Good day, and welcome to the PPL Corporation Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Andrew Ludwig, Vice President, Investor Relations. Please go ahead, sir.

Thank you. Good morning everyone and thank you for joining the PPL Corporation Second Quarter Investor Update. We have provided slides for this presentation and our earnings release issued this morning on the Investors section of our website. Before we get started, I'll draw your attention to Slide 2 and a brief cautionary statement. Our presentation and earnings release, which we will discuss during today's call, contain forward-looking statements about future operating results or other future events. Actual results may differ materially from these forward-looking statements. Please refer to the appendix of this presentation and PPL's SEC filings for a discussion of some of the factors that could cause actual results to differ from the forward-looking statements. We will also refer to non-GAAP measures, including earnings from ongoing operations and adjusted gross margins on this call. For reconciliations to the comparable GAAP measures, please refer to the appendix. Participating on our call this morning are Vince Sorgi, PPL President and CEO, Joe Bergstein, Chief Financial Officer, and Greg Dudkin, Chief Operating Officer. With that, I'll now turn the call over to Vince.

Thank you Andy, and good morning everyone. We appreciate you joining us for our second quarter investor update. Moving to Slide 3 in the agenda for today's call. I'll begin this morning with an overview of the exciting quarter we've had here at PPL, including an update on our strategic repositioning, our newly announced net-zero emissions goal, along with a brief operational update. Joe will then provide a detailed review of second quarter financial results, and walk through some recent actions we've taken to strengthen PPL's balance sheet. And as always, we'll leave ample time for your questions. Turning to Slide 4, the second quarter has been a busy one, as we continue to advance the strategic repositioning of the company. First, we completed the sale of our UK utility, achieving exceptional value for the business, and once again demonstrating our ability to deliver on our strategic priorities to maximize shareowner value. The sale resulted in net cash proceeds of $10.4 billion, which will support the repositioning of PPL as a high-growth U.S.-regulated utility company. As a reminder, we've earmarked $3.8 billion of those proceeds to acquire Narragansett Electric from National Grid. We also deployed some of the proceeds to achieve our previously stated objective of strengthening our balance sheet, utilizing $3.9 billion to retire $3.5 billion of outstanding holding company debt, which will provide the company with substantial financial flexibility. Regarding the remaining proceeds, we continue to review various options as previously discussed, including investing incremental capital at our utilities or in renewable energy, as well as the repurchase of PPL shares. On the topic of share repurchases, our Board recently authorized the company to repurchase up to $3 billion in PPL common stock. We currently expect to repurchase about $500 million by year-end, while we continue to assess…

Thank you Vince, and good morning everyone. Turning to Slide 10. Today we announce Second Quarter reported earnings of $0.03 per share. This reflects special item net losses of $0.16 per share, primarily related to a UK tax rate change, and a loss on the early extinguishment of debt, partially offset by earnings from the UK utility business that have been recorded as discontinued operations. I'll note that the tax-related item was a non-cash adjustment before the completion of the sale of WPD in June. Adjusting for these special items, the second-quarter earnings from ongoing operations were $0.19 per share compared with $0.20 per share a year ago. We remain encouraged by the economic recovery from the pandemic in both our Pennsylvania and Kentucky jurisdictions, which has resulted in continuously improving commercial and industrial sales. These higher sales were offset by several factors, which I will cover in the next slide. Let's move to Slide 11 for a more detailed look at our second quarter segment results. As a reminder, we've adjusted the 2020 corporate and other amounts to reflect certain costs previously reflected in the UK regulated segment, which was primarily interest expense. The total amount of these costs was about $0.02 per share for the Quarter. Turning to the ongoing segment results. Our Pennsylvania regulated segment results were $0.02 per share lower compared to a year ago. The decrease was primarily due to lower adjusted gross margins, driven by lower peak transmission demand as discussed in Q1 and consistent with our expectations, and an increase in the reserve recorded as a result of a challenge to the transmission-based return on equity. Partially offsetting these negative variances were increased returns on additional capital investments. We also experienced an additional $0.01 decline due to favorable tax-related items recorded in the…

Thank you, Joe. In summary, as we continue to execute our strategic priorities, I am incredibly excited about PPL's future. We continue to deliver electricity and natural gas safely, reliably, and affordably for our customers. We continue to evolve our clean energy strategy and drive innovation across our Company. We completed the sale of our UK utility business, achieving outstanding value for our shareowners. We're on track to close on our Narragansett acquisition within the expected timeframes. And the new PPL will emerge from our strategic repositioning, as a much stronger Company, one poised for long-term growth and success. With that Operator, let's open the call for questions.

Thank you. We will now begin the question and answer session. [Operator instructions] [Operator instructions]. Today's first question comes from Shar Pourreza with Guggenheim Partners. Please go ahead.

Hey, good morning, guys.

Morning Shar.

So first off, looking at the 2.5 billion that remains unallocated after the ‘21 buyback, how should we think about the timing of the allocation decision-making process? I mean, maybe put differently, how long will it take to evaluate the CapEx opportunity set across the footprint? What are the trigger points there, if any? Is it the Kentucky IRP? Is it Rhode Island closure? I mean, I guess, Vince, how long will you sit on it, and is the door completely closed on an outright regulated utility acquisition at this point? Maybe just give us a little bit of a sense of the background and the process that you just went through. Thanks.

Sure. You hit a lot in that question Shar. In terms of timing, I would say that we're not really setting an arbitrary timeline to complete this. We want to make sure that we're going through this process in a disciplined and diligent way as we always do, so not really setting an artificial timeline on that, but to your point, you mentioned many of the factors that really are going into the process. So we're in the middle right now of assessing the capital plans, including for Rhode Island once acquired, and we do see additional T&D opportunities across the utilities, Again, including Rhode Island, for the benefit of our customers to drive improved efficiency and resiliency of the networks, as well as additional gas LDC investments to further enhance the safety of those operations. And again, from a capital deployment perspective, we think deploying capital into the utilities can create significant value for all of our customers and our shareowners. A lot of work going on right now going through that. You mentioned having the closure of Rhode Island, that's obviously a key component of how we think about capital deployment moving forward within the utilities. In terms of timing, we'll want to see the closure of getting the deals on. You also mentioned the IRP in Kentucky, that as well as the Climate Assessment Report, will be key inputs into our Clean Energy strategy going forward, there could be some capital deployment opportunities coming out of that. I think you hit all the points in terms of the areas that we're looking at that will ultimately drive the organic use of the remaining proceeds. In terms of M&A, I would just say that first of all, we don't need M&A to hit the targets that we're -- that we are targeting from both earnings and a growth perspective, and we will continue to be disciplined as we look at M&A opportunities as we always have been. I'll just say that the current valuations that we're seeing in the market are quite high. The utilities are trading quite expensively right now. We didn't pay anywhere near some of those valuations for Rhode Island, and we continue to think the Rhode Island [Indiscernable] will drive value for our shareowners. It will be earnings accretive, credit accretive, and value accretive for our shareowners. So again, from our perspective, maintaining discipline is incredibly important and we'll continue to do that.

Got it. And not to paraphrase, it just sounds like your organic Capex opportunities are the best use of the residual cash flows versus coming out and doing something inorganic in this kind of a market.

Well, again, I would say, never say never, but it's not impossible to create value at these valuations, but it is tough. So we'll continue to look at inorganic opportunities, strategic opportunities, but again, maintaining that discipline as we think about capital deployment opportunities organically as I talked about, but also share buybacks as well.

Got it. And then just lastly from you Vince, what is the Board's decision mean for maybe the timing of the dividend adjustment, and just remind us on the targeted payout range in the long term. Thank you.

Yes. So we will come out with the dividend guidance and all of that once we close the Rhode Island transaction. At that point in time, we'll be able to come out with our earnings guidance, what's the growth rate, of the range on the growth rate for earnings. As we've indicated, we expect, once we adjust the dividend to a targeted payout of around 60% to 65%, we would expect to be able to grow that going forward in line with our earnings. And all of that will be communicated once we close the Rhode Island transaction.

Perfect thanks a lot and congrats on the execution. I'll pass it to someone else. Thank you.

Thank you Shar.

And our next question today comes from Durgesh Chopra with Evercore ISI. Please go ahead.

Hey, good morning team, and thanks for the update today. Maybe just going back to the use of proceeds, can you just talk -- one of the things the press release says Vince, is the opportunities organically with your current assets, maybe can you just elaborate on them. Where do you see those opportunities, Pennsylvania, Kentucky, Rhode Island all three, maybe just a little bit more color?

Yes. Thanks, Durgesh. I think we see opportunity across the entire portfolio once we acquire Rhode Island, of course, we need to get through the regulatory process in Rhode Island, we will be meeting with the Governor and the legislature up there, as well as the commission and regulatory bodies on putting together what we think the best investment plan moving forward for Rhode Island will be. We've talked about the Clean Energy aspirations that the state has, they are quite aggressive when you compare them to other states, which we completely think we can support with what we've been able to accomplish in Pennsylvania and be able to replicate that up there. I think for us Durgesh, it's really about working with the state stakeholders and identify how quickly they want to move on that and then how quickly can we deploy our operating model and keep it affordable for our customers. We see tremendous opportunity up there, but that's something that we'll be working on once we close the deal. Having said that, I think we see continued opportunity both in Pennsylvania and Kentucky to continue to bring those utilities along the utility of the futures curve and continue to make investments in PA and Kentucky as well. So those are the activities we're going through right now over the summer and we'll be in a position to communicate that again once the Rhode Island deal closes and we come out with the whole story.

Got it. Looks like opportunities are throughout your existing platform. Then maybe just I'm curious, 500 million this year in share buybacks. Why 500 million?

Yeah, we just thought that it struck a nice balance in terms of deploying the proceeds in an efficient manner, do some buybacks, but also provide us with the financial flexibility to continue to assess alternatives against further buyback. So we just felt that that was a nice balance, Durgesh. And again, we'll continue to look at the other opportunities between now and certainly closing of the deal, but potentially a little bit after that as well.

Got it. Okay. And then just to be clear, you had roughly 3.5 billion in proceeds left after the Narragansett acquisition. So with the 500 million shares back, you would have roughly 3 billion in excess cash to be deployed; is that correct?

No, I think it's closer to 2 billion to 2.5 billion.

That's right.

After the liability management.

And the buyback subject, yes. So after the --

And the buyback, yeah.

Right. Including liability management.

So 2 to 2.5?

Right.

Okay. Thank you very much.

Sure.

Sure.

And our next question today comes from Ryan Greenwald of BofA, please go ahead.

Hey guys, it's Julien on. Thanks again for the moment here. If I can go back and clarify the last couple of questions here. Just on timing, just to make sure we heard you right. You specifically designated 0.5 billion for '21, or at least the balance of the year here, as well as, if you think about the next few months, you should start to get some clarity on the CapEx? So when you think about that available capital here, you're going to get the clarity of what is “remaining” in the not-too-distant future? I just want to make sure at least from an available visibility perspective, you'll know pretty soon?

I mean, certainly we'll be working that through the summer, and through the business planning process, Julien. We, of course, need to take all that to the Board, get all that approved, and so in terms of publicly being able to disclose at an outset, still, I think that will coincide with the closing of the deal. If that happens before our year-end earnings call, as you know we normally would provide an update on the capital plans at our year-end call. If the deal goes beyond the year-end call, then certainly we would expect to provide that update then. But again, if the deal closes prior to the call, I think you could expect it in concert with the deal announcement and coming out with a news story, post-deal.

Got it. And just to clarify here, I mean, how do you think or rank a transmission asset versus distribution versus other asset types? I know we've talked about this before, but obviously, the market's been fairly volatile. And obviously, if you comment, fairly elevated across the number of these asset classes. So curious if that has driven any rethink. As well as, are you opening minority ownership in assets? I suspect that's equally robust in terms of valuations, but just figured I would throw it out there.

So T versus D versus other transmissions -- well, first of all, we think as long as the capital deployment serves our customers well and is providing value to our customers, we think that's a good use of capital across all of the business segments. The returns are still strong in all 3, are really in transmission and distribution, but also generation down in Kentucky, as well as gas. But transmission still has slightly higher ROEs than distribution. But again, we're not strained from an ability to finance capital perspective. So it's not like we're deciding whether we're going to do transmission versus distribution.

Got it. And the last one, just to clarify this. You went through your portfolio just now on the call a little bit, but the Kentucky Power, Mitchell update here, any read-throughs at all to your planning? Just want to make sure.

No.

Okay. All right. Excellent. Thank you all very much. All the best and I look forward to seeing what you have to say.

Sure. Thanks, Julien.

And our next question today comes from Paul Patterson with Glenrock Associates. Please go ahead.

Hey, good morning.

Hey, Paul.

Just first of all, on Rhode Island, do we have a procedural schedule? I haven't been able to locate one, I was just wondering, do you guys have any key dates on coming up here in Rhode Island?

We do not. The division has not yet put out the procedural schedule, Paul. So you're not missing it.

Okay. And then just finally on the EIP and your discussion on the call about technology, the need to find affordable solutions. Wondering if you could just elaborate a little bit further on this. The $50 million investment, is that all in the Elevate Fund, and just how should we think about the accounting on this, are you guys going to be expensing this, or capitalizing it, or how do we think about that?

Sure. So the -- it's not all going in the Elevate Fund, it is across multiple funds that are driving really the -- some of the funds are focused on the utility of the future and innovation in that space, smart technologies, and others. They're focused on decarbonization technologies, so EVs or energy storage or things like that. So really it cuts across multiple funds within the EIP platform. And from our perspective, the benefit of that, Paul, is that we get -- I mean, not only has EIP demonstrated positive returns in the fund, which takes what traditionally would be a cost center for a Company with R&D efforts, and potentially turn that into neutral to a positive return. But really the strategic value of getting in there is that we get broad feet so we have visibility into the technologies that are emerging in all of these different areas, as we think about the potential for demonstration projects, or just where we think the next breakthrough in technology will come. Whether that's on carbon capture or energy storage when you have long-duration storage technologies. Various different areas that we're looking at, as we think about getting to net-zero for not only the fleet but economy-wide.

So this -- should we think about this as being your primary vehicle for looking at technology or emerging technology R&D or you mentioned some other things, and I apologize, but I was slightly distracted when you were talking about it. You mentioned I think, EPRI and some other things. I mean, is there -- are you looking for additional investments in this area or? I mean, how should we just -- I'm just wondering how much of an initiative you are putting into this and also if there's any particular technology that you're finding particularly interesting or exciting.

Well, I would say that EIP is part of it. I wouldn't say it's necessarily the primary R&D avenue, but certainly, it's part of our strategy there. You talked about EPRI and the Low-Carbon Resources Initiative. So I have just recently taken over the Board Working Group Chair role for EPRI, and so we're integrally involved with the expert team in EPRI and looking at various different technologies. Again, as it relates to carbon capture, new nuclear, hydrogen, ammonia, all different types of decarbonization technology. Again, EPRI is focused on, what are the technological breakthroughs or the emerging technologies that are currently being looked at, but they're also assessing alternatives to those, and then identifying demonstration projects down the road to try to commercialize some of these newer technologies. And so we are actively engaged with them on all of that depending on how those things evolve, whether it's hydrogen for storage or even hydrogen blending for gas LVCs or combined cycle generation. There's a way to go, I think to prove all that out for hydrogen, but there's a lot of work and a lot of activity going on there. Carbon capture sequestration continues to be an area, again about 80% of the world's energy is coming from fossil fuels still, so for the globe to get to net-zero at some point, we think carbon capture will have to play a role in that, and so EPRI is spending some time on that as well. Again, nuclear, looking at different forms of nuclear modular unitso[, etc, could also play a role by making those units smaller and more adaptable. So a lot of things going on there, Paul, and I think we're -- our strategy is to make sure that we keep our finger on the pulse there. Again, we'll be retiring coal plants this decade and next. And so could there be potential opportunities for demonstration projects on some of those plants? We'll work with the state to see if there are opportunities there, as we think about again, Trimble County 2, which went into service in 2011. And so unless things change at the federal level where that plant will be forced to be shut, Our current projection is that it would continue to be economic in 2015, and so identifying these technological advancements to drive specifically that plant to net-zero. But again, you're going to have combined-cycle fleets that are part of the transition strategy that you've heard from me and many of my --

I think I understood. It's basically a finger on pulse kind of thing is how we should think about this as opposed to saying that we're going to see impacting earnings in any significant way in the next few years. Is that probably the best way to think about it?

Yes, I think so, certainly in the near term.

Okay. I do appreciate it. Thank you so much.

Sure.

[Operator instructions] Our next question comes from Steve Fleishman with Wolfe Research. Please go ahead.

Hi. Good morning. Thanks. Hey, Vince, just in thinking about I guess two things. One is in thinking about the potential for a more organic capital plan, you have this multi-year deal that you just did in Kentucky. So I'm just kind of curious about the regulatory mechanisms you have to recover and increase in CapEx if that happens over this period? And then secondly, how long are you willing to hold -- sometimes it's hard to raise CapEx to later in the plan, and you have this money up front and actually if you turn it into an actual rate-based number, 2.5 billion is 5 billion of rate-base, it's a lot of rate base. How should we think about how long you're willing to wait to put the money to work so to speak?

Sure. So I think, maybe I'll answer your second question first. We don't want to put an artificial timeline on the use of the proceeds. So the first step I think is getting through the detailed process of identifying the organic growth opportunities and putting those plans together, and to your point, when do they get staged in, in terms of '22 maybe versus potential feeding into the back part of the five-year plan and then even beyond that. So I would just say the first step is to get through that, and then we'll assess the timing of when that cash is needed, and then see exactly how much is really fitting into the scenario that you're talking about. In terms of the mechanisms, while we're staying out, first of all, I would just say that, again, in Pennsylvania, we've been very successful at growing our rate base and our earnings despite staying out of rate cases, and we haven't had a distribution rate case since January 1st of 2016. But over that time, and again, this is just distribution, we've grown our rate base 6%, 7% CAGR over that time period, and our net income CAGR has pretty much stayed in line with that rate base growth and the way that you're able to do that is obviously, we have some mechanisms within the different jurisdictions that reduce regulatory lag, whether it's the in PA or the ECR, the gas line tracker in Kentucky, of course, we have some in Rhode Island as well, around capital planning. But also when you deploy the capital in many cases you will see operational efficiencies as a result, and so those operational efficiencies can drive a return on that capital even though you're staying out of rate cases. So I will say that our -- we don't think the right answer just because we're staying out of rate cases is not to invest in the networks. It's incredibly important that we continue to reinvest in the networks, and then making sure that we do that in a way that drives efficiency for the customers and drives the return while we are staying out. We have the experience and successfully done that in Pennsylvania, so we'll look to replicate that. But just because we're staying put, we don't think that that means that there won't be a rate base or earnings growth opportunity.

Great. Thank you.

Sure.

Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remark.

Great. Thanks to everybody for your participation, thanks for your questions. Everybody has a great day and look forward to the next time we get together. Thanks so much.

And thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.