PPL Corporation — FY 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Unless noted, financial amounts are in U.S. dollars; PPL’s results include Rhode Island Energy (RIE) from its May 25, 2022 acquisition.
Business context
PPL is a regulated utility holding company serving customers in Pennsylvania, Kentucky, Virginia and Rhode Island. Its businesses deliver electricity and natural gas; LG&E and KU also generate electricity. The filing includes separate reports for PPL Electric, LG&E and KU.
Financial and operating highlights
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Operating revenue | $7.902 billion | $5.783 billion |
| Operating income | $1.374 billion | $1.424 billion |
| Income from continuing operations | $714 million | $18 million |
| Net income (loss) | $756 million | $(1.480) billion |
| Diluted EPS | $1.02 | $(1.93) |
| Management’s non-GAAP earnings from ongoing operations | $1.041 billion | $806 million |
| Cash from continuing operating activities | $1.730 billion | $1.544 billion |
Revenue rose $2.119 billion, reflecting the addition of RIE, higher Pennsylvania provider-of-last-resort (PLR) revenue and higher fuel and energy-cost recoveries. Operating income nevertheless declined $50 million as operating expenses increased. Net income’s sharp year-over-year improvement is not a like-for-like operating comparison: 2021 included a large loss from the U.K. business sale in discontinued operations, while 2022 included RIE and other special items.
- Segment net income: Kentucky Regulated $507 million (2021: $468 million); Pennsylvania Regulated $525 million (2021: $445 million); Rhode Island Regulated loss of $44 million, including acquisition-related items.
- Segment ongoing earnings: Kentucky $515 million, Pennsylvania $516 million and Rhode Island $65 million; total ongoing earnings were $1.041 billion. These are non-GAAP measures defined by management.
- Adjusted gross margins: Kentucky $2.460 billion (up $205 million); Pennsylvania $1.701 billion (up $112 million); Rhode Island $441 million from the acquisition-period contribution.
- Cash and liquidity: Year-end cash was $356 million, down from $3.571 billion. Current assets were $2.824 billion versus current liabilities of $3.789 billion. PPL reported $985 million of short-term debt and $12.889 billion of long-term debt, excluding current maturities.
- Cash uses and financing: Continuing operating cash flow was $1.730 billion; PP&E expenditures were $2.155 billion. Investing activities used $5.654 billion, including $3.660 billion for the RIE acquisition, net of acquired cash. PPL had $3.750 billion of committed credit facilities, with $1.912 billion unused at year-end; the registrants reported compliance with facility covenants.
- Debt and capital needs: PPL’s total long-term debt carrying amount was $13.243 billion, including $354 million due within one year. Planned PPL capital expenditures for 2023–2025 total $8.517 billion, including $2.386 billion in 2023; recovery for domestic utility investment depends on regulatory approval.
Material changes and notable items
- PPL acquired Narragansett Electric for approximately $3.8 billion cash and assumed $1.5 billion of debt. The acquisition added $1.586 billion of goodwill and expanded PPL’s regulated Rhode Island operations.
- RIE recorded substantial acquisition-related and transition costs. PPL estimates approximately $408 million of transition costs through June 30, 2024 that RIE will not seek to recover from customers; $181 million was expensed in 2022. RIE also issued $50 million in customer bill credits and forgave specified customer arrearages.
- PPL sold Safari Holdings in November 2022, recording a $60 million pretax loss ($46 million after tax) and writing off $53 million of goodwill.
- Operating revenue, energy purchases and fuel expense increased substantially, in part because of higher commodity prices and the addition of RIE. Pennsylvania PLR revenue increased $520 million, while associated energy purchases also increased.
- 2022 diluted EPS included continuing operations of $0.96 and discontinued operations of $0.06. FY 2021 results included the U.K. utility business sale and related discontinued-operation loss; the U.K. sale proceeds had funded the RIE acquisition.
Outlook, risks and contingencies
- Strategy and investment: PPL emphasizes regulated utility investment, reliability, affordability and a net-zero carbon emissions goal by 2050. Management expects planned domestic utility capital costs to be recovered through rates, subject to approval; no clear consolidated earnings guidance is provided in the filing text.
- Kentucky generation plan: LG&E and KU sought approval for two 621 MW natural-gas combined-cycle units, two 120 MWac solar facilities, a 125 MW battery-storage project, demand-side programs and related solar power-purchase arrangements. The KPSC accepted the filing in January 2023 and anticipated an order by November 2023; approval and cost recovery were uncertain at filing.
- Coal retirements and environmental exposure: Planned retirements include Mill Creek Unit 1 in 2024, Mill Creek Unit 2 in 2027, and E.W. Brown Unit 3 and Ghent Unit 2 in 2028. Environmental rules, coal-combustion-residual requirements and potential emissions controls may drive costs; recovery through rates is expected but not assured.
- Regulatory and customer matters: A Pennsylvania regulator opened an investigation into estimated and irregular bills and customer-service concerns after a technical system issue. PPL Electric said it would cooperate; the outcome was uncertain. RIE’s acquisition commitments delay a base-rate case seeking increases until at least three years after closing, subject to stated conditions.
- Litigation: PPL is defending claims over a 2014 transfer of proceeds from a former subsidiary’s hydroelectric asset sale. PPL says it has meritorious defenses, but cannot estimate potential losses, which could be material.
- Other exposures: Risks include rate-case outcomes and recovery of regulatory assets, interest rates and access to capital, severe weather, cybersecurity, fuel and supplier availability, pension assumptions, and environmental or pipeline obligations. PPL’s recorded regulatory assets were $2.077 billion and regulatory liabilities $3.650 billion at year-end.
- Controls and audit: Deloitte issued unqualified opinions on PPL’s financial statements and internal control over financial reporting. RIE was excluded from PPL’s formal controls assessment because of the acquisition’s timing and its integrated systems; PPL was still evaluating integration-related controls.
Important facts for investors to verify
- How much of the revenue and earnings increase reflects RIE, commodity pass-throughs, weather or sustainable rate-base growth; compare GAAP results with management’s non-GAAP ongoing earnings.
- Progress and final costs of RIE integration, including the non-recoverable transition spending, and the timing and conditions for its next base-rate case.
- KPSC decisions on the proposed Kentucky generation, solar, storage and demand-side projects, including approvals, schedule, financing and rate recovery.
- Developments in the Pennsylvania billing investigation and the Talen litigation, including any change in estimated exposure.
- Liquidity and refinancing needs against debt maturities, higher short-term borrowing and the planned $8.517 billion capital program for 2023–2025.
- Whether environmental compliance, coal retirements and regulatory-asset recovery assumptions change materially, and whether RIE is brought into PPL’s financial-reporting control assessment.