PPL Corporation — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. The combined filing also reports for PPL Electric Utilities, Louisville Gas and Electric (LG&E), and Kentucky Utilities (KU). Unless noted, PPL consolidated amounts are in millions of dollars.
Business context
PPL is a regulated utility holding company. Its continuing operations serve customers in Pennsylvania and Kentucky: PPL Electric provides electricity transmission and distribution in Pennsylvania; LG&E and KU provide regulated electric service in Kentucky, with LG&E also distributing natural gas and KU serving parts of Virginia. PPL completed the sale of its U.K. utility business on June 14, 2021, reshaping the company around U.S. regulated utilities.
Financial and operating results
| Metric | 2021 | 2020 |
|---|---|---|
| Operating revenue | $5,783 | $5,474 |
| Operating income | $1,424 | $1,586 |
| Income from continuing operations, after tax | $18 | $640 |
| Net income (loss) | $(1,480) | $1,469 |
| Diluted EPS | $(1.93) | $1.91 |
| Earnings from ongoing operations, non-GAAP | $806 | $774 |
| Cash from operating activities | $2,270 | $2,746 |
| Cash from operating activities, continuing operations | $1,544 | $1,872 |
2021 net loss primarily reflects the U.K. sale: the transaction produced a $1,609 pre-tax loss, recorded in discontinued operations. Results also included a $395 debt-extinguishment loss, a $37 solar-panel impairment, and a $383 deferred tax expense related to the U.K. tax-rate change. The non-GAAP ongoing-earnings measure excludes special items; it increased 4% year over year.
Segment indicators: Kentucky adjusted gross margins, a non-GAAP measure, rose to $2,255 from $2,081, largely due to new rates and higher recoveries. Pennsylvania adjusted gross margins were $1,589 in both years; lower transmission returns and billing factors offset returns on new investment. These figures are not GAAP operating margins.
Cash flow from investing activities was $7,957, including $10,560 of net proceeds from the U.K. sale; financing activities used $7,390. Year-end cash and cash equivalents were $3,571. PPL reported long-term debt of $11,140 including current maturities, plus $69 of short-term debt. Its credit facilities totaled $2,850, with $2,780 unused at year-end. PPL’s credit-facility debt-to-capitalization covenant limit was 70%; the registrants reported compliance.
Material changes versus 2020
- Revenue rose $309, but operating income fell $162 as operating expenses increased $471, including higher fuel, purchased energy, maintenance, and depreciation.
- Continuing-operations income fell $622; net income swung from profit to loss because the U.K. disposal and related discontinued-operation effects dominated the year-over-year comparison.
- PPL received $10.4 billion of net U.K. sale proceeds after taxes and fees. It used cash for debt reduction and other capital-allocation priorities, including $1.0 billion of share repurchases (34.8 million shares).
- PPL Capital Funding retired or tendered $3.484 billion of debt principal, paying $3.883 billion and recording a $395 million extinguishment loss. PPL’s reported long-term debt declined from $14,689 to $11,140.
- Domestic utility earnings from ongoing operations diverged: Kentucky increased to $465 from $423, while Pennsylvania declined to $465 from $498.
Outlook, management commentary, and risks
- Capital spending: PPL expected approximately $2.0 billion of capital expenditures in 2022 and $3.7–$4.2 billion for 2023–2024. Plans exclude Narragansett Electric and were subject to market and regulatory conditions.
- Narragansett acquisition: PPL agreed to acquire the Rhode Island utility for approximately $3.8 billion in cash, expected to be funded from U.K. sale proceeds. At the filing date, required approvals remained outstanding, including a pending appeal related to a Massachusetts waiver and an anticipated Rhode Island order. Closing was not subject to a financing condition.
- Kentucky rates: Approved orders provided for $207 million in annual revenue increases, with a 9.425% authorized ROE, and a four-year commitment not to seek effective base-rate increases before July 1, 2025, subject to exceptions. The orders approved advanced metering deployment and a retired-asset recovery rider.
- Pennsylvania transmission rates: A FERC-approved settlement reduced PPL Electric’s base ROE from 11.18% to 9.90% through May 2022, then to 9.95% and 10.00% on scheduled dates. PPL Electric recorded a $78 million 2021 revenue reduction, including $73 million subject to customer refund.
- Generation transition: PPL targets net-zero carbon emissions by 2050 and reported nearly 60% lower carbon emissions through 2020 versus 2010. LG&E expected to retire Mill Creek Unit 1 in 2024; Mill Creek Unit 2 and KU’s Brown Unit 3 were expected to retire in 2028. Recovery of remaining book value is expected through the approved rider.
- Capital returns: PPL’s annualized dividend was $1.66 per share at year-end; on February 18, 2022, it announced a quarterly dividend of $0.20 per share. Future dividends remain subject to Board discretion and financial, legal, and other factors.
- Key risks: Rate recovery and regulatory decisions; environmental compliance and coal ash closure costs; fuel and supply-chain availability; extreme weather and climate-related effects; cyber threats; interest rates and access to capital; pension and health-care costs; COVID-19 impacts; and the outcome of litigation. Management said COVID-19 had not materially affected operations, liquidity, or supply chains to date, but uncertainty remained.
- Contingencies and controls: PPL could not estimate potential losses in the Talen-related litigation, which it said could be material. The auditor issued an unqualified opinion on the financial statements and PPL’s internal controls; management reported effective disclosure controls and financial-reporting controls.
Important facts for investors to verify
- Reconcile the $1.609 billion pre-tax U.K. sale loss and other special items to GAAP net loss, and assess the comparability and calculation of non-GAAP ongoing earnings.
- Confirm the status, final terms, and financing and integration consequences of the Narragansett acquisition, including resolution of remaining regulatory reviews and appeals.
- Track realized recovery under the Kentucky rate orders and PPL Electric’s transmission ROE settlement, including the customer refund and effects on future revenue.
- Evaluate planned capital expenditures, debt maturities, cash deployment, remaining share-repurchase authorization, and the sustainability of the revised dividend.
- Assess exposure to coal-ash and other environmental obligations, proposed generation retirements, and whether related costs receive timely rate recovery.
- Review the latest developments and potential financial exposure in the Talen litigation and other disclosed legal and regulatory matters.