PPL(PPL) - 2023 Q1 - Quarterly Report

Forward-Looking Information This section outlines cautionary language for forward-looking statements, noting that future expectations are subject to risks and uncertainties, and actual results may differ materially - Forward-looking statements are subject to many risks and uncertainties, and actual results may differ materially. Key risk factors include, but are not limited to:[79] - Strategic transactions and the ability to realize expected benefits[80] - Pandemics, catastrophic events, and their impact on economic conditions and supply chains[80] - Capital market conditions, interest rates, inflation, and commodity price volatility[80] - The outcome of regulatory proceedings, such as rate cases[80] - Cybersecurity threats and changes in electricity demand[80] - Changes in environmental laws, tax laws, and other legislation[80] PART I. FINANCIAL INFORMATION Financial Statements This section presents PPL Corporation's unaudited condensed consolidated financial statements for Q1 2023, including Income, Comprehensive Income, Cash Flows, Balance Sheets, and Equity PPL Corporation Condensed Consolidated Statement of Income (Q1 2023 vs Q1 2022) | Metric | Three Months Ended March 31, 2023 (Millions USD) | Three Months Ended March 31, 2022 (Millions USD) | | :--- | :--- | :--- | | Operating Revenues | $2,415 | $1,782 | | Operating Income | $498 | $454 | | Net Income | $285 | $273 | | Basic and Diluted EPS | $0.39 | $0.37 | PPL Corporation Condensed Consolidated Balance Sheet (As of March 31, 2023) | Metric | March 31, 2023 (Millions USD) | December 31, 2022 (Millions USD) | | :--- | :--- | :--- | | Total Current Assets | $3,038 | $2,824 | | Total Assets | $38,302 | $37,837 | | Total Current Liabilities | $2,480 | $3,789 | | Total Long-term Debt | $14,481 | $12,889 | | Total Equity | $14,036 | $13,918 | | Total Liabilities and Equity | $38,302 | $37,837 | PPL Corporation Condensed Consolidated Statement of Cash Flows (Q1 2023 vs Q1 2022) | Metric | Three Months Ended March 31, 2023 (Millions USD) | Three Months Ended March 31, 2022 (Millions USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $430 | $502 | | Net cash used in investing activities | ($503) | ($427) | | Net cash provided by financing activities | $177 | $603 | | Net Increase in Cash | $104 | $678 | Combined Notes to Condensed Financial Statements These notes provide detailed disclosures on segment information, revenue, EPS, income taxes, rate regulation, financing, acquisitions, and contingencies Note 2: Segment and Related Information PPL operates in three regulated segments: Kentucky, Pennsylvania, and Rhode Island, with a 'Corporate and Other' category for unallocated costs - PPL's business is organized into three regulated segments: Kentucky, Pennsylvania, and Rhode Island. The Rhode Island Regulated segment's results are included following the acquisition of RIE on May 25, 2022[139][141] Segment Net Income (Loss) for Q1 2023 vs Q1 2022 | Segment | Q1 2023 Net Income (Loss) (Millions USD) | Q1 2022 Net Income (Loss) (Millions USD) | | :--- | :--- | :--- | | Kentucky Regulated | $166 | $189 | | Pennsylvania Regulated | $138 | $143 | | Rhode Island Regulated | $54 | $0 | | Corporate and Other | ($73) | ($59) | | Total | $285 | $273 | Total Assets by Segment | Segment | March 31, 2023 (Millions USD) | December 31, 2022 (Millions USD) | | :--- | :--- | :--- | | Kentucky Regulated | $16,738 | $16,904 | | Pennsylvania Regulated | $13,921 | $13,565 | | Rhode Island Regulated | $6,253 | $6,081 | | Corporate and Other | $1,390 | $1,287 | | Total | $38,302 | $37,837 | Note 6: Utility Rate Regulation This note details regulatory assets, liabilities, and key proceedings, including RIE's AMF program, LG&E/KU's CPCN filing, and PPL Electric's billing investigation - In Kentucky, LG&E and KU filed a CPCN application to construct two 621 MW NGCC facilities, a 120 MWac solar facility, and a 125 MW battery storage system. This is part of a plan to retire four coal-fired units totaling over 1,500 MW between 2024 and 2028[186][188] - In Rhode Island, RIE filed a new Advanced Metering Functionality (AMF) Business Case with the RIPUC, proposing a full-scale deployment of smart meters at an estimated cost of $188 million NPV, with expected benefits of $729 million NPV[177] - In Pennsylvania, the PAPUC launched an investigation on January 31, 2023, into PPL Electric's billing issues, which involved estimated bills and customer service problems between December 2022 and January 2023[192] - LG&E and KU experienced a significant windstorm on March 3, 2023, incurring $72 million in costs. They received KPSC approval for regulatory asset treatment of the O&M portion, with recovery to be determined in future rate cases[191] Note 7: Financing Activities The company undertook significant Q1 2023 financing activities, including issuing $1.0 billion in Exchangeable Senior Notes and $1.35 billion in First Mortgage Bonds - In February 2023, PPL Capital Funding issued $1.0 billion of 2.875% Exchangeable Senior Notes due 2028, with net proceeds of $980 million used to repay short-term debt and for general corporate purposes[209] - In March 2023, PPL Electric issued $1.35 billion of First Mortgage Bonds ($600 million due 2033 at 5.00% and $750 million due 2053 at 5.25%) and redeemed $900 million of existing bonds[213][214] - In March 2023, LG&E and KU each issued $400 million of 5.45% First Mortgage Bonds due 2033 and repaid their respective $300 million term loans[215][216][205][206] - PPL declared a quarterly cash dividend of $0.24 per share in February 2023, an increase from the $0.20 per share in Q1 2022[217][94] Note 10: Commitments and Contingencies This note details legal, environmental, and financial commitments, including litigation with Talen Energy and environmental compliance costs - PPL is in an adversary proceeding in Texas Bankruptcy Court with its former affiliate, Talen Energy. Talen seeks recovery of an approximately $900 million distribution from 2014, alleging it was a fraudulent transfer. PPL believes it has meritorious defenses and cannot predict the outcome[233][235][236] - The EPA's 2015 CCR rule and 2015 ELGs for wastewater impose significant compliance requirements on LG&E and KU's coal-fired plants, driving closure plans and investments in water management facilities. Costs are expected to be subject to rate recovery[241][242][245] - PPL has provided guarantees related to the sale of Safari Holdings, with a maximum potential exposure of $146 million for sale/leaseback financing obligations and $140 million for certain indemnifications[264] Management's Discussion and Analysis (MD&A) The MD&A provides management's perspective on financial performance, business strategy, liquidity, capital resources, and key market, credit, and environmental risks Business Strategy PPL's strategy focuses on regulated utilities, aiming for top-tier performance, clean energy transition, financial strength, and efficient capital cost recovery - Achieve industry-leading performance in safety, reliability, customer satisfaction, and operational efficiency[348] - Advance a clean energy transition while maintaining affordability and reliability[348] - Maintain a strong financial foundation and create long-term value for shareowners[348] - A central part of the strategy is the efficient recovery of capital project costs through various rate-making mechanisms to limit regulatory lag, including base rate cases, FERC formula rates, DSIC, ECR, and ISR mechanisms[349] Financial and Operational Developments Key developments include LG&E/KU's coal retirement and replacement plans, a major windstorm impact, and RIE's approved capital investment plans - LG&E and KU plan to retire four coal-fired units (Mill Creek 1 & 2, E.W. Brown 3, Ghent 2) between 2024 and 2028[353][355] - To replace retiring generation, LG&E and KU filed a CPCN application for two 621 MW NGCC plants, a 120 MWac solar facility, a 125 MW battery storage system, and expanded DSM programs. A KPSC decision is expected by November 6, 2023[356][357] - A March 2023 windstorm in Kentucky resulted in $72 million in damages for LG&E and KU. The companies have requested and received approval for regulatory asset treatment for the O&M portion of these costs[359] - RIE's FY 2024 Gas ISR Plan was approved for $163 million in capital investment, and its FY 2024 Electric ISR Plan was approved for $112 million in capital investment[362][363] PPL: Statement of Income Analysis, Segment Earnings and Adjusted Gross Margins PPL's Q1 2023 net income increased to $285 million, driven by the Rhode Island segment, partially offset by lower Kentucky earnings due to weather PPL Q1 2023 vs Q1 2022 Results | Metric | Q1 2023 (Millions USD) | Q1 2022 (Millions USD) | $ Change (Millions USD) | | :--- | :--- | :--- | :--- | | Operating Revenues | $2,415 | $1,782 | $633 | | Operating Income | $498 | $454 | $44 | | Net Income | $285 | $273 | $12 | Reconciliation to Earnings from Ongoing Operations (Non-GAAP) | Metric (in millions) | Q1 2023 (Millions USD) | Q1 2022 (Millions USD) | | :--- | :--- | :--- | | Net Income (GAAP) | $285 | $273 | | Less: Special Items (expense) benefit | ($67) | ($32) | | Earnings from Ongoing Operations (Non-GAAP) | $352 | $305 | - The $633 million increase in operating revenue was primarily driven by the inclusion of Rhode Island Energy ($565 million) and higher PLR revenues at PPL Electric ($113 million), partially offset by lower volumes in Kentucky due to weather[369] - Kentucky Adjusted Gross Margins decreased by $26 million, primarily due to lower sales volumes from unfavorable weather. Pennsylvania Adjusted Gross Margins increased by $4 million, as higher transmission returns offset lower distribution margins from weather[408][409][410] Financial Condition The company maintains a solid financial condition with $2.9 billion in undrawn credit facilities, despite a decrease in Q1 2023 operating cash flow Cash Flow Summary (Q1 2023 vs Q1 2022) | Activity (in millions) | Q1 2023 (Millions USD) | Q1 2022 (Millions USD) | | :--- | :--- | :--- | | Operating activities | $430 | $502 | | Investing activities | ($503) | ($427) | | Financing activities | $177 | $603 | - The decrease in operating cash flow was primarily due to changes in working capital, including lower accounts receivable and payable balances, and higher costs associated with work optimization projects[445][448] - At March 31, 2023, the Registrants had total committed credit facilities of $2.9 billion, with no borrowings outstanding, providing significant liquidity[456] - No rating agency actions were taken against the Registrants or their subsidiaries in the first quarter of 2023[466] Quantitative and Qualitative Disclosures About Market Risk This section refers to the 'Risk Management' discussion in the MD&A for detailed information on market risk exposure - For disclosures about market risk, the report refers to the 'Risk Management' section in the MD&A[498] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls over financial reporting - Management concluded that as of March 31, 2023, the Registrants' disclosure controls and procedures are effective[499] - There were no changes in internal controls over financial reporting during the first fiscal quarter that have materially affected, or are reasonably likely to materially affect, the internal controls[500] PART II. OTHER INFORMATION Legal Proceedings This section refers to Notes 5, 6, 8, and 10 of the Financial Statements for information on legal, tax, and regulatory proceedings - Information regarding legal proceedings is contained in Notes 5, 6, 8, and 10 to the Financial Statements[502] Risk Factors No material changes to the company's risk factors were reported from those disclosed in the 2022 Form 10-K - There have been no material changes in the Registrants' risk factors from those disclosed in the 2022 Form 10-K[502] Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreement amendments and Sarbanes-Oxley Act certifications - Key exhibits filed include amendments to the revolving credit agreements for PPL Capital Funding, PPL Electric, LG&E, and KU, all dated March 30, 2023[505] - Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act for PPL Corporation and its subsidiary registrants are filed as exhibits[505][506]