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Text: We appreciate you joining us for our 2020 year-end earnings call today.
With me as usual are Joe Bergstein, our chief financial officer; Greg Dudkin, the head of our Pennsylvania utility business; Paul Thompson, the head of our Kentucky utility business; and Phil Swift, who heads up our U.K. utility business.
Moving to Slide 3.
I'll also share a few updates on regulatory and ESG matters.
Later, Joe will provide a more detailed overview of year-end and fourth-quarter financial results.
I'll then share some closing thoughts on our key focus areas for 2021.
Turning to Slide 4.
I'm incredibly proud of how PPL performed in 2020, a year unlike any we've seen in our lifetimes.
It was a year that tested our resolve, our resilience and our ability to adapt very quickly to dynamic conditions.
Importantly, we provided electricity and natural gas safely and reliably to more than 10.5 million customers when it mattered the most.
This included the hospital workers and the first responders who were on the front lines.
And it included customers whose homes became offices, whose kitchens and bedrooms became classrooms and who were counting on us to deliver without fail.
We're extremely honored that our continued operational excellence resulted in further recognition from these very same customers in 2020.
This included topping all large utilities in the east for the ninth straight year for residential customer satisfaction and all mid-sized utilities in the Midwest for both residential and business customer satisfaction.
In the U.K., at the end of 2020, we again finished with scores of over nine out of ten in all four of our DNOs and are on track to receive the maximum incentive reward under Ofgem's broad measure of customer satisfaction.
We also received the U.K.'s customer service excellence award for the 28th time since 1992.
As we focused on our commitment to provide a superior customer experience, we also recognized the need to support our local communities and assist customers struggling with COVID-19.
With that in mind, we continued to offer payment assistance programs, flexible payment options and referral services to help customers manage their energy bills.
Shifting to our financial performance.
We achieved financial results that are within our original earnings guidance range, despite the challenges of COVID-19.
This achievement included overcoming a $0.12 per share unfavorable impact from COVID, due primarily to low sales volumes in the U.K. and lower commercial and industrial demand in Kentucky, as well as a $0.05 per share unfavorable impact due to mild weather compared to normal conditions.
We were able to offset some of the impact through effective cost management and several other factors without negatively impacting the long-term strength of the business.
regulatory construct provides recovery for any under-collected revenues from lower sales volumes, which was a significant portion of the 2020 impact.
We also maintained a strong financial position and delivered on our commitment to return capital to share owners, something PPL has done each quarter for 75 consecutive years.
Turning to Slide 5.
As we dealt with the challenges of COVID-19 during the year, we also remained very focused on the future.
Building on the $27 billion we had invested over the prior decade to improve service to our customers, during 2020, we completed more than $3 billion in infrastructure improvement, in line with the original expectations we outlined for you at the beginning of the year.
The vast majority of this investment, nearly 90%, was focused on transmission and distribution infrastructure to strengthen grid resilience, incorporate new technology and advance our clean energy strategy.
Shifting to a few sustainability highlights.
We continued to advance our clean energy strategy in 2020.
At the outset of the year, we set a more aggressive carbon reduction goal.
And throughout the remainder of the year, we invested in our networks to enable increased electrification and large-scale additions of distributed energy resources in the future.
In Kentucky, we secured regulatory approval for a 100-megawatt solar power purchase agreement to meet increasing customer demand for clean energy solutions.
We also continued to expand customer participation in our Solar Share Program, securing full subscription for two additional phases of Solar Share construction that will begin this spring.
In addition, our Safari Energy business also added more than 90 megawatts of solar capacity to its portfolio, increasing its own capacity to 110 megawatts.
This new capacity is all contracted via long-term power purchase agreements.
And in August, we joined a five-year industry initiative to accelerate the development of low-carbon energy technology and advance affordable pathways to economywide decarbonization.
We recognize that going even further, faster than the goals that we've set to address climate change requires new ideas, technology and systems that can be delivered safely, reliably and affordably.
That's why we're partnering with EPRI and GTI on their new Low-Carbon Resources Initiative.
As part of our sustainability efforts, we also remained focused on advancing a culture of diversity, equity and inclusion across PPL and supporting meaningful change in progress in the communities we serve.
To build on PPL's prior momentum in this area, the company adopted a new enterprisewide DEI strategy with five supporting DEI commitments.
In the wake of the killings of George Floyd, Breonna Taylor and others in 2020, PPL led focused discussions with our employees and in our communities on race and social justice that will continue to guide our efforts moving forward.
In addition, we provided initial contributions to support local organizations focused on DEI initiatives and launched a new scholarship program that aims to award $1 million over the next decade to support minorities and females pursuing careers in engineering, IT, technical and trade roles.
As a reflection of PPL's continuous focus on embracing diversity, inclusion and advancing equity for all, we were named a Best Place to Work for LGBTQ equality by the Human Rights Campaign Foundation, once again earning a perfect score.
Lastly, on this slide, I would note that we continued to enhance our ESG disclosures in 2020, demonstrating our ongoing commitment to transparency, and to keeping stakeholders informed.
This included our disclosures around political spending, an area in which the Center for Political Accountability and the Zicklin Center for Business Ethics Research gave PPL their Trendsetter ranking on the CPA-Zicklin Index.
Turning to Slide 6 for some regulatory updates.
In November, we took steps at our Louisville Gas and Electric and Kentucky Utilities businesses to support continued infrastructure investments that benefit our customers.
LG&E and KU filed rate requests with the Kentucky Public Service Commission on November 25, seeking approval for a combined revenue increase of about $331 million in electricity and gas base rates.
The requested increases will support continued modernization of the grid to strengthen grid resilience, as well as upgrades to LG&E's natural gas system to enhance safety and reliability.
In addition, we are seeking approval for full deployment of advanced metering infrastructure, faster electric vehicle charging stations and an updated net metering tariff.
If approved by the Commission, LG&E and KU's requested revenue increases would take effect July 1, 2021.
Given the COVID pandemic and in an effort to reduce the near-term impact of the rate adjustment for our customers, we sought to minimize the size of the requested increase and have included in our request for approval a $53 million economic relief surcredit to help mitigate the impact of the rate adjustment until mid-2022.
In addition, we have proposed to implement AMI in a manner, which based on current projections will not require an increase in the combined revenue of LG&E and KU in this rate case or in the future as operating cost savings are projected to more than offset the incremental capital cost of the project.
Additionally, pending the outcome of the proceeding, it's our goal not to request another base rate adjustment for several years.
In other notable Kentucky updates, LG&E and KU on January 7 issued a request for proposal for generation capacity to meet a potential energy shortfall that may be created by the anticipated retirements of 1,000 megawatts of coal-fired generation during this decade.
Brown Unit 3 are expected to be retired by 2028 as they reach the end of their economic useful lives.
We've also included in the appendix a slide that details the projected economic lives with our baseload generation plan.
The utilities are seeking 300 to 900 megawatts of capacity beginning in 2025 to 2028.
Additionally, we're asking for proposals for at least 100 megawatts of battery storage.
Proposals are due March 31, and we anticipate making a decision by mid-2021 and potentially filing for regulatory approvals in early 2022.
Lastly, in the U.K., Ofgem issued its RIIO-ED2 sector-specific methodology decision in mid-December.
The decision was largely in line with our expectations and underscores the vital role DNOs will play in supporting decarbonization in the U.K. to achieve a net zero economy.
In January, WPD became the first DNO to issue a draft business plan for RIIO-ED2.
That draft plan proposes GBP 6 billion in new investments to support decarbonization, digitalization and enhanced network utilization.
Turning to Slide 7 and the 2021 to 2025 capital plan.
We've outlined more than $14 billion from 2021 to 2025 to support continued modernization of our transmission and distribution networks and to advance a cleaner energy future.
This forecast spending represents $1 billion of incremental capex from 2021 to 2024 compared to our prior plan.
Those increases include $400 million in Kentucky to support full deployment of advanced metering infrastructure, $300 million in Pennsylvania for additional transmission investments, as well as incremental funding for IT initiatives focused on digital transformation investments in work optimization, smart grid technology and the customer experience and $200 million in the U.K. due to a shift of certain investments from 2020 to 2021 as a result of COVID-19, additional funding for telecommunications projects and updates to our RIIO-ED2 capital plan.
I'll begin with a brief overview of our fourth-quarter results on Slide 9.
PPL delivered fourth-quarter 2020 earnings from ongoing operations of $0.59 per share compared to $0.57 per share in the fourth quarter of 2019.
Weather in the quarter was about $0.01 unfavorable compared to 2019, as our Kentucky segment experienced slightly milder temperatures.
The estimated impact of COVID on our fourth-quarter results was about $0.02 per share, $0.01 due to lower U.K. sales volumes and $0.01 driven by lower demand in Kentucky.
We continue to experience improvement in this area as C&I demand steadily improves across our service territories.
Overall, these results were in line with our expectations.
Moving to our full-year 2020 earnings results on Slide 10.
We achieved 2020 earnings from ongoing operations of $2.40 per share compared to $2.45 per share a year ago.
As Vince mentioned earlier, our 2020 financial results reflect an estimated $0.12 unfavorable variance due to COVID-19.
During 2020, we also experienced a $0.06 unfavorable variance due to weather compared to 2019, primarily in Kentucky.
In terms of dilution for the year, we experienced $0.11 per share of dilution year over year, primarily reflecting the impact of the equity forward settlement in late 2019.
Moving to the segment drivers, excluding impacts from weather and dilution.
regulated segment earned $1.33 per share, a $0.01 year-over-year decrease.
The decrease in U.K. earnings was primarily due to lower adjusted gross margins, driven by lower sales volumes primarily due to the impacts of COVID-19, lower other income due to lower pension income, higher operation and maintenance expense and higher depreciation expense.
These decreases were partially offset by higher foreign currency exchange rates compared to the prior period with 2020 average rates of $1.47 per pound compared to $1.32 per pound in 2019.
In Pennsylvania, we earned $0.65 per share, which was $0.07 higher than our results in 2019.
Our Pennsylvania results were primarily driven by higher adjusted gross margins, primarily resulting from returns on additional capital investments in transmission and lower operation and maintenance expense.
These increases were partially offset by higher depreciation expense and other factors that were not individually significant.
Turning to our Kentucky segment.
We earned $0.55 per share in 2020, a $0.03 increase over comparable results one year ago.
The increase was primarily due to higher adjusted gross margins, primarily resulting from higher retail rates effective May 1, 2019, and lower operation and maintenance expense.
Partially offsetting these items were lower commercial and industrial demand revenue, primarily due to the impact of COVID-19 and higher depreciation expense.
Results at corporate and other were $0.03 higher compared to the prior year.
Factors driving earnings results at corporate and other primarily included lower overall corporate expenses and other factors not individually significant.
Turning to Slide 11.
We outlined the trends we observed in weather-normalized sales for each segment by customer class since the beginning of the pandemic.
Overall, lower demand in the C&I sectors continued to be partially offset by higher residential load in each of our service territories.
We also experienced a steady recovery in the C&I space as certain restrictions were eased during the year.
In Pennsylvania, residential usage steadily declined following the sharp spike we experienced at the onset of COVID, yet remains up about 3.5% compared to last year, signaling strong demand from customers still working from home.
As for the C&I sector, we saw incremental recovery from the lows experienced in the second quarter.
And by year-end, we're tracking less than 3% behind prior year levels.
The largest declines remain primarily in the retail trade and services industry, which we expect will remain depressed until restrictions are lifted.
In Kentucky, residential usage was up about 7% in Q4 compared to the last year, consistent with what we experienced in Q3.
We continue to experience a moderate recovery in the C&I sectors in Kentucky, up substantially from the second quarter.
C&I volumes were down 3.5% from last year's usage in Q4, which was an improvement from the 7% decline observed during Q3.
Similar to Pennsylvania, the largest declines in the C&I sector continue to be seen in the services industry.
However, sales to the manufacturing sector returned closer to the 2019 levels in Q4.
And finally, in the U.K., residential usage also remained higher, with volumes being up about 6% compared to last year.
C&I sectors has lagged our domestic jurisdictions overall, but has continued to make a strong comeback, down about 9% versus the prior year, a substantial improvement from the second-quarter lows of over 20%.
While additional incremental lockdowns were put in place during the fourth quarter, these impacts did not restrict the construction and housing industries, and we have not seen a slowdown in operational activity in these sectors.
And as a reminder, any revenue shortfall in the 2020-2021 regulatory year will be recovered by WPD in the 2022-2023 regulatory year adjusted for inflation.
Before I briefly highlight our 2021 strategic priorities, I just want to reiterate how proud I am of what we were able to achieve in 2020 under truly remarkable circumstances.
Operationally, we didn't miss a beat, delivering very strong results.
Financially, we overcame stiff headwinds to achieve our earnings guidance and returned capital to share owners.
Internally, I saw our businesses collaborate like never before, as we worked to keep each other safe and tackle COVID-19.
And at the end of the day, I truly believe we made a positive impact on society, and that's the common purpose that really unites employees at all levels across PPL.
In 2020, we demonstrated PPL's tremendous resilience and agility.
And as I've shared with our employees, I truly believe we will emerge from this pandemic stronger and more united than ever before.
With that in mind, our clear focus moving forward is on delivering long-term value for our customers and our share owners.
In 2021, that includes completing the process to sell our U.K. utility business and repositioning PPL as a purely U.S.-focused utility company.
I'm pleased to report that the process to sell WPD remains on track, and we continue to expect to announce a transaction in the first half of this year.
As we shared previously, we believe the sale of the U.K. business will simplify our business mix, strengthen our balance sheet and enhance the company's long-term earnings growth rate.
In addition, we believe it will give the company greater financial flexibility to invest in sustainable energy solutions.
Another top priority of ours this year is, as always, delivering electricity and natural gas safely, reliably and affordably.
No job we do is more important than that.
And this year, we will remain focused on continuous improvement, innovation, benchmarking and best practice sharing as we seek to once again deliver industry-leading operational performance and provide a superior customer experience.
Other notable priorities for 2021 include advancing our clean energy strategy and reducing PPL's carbon footprint, further enhancing the DEI culture I spoke about earlier and building strong communities through philanthropy, volunteerism and customer assistance.
In conclusion, as we look to 2021 and beyond, I'm excited about the opportunity we have to reposition PPL for future success.
And I'm confident we will continue to deliver long-term value for our customers, our share owners and the communities we serve.

user
sees fy 2020 earnings per share $2.40 to $2.60.
qtrly earnings from ongoing operations per share $0.59.
not providing future earnings guidance at this time as a result of formal process to sell its u.k. utility business.
expects to announce a transaction regarding u.k. utility business in the first half of 2021.

assistant