PPL Corporation — Q2 2023 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023. The combined filing also covers PPL Electric, Louisville Gas and Electric (LG&E), and Kentucky Utilities (KU). PPL operates regulated utilities in Pennsylvania, Kentucky, and Rhode Island. Rhode Island Energy (RIE) was acquired on May 25, 2022, so the prior-year comparison includes only a partial period of RIE operations.
Financial performance
| PPL consolidated | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Operating revenue | $1.823B | $1.696B | $4.238B | $3.478B |
| Operating income | $305M | $243M | $803M | $697M |
| Net income | $112M | $119M | $397M | $392M |
| Diluted EPS | $0.15 | $0.16 | $0.54 | $0.53 |
| Operating cash flow | Not provided by quarter | $842M | $979M |
First-half revenue increased 22%, while net income rose 1%. Revenue growth largely reflects the addition of RIE; excluding this acquisition effect, performance varied by utility. Q2 net income declined 6% year over year. First-half operating margin was approximately 18.9%, versus 20.0% in 2022; net margin was approximately 9.4%, versus 11.3%. These margins are calculated from reported revenue and income.
First-half segment net income was $257M in Kentucky (down $44M), $248M in Pennsylvania (down $19M), $64M in Rhode Island (versus a $29M loss), and a $172M loss in Corporate and Other (versus a $147M loss). Management’s non-GAAP Earnings from Ongoing Operations were $567M, or $0.77 per share, versus $527M, or $0.72 per share, for the first half. Q2 ongoing earnings were $215M versus $222M. Management excludes designated special items from this measure.
First-half operating cash flow was $842M, and property, plant and equipment expenditures were $1.090B, implying approximately $248M of cash outflow after capital expenditures. Cash and cash equivalents were $326M at June 30. Long-term debt was $14.481B, with $91M due within one year and $243M of short-term debt. Total committed external credit capacity was $2.9B, of which $2.656B was unused after letters of credit and commercial paper. PPL paid $348M of common dividends in the first half.
Material changes and financing
- First-half operating cash flow fell $137M year over year, mainly reflecting working-capital movements and other operating activity. Capital expenditures rose to $1.090B from $1.009B.
- Interest expense increased to $329M from $225M in the first half, primarily because of increased borrowings and higher borrowing rates. PPL issued $1.0B of 2.875% exchangeable notes due 2028. PPL Electric, LG&E, and KU also issued long-term bonds and repaid or refinanced term loans and other debt.
- PPL’s first-half GAAP net income was nearly flat, while ongoing earnings improved; the comparison includes acquisition-related integration costs and other items treated as special by management.
- At the individual utilities, first-half net income was $248M at PPL Electric (down $19M), $131M at LG&E (down $16M), and $139M at KU (down $34M). Kentucky results were affected by lower sales volumes, primarily due to weather; Pennsylvania results reflected higher energy prices and customer volumes in the Provider of Last Resort business, partly offset by weather-related lower volumes.
Outlook, risks, and unusual items
- The filing does not provide a clear full-year earnings or revenue guidance range. PPL reiterated its strategy of investing in regulated infrastructure, maintaining affordability and reliability, and pursuing a net-zero carbon emissions goal by 2050, with stated interim emissions-reduction targets.
- LG&E and KU are seeking regulatory approval for two 621 MW natural-gas combined-cycle facilities, solar projects, a 125 MW battery-storage facility, demand-side management programs, and planned coal-unit retirements. The KPSC had indicated an order on the consolidated proceedings was expected by November 6, 2023; outcomes remain uncertain.
- March 2023 storms caused $75M of costs at LG&E and KU. The KPSC approved regulatory-asset accounting for certain extraordinary operating costs, but recovery is to be considered in future base-rate cases. Recorded storm-related regulatory assets were $8M at LG&E and $11M at KU at June 30.
- A FERC order requires LG&E and KU to refund certain transmission credits. They recorded $3M and $8M, respectively, in regulatory liabilities; they appealed, and management did not expect the annual impact to be material.
- PPL Electric faces a Pennsylvania regulator investigation into estimated bills and customer-service issues. PPL said it could not predict the outcome. Talen-related litigation seeks recovery of approximately $900M of historical proceeds; PPL says it has meritorious defenses but cannot estimate potential losses, which could be material.
- Environmental requirements concerning coal ash, wastewater, air emissions, and greenhouse gases could require additional operating or capital costs. The filing says costs are generally expected to be recoverable through rates, but recovery and final impacts depend on future regulatory action.
- RIE’s proposed offshore-wind bid was not selected to proceed, as announced July 18, 2023, after the quarter ended. Other Rhode Island rate, infrastructure, and regulatory proceedings remain pending.
- RIE incurred substantial acquisition-transition expenses; PPL reported $134M of first-half after-tax acquisition-integration special items. The filing also identifies a $4M after-tax adjustment related to the 2022 Safari Holdings sale in the first half.
Investor facts to verify
- How much of PPL’s reported revenue and earnings growth reflects the full-period inclusion of RIE versus underlying utility performance?
- What are the timing, final cost, and rate-recovery outcomes for the Kentucky generation plan, storm costs, and FERC-ordered refunds?
- How do higher debt balances and interest costs affect future earnings, cash generation, and credit metrics?
- What is the potential exposure from Talen litigation and environmental obligations, particularly as regulations and estimates evolve?
- What full-year earnings, capital-spending, and cash-flow expectations does management provide outside this filing?