PPL Corporation 2026 Q2 Earnings Call

Thank you for joining PPL Corporation's conference call on second quarter 2026 financial results. We provided presentation materials on the investor section of our website. This morning, you will hear from Vince Sorgi, PPL President and CEO, and Joe Bergstein, Chief Financial Officer. We will conclude with a Q&A session following our prepared remarks. Before we get started, please turn to Slide two for our cautionary statement. Today's presentation contains forward-looking statements subject to risks and uncertainties. Actual results may differ materially. Please refer to our SEC filings and the appendix for additional information. We will also refer to non-GAAP measures, including earnings from ongoing operations. Reconciliations to the corresponding GAAP measures are provided in the appendix. I will now turn the call over to Vince.

Thank you, Andy. Good morning, everyone. Let us begin on Slide four with an overview of our second quarter performance. Q2 was another quarter of disciplined execution, supporting our 2026 commitments while strengthening confidence in our long-term outlook. Today, we reported ongoing earnings of $0.33 per share. Based on our results through the first half of the year and our expectations for the remainder of 2026, we are reaffirming our ongoing earnings forecast range of $1.90-$1.98 per share, with a midpoint of $1.94 per share. We expect stronger earnings growth in the second half of the year, supported by rate case outcomes in both Pennsylvania and Rhode Island, with Pennsylvania rates effective July 1st and Rhode Island rates expected to be effective September 1st.

We are on pace to deploy approximately $5 billion of capital investments in 2026 to support the delivery of safe, reliable, and affordable energy service. As our investment plan has expanded, our teams have continued to demonstrate the ability to execute these programs safely, efficiently, and on schedule. Longer term, we continue to project $23 billion of capital investment needs through 2029, supporting average annual rate-based growth of over 10%. We also reaffirmed our long-term financial targets, including 6%-8% annual EPS growth through at least 2029, with compound annual growth expected to be near the top end of that range, 4%-6% annual dividend growth, and FFO to debt of 16%-18%. Importantly, these targets exclude any contribution from Invitium Energy, our joint venture with Blackstone, which represents meaningful long-term earnings and cash flow upside beyond the current plan.

Turning to Slide 5 for a more comprehensive regulatory update. Coming into 2026, we had base rate case proceedings underway in all three of our primary jurisdictions. These rate case filings were after significant periods of stay out, ranging from five years in Kentucky, eight years in Rhode Island, and over 10 years in Pennsylvania. We made excellent progress in these proceedings during the second quarter, continuing to achieve constructive outcomes that de-risk our plan. In Pennsylvania, PPL Electric's rate case settlement became effective July 1st, with a positive outcome for both customers and share owners. The approved increase of $275 million supports critical investments we are making while reflecting less than a 4% increase across all of our rate classes. Importantly, even after our recent rate adjustment, PPL Electric's delivery rates remain nearly 20% below the latest published state average.

This outcome reflects the benefits of our Utility of the Future strategy that prioritizes system hardening, disciplined cost management, strategic use of technology, constructive engagement with stakeholders, and a strong focus on affordability. The settlement also includes a two-year stay out provision. Through the continued use of the DIS mechanism and disciplined cost management, we will target remaining out of base rate cases beyond that period. In Kentucky, we're awaiting the commission's decision on our reconsideration request following another thorough and constructive regulatory process. While we believe the original KPSC decision allows us to deliver on our overall plan objectives, we believe there were some flaws in that decision that require reconsideration by the KPSC. We appreciate the commission's thoughtful review of our filing and continue to believe the investments and mechanisms supporting this filing are important to maintaining safe, reliable, and increasingly resilient service to our customers.

We've requested a decision from the KPSC by August 14th. Turning to Rhode Island, our base rate case proceeding remains on track. Hearings were completed in mid-July. Briefs have been filed, and public meetings are scheduled for August 12th to the 20th. New rates are expected to become effective September 1st. As mentioned earlier, this is the first base rate increase Rhode Island Energy has requested in eight years and builds on the significant reliability improvements we've achieved since our acquisition of the utility back in 2022. The filing supports the continued investment needed to strengthen the system and prepare for frequent and severe weather events and continue distributed renewable deployment in the state. We also continue to make progress with our hold harmless bill credit proposal, which is being considered in parallel with the broader rate case proceeding.

As a reminder, we've proposed accelerating customer bill credits associated with the deferred tax hold harmless commitment that we made when we acquired Rhode Island Energy. If approved, the credits would significantly offset the impact of the requested base rate increase for customers. This is another example of our balanced approach to affordability and investment, proposing creative solutions to help moderate customer bill impacts while continuing to invest in system reliability and resilience. Overall, these proceedings highlight the effectiveness of our regulatory strategy and provide a stronger foundation for continued investment. Moving to slide six. Against the backdrop of increasing national scrutiny around data center development, our Pennsylvania service territory continues to stand out because of its strong transmission reliability and access, proximity to major demand centers, and disciplined customer protections.

Signed data center agreements with PPL Electric Utilities increased for the 10th consecutive quarter to about 32 GW, an increase of 3.5 GW from last quarter, with over a gigawatt coming from signed electric services agreements or ESAs. We now have more than 11 GW under ESAs, which carry meaningful financial commitments from the customer, which I'll cover in more detail in a few slides. We also continue to see these projects enter the construction phase, with more than 6.5 GW now under construction. During the quarter, two of these data centers began taking utility service, which are expected to ramp to about 2 GW of load by 2031. This continued progression from agreement to construction to taking service is improving our line of sight into future infrastructure and generation needs, including from our Invitium Energy joint venture with Blackstone.

Turning to slide seven. Our Invitium joint venture continues to make progress across a number of critical paths. Ratepayer protection pledges and PJM's recent FERC proposal reinforce the need for new generation to serve large load customers. While strong data center activity in PPL Electric Utilities service territory is expanding the opportunity for long-term energy supply services agreements or ESSAs. During the quarter, we continued to move the joint venture from concept to execution. We now have strategic land sites capable of supporting between 8 and 14 GW of new generation, depending on the technology selected, and we are continuing to build our inventory of viable sites. We have over 5 GW of new CCGT generation that has been accepted in the PJM Interconnection queue. We also have over 5 GW of reservation agreements for combined cycle gas turbines.

Using the market consensus project cost of approximately $2,500-$3,000 per kW, that 5 GW represents between $12.5 billion-$15 billion of potential future investment through 2032, of which PPL's share would be 51%. Collectively, these milestones give us increasing confidence that Invitium can support contracted growth and create incremental value for shareowners. While we do not expect the earnings contributions from the JV to be material through 2030, batteries or other shorter lead time technologies could begin contributing earnings in 2029 or 2030, which could enhance our projected EPS growth rate above the top end of our 6%-8% range. We would expect more meaningful earnings and cash flows when the CCGTs come online, which could be as early as the 2031, 2032 timeframe.

As we've said, we will not move forward with construction or make material financial commitments until we have executed ESSAs with appropriate risk profiles in those contracts or have cost reimbursement agreements in place. Based on progress to date, we expect to have one or more commercial agreements by year-end. Turning to slide eight. Kentucky also continues to see strong economic development activity. The current development pipeline has expanded to 13.7 GW of potential load growth, with data center demand representing 11.6 GW and manufacturing and other non-data center projects totaling 2.1 GW. This is an increase of roughly 800 MW from last quarter. Of that pipeline, approximately 1.3 GW is now supported by signed reimbursement agreements, up from approximately 900 MW in the first quarter.

Our updated probability weighted projections now indicate 3.7 gigawatts of expected new load by 2032, more than double the amount reflected in our 2025 CPCN filing. That demand is making it even more likely that we will need to file a CPCN for additional generation resources by year-end. Potential resources for the CPCN include the 266-megawatt Lewis Ridge Pumped Storage Project, the 400 megawatts of batteries that were deferred in the 2025 CPCN, and additional natural gas combined cycle generation. While we won't know the exact resource mix until we file the next CPCN, those projects represent an incremental $3.5 billion-$4 billion of potential investment to be incurred between 2027 and 2032.

As you can see, Kentucky is emerging as a significant platform for incremental growth, which is why we've been so focused on large load tariff protections designed to preserve affordability for our existing customers. Let's turn to slide nine for a discussion on how those large load tariffs are protecting our customers. The tariffs approved in Pennsylvania and Kentucky are grounded in a simple principle. Large load customers pay their own way with enforceable provisions that protect existing customers from cost shifts. First, these tariffs require long contracts with a minimum term of 10 years in Pennsylvania and 15 years in Kentucky. Kentucky's term is longer because of the fully integrated business model with generation resources as well. Second, customers commit to guaranteed payments of at least 80% of the capacity they reserve, whether they use it or not. Third, we require collateral upfront.