our CPCN process that concluded in November of last year. The KPSC's decision ensures that we can continue to meet our customers' future energy needs safely, reliably and affordably, while advancing a cleaner energy mix in the state.

Speaker 2

And in Rhode Island, we secured approval of our 1st infrastructure safety and reliability plans since acquiring Rhode Island Energy. In addition, we received the green light to deploy advanced metering functionality across Rhode Island as we lay a foundation for a smarter, more resilient, more reliable and more dynamic electric grid capable of supporting the state's leading climate goals. Finally, we continue to provide a smooth and seamless transition to PPL ownership for our Rhode Island Energy stakeholders, completing all planned 2023 integration milestones and keeping us on track to exit our remaining transition service agreements with National Grid in mid-twenty 24. These achievements are a direct result of our focus on execution, our disciplined investment strategy, our ability to adjust when challenges arise, our experienced leadership team and clarity of purpose across PPL as we pursue our Utility of the Future strategy. Looking ahead, we recognize we still have room to improve as we pursue our vision to be the best utility company in the U.

Speaker 2

S. And in 2024, we're determined to make continued progress as we seek to maximize long term value for both our customers and share owners. Turning to Slide 5. Today, we announced the results of our updated business plan, which extends our projected growth outlook through at least 2027. In connection with this update, today we announced our 2024 ongoing earnings forecast range of $1.63 to $1.75 per share.

Speaker 2

The midpoint of this range, dollars 1.69 per share represents 7% growth from our 2023 ongoing earnings per share target, consistent with our long term growth targets. In addition, today we announced a quarterly common stock dividend of $0.255 per share. This represents a 7.3% increase from the current quarterly dividend of $0.24 per share and aligns with our commitment to dividend growth in line with our EPS growth targets. We've extended our 6% to 8% annual EPS and dividend growth targets through at least 20.27 based off the midpoint of our 2024 earnings forecast range. In addition to today's updated growth forecast, our updated capital plan includes $14,300,000,000 from 2024 to 2027 to strengthen grid reliability and resiliency and advance a cleaner energy mix without compromising on affordability.

Speaker 2

The new plan is expected to drive average annual rate base growth of 6.3% through 2027, up from the prior growth rate of 5.6%. We plan to fund these additional investments supported by our exceptional balance sheet as our credit metrics remain well within our targets throughout the planned period without the need for equity issuances through at least 2027. As I highlighted in my recap of 2023, we've made outstanding progress towards our multiyear target of at least $175,000,000 in annual O and M savings by 2026. Based on the progress we made last year, we remain solidly on track to deliver our 2024 targeted savings of $120,000,000 to $130,000,000 In terms of rate case timing in the plan, we do not anticipate any base rate case filings in 2024 in Pennsylvania, Kentucky or Rhode Island. Looking beyond 2024, our current projections would have us filing a base rate case a bit sooner in Kentucky than previously anticipated due to several factors, including the CPCN decision and additional capital investment needs on the T and D side of the business.

Speaker 2

Currently, we believe the earliest we would file a rate case in Kentucky will be in the first half of twenty twenty five. For Rhode Island, the earliest we would file is late 2025, which is consistent with the prior plan. Finally, in Pennsylvania, recall that we have not been in for a base rate case since 2015, and we have no plans to go in again before 2026 at the earliest. The DISC mechanism in Pennsylvania has operated as designed to support long term infrastructure investment between rate cases. We do see an increased need to invest more to improve reliability on the distribution system and filed with the Pennsylvania PUC a request to modify our long term infrastructure improvement plan or LTIP, which includes an increase in planned disk eligible investment over a 5 year period.

Speaker 2

We are considering filing a waiver request with the Pennsylvania PUC in the near future, requesting modifications to the DISC mechanism to support accelerated replacement of aging infrastructure. As always, our focus is on maintaining affordability for our customers. And we will continue to evaluate the need for future rate cases based on a variety of factors, including capital plans, interest rates, market conditions and regulatory lag. Turning to Slide 6. Our updated plan and business outlook supports our Utility of the Future strategy, which is core to everything we do.

Speaker 2

What does that mean to us? It means updating our design criteria and continuing to harden our transmission and distribution systems to protect against climate change and keep our systems and data secure against cyber threats. It means expanding our industry leading use of technology, including smart grids, automation, data analytics, AI and technologies that haven't even been invented yet to build a self healing grid. It means investing in R and D to drive innovation to advance technologies that can be scaled safely, reliably and affordably to meet our customers' evolving energy needs and to actually achieve net 0, like the carbon capture project that was awarded a $72,000,000 DOE grant at our Cane Run combined cycle plant in Kentucky. At the same time, it means expanding transmission and incorporating grid enhancing technologies to connect more renewables and improve reliability for our customers advancing a cleaner generation mix while keeping energy safe, reliable and affordable expanding our ability to reliably manage two way power flows on the distribution network as we connect significantly more distributed energy driving operational efficiencies to support an affordable clean energy transition, partnering with our customers and state and local officials to enable growth and economic development in our communities and lastly, expanding self-service options for our customers using digital tools to enhance the customer experience.

Speaker 2

Turning to Slide 7. As you can hear, creating the utilities of the future requires change across our entire business, and it requires significant investments to support a net zero economy. The industry and others are projecting a 200% to 300% increase in electricity demand, which will require additions of reliable generation unless we see unprecedented amounts of energy conservation. At the same time, aging fossil fuel plants in this country are being retired very rapidly without replacements reliable dispatchable generation capacity. And considering that fossil fuel generation represents more than 50% of our total capacity in the U.

Speaker 2

S, that presents a potentially major problem if this transition is not managed appropriately. The math simply doesn't add up. When we don't have proven scalable technology currently available to actually achieve net zero carbon emissions that customers can afford. Most technologies used in our industry took 40 years to commercialize from the demonstration phase. We need to cut that timeframe in half at least to meet net 0 by 2,050 targets, especially as we think about the big four new potential technologies, nuclear SMRs, carbon capture and sequestration, long duration energy storage and hydrogen.

Speaker 2

In the meantime, we need to leverage commercially viable resources that exist today to reduce our carbon footprint while maintaining reliability. Those that are dispatchable can ramp up and down quickly and are vital to balancing the gaps left on the system by intermittent renewables. That is why natural gas generation is the key to achieving deep decarbonization in this country. And it actually allows us to deploy more renewables than we would otherwise be able to do because of the reliability benefits of natural gas. In a nutshell, this is what makes the energy transition such a challenge, being able to deliver the clean energy future in a way that maintains reliability and affordability for our customers.

Speaker 2

However, with every challenge brings opportunity. And that's why we know our Utility of the Future strategy is the right approach for this dynamic energy landscape. It's why our generation transition plan in Kentucky is recent and deliberate and ensures we can maintain the reliability and resiliency our customers and public officials demand. We actually need to figure out a way to do the same in deregulated markets like PJM and ISO New England. And it's why becoming more efficient is such a critical component of our strategy, because for every dollar of O and M we can take out of the business, we can spend $8 on capital without impacting the customer bill.

Speaker 2

The energy transition simply won't happen if customers cannot afford it. This is how we will achieve our long term vision and how we intend to enhance the value we deliver for all stakeholders. It requires us to lead from the front, and that is exactly what we've been doing and what we will continue to do in 2024 and beyond. Turning to Slide 8 and our priorities for 2024. In addition to advancing our Utility of the Future strategy, our 2024 priorities also include achieving at least the midpoint of our earnings per share forecast, executing $3,100,000,000 in infrastructure investments to maintain safe, reliable and affordable energy for our customers and modernize the grid, Delivering on our 2024 O and M savings targets as we deploy scalable technologies across our portfolio, take advantage of economies of scale created by our centralization efforts and continue to leverage data analytics to reduce costs and optimize asset planning and maintenance.

Speaker 2

Finally, we need to complete our integration of Rhode Island Energy and exit all remaining tranches and service agreements with National Grid. Bottom line, we're eager to showcase PPL's strengths once again in 2024, and we are poised to lead on these very significant issues facing our industry. We have tremendous conviction in our strategy and business plan and in our ability to execute them both. And we look forward to once again delivering on our commitments to customers and share owners. That concludes my business and strategic update.

Speaker 2

I'll now turn the call over to Joe for the financial update.

Speaker 3

Thank you, Vince, and good morning, everyone. Let's turn to Slide 10. PPL's 4th quarter GAAP earnings were $0.15 per share compared to $0.26 per share in Q4 2022. We recorded special items of $0.25 per share during the Q4, primarily due to a settlement agreement with Talend Energy Corporation as well as integration and related expenses associated with the acquisition of Rhode Island Energy. Adjusting for these special items, 4th quarter earnings from ongoing operations were $0.40 per share, an improvement of $0.12 per share compared to Q4 2022.

Speaker 3

The primary drivers of this increase were returns on capital investments and lower O and M expenses, partially offset by lower sales volumes, primarily due to the continued mild weather experienced in the Q4 of 2023. In total, weather was a $0.02 per share drag on our Q4 results compared to our plan. On an annual basis, our 2023 GAAP earnings were $1 per share. Adjusting for $0.60 per share of special items recorded throughout the year, our 2023 ongoing earnings were $1.60 per share. This compares to $1.41 per share of ongoing earnings for 2022 or 13% increase from those prior year results.

Speaker 3

And as Vince noted, we delivered our earnings target for 2023 exceeding the $1.58 per share midpoint of our earnings forecast. Our teams did a fantastic job of executing our plan while remaining steadfast on achieving our financial goals, which enabled us to offset the adverse impacts of significant unfavorable weather and storm activity, while maintaining reliability for our customers. 2023 demonstrated our ability to deal with adversity and still achieve our commitments to both customers and shareowners, adding to our confidence and our ability to achieve our earnings targets. Turning to the ongoing segment drivers for the Q4 on Slide 11. Our Pennsylvania regulated segment results increased by $0.04 per share compared to the same period a year ago.

Speaker 3

The increase was primarily driven by lower O and M and higher transmission revenue, partially offset by lower sales volumes and higher interest expense. Our Kentucky segment results increased by $0.06 per share compared to the Q4 of 2022. The improvement in Kentucky's results were primarily driven by lower O and M expense, partially offset by lower sales volumes due to the mild weather. Our Rhode Island segment results increased by $0.02 per share. This increase was primarily driven by higher rider revenue from capital investments, partially offset by higher interest expense.

Speaker 3

Finally, results at corporate and other were flat compared to the prior period, primarily due to lower income taxes offset by higher O and M expense. Moving to Slide 12. 2023 was a pivotal year for PPL following our strategic repositioning, which we completed in 2022. Heading into the year, we set our 2023 earnings forecast range with a midpoint of $1.58 per share, representing 7% growth from the 2022 pro form a midpoint of $1.48 per share, which reflected a full year of earnings from Rhode Island Energy. And for the 2nd consecutive year, we outperformed our own targets, beating our earnings forecast by $0.02 and achieving over 8% growth for the 2022 pro form a forecast midpoint.

Speaker 3

This was a significant achievement given the abnormally mild weather and storms we experienced, which impacted results by more than $0.10 per share. As I said numerous times over the past year, we were confident that our team would overcome those challenges and deliver on our commitments to both our customers and share owners. This included several areas of excellent execution and constructive regulatory mechanisms, including prudent management of costs without sacrificing reliability, recovery of critical infrastructure investments in PA through the DISC mechanism, outperformance and integration of Rhode Island Energy and optimization of our financing plan. Looking at 2024, the midpoint of our earnings forecast range is $1.69 per share, which again represents 7% earnings growth from the midpoint of our 2023 forecast. Since we initially communicated our earnings growth targets to investors, we've remained on that consistent trajectory while extending that growth further into the future.

Speaker 3

And we've done that again today with our extension of the 6% to 8% growth targets to 2027, supported by an updated capital investment plan, which I'll discuss in more detail in a couple of slides. Moving to Slide 13. On this slide, we've provided a walk from our 2023 actual results of $1.60 per share to the midpoint of our 2024 forecast, highlighting the projected drivers of the year over year increase by segment. Our Pennsylvania segment results are expected to increase by $0.05 per share in 2024, primarily due to returns on additional capital investments in transmission, higher sales volume and lower O and M, partially offset by less distribution rider recovery and higher interest expense. We project our Kentucky segment results to increase by $0.07 per share in 2024, primarily driven by higher sales volumes due to the expected return to normal weather.

Speaker 3

Our Rhode Island segment results are expected to increase by 0 point 2024 compared to our 2023 results. This is primarily due to higher capital investment rider revenue and lower O and M, partially offset by higher depreciation expense. Finally, we project our corporate and other results to decrease by $0.05 per share in 2024, primarily due to higher interest expense and other factors that are not individually significant. Turning to Slide 14. Over the next 4 years, we have planned capital investments of $14,300,000,000 focused on delivering superior service and enhancing the overall customer experience while maintaining an affordable price.

Speaker 3

This includes advancing industry leading grid modernization, expanding and hardening our transmission networks, improving the safety of our natural gas networks and implementing our approved generation replacement plan in Kentucky. This plan represents a $2,400,000,000 increase in capital investments compared to the prior 4 year plan. Approximately $1,000,000,000 of that increase is expected to occur in the 2024 to 2026 period. Most of that increase is projected to be in Pennsylvania and Kentucky as we continue to modernize our electric transmission and distribution systems and enhance reliability and resiliency. We continue to expect significant investment needs into the end of this decade as reflected on our 20 27 forecast.

Speaker 3

This includes nearly $1,200,000,000 in Pennsylvania, of which approximately 65% is transmission investment under FERC formula rates. Dollars 1,800,000,000 of investment in Kentucky primarily related to further enhancements on the electric and gas T and D systems and to execute our generation replacement plan. And it includes over $700,000,000 of investment in Rhode Island as we continue to prepare the grid for significant levels of clean energy resources and we enhance resiliency against increasingly severe storms while continuing our focus to maintain a safe and reliable gas network by replacing leak prone pipe. Turning to Slide 15. These additional capital investments are projected to lead to annual rate base growth of 6.3% from 2023 to 2027.

Speaker 3

This compares to annual rate base growth of 5.6% in our prior plan period from 2022 to 2026. As you can see in the chart, 2 thirds of our rate base relates to investments in our electric T and D networks given the significant needs as we strengthen and modernize the grid. Importantly, while we project our total rate base to grow, rate base related to coal generation continues to decline from 2023 to 2027. In fact, the percentage of our total rate base related to coal generation is expected to be less than 12% by the end of 2027, down from about 18% today. And based on this trajectory, we expect this to continue to decline and be under 10% by the end of the decade.

Speaker 3

In summary, the result of our updated plan narrows the gap between our projected rate based growth and earnings growth targets as investment needs continue to increase with the evolving energy landscape. As such, we continue to be very focused on affordability and maximizing every dollar we spend. Our earnings growth in the near term continues to be driven by Moving to Moving to Slide 16. Today, we announced an increase in our quarterly cash dividend to $0.2575 per share. This results in an annualized dividend of $1.03 per share compared to our prior annualized dividend of $0.96 per share.

Speaker 3

This 7.3% increase aligns with our projected 2024 forecasted earnings growth and long term EPS growth targets. We continue to expect future dividend growth to align with our earnings growth targets. The updated dividend remains within our targeted dividend payout range of 60% to 65% based on the midpoint of our 2024 earnings forecast. The combination of PPL's EPS growth and dividend yields provides investors with an attractive total return proposition in the range of 9% to 12%. Moving to an update on PPL's credit and our financing plan for 2024 on Slide 17.

Speaker 3

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. Our updated business plan maintains strong credit metrics throughout. This includes maintaining a 16% to 18% FFO to debt ratio and a holding company to total debt ratio below 25%. We have limited near term refinancing risk with 0 maturities in 2024 and only $550,000,000 of total maturities in 2025. And we continue to maintain limited floating rate debt exposure, mitigating volatility in our plan.

Speaker 3

We also continue to be uniquely positioned to continue to fund our growth without the need for equity throughout our updated planning period, which is now extended through 2027. As investors think about our financing plan 24, they should expect our activity to be primarily focused on funding our utility capital plans with operating company debt. We've already executed a portion of this plan with our $650,000,000 PPL electric utilities deal in January, which was executed at attractive pricing. We're also planning to be in the market for Rhode Island with our first debt offering since the acquisition. We have no current plans for debt issuances in Kentucky or at PPL Capital Funding this year, but that is an area we'll continue to evaluate opportunistically in connection with market conditions and our strong financial position.

Speaker 3

In closing, I'm extremely pleased with our financial position and outlook to execute our updated plan. This concludes my prepared remarks. I'll now turn the call back over to Vince.

Speaker 2

Thank you, Joe. As I mentioned earlier, this is a pivotal time for our industry, a time that requires us to lead with strength. There is no shortage of challenges facing our industry in being able to deliver the clean energy transition safely, reliably and affordably for our customers. This is what gets me out of bed every morning and why I'm so excited to be a part of this industry at this moment in time. I'm convinced we have the right strategy for the right time, a strategy that prioritizes efficiency and affordability, builds on our core strengths and will maximize long term value for customers and share owners alike.

Speaker 2

We are well positioned to continue our competitive and predictable long term earnings growth of 6% to 8% a year. We've established a And finally, we have an experienced leadership team that is 100% committed to delivering on these objectives and backed by a dedicated team of 6,500 strong across PPL. With that operator, let's open it up for questions.

Operator

We will now begin the question and answer session. The first question today comes from Shar Pourreza with Guggenheim Partners. Please go ahead.

Speaker 1

Hey, guys. Good morning, Shar.

Speaker 4

Good morning, Vince. So just on the transmission side, I see you've added a couple of 100,000,000 to the Pennsylvania plan. How much of that is tied to the recent RTEP Window 3 awards? And the reason why I'm asking is we've seen some significant increases in transmission needs and transfer capability across utilities in Eastern PJM and EMAC. So just trying to get a sense for what has started to trickle into your plan versus incremental?

Speaker 4

Thanks.

Speaker 3

Yes. Hey, Shar, it's Joe. About half of that increase is driven by what you're describing and what we were awarded in that recent PJM window.

Speaker 4

Got it. Perfect. And then just coming back to the Kentucky spend, the CPCN process obviously had deferred, but not quite closed the door to the second CCGT. Is that something that you could revisit and could the spend start to land in the outer years of the latest plan? Just kind of trying to get a sense for the next incremental focus.

Speaker 4

Thanks.

Speaker 2

Yes. To your point, Shar, the order suggested that we should come back with another CPCN filing with an in service date for that second CCGT in 2,030. And so we would plan on doing that in a couple of years' time to start to prepare for that. And obviously, we'll be updating that as we go through the IRP process this year, looking at load and generation economics and all that. So the first point is really the updated IRP that we'll file this year and then ultimately that will feed into a CPCN filing to be to have a plan service in 2,030.

Speaker 4

Perfect. That's all the questions I had. Congrats Vince on the execution. It's pretty notable. Appreciate it.

Speaker 2

Thanks, Shar. Appreciate it.

Operator

The next question comes from Durgesh Chopra with Evercore ISI. Please go ahead.

Speaker 2

Good morning, Sergey.

Speaker 5

Hey, good morning, Vince. Good morning. I just had a question on Pennsylvania. Maybe just can you elaborate on what you plan to do or any color you can share on the DISIG itself? The reason why I ask is the your peer water utility in the state, their rate case is drawing a lot of attention.

Speaker 5

There are new commissioners at the commission. So just maybe just talk to the regulatory environment in the state. And then what if you could share any color on what you might try to do with amending the DISC mechanism that would be great. Thank you.

Speaker 2

Sure. So maybe a precursor to the DISC waiver is really the LTIP process that we have in the state, Durgesh. In mid January, we filed a petition with the commission to modify our LTIP, which covers the period that's the long term infrastructure improvement plan that covers the period from January 1, 2023 to Twelvethirty onetwenty seven. So we're already a year into this current LTIP plan. We did file for some significant adjustments to that plan, which the LTIP is really the precursor for the types of projects that would then be eligible to flow through the DISC mechanism.

Speaker 2

We're proposing to increase that LTIP plan from about $500,000,000 to about $800,000,000 We're including a new project or a new program for predictive failure technology. We've been doing a lot of testing on some new devices that we can put on the grid that actually enable us to identify failing equipment before it actually fails and causes an outage. So we have some money in there that we want to include. We're also looking at just other distribution reliability projects. Our reliability very strong in Pennsylvania being led by our transmission results there.

Speaker 2

We need to continue to improve our distribution reliability. So additional money in there for that. And then of course we have the approved projects through the IIJA process that we also updated the LTIP for. So the parties have 30 days to file comments on our LTIP filing And those comments are actually due today. So we'll want to review those comments before we file for the DISC waiver request.

Speaker 2

We have notified the PUC of our intention to file that waiver request and we'd expect to file that relatively soon, Durgesh. At this point, the request, but we're still working on it, will likely be in the form of a higher cap on the disc.

Speaker 5

Perfect. I appreciate that color and congrats on the quarter guys. Thank you.

Speaker 2

Great. Thanks, Trigesh.

Operator

The next question comes from Angie Storozynski with Seaport. Please go ahead.

Speaker 6

Good morning. So it's a bit of an unfair question, I will admit. So we're waiting to see this potential large data center to be developed next to or directly next to the Susquehanna nuclear plant, which is obviously your service territory in your former investments would that require from you guys from like a T and D perspective? And is it already embedded in your plan?

Speaker 2

Yes. So let me talk about maybe data centers more broadly. You're referring to one that specifically related or will be tied to the Susquehanna nuclear plant. So most of that reliability of power supply is there for that center. So some incremental work there Angie.

Speaker 2

What I would say though more broadly beyond that specific instance is where we really started to see some data center activity both in Pennsylvania and Kentucky with some very large load requirements, again, 1 gig size projects, some smaller than that, but we are seeing some 1 gig projects as well. And in our territories, we have some a number of positive attributes that these data centers are looking for. Not only is our reliability very strong in the top quartile, top decile range, especially in our transmission side of the business, which is where these generally are pulling their power from. Our reliability there is extremely high. We also have relatively inexpensive land and an abundance of that land in both of our jurisdictions in PA and Kentucky.

Speaker 2

And then in Pennsylvania in particular, we have a decent amount of capacity on the transmission network that we could add this load without a lot of investment that still is incredibly beneficial for our customers because that will still lower the overall cost and bill for our retail customers the more and more load that we can connect to the transmission network. And then of course we're close to New England and the Mid Atlantic region especially as you think about Pennsylvania. So there's a number of things in our territories that make this attractive. And of course in Kentucky, we have relatively cheap power prices. So very active in working with the data center companies.

Speaker 2

We haven't included these in our load forecast at this point. We will do that at the appropriate time if and when we close these deals with these folks. But I would just say at this point, a lot of activity going on with the data centers as you're hearing with some of our peers as well.

Speaker 6

And can I ask about Kentucky? So you mentioned that the grid is getting tighter from the power supply perspective. I mean, one, does it make you sort of reassess your plans about retirements of coal plants and or additions of new gas plants in the state? And also how do those data center providers actually look at thermal power from gas and coal versus, I don't know, nuclear or renewables. Does that matter?

Speaker 6

Do they really care about the carbon footprint or emissions? Or is it mostly the total cost and how cheap the power is?

Speaker 2

Yes. For the most part, what we're seeing, Angie, is reliability and reliability of power. I think you're right. There are some data center companies that also want to ensure that that power is coming from green energy sources, like what we're seeing up in Susquehanna as you mentioned earlier. But for the most part, it's about reliability and the cost of that power because obviously these are huge costs for these data centers as the cost of the electricity itself.

Speaker 2

So to your point, we don't have as much capacity in Kentucky as we do up here in Pennsylvania. And so we would expect there to be incremental investment needed to support data centers in Kentucky perhaps more so than we would need at least in the near term in Pennsylvania. Certainly, this will feed into, as I was mentioning before, into our IRP process as we look at our load growth, as we think about our generation replacement strategy. A little too early, I would say to say we need to modify our current thinking on that. But clearly, if some of these large centers hit, we're going to have to factor that into the IRP and then ultimately into that CPCN request a couple of years from now.

Speaker 6

Awesome. Thank you. Congrats.

Speaker 2

Thank you.

Operator

The next question comes from Paul Zimbardo with Bank of America. Please go ahead.

Speaker 5

Hi, good morning team.

Speaker 2

Good morning, Paul.

Speaker 4

Hey, Paul.

Speaker 7

First one on the O and M target, and please correct me

Speaker 5

if I'm wrong,

Speaker 7

it looks like you reaffirmed them all, but exceeded the 2023 target by around like $20,000,000 Just what would and I know the targets are at least, what would you need to see to kind of increase those targets and what kind of drove that initial outperformance versus target?

Speaker 3

Yes, sure. Hey, Paul, it's Joe. So first, focusing on what drove Yes, sure. Hey, Paul, it's Joe. So first focusing on what drove the outperformance in 2023.

Speaker 3

As we noted, we achieved $75,000,000 in savings compared to the $50,000,000 to $60,000,000 target that we had coming into the year. It was really driven by acceleration of some of the initiatives from 2024. When we started the TMO process, we have initiative owners for all of these projects that will deliver these savings. And we've set milestones and KPIs for all of them. And so what we saw bringing that rigor to the process has actually allowed us to accelerate in some areas, which gives us confidence in achieving the $120,000,000 to $130,000,000 next year and the $175,000,000 overall.

Speaker 3

As we talked about Vince talked about in his remarks, focused on the utility of the future and ensuring affordability for customers is key. And so from that perspective, we'll continue to look to get more efficient as we go through the plan. But where we are today is we're still holding that $175,000,000 at least $175,000,000 as we said. What I can say is that the growth that we're talking about here and extending that into 2027 doesn't rely on further efficiencies. So to the extent that we're successful in identifying more that would be upside to the current plan.

Speaker 7

Okay, great. Very clear. And then on the rate case timing strategy, I know Vince listed a bunch of factors, but one of them wasn't about how rate cases go for peers. Just curious how important is that, as you think through process, how the especially in Pennsylvania, just given a lot of the rate cases as Trigesh is mentioning, how important is that to kind of assess your own plan?

Speaker 2

Yes. Well, clearly, because we have no rate cases in 2024 across the board, we're able to assess the regulatory environment and the outcomes that our peers are getting. As we know, not every company gets the same outcome even under the same jurisdiction. So it wouldn't totally impact our decision. But clearly, it's something that we will keep an eye on and feed into our decision making.

Speaker 2

And again, the fact that we don't have anything for the certainly the rest of this year and likely the first one will be down in Kentucky sometime in 2025. Feeling pretty good about our timing that we have in the plan right now.

Speaker 7

Okay, great. Thanks and nicely done, Nastur.

Speaker 2

Thank you. Great. Thanks.

Operator

The next The next question comes from Anthony Crodell with Mizuho. Please go ahead.

Speaker 4

Hey, good morning guys. Congrats on a good quarter. Just a couple of quick ones. One up to follow-up from Angie's question. What's this load growth forecast you're assuming for 2024?

Speaker 3

Hey Anthony, it's Joe. We're assuming 50 basis point load growth throughout our planning horizon.

Speaker 4

Great. And then if I could jump on a Durgesh question. In Pennsylvania, you're filing the disc and I think you're looking to raise the cap you talked about it. Just curious, again, I'm not saying that it's I'm here to say it doesn't get approved. But if you don't get approval, does that increase the frequency of the rate filing?

Speaker 4

Or you believe you have other offsets that you could still stay out in Pennsylvania a

Speaker 1

little longer?

Speaker 2

Yes, it's the latter, Anthony. We have some modest value in the plan coming from the DISC filing. I think the real benefit is it would enable us to stay out longer in Pennsylvania and make the investments that we had talked about. But yes, to your point, if for some reason that that request does not get approved, we're comfortable we can manage that and still maintain the growth targets that we've talked about.

Speaker 4

Great. And then just lastly on Slide 17, I appreciate the detail on the you don't have any near term financing. Just in 20 26, you see the capital funding, you also have the electric utility funding there. On those maturities, do you think you'll retire those vehicles, those financing vehicles? Do you think you just roll over that?

Speaker 4

I'm just curious of what your plans is on those financing vehicles.

Speaker 3

Yes. Anthony, we'll have to assess that as we get closer. Obviously, where interest rates are will play a big role in what we do there. So I think it's a little early to tell on how we'll treat those. Our assumption is that we refi them, enroll them.

Speaker 4

Great. Thanks so much, Vin. 1st place. Talk to you guys soon.

Speaker 2

Yes. Take care, Anthony. Go Rangers.

Operator

The next question comes from David Paz with Wolfe. Please go ahead.

Speaker 2

Hey, David. Good morning.

Speaker 7

Good morning. Can you hear me?

Speaker 3

Yes.

Speaker 7

Okay. Great. Thank you. Just actually following up on the previous question that flip your floated debt in particular, where are you in that 16% to 18% currently and where kind of how does that what's the profile of that over the course of your plan?

Speaker 3

Yes. I would just say we're comfortably in that 16% to 18% range. In the early part of the plan, we continue to have integration costs for Rhode Island that obviously are impact the credit metric, and those roll away. And then you see the CapEx increase later in the plan. So we feel really good about where we are within that range and kind of operate comfortably around the midpoint.

Speaker 7

Perfect. Thank you. And then just I don't know if you touched on this, but what are your opportunities or what opportunities do you see from the pending offshore wind solicitations, more transmission? What do you have in your plan, if anything? Just any color you can provide, that'd be great.

Speaker 2

Sure. So a couple of opportunities there. Obviously, we have the RFP that we've issued in Rhode Island. We are not the owners of that, but we would be the off taker of that generation. And so to your point, we have we do have in the plan the transmission required to the enhancements to transmission grid to handle that offshore wind load.

Speaker 2

We have talked in the past about our joint venture with WindGrid to potentially provide wet transmission solutions more broadly up in Rhode Island or New England that we would partner with them on where we would not own the turbine, the wind turbine generation, but we would build out a mesh network of sorts to lower the overall cost of the transmission build out as we think about upwards of 30 gigs of offshore wind over the next, say, decade being built out up there. That opportunity will highly depend on where the U. S. Treasury ultimately comes out on their implementation provisions for the IRA. So we are monitoring those regulations very closely.

Speaker 2

The initial regs that came out from the treasury, we think were in error in proposing that the regulations would regulations would limit the eligibility of the ITC credit for that wet transmission only if that transmission is owned by the same taxpayer that owns the wind turbines themselves. That limitation, if the final rules come out that way, would unnecessarily raise the cost of the offshore wind industry, which we know is quite challenged. And so we continue to engage with the administration and other policymakers to try to improve that final regulation and expand it to all taxpayers, not just ones that own the turbines and to try to bring the overall cost of offshore wind down so that we can get this very important clean energy source kind of up and running in the U. S. But I can't give you any assurance in terms of what that final rule is going to say.

Speaker 2

I can say we don't have any of that upside potential in our business plan. It's not in our growth projections at all at this point. I would say it kind of hinges on this. And then the states really coming together up there and partnering on this broader solution, which we believe will certainly bring the cost of offshore wind down.

Speaker 7

Great. Thank you

Speaker 4

so much for all the color.

Speaker 1

Sure.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Vince Sorgi for any closing remarks.

Speaker 2

Just want to say thanks for joining us. Again, strong end to 2023, really looking forward to 2024 and beyond. I've spent quite a bit of time talking about the Utility of the Future strategy. We do think that's an area that differentiates us from our peers as well as the strength of our balance sheet and our overall dividend policy where we're growing the dividend in line with earnings. So just appreciate everybody for calling us and for joining us and look forward to providing updates as we go through the year.

Speaker 2

Thanks so much.

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