Good day, and welcome to the PPL Corporation First Quarter 2024 Earnings Conference Call. Please note today's event is being recorded. I'd now like to turn the conference over to Andy Ludwig, Vice President, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining the PPL Conference Call on First Quarter 2024 Financial Results. We have provided slides for this presentation on the Investors section of our website. I'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&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. 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.

Thank you, Andy, and good morning, everyone. Welcome to our first quarter investor update. Let's start with our financial results and a few highlights from the quarter on Slide 4. Today, we reported first quarter GAAP earnings of $0.42 per share. Adjusting for special items, first quarter earnings from ongoing operations were $0.54 per share, representing a 12.5% increase over ongoing earnings of $0.48 per share a year ago. This increase was supported by additional returns on capital investments and higher sales volumes as we saw milder weather last year compared to this year. Looking ahead, we remain confident in our ability to deliver on our 2024 ongoing earnings forecast of $1.63 to $1.75 per share, with a midpoint of $1.69 per share. We are also on track to complete approximately $3.1 billion in infrastructure improvements this year to strengthen grid reliability and resiliency and advance a cleaner energy mix without compromising on affordability for our customers. At the same time, we remain confident in our long-term business plan as we execute our strategy to create the utilities of the future. We're well positioned to achieve our projected 6% to 8% annual earnings per share and dividend growth through at least 2027. As we outlined in February, our capital plan includes $14.3 billion in infrastructure improvements from 2024 to 2027. And across PPL, we continue to drive greater efficiency through our utility-of-the-future strategy to help keep energy affordable for our customers. With this in mind, we're on pace to achieve our annual O&M savings target of at least $175 million by 2026. Moving to Slide 5 with an operational and regulatory update, we were pleased to secure positive outcomes in our second annual infrastructure, safety, and reliability proceedings before the Rhode Island PUC. These plans are submitted annually in Rhode Island and outline proposed capital investments and related operating costs to strengthen safety, reliability, and resiliency of our electric and gas distribution networks. The plans approved this March address Rhode Island Energy's proposed spending from April 1, 2024, to March 31, 2025. In its decision, the PUC unanimously approved $326 million in planned spending and investment, including approximately $300 million in capital investments, $132 million for electric and $168 million for gas, along with $26 million in operating costs for vegetation management, restoration paving on gas main replacement projects, system inspections, and other work. These investments are critical to maintaining and improving the safety and reliability of electricity and gas service for our customers in Rhode Island and will help enable the clean energy transition in the state. Shifting to Pennsylvania, last week, PPL Electric Utilities filed a petition with the Pennsylvania PUC to raise the company's distribution system improvement charge cap from 5% to 9% of distribution revenues for bills rendered on or after January 1, 2025. The DSIC accelerates the repair and replacement of aging infrastructure by allowing utilities to recover the cost of investments in eligible property. As we confront more frequent and powerful storms and aging infrastructure, we believe an increase is needed to maintain and improve reliability moving forward. We expect minimal impact to customer bills because of this change, and we look forward to engaging with the commission as they consider our request. We expect a decision on this petition by year-end. PPL Electric Utilities also recently filed its latest default service plan, which reflects our strong focus on energy affordability and outlines the company's strategy to procure generation supply for customers who don't choose a third-party energy supplier. To best support our customers, the proposed plan includes modifications to lessen price volatility, improve affordability, support resource adequacy, and foster the growth and development of renewable generation in Pennsylvania. During the planned design, PPL Electric leveraged data analytics to optimize the proposed procurement strategy for affordability. We expect the modifications to result in lower supply costs for our customers during the term of the plan, which is from June 1, 2025, through May 31, 2029. We expect a decision from the PaPUC on this plan by year-end as well. Moving to Slide 6. We continue to advance plans to support prospective data center development in both Pennsylvania and Kentucky. As we work with data center companies, we feel we are very well positioned to serve their needs for a variety of reasons. For starters, we have capacity on our grid such that the needed investment by the data centers is not too significant. This also enables connection to our grids in a timely manner, supporting their desired commercial operation date. In addition, our reliability is very strong with top quartile reliability. Our states also have an abundance of reasonably priced land available for these data centers. Further, we are close to large metropolitan markets in New England and Mid-Atlantic regions. And finally, we have programs in both states that provide incentives for data centers to locate in our service territories. Our current business plan does not reflect the investments or load related to these large data center projects. So, any meaningful deployment in this space would represent upside to the plan. In Pennsylvania, we continue to see record numbers of requests within our service territory, including some very large centers that are projecting more than a gigawatt of load at full capacity. We currently have approximately 3 gigawatts of data center demand in advanced stages. The potential upside for PPL comes in the form of additional required investments in transmission and returns on the related rate base through the FERC formula rate. Currently, we estimate that each data center would require, on average, $50 million to $150 million of capital investment, and that's PPL's share, depending on the size, location, and specific needs of the data center. As for the sensitivity of the $125 million of PPL's investment, it would result in about $0.01 of EPS. Despite this added investment, we expect that our retail customers in Pennsylvania will benefit as well since the transmission component of the bill will decrease as they are spread over increased load. In Kentucky, we are also actively working with several large data centers. The data centers we're currently seeing in Kentucky range between 300 and 500 megawatts each. Like Pennsylvania, any transmission upgrades would be additive to our capital plan, although those will be more modest than the levels we are currently seeing in Pennsylvania due to the smaller size of the data centers. The more significant upside potential from additional data center demand is due to the vertically integrated nature of our Kentucky business as a significant ramp in electricity demand could also result in incremental generation needs in our service territory. Any additional generation investment would also represent upside to our current capital plan. From a timing perspective, based on our ongoing dialogue, we would expect to have a better sense of these opportunities in the latter half of the year and into 2025. Ultimately, data centers are key to American competitiveness and AI deployment moving forward, and we are actively engaged to support their expansion. Moving to Slide 7 and some items on the horizon. On April 25, the EPA announced a suite of final rules related to fossil fuel-fired power plants. The four rules announced are Section 111 greenhouse gas CO2 standards, which requires that all coal-fired plants and new baseload gas-fired plants control 90% of their carbon pollution via carbon capture technology or other means by 2032; the affluent limitation guidelines, which establish more stringent discharge standards for three different wastewaters generated at coal-fired plants; the coal combustion residuals rule, which requires additional coal ash management for inactive CCR units, which were formerly exempt; and the mercury and air toxic standards rule, which tightens the emission standard for toxic metals by 67% and finalizes a 70% reduction in the emission standard for mercury from coal-fired plants. We expect these rules to be challenged by various parties, and it will likely take years to go through the legal process. Should these rules be upheld in the courts, it could exacerbate the resource adequacy concerns in the 2030s while resulting in significant incremental environmental capital investments and/or additional capital needs for generation replacement in the latter part of our planning period and beyond. These rules will also be considered in the request for proposals recently issued by LG&E and KU for renewable energy. The RFP is seeking to evaluate alternatives to procure least-cost long-term supply of renewable energy to serve our customers. These potential additions would help to address load growth, diversification of the generation portfolio, and the newly issued EPA regulations. Proposals are due back by the end of the second quarter, and we expect to complete our review in the fourth quarter. Looking ahead in Kentucky, LG&E and KU expect to file their triennial integrated resource plan in the fourth quarter of this year. The IRP will be a comprehensive review of electricity supply and demand within our service territories over a 15-year planning horizon. We'll also update our load forecast for our service territories, which will include updated assumptions for electrification, industrial growth, and potential data center development, as well as any updates to energy efficiency trends. The supply forecast will include the results of our recently approved CPCN late last year to retire 600 megawatts of coal generation and replace that with a combination of efficient combined cycle natural gas, solar, and battery storage capacity. We will also include recommendations received from the KPSC during our last IRP filing, including updates to our demand-side management and energy efficiency programs, transmission needs, and recently issued environmental regulations. Following our IRP filing, we'll then conduct another climate assessment and expect to publish an updated report in 2025.

Thank you, Vince, and good morning, everyone. Let's turn to Slide 9. PPL's first quarter GAAP earnings were $0.42 per share compared to $0.39 per share in Q1 2023. We recorded special items of $0.12 per share during the first quarter, primarily due to integration and related expenses associated with the acquisition of Rhode Island Energy. Adjusting for these special items, first quarter earnings from ongoing operations were $0.54 per share, an improvement of $0.06 per share compared to Q1 2023. The primary drivers of this increase were returns on capital investments, higher sales volumes, and lower operating costs, partially offset by higher interest expense. Our solid first quarter results keep us on track to achieve at least the midpoint of our 2024 earnings forecast of $1.69 per share. During the quarter, we issued a combined $1.2 billion of debt in two separate offerings. We were focused on early execution of the financing plan, which allowed us to take advantage of rates lower than the current market and de-risk for the remainder of the year. In January, we issued $650 million of first mortgage bonds at PPL Electric Utilities at 4.85%. In March, we issued $500 million of senior unsecured notes at Rhode Island Energy at 5.35%, which represented the first debt offering for Rhode Island Energy since our acquisition. We saw tremendous demand for both transactions, and we were able to execute them at efficient prices given the relative market conditions. PPL's balance sheet remains among the very best in our sector and provides the company with significant financial flexibility. We continue to project a 16% to 18% FFO to debt ratio throughout our planning period while maintaining a holding company to total debt ratio below 25%. As of the end of the first quarter, our floating rate debt exposure remains at just about 5%, and we have limited near-term refinancing risk. Finally, we remain uniquely positioned in the sector to continue to fund our growth without the need for equity throughout our planning period. Turning to the ongoing segment drivers for the first quarter on Slide 10. Our Kentucky segment results increased by $0.03 per share compared to the first quarter of 2023. The improvement in Kentucky's results was primarily driven by higher sales volumes, primarily due to the extremely mild weather experienced during the first quarter of last year. Our Pennsylvania Regulated segment results increased by $0.03 per share compared to the same period a year ago. The increase was primarily driven by higher transmission revenue and lower operating costs. Our Rhode Island segment results increased by $0.01 per share compared to the same period a year ago. This increase was primarily driven by higher distribution revenue from capital investments, higher transmission revenue, and lower operating costs, partially offset by higher interest expense. Finally, results at Corporate and Other decreased by $0.01 per share compared to the prior period, primarily due to factors that were not individually significant. I'm extremely pleased with our financial performance for the quarter as we continue to execute our plan.

Thank you, Joe. In closing, our strong performance in the first quarter keeps us squarely on track to deliver on our 2024 commitments to shareholders. As we continue to execute our utility of the future strategy, we're well positioned to achieve or exceed the midpoint of our 2024 ongoing earnings guidance. We're off to a strong start in executing our capital plans, keeping us on track to invest $3.1 billion in infrastructure improvements this year. The newly issued EPA regulations, while they present some real reliability concerns for the industry, represent only further upside to our long-term outlook for the business. We continue to make good progress in integrating Rhode Island Energy into PPL, keeping us on pace to exit our remaining transition service agreements with National Grid this year. And finally, we remain laser-focused on driving efficiency through our Utility of the Future strategy, centralization efforts, and asset optimization to keep energy affordable for our customers. All in all, we are well positioned to continue our strong track record of execution this year. And with that, operator, let's open it up for questions.

And today's first question comes from Shahriar Pourreza with Guggenheim Partners.

It's actually James on for Shar. Maybe starting on the data center side, thanks for all the details on the backdrop across the two jurisdictions there. Can you just give us maybe a little bit more color on the timing of the spend for those 3 gigawatts in Pennsylvania as it relates to the current plan through '27? And then secondly, how kind of firm is that advance stage at this point for those guys?

Yes, sure, James. So just in terms of firmness, we do have signed agreements for that 3 gigawatts. We continue to work through the process with multiple data center companies and would probably be in a position to make a public announcement either from them or us until kind of late this year or early next year. So still a little bit of a ways to go on these, but we do have signed agreements with them all. These would be for in-service dates beginning in 2026. So I think '26, '27, '28. And then again, we would be making the bulk of our investments right in time for those initial in-service dates.

Okay. Got you. And then keeping it in Pennsylvania, if the DSIC waiver process were unsuccessful, I guess, how would that impact the rate case cycle plan and any impact to the distribution spend plan as it's laid out today?

Yes, James, this is Joe. First, it wouldn't impact our distribution capital plans. Those are necessary investments that we'll continue to make. What it would do is potentially impact the timing of our next rate case, although as we've said, no rate case in Pennsylvania this year or next. So really likely timing could be as early as '26, but again, we'll have to see the outcome of that petition and what the commission decides on there.

Our next question comes from Durgesh Chopra with Evercore ISI.

Just on the data center topic, I know the opportunity set is in the transmission investment for you. Can you help us kind of frame if there is new generation or additional generation attached to these contracts? If you can talk to that? And then secondly, you mentioned the '26 to '28 timeline. How are you thinking about the construction timeline and any sort of risks on approvals? I'm thinking FERC approvals or any other approvals that you may need to get the projects going?

Yes, sure. So the agreements that we've signed basically enable us to start the development work of the projects, and it would result in reimbursement back to the company should we not move forward with the data center. So data center companies are really taking the risk on that. Overall, we feel good about our ability to get these projects approved through the regulatory process. But you're right, we do need to go through that process. But we are currently spending money on the development for the ones that we have the signed agreements for, and we're starting those now, to be ready for a 2026 initial service date. On the generation side, so yes, the investment opportunity is really twofold. In Pennsylvania, it's really just the transmission investment that we need to make. These are large centers, so they're connecting to transmission. Again, we're in the $50 million to $150 million per data center range. That's our share, so the data center is also picking up similar-sized investments on each of these. So that's kind of the investment opportunity in PA. In Kentucky, again, not as big of data centers, at least the initial ones that we are engaged with there. So the investment opportunities are a little bit smaller, around the $25 million to $75 million per data center range there. But as your question kind of highlights, I think the biggest opportunity from an investment perspective is really on the need for additional generation in Kentucky. Our current reserve margins are in the 23% range. We target a 17% to 24% range down there with the solar projects that we have and that we're building. We would expect, absent anything else, to be a little bit over 25%. So, obviously, keeping all of this in mind as we put together the IRP. We'll be updating our full load forecast, including potential data centers, but all the other industrial loads that are coming from the economic development activity, but we also have to look at energy efficiency and DER and everything else that's a counterbalance there. And then determine if we need additional generation. I will say, importantly, as we think about the possibility of needing to build the second combined cycle unit down there, whether it's for the data centers or just industrial growth in general, I think it's important to note that we do still have a spot in the queue for that second CCGT from our prior solicitation. So our ability to build that relatively quickly is there.

That's very, very helpful, Vince. But can I just go back to Pennsylvania and the way you structure this transmission agreement? Is that tied to a new generation source? I know that's not an opportunity for you, but I'm just curious from a Pennsylvania state perspective, supply-demand perspective. Is that a new generation source? Or are you basically getting power from an existing generation source? I don't know if that makes sense. Did you get the question I'm asking?

I do. Yes, it is not tied to any specific generation. Ultimately, the market through PJM and/or other means needs to continue to build new generation to keep up with this demand. But that will go through the general PJM process.

Got it. That's perfect. And then just one quick one, and I'll get back in the queue. Is there a procedural schedule on the DSIC application regarding the raising cap or specific timelines for us to watch?

There isn't, although we do expect to basically have a decision on both the DSIC waiver and the LTIP filing by the end of the year. So in general, the LTIP takes about nine months, those types of filings, and we think it makes sense. Obviously, we requested the DSIC decision to be before the end of the year so that we could apply it for 2025.

Okay. I also want to echo James' thanks and comments on the data center information—really helpful. And congrats on a great quarter here. Thank you again.

And our next question comes from Steve Fleishman with Wolfe Research.

So just to kind of—because we're hearing a lot about data centers. Could you give us any sense of just how meaningful the deposits are for you to be pursuing this in terms of just the scale of the whole thing, just as it helps to assess just likelihood, I guess?

Yes. So I don't want to get into details around like deposits or anything like that, although I will say the agreement that we signed in Pennsylvania permits us to start spending on these. And then we would get recovery of those for some reason if we don't move forward. So I think the curiosity of the counterparties is there, clearly, right? And for all the reasons I talked about in my prepared remarks, I think we do bring a number of benefits to bear for these folks. Not the least of which is not only our capacity to connect them, but our ability to meet their in-service deadlines. So we can get this work done in time for 2026 in-service states for these data centers. So as of right now, again, to your point, it's never done until it's done, and I appreciate that. But as of now, I'd be pretty disappointed if we didn't get at least one data center in our service territories. I would expect more than that though.

Okay. And then just in terms of—we're hearing data center growth in several other parts of the PJM market. And I'm just wondering, do you see the potential need for more transmission, not necessarily for your own data center, but just for all this broader growth potential in PJM that could create more need and obviously move power flows and the like? Any thoughts there.

Yes, absolutely. And you saw some of that. We've won a FERC 1000 process last year to build into the Dominion zone for some of the data center load down there. So yes, to your point, depending on where these pockets set up, because generally, as we're talking with these data center companies, it's not necessarily just one and done. If they can build one, their intention is to expand upon that. And so I think you'll start to see these data center hubs start to get created around the country. Obviously, there's economies of scale if they're bundling together. And to your point, that creates a demand for transmission into those areas and again, in the Dominion zone, we ended up winning it was like a $100 million to $150 million project to help handle that congestion. So yes, I do think that's a continued opportunity indeed.

Okay. And then a different topic. Just in Pennsylvania on the DSIC waiver filing. Is this something that—is something that could be settled, or is this something really where the commission just needs to decide?

Yes. In general, certainly, where we can engage with the commission and end up with something in between, sure, certainly.

Ladies and gentlemen, this concludes the questions-and-answer session. I'd like to turn the conference back over to Vince Sorgi for closing remarks.

Thanks a lot. And I just want to thank everybody for joining us on today's call. I do want to remind everyone that this Saturday is the 150th running of the Kentucky Derby, which is the most exciting two minutes in sport. So enjoy the race, and we hope to see you soon. Thanks, everybody.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.