PPL Corporation (PPL) Earnings Call Transcript & Summary

Good day, and welcome to the PPL Corporation's Conference Call on Second Quarter 2026 Financial Results. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Andy Ludwig, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining PPL Corporation's Conference Call on Second Quarter 2026 Financial Results. We provided presentation materials on the Investors section of our website. This morning, you will 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. Reconciliations 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 an overview of our second quarter performance. Q2 was another quarter of disciplined execution, supporting our 2026 commitments while strengthening confidence in our long-term outlook. Today, we reported ongoing earnings of $0.33 per share. Based on our results through the first half of the year and our expectations for the remainder of 2026, we are reaffirming our ongoing earnings forecast range of $1.90 to $1.98 per share, with a midpoint of $1.94 per share. We expect stronger earnings growth in the second half of the year, supported by rate case outcomes in both Pennsylvania and Rhode Island, with Pennsylvania rates effective July 1, and Rhode Island rates expected to be effective September 1. We are on pace to deploy approximately $5 billion of capital investments in 2026 to support the delivery of safe, reliable, and affordable energy service. As our investment plan has expanded, our teams have continued to demonstrate the ability to execute these programs safely, efficiently, and on schedule. Longer term, we continue to project $23 billion of capital investment needs through 2029, supporting average annual rate base growth of over 10%. We also reaffirmed our long-term financial targets, including 6% to 8% annual EPS growth through at least 2029, with compound annual growth expected to be near the top end of that range, 4% to 6% annual dividend growth, and FFO to debt of 16% to 18%. Importantly, these targets exclude any contribution from Invitium Energy, our joint venture with Blackstone, which represents meaningful long-term earnings and cash flow upside beyond the current plan. Turning to Slide 5 for a more comprehensive regulatory update. Coming into 2026, we had base rate case proceedings underway in all 3 of our primary jurisdictions. These rate case filings were after significant periods of stay out, ranging from 5 years in Kentucky, 8 years in Rhode Island, and over 10 years in Pennsylvania. We made excellent progress in these proceedings during the second quarter, continuing to achieve constructive outcomes that derisk our plan. In Pennsylvania, PPL Electric's rate case settlement became effective July 1 with a positive outcome for both customers and shareowners. The approved increase of $275 million supports critical investments we are making while reflecting less than a 4% increase across all of our rate classes. Importantly, even after our recent rate adjustment, PPL Electric's delivery rates remain nearly 20% below the latest published date average. This outcome reflects the benefits of our Utility of the Future strategy, that prioritizes system hardening, disciplined cost management, strategic use of technology, constructive engagement with stakeholders, and a strong focus on affordability. The settlement also includes a 2-year stay-out provision. Through the continued use of the DISC mechanism and disciplined cost management, we will target remaining out of base rate cases beyond that period. In Kentucky, we're awaiting the commission's decision on our reconsideration request following another thorough and constructive regulatory process. While we believe the original KPSC decision allows us to deliver on our overall plan objectives, we believe there were some flaws in that decision that require reconsideration by the KPSC. We appreciate the commission's thoughtful review of our filing and continue to believe the investments and mechanisms supporting this filing are important to maintaining safe, reliable, and increasingly resilient service to our customers. We've requested a decision from the KPSC by August 14. Turning to Rhode Island. Our base rate case proceeding remains on track. Hearings were completed in mid-July, briefs have been filed, and public meetings are scheduled for August 12 to the 20th. New rates are expected to become effective September 1. As mentioned earlier, this is the first base rate increase Rhode Island Energy has requested in 8 years, and builds on the significant reliability improvements we've achieved since our acquisition of the utility back in 2022. The filing supports the continued investment needed to strengthen the system and prepare for frequent and severe weather events and continued distributed renewable deployment in the state. We also continue to make progress with our Hold Harmless Bill Credit proposal which is being considered in parallel with the broader rate case proceeding. As a reminder, we've proposed accelerating customer bill credits associated with the deferred tax hold harmless commitment that we made when we acquired Rhode Island Energy. If approved, the credits would significantly offset the impact of the requested base rate increase for customers. This is another example of our balanced approach to affordability and investment, proposing creative solutions to help moderate customer build impacts while continuing to invest in system reliability and resilience. Overall, these proceedings highlight the effectiveness of our regulatory strategy and provide a stronger foundation for continued investment. Moving to Slide 6. Against the backdrop of increasing national scrutiny around data center development, our Pennsylvania service territory continues to stand out because of its strong transmission reliability and access, proximity to major demand centers, and disciplined customer protections. Signed data center agreements with PPL Electric Utilities increased for the tenth consecutive quarter to about 32 gigawatts, an increase of 3.5 gigawatts from last quarter with over 1 gigawatt coming from signed electric services agreements or ESAs. We now have more than 11 gigawatts under ESAs which carry meaningful financial commitments from the customer, which I'll cover in more detail in a few slides. We also continue to see these projects enter the construction phase with more than 6.5 gigawatts now under construction. And during the quarter, 2 of these data centers began taking utility service, which are expected to ramp to about 2 gigawatts of load by 2031. This continued progression from agreement to construction to taking service is improving our line of sight into future infrastructure and generation needs, including from our Invitium Energy joint venture with Blackstone. Turning to Slide 7. Our Invitium joint venture continues to make progress across a number of critical paths. Great payer Protection pledges and PJM's recent FERC proposal reinforced the need for new generation to serve large load customers. While strong data center activity in PPL Electric utility service territory is expanding the opportunity for long-term energy supply services agreements or ESSA. During the quarter, we continued to move the joint venture from concept to execution. We now have strategic land sites capable of supporting between 8 and 14 gigawatts of new generation depending on the technology selected, and we are continuing to build our inventory of viable sites. We have over 5 gigawatts of new CCGT generation that has been accepted in the PJM interconnection queue. We also have over 5 gigawatts of reservation agreements for combined cycle gas turbines. Using the market consensus project cost of approximately $2,500 to $3,000 per KW, that 5 gigawatts represents between $12.5 billion and $15 billion of potential future investment through 2032, of which PPL's share would be 51%. Collectively, these milestones give us increasing confidence that Invitium can support contracted growth and create incremental value for shareowners. While we do not expect the earnings contributions from the JV to be material through 2030, batteries or other shorter lead time technologies could begin contributing earnings in 2029 or 2030, which could enhance our projected EPS growth rate above the top end of our 6% to 8% range. We would expect more meaningful earnings and cash flows when the CCGTs come online, which could be as early as the 2031, 2032 time frame. And as we've said, we will not move forward with construction or make material financial commitments until we have executed ESSAs with appropriate risk profiles in those contracts or have cost reimbursement agreements in place. Based on progress to date, we expect to have 1 or more commercial agreements by year-end. Turning to Slide 8. Kentucky also continues to see strong economic development activity. The current development pipeline has expanded to 13.7 gigawatts of potential load growth with data center demand representing 11.6 gigawatts and manufacturing and other nondata center projects totaling 2.1 gigawatts. This is an increase of roughly 800 megawatts from last quarter. Of that pipeline, approximately 1.3 gigawatts is now supported by signed reimbursement agreements, up from approximately 900 megawatts in the first quarter. Our updated probability-weighted projections now indicate 3.7 gigawatts of expected new load by 2032, more than double the amount reflected in our 2025 CPCN filing. That demand is making it even more likely that we will need to file a CPCN for additional generation resources by year-end. Potential resources for the CPCN include the 266-megawatt Lewis Ridge pumped storage project, the 400 megawatts of batteries that were deferred in the 2025 CPCN, and additional natural gas combined cycle generation. While we won't know the exact resource mix until we file the next CPCN, those projects represent an incremental $3.5 billion to $4 billion of potential investment to be incurred between 2027 and 2032. As you can see, Kentucky is emerging as a significant platform for incremental growth, which is why we've been so focused on large-load tariff protections designed to preserve affordability for our existing customers. Let's turn to Slide 9 for a discussion on how those large-load tariffs are protecting our customers. The tariffs approved in Pennsylvania and Kentucky are grounded in a simple principle. Large-load customers pay their own way with enforceable provisions that protect existing customers from cost shifts. First, these tariffs require long contracts with a minimum term of 10 years in Pennsylvania and 15 years in Kentucky. Kentucky's term is longer because of the fully integrated business model with generation resources as well. Second, customers commit to guarantee payments of at least 80% of the capacity they reserve, whether they use it or not. Third, we require collateral upfront. And finally, although no projects with signed ESAs have been canceled to date, there are material termination fees in the event the developer walks away, even if they walk away pre-COD. So with all of these elements in mind, our existing customers are protected from bearing costs to projects that do not move forward. These financial commitments materially improved project quality, and increase our confidence that signed ESAs represent serious executable demand. These tariffs also provide tangible customer benefits. Starting in 2027, Pennsylvania's large-load customer class will contribute $11 million annually to low-income assistance, which was previously funded by our existing customers. Our existing Pennsylvania customers could also see about $25 a month come off the transmission component of their bills over time, if the 31.8 gigawatts in advanced stages is realized. That would help offset the more than $20 per month, our Pennsylvania customers are currently paying as a result of higher PJM capacity prices. Bottom line, these tariffs provide a disciplined framework to capture growth responsibly while ensuring that growth pays for growth. With that, I'll turn the call over to Joe for the financial update.

Thank you, Vince, and good morning, everyone. Let's turn to Slide 11. PPL's second quarter GAAP earnings were $0.30 per share compared to $0.25 per share in Q2 2025. We recorded special items of $0.03 per share during the second quarter primarily due to IT transformation costs and system integration impacts. Adjusting for these special items, second quarter earnings from ongoing operations were $0.33 per share, an improvement of $0.01 per share compared to Q2 2025, which was in line with our expectations. In the first half of 2026 now complete, we remain firmly on track to achieve at least the midpoint of our 2026 ongoing earnings forecast of $1.94 per share. Base rate case outcomes in both Pennsylvania and Rhode Island, support the stronger second half earnings profile embedded in our plan. We've also made great progress on our CapEx program and have deployed approximately $2.3 billion through the end of the second quarter. This is roughly 30% more than what we deployed last year through the first 6 months as we continue to strengthen the safety and reliability of our networks. This also includes the great progress on our generation projects in Kentucky which continue to be on budget and on schedule. Lastly, we continue to maintain a strong balance sheet supported by an improving credit profile with enhanced cash flows following our base rate cases and the settlement of previously priced equity, improving our credit metrics over time. That financial strength positions us to deliver our existing capital plan while maintaining flexibility as the additional investment opportunities including those that Vince discussed emerge across our service territories. We completed our financing needs for 2026 earlier in the second quarter with successful debt offerings at PPL Electric and Rhode Island Energy. Both transactions were very well subscribed and secured long-dated capital at attractive terms. Turning to the ongoing segment drivers for the second quarter on Slide 12. Our Kentucky segment results were flat compared to the second quarter of 2025. These results were driven by higher base rate recovery due to higher retail rates that were effective on January 1. This was offset by lower sales volumes due to less favorable weather than experienced in Q2 2025, higher operating costs, higher depreciation expense, and higher interest expense. Our Pennsylvania Regulated segment results were $0.01 lower compared to the same period a year ago. These results were driven by higher depreciation expense and higher interest expense partially offset by higher transmission revenue from additional capital investments. Our Rhode Island segment results increased by $0.02 compared to Q2 2025, driven by higher rider revenue and lower operating costs partially offset by higher depreciation expense. Lastly, results at Corporate and Other remained flat compared to Q2 of 2025, mainly driven by higher interest expense, offset by other factors that were not individually significant. Overall, our growth drivers are in motion to deliver on our commitments for the year. Our financing plan continues to advance, and we see ongoing opportunities to build on the plan that we've outlined, for both our customers and shareowners. This concludes my financial update. I'll now turn the call back over to Vince.

Thanks, Joe. Before we open it up for questions, I'll leave you with a few closing thoughts. The headline for this quarter is straightforward. We are executing on our current plan while creating more visible upside beyond it. We delivered solid second quarter results, reaffirmed our 2026 earnings forecast and long-term financial outlook. We've made great progress in achieving constructive outcomes in our base rate cases, supporting timely recovery of critical investments while maintaining customer affordability. At the same time, accelerating customer demand across our Pennsylvania and Kentucky service territories is giving us a clearer line of sight into the infrastructure and generation investments required to support meaningful future growth. . We've also advanced tariffs that protect our existing customers as that large-load demand becomes more visible. We continue to make considerable progress on the Invitium Energy joint venture with Blackstone and expect one or more commercial agreements to be announced by year-end. And finally, the Kentucky generation and Invitium energy potential upsides could drive between $10 billion and $12 billion of incremental capital investment through 2032, which strengthens our growth outlook beyond the current plan period. With that, operator, let's open it up for questions.

[Operator Instructions] The first question today comes from Michael Lonegan with Barclays.

Just wondering if you could talk about the interaction of the Invitium JV with the bilateral process and RBA procurement. Would you have to wait for procurement to happen? Or could you announce at any time? And if you announce a deal, would it be included in the procurement?

Yes. So we are actively negotiating bilaterally, and we've been doing that way before the PJM RBP process, Michael. So our ability to get to closure on bilateral contracts is irrespective of the PJM process. We did submit proposals into that process just to maximize our customer contacts, but the 2 are not necessarily related given the activity we've been doing before the PJM process.

Great. And then sticking with the JV, you said you could reach one or more agreements by year-end. Anything you could say about the size of the near-term ones in terms of gigawatts and investment opportunity? And could the announcement come when the agreements are reached? Or would that be essentially a Q4 update?

Yes, sure. So not able to give a size at this point, depending on which ones happen first. So we'll defer that until we actually make the announcements, I would say, timing of the announcements. Again, materiality will really dictate that, Michael. So anything material, we would certainly not wait for an earnings call to announce, we would do that, I would say, in concert with signing of those agreements. Maybe just broadly on timing, I'll make a few comments where in terms of announcement timing, I would say the PJM RBP process is likely affecting the timing for some of our counterparties, but our customer engagement, really, I would say, remains very strong, and we're continuing to see a clear path to the bilateral commercial agreements that support all this new generation I would say, even with the PJM proposal and the rules in their FERC filing, right? They are really pushing towards bilateral contracting and we continue to believe that bilateral contracting will likely be the predominant path for getting new generation development in PJM at least. . Given the progress that we've made to date and what I've said on the call, again, with the discussions we're having with our customers, but all of the other development work around site readiness, the turbine access, the interconnection activity that we've done with PJM and I'd even add fuel supply to that. That's why we're expecting that we would have one or more announcements by year-end. I will say it could happen sooner, but I wouldn't want to speculate on exact timing just because these are complex, they're long-term agreements. And of course, it takes 2 parties to finalize them. So I think the key for us is we're not waiting for those ESSAs to begin that development work that we've talked about on the call today, we're running those in parallel. And so we're ready to respond very quickly in concert with the customer negotiations.

The next question comes from Jeremy Tonet with JPMorgan.

Just wanted to maybe follow up a little bit on the last point there. Just when do you expect to see the first results from the PJM capacity matching process? And how do you view this process versus bidding into the actual RBP auction?

Yes. So we have not committed yet into bidding into the RVP option. We did provide a proposal for the matchmaking part of the process. right? Ultimately, PJM is looking to come out at the end of September with all of that. We'll ultimately see how that plays out. Just the caps that we're seeing in the PJM auction part of it, those are well below cone on certainly some of the assets that we're talking about, Jeremy. So more to come on how aggressively we're participating in that process. I will say just like last quarter, our focus continues to be on the bilateral contracting process directly with our customer base. .

Got it. That makes sense. Just wondering maybe a little bit on timing, if the assets you bid into the matching process were selected, will we know by the end of September? Or how should we think about next steps?

I'm not exactly sure of the timing on when we would know that, Jeremy. Certainly, something we'll continue to think through as we progress through that process. I'm not exactly sure of the timing of when we'll hear back from them.

Got it. Fair enough. And maybe going over to Kentucky, everything you talked about there, a lot of upsizing opportunities. And just wondering, I guess, is there a milestone for -- that you need to hit before you could do the additional CPCN filing that could be filed by year-end?

Yes, you cut out on us there, but I think you were asking about what are maybe some triggers for the CPCN filing? .

Yes.

Do I have that right? Okay. Yes. So look, I think we are seeing some of those triggers already as we're seeing, right, the continued increase in the pipeline. We are signing various agreements for new load with data center developers and also with nondata center customers. So all of that continues to move in the right direction. And that's really what's driving our new probability weighted load of 3.7 gigawatts. That's twice what we had in the last CPCN. So I would say the one area that we would want to see in addition to the commission is the conversion from the data center developer to an actual hyperscaler contract. And those, I will say, those activities are happening as we speak. And I would say once we have 1 of those, that would be a pretty big trigger to prompt us to make that filing before year-end.

Next question comes from Paul Zimbardo with Jefferies.

I just wanted to dive a little bit more, of course, into the joint venture. So I know you've been consistent that we shouldn't expect to see material earnings before 2030. Just how would you envision articulating what the earnings contribution is? Would you do like a separate joint venture earnings separate from kind of the base business, more long duration CAGR beyond 2030. Just if you could help on kind of what kind of disclosures we should expect? .

Yes, Paul, it's Joe. Yes, we would give something separate from the base utility business. So you could see the earnings and the growth and the trajectory of earnings coming out of the JV. And then obviously, we would provide an update on its impact on the CAGR that we have currently. So yes, I think you're right. You're thinking about it correctly on both of those.

Yes. And Paul, this is equity method for accounting purposes, so right, single line items on the financials. So we'll clearly break all that out in additional disclosure for this part of the business once it starts to materialize. .

Okay. Great. I understand there. And then shifting to Kentucky for a second. I saw the Governor's executive order around data centers and kind of focus on emissions, water and some of those things. Does that shift what you could procure to support the data centers? Like I know you mentioned the pump storage. But just any thoughts on the executive order would be helpful.

Yes. No. It was good to see the order come out. We view it as fully consistent with the rate payer protection principles that we've been championing and even the rate payer protection pledge that we signed recently, where new large load customers should be supporting and paying for the infrastructure and the resources that are needed to serve them. So Importantly, right, the order did not prohibit or put a moratorium on data center development. It simply is reinforcing that we need to have customer protections built into -- so the process, which, of course, we have built into our approach. So I would say that LG&E and KU with our tariff structure that we've gotten approved in the state, we're well positioned within that tariff structure to align very nicely with our Governor's executive order. So not concerned at all. We don't think it will slow down the development that we're seeing in Kentucky or our ability to serve it.

Next question comes from Shar Pourreza with Wells Fargo.

Actually, it's Andrew Kadavy on for Shar. So with the longer-dated opportunities come on your plate, could we see maybe a longer planning window net some of you guys update guidance? And what are some of the considerations that go into that decision?

Yes. I think that's certainly possible, right, given the timing that we're talking about is to when we see the earnings contributions from these agreements and given the logistics and timing around getting CCGTs into service. So that's certainly a consideration. .