PPL Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The combined filing also reports for PPL Electric, Louisville Gas and Electric (LG&E), and Kentucky Utilities (KU). Amounts are in millions of dollars except per-share data. Results are unaudited.
Business context and financial results
PPL is a regulated utility holding company operating in Pennsylvania, Kentucky, and Rhode Island. Its reportable segments are Kentucky Regulated, Pennsylvania Regulated, and Rhode Island Regulated.
| PPL consolidated metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Operating revenue | $2,304 | $2,415 |
| Operating income | $545 | $498 |
| Net income | $307 | $285 |
| Diluted EPS | $0.42 | $0.39 |
| Operating cash flow | $282 | $430 |
| Capital expenditures for property, plant and equipment | $596 | $499 |
Operating margin was approximately 23.7%, up from 20.6% a year earlier. Operating cash flow less property, plant and equipment expenditures was negative $314 million, compared with negative $69 million in Q1 2023; this is a simple calculation, not a company-reported non-GAAP measure.
At March 31, PPL reported cash and cash equivalents of $276 million, short-term debt of $291 million, long-term debt of $15.753 billion, and total assets of $39.631 billion. Long-term debt increased from $14.611 billion at year-end 2023; short-term debt declined from $992 million. The company reported $2.608 billion of unused external credit-facility capacity, including commercial paper and letters of credit in the facilities’ availability calculation.
Management’s non-GAAP Earnings from Ongoing Operations rose to $402 million from $352 million. Segment net income was $190 million in Kentucky, $149 million in Pennsylvania, and $64 million in Rhode Island; Corporate and Other had a $96 million loss.
Material changes versus Q1 2023
- Revenue decreased $111 million, principally because PPL Electric had $156 million less Provider of Last Resort (PLR) revenue, reflecting fewer PLR customers and lower energy prices. Lower energy-purchase costs largely offset the revenue decline.
- Operating expenses fell $158 million, including a $214 million reduction in energy purchases, partly offset by $67 million higher operation and maintenance expense. Operating income increased $47 million and net income increased $22 million.
- O&M expense included higher RIE gas maintenance and energy-efficiency costs, PPL Electric billing-related costs, and RIE transition costs. Interest expense increased $15 million, primarily due to higher borrowings.
- Operating cash flow fell $148 million, mainly due to working-capital movements, including lower accounts payable and other current liabilities. Capital spending increased $97 million.
- Q1 2024 GAAP results included $95 million of after-tax special-item expenses, chiefly RIE acquisition integration costs and PPL Electric billing costs. Management excludes these items from its ongoing-earnings measure.
Liquidity, subsidiaries, and financing
PPL issued $500 million of RIE senior notes at 5.35% due 2034; PPL Electric issued $650 million of first mortgage bonds at 4.85% due 2034. PPL declared a quarterly dividend of $0.2575 per share, equivalent to $1.03 annually. No credit-rating actions had occurred since June 2023.
Subsidiary net income increased year over year: PPL Electric $149 million versus $138 million; LG&E $93 million versus $86 million; and KU $108 million versus $88 million. PPL Electric’s operating cash flow was $28 million, while it funded a $554 million affiliate note receivable. LG&E operating cash flow declined to $166 million from $264 million, primarily due to working-capital changes; KU’s increased to $252 million from $214 million.
Outlook, commentary, and risks
- The filing provides no clear PPL consolidated earnings or EPS guidance for 2024. Management cautions that interim results are not necessarily indicative of full-year results and that utility earnings can be affected by seasonality and other factors.
- LG&E and KU began construction agreements for Mill Creek Unit 5, a 640 MW natural-gas combined-cycle facility estimated to cost approximately $1.0 billion including AFUDC, with commercial operation anticipated in mid-2027. Mill Creek Unit 1 is expected to retire in 2024; Unit 2 is expected to retire in 2027, subject to conditions.
- Rhode Island regulators approved FY 2025 infrastructure, safety, and reliability plans, including $168 million of gas capital investment and $132 million of electric capital investment, plus specified operating costs. RIE’s approved advanced-metering program has a multiyear recovery cap of approximately $153 million, subject to conditions.
- After quarter-end, KU filed for an approximately $9 million annual Virginia base-rate increase, subject to review, with proposed rates effective February 1, 2025. PPL Electric also petitioned to raise its distribution-system improvement charge cap from 5% to 9% for bills from January 2025; approval is pending.
- PPL Electric incurred $15 million of billing-issue costs in Q1 2024 and will not seek regulatory recovery. A proposed settlement included a $1 million payment, subsequently proposed by the regulator after quarter-end to be converted to a hardship-fund donation, plus remediation reporting; final approval and acceptance of modifications remained pending in the filing.
- LG&E and KU face a Kentucky investigation into brief customer interruptions during Winter Storm Elliott; the companies said they cannot predict the outcome and could not estimate any impact. RIE faces an investigation into historical energy-efficiency incentive reporting; potential penalties and additional liabilities were not quantifiable.
- Environmental rule changes are a notable uncertainty. New EPA rules concerning wastewater, coal-combustion residuals, air pollutants, and greenhouse-gas emissions could require additional controls or operational changes, particularly for Kentucky generation. Costs are expected in many cases to be eligible for rate recovery, but the timing and extent of recovery are uncertain.
- Other risks include regulatory and rate-case outcomes, weather and demand, fuel and supply-chain costs, interest rates, cyberattacks, credit and counterparty exposure, and environmental remediation. PPL reported RIE environmental remediation liabilities of $98 million, generally expected to be recovered through rates over time.
Most important facts for investors to verify
- Whether the improvement in GAAP earnings and ongoing earnings persists after excluding special items, especially RIE integration costs and PPL Electric billing expenses.
- Whether cash generation improves: Q1 operating cash flow declined materially while capital expenditures increased.
- How debt issuance, interest costs, and the large investment program affect leverage, financing needs, and dividend coverage.
- Regulatory outcomes and recoverability of costs, including PPL Electric billing remediation, its DSIC-cap petition, KU’s Virginia rate request, and the Rhode Island proceedings.
- The eventual compliance costs and customer-rate recovery associated with new environmental requirements and the Mill Creek Unit 5 project.