Good morning and welcome to the PPL Corporation Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Andy Ludwig, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone and thank you for joining the PPL conference call on fourth quarter and full year 2021 financial results. 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 will 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 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 operation 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 will now turn the call over to Vince.

Thank you, Andy and good morning everyone. We appreciate you joining us for our 2021 year end earnings call. Moving to Slide 3 and the agenda for today’s call, I will begin this morning with an overview of 2021 and what was clearly a significant transition year for PPL. I will highlight key achievements we made throughout the year, including our progress in strategically repositioning PPL for future growth and success. Joe will provide a financial update including the previously discussed reset of our first quarter dividend we announced this morning and a detailed overview of our 2021 financial results. And as always, we will leave ample time for your questions. Turning to Slide 4, I am incredibly proud of how our team performed in what was truly a remarkable year for PPL. As we began a new century in our company’s history, we took bold steps to strategically reposition PPL as a U.S. focused energy company, committed to sustainable growth and well-positioned to lead the clean energy transition, while maintaining affordability and reliability for our customers. We completed the sale of our UK utility business in June, achieving exceptional value at almost $11 billion while eliminating risks associated with foreign operations. We then took steps to strengthen PPL’s balance sheet by reducing $3.5 billion of our holding company debt, which provides us with significant financial flexibility going forward. We advanced our planned acquisition of Narragansett Electric, which will expand and diversify our U.S. presence, add another high-quality regulated utility to our portfolio, and create additional opportunities to leverage our proven operating model to drive value for customers and shareowners. We anticipate receiving a final order from the Rhode Island division of public utilities and carriers with respect to the acquisition by March of 2022. While the strategic repositioning was…

Thank you, Vince and good morning everyone. Let’s turn to Slide 7 for the financial update. Today, we announced fourth quarter reported earnings of $0.18 per share. Special items in the fourth quarter were $0.04 per share, primarily due to integration expenses associated with the planned acquisition of Narragansett Electric and discontinued operations associated with the UK utility business. Adjusting for special items, fourth quarter earnings from ongoing operations were $0.22 per share. Our fourth quarter results bring our total 2021 results to a net loss of $1.93 per share. Special items for 2021 were $2.98 per share, primarily due to discontinued operations associated with the UK utility business, a UK tax rate change prior to the sale and a loss on the early extinguishment of debt. Adjusting for special items, 2021 earnings from ongoing operations were $1.05 per share. Before turning to the 2021 earnings walk, I will highlight a few other financial updates. The most notable being the first quarter dividend we announced this morning. As we indicated on our third quarter earnings call, we plan to update the dividend following the January 3 payment as we continued to progress on PPL’s strategic repositioning. Recall that we had maintained the dividend at the prior rate despite the sale of WPD, providing $350 million of dividends to reward long-term shareowners as we work to close the transactions and deploy the cash proceeds from the WPD sale in a value-accretive manner. Today, we have announced the first quarter 2022 dividend of $0.20 per share payable April 1. The updated quarterly dividend aligns with our earnings projections for PPL’s current businesses and a targeted payout ratio of 60% to 65%. We plan to provide an updated annualized dividend rate and growth projections to align with earnings growth during an Investor Day…

Thank you, Joe. As I mentioned at the outset of my remarks, 2021 was very much a transition year for PPL. It was about reimagining PPL and laying a firm foundation for the company’s future growth and success, and I believe we achieved just that. Looking forward, our focus is on completing the acquisition of Narragansett Electric and introducing a new PPL to shareowners, a PPL that is committed to delivering sustainable value for share owners, backed by one of the strongest balance sheets in the U.S. utility sector, distinguished by its best-in-class customer service. Committed to net-zero carbon emissions and well positioned to lead the clean energy transition, while maintaining affordable, reliable service for our customers. We look forward to sharing further details on our strategy and the exciting growth prospects for the new PPL at our Investor Day.

With that, operator, let’s open the call to Q&A.

[Operator Instructions] And our first question will come from Shar Pourreza of Guggenheim Partners. Please go ahead.

Hi, good morning, guys.

Good morning, Shar.

So Vince, perhaps if we can just start on the process in Rhode Island. It seems like there is been some noise around things like cost and mutual assistance versus grid’s ownership in the docket. Any kind of color you can provide around your interactions as the decision target date approaches by the end of this month?

Yes, sure. First of all, let me just say that we think we’ve met the standard for approval in the state, and we are looking forward to the decision coming out from the division. And Again, as we stated really from the outset of this process, we believe that PPL is uniquely positioned to serve lot customers at this point in time. When you look at our long history of providing energy safely, reliably, affordably for our customers, we consistently rank among the very best for customer satisfaction. We’ve been a clear leader in developing and deploying the kind of smart grid technology that’s going to be critical to helping Rhode Island meet their very ambitious decarbonization goals. And with the additional commitments that we’ve made, we believe the transaction is clearly in the public interest in Rhode Island. So I’ll just reiterate that we believe we’ve met the standard, and we’re looking forward to the decision.

Got it. Got it. So I get it. So just there is a high level of confidence that going to close. Okay. And then just, Vince, you completed the $1 billion buybacks, right, increased CapEx by $1 billion at EEI, could we just check back on the remaining amount of unallocated cash here? And how you’re thinking about the toggle allocation between buybacks and more CapEx in light of the current DPS guidance?

Yes, Shar. I would say we don’t have a detailed update on that. We will provide a full update at the Investor Day. Really it’s important that we get through the regulatory process in Rhode Island, of course, we’ve made some commitments as part of the process to mainly to make sure we factor all of that into the proteins discussion, and we will update with the full update on the Investor Day call.

Got it. Understood. And then just on a little bit more of a minor thing, maybe just – can you comment on the Safari sale process? I mean it seems like there was some interest there previously. I guess, what drove the decision to put it on the block and any material amount of cash expected there?

Well, Shar, as you know, we are not going to comment on market rumors, so...

Okay. Try to get past you, Vince, but you are too good. Alright, thanks, guys. Appreciate it.

The next question comes from Paul Zimbardo of Bank of America. Please go ahead.

Hi, good morning.

Good morning.

I know you commented a little bit on it, Joe, but just on the decision around the dividend and the timing now versus maybe wait until you have clarity in a month or so, just any perspective there? And it sounds like the plan would be more of a kind of a one-time bump assuming Narragansett closes versus a faster growth rate on the dividend. But just any perspective you can provide there would be helpful?

Yes, sure, Paul. While it’s certainly possible that we will receive the decision as early as next week from the division, we’re not certain in that, and we are still in the middle of the regulatory approval process. And as we discussed on the third quarter call, we did want to reduce the uncertainty related to the anticipated reset of the dividend following the UK sale. And just without the firm time line for the Rhode Island transaction, we just felt it was appropriate to keep our normal cadence, which as you know, we would normally announce our first quarter dividend on our call, on our year end call. And so as we were contemplating whether to move from that normal cadence and potentially hold off the call. We also realized that if we didn’t do it today, we actually risk ended up doing it in 8K, which would not be the preferred approach, of course. So we wanted to make sure that we could provide an opportunity for questions around what we’ve said. And that was really the nature of the decision to announce it today versus leading. And then in terms of the second part of your question, as Joe noted, the Q1 dividend is based on our current operations only, and we would plan to increase that following the closing of the Narragansett transaction. And again, we will provide that full update once we close the deal and then conduct the Analyst Day for the investor call.

Okay. Great. And then One last question on the strategic corporate initiative costs you incurred in the quarter, particularly at Kentucky as well as just the corporate overall? Just what’s the thought process there? And is there anything you’re considering specifically with that Kentucky property?

Joe, you want to…

Yes. No. I think the costs associated with the strategic repositioning were normal and interrelated to the Narragansett acquisition, really, the amount that’s associated with Kentucky is really immaterial. Nothing related to any strategic colonic Kentucky. It’s all essentially for the Narragansett acquisition.

Okay. Great. Thank you, have a nice weekend.

Thanks, you too.

Thanks, Paul

The next question comes from Durgesh Chopra of Evercore ISI. Please go ahead.

Hi, team. Good morning. Thank you for taking my question. I know there is – good morning. I know there is an update coming post the Narragansett transaction. But just so we have the numbers right. Am I right that with the share buybacks, and I’m focused on the leftover cash. With the share buybacks and the additional CapEx announced at the U.S. utilities, you still have roughly about $1 billion left to allocate? Do I have that number right?

Well, we will get into the total use of proceeds and any – and how that’s utilized when we get to the Investor Day.

Okay, that’s fair. And then just one, and you may not be able to answer this also, but I’ll just ask, is the sort of 2022 going to be the base year for any term – any long-term projections that you give out or long-term earnings growth target that you gave out?

Yes, that’s the plan, Durgesh.

Okay, thank you, guys. Appreciate the time.

Sure.

The next question comes from Paul Patterson of Glenrock Associates. Please go ahead.

Hello. Can you hear me?

Yes, we can.

So, just to sort of follow-up on this, when – I guess, how should we think of – I mean, I know you guys are obviously feeling confident about the arrogance closure, but it doesn’t appear that there is any settlement. And it appears that there is some uncertainty just generically speaking, hence, sort of the dividend action that you guys have been describing. How should we think about what the scenario would be if the deal doesn’t come about if you don’t get approval for it?

Yes, Paul, I don’t really want to talk about some hypotheticals. We are really focused. Again, I will just go back to what I said to Shar, we think we have clearly met the standard for approval in the state with what we bring to the table in terms of our operating experience, the financial strength of our company, of course, commitments that we have made throughout the process there. So, we and National Grid are very focused on getting to closing. We spent the last year on transition planning, integration planning, hiring or getting 1,100 people like NFI and ready to start on day one. We are all very focused on getting this deal over the goal line and bringing real value to our line.

Okay. But given the idea that the target date, and again, I mean are you hearing – let me ask you this, are you hearing that there is any change in the target date decision, because that’s just a week away, and it would seem to me that with the dividend action, everything that perhaps you could have sort of waited to do the earnings release and everything else, unless you think that there is maybe a potential that, that target date isn’t – that is going to be pushed back or something? How should we think about when we are going to get more clarity of Rhode Island? Is it still the target date kind of thing, or is there something else we should think about?

Yes. Look, Paul, I think based on the schedule that we have, right, the targeted decision date is the 25th. But we just – we recognize that there is a lot in this case through the written testimony Greece, the oral hearings. We just want to recognize the fact that the 25th is a target. And there is a lot that the hearing officer and the division need to get through. And so there has been no change in the 25th as the target. But we are just trying to be realistic that there is no guarantee that we are going to get.

Okay. Thanks.

The next question comes from Michael Lapides of Goldman Sachs. Please go ahead.

Hi guys. Thank you for taking my question. I actually wanted to just ask about Pennsylvania and Kentucky items. First, in Kentucky, can you remind us as a result of the IRP, when the material fleet generation changes or transformation would likely play out over that extended timeframe. Like what happens in the next 3 years to 5 years, what happens in the years 6 to 15?

Sure. So, we have the next round of retirements, you may recall, in 2024. Based on our reserve margins, we don’t anticipate a significant need to replace generation for those retirements. The next group would be in 2028. We would need to replace the 2028 retirements. And so probably see capital start to be spent in the 2026-ish timeframe for that. And then the next round of retirements are this side of 2035. So, I think in 2034, ‘35-ish. And so you will see the capital in the early ‘30s to prepare for those.

Got it. And given the move in commodity prices, both natural gas, power and coal, you see for the next couple of years, your co-plants actually running at a higher capacity factor in Kentucky than maybe what you had seen previously, or is there an opportunity to maybe save O&M and scale back the output levels of that source and either run gas units more or buy more power from the market.

Yes. So, it’s a good question. So, as you know, we are incredibly focused on decarbonizing the overall generation fleet. But we you bring up a good point around the cost of natural gas versus the cost of coal. So, as we think about it, Michael, we will continue to look at how we best utilize the fleet to ensure reliability for the lowest cost for customers, but at the same time, decarbonizing, so that could be additional renewables – renewable PPAs or on renewals. We are always looking at – does it make sense to shift between natural gas and coal or so. And those are all things that we continue to iterate as we look at the decarbonization – the overall decarbonization strategy for the quality.

Got it. And then one last question, can you just remind me, I remember I think I remember correctly, smart meter implementation in the company, it’s been a while. But did Kentucky have a similar level of that relative to the other prospects in Pennsylvania?

Yes. So, we have done two rounds of smart meter deployment in Pennsylvania. We are doing our initial deployment in Kentucky. We are expecting that to be completed in 2026. And then you haven’t asked, but in Rhode Island, they don’t have smart meters, but that would be something we would be deploying very quickly after acquisition in as well.

Got it. Thank you, guys.

Sure.

The next question comes from Steve Fleishman of Wolfe Research. Please go ahead.

Thanks. I appreciate it. I have got a few questions, Vince. So, I guess first of all, I thought you had said in the past that you were going to use like a pro forma base for your growth rate, including like a full year of it NEC, not just 2022. Is that correct, or are you going to use 2022 calendar year?

Yes. Sorry, if I wasn’t clear on that with your earlier response. Yes, we think it would be 2022’s pro forma.

Okay. And just you have a new dividend and you gave a payout ratio, so you can kind of back into what earnings power from the core businesses roughly are expected to be without NEC, is that like a fair representation of 2022 core businesses without NEC?

That’s reasonable, yes.

Okay. And then just on NEC, has the – I know initially, the Attorney General had talked about being opposed. Have they given an official opposition now with the commission, or where does that stand?

Yes. Steve, I don’t think that the Attorney General has modified their original position as we come through.

Okay. And so there is no – at this point, there is no like settlement talks going on that’s just going to be a decision?

At this point, we are just awaiting the decision.

Okay. And then just on another thing you had talked about was potentially – I think you have potentially trying to kind of resolve future rate case as part of this, too. But if you have to just get a decision, like when would be the next rate case in Rhode Island?

Yes. So, we have agreed to not file a rate case for a period of 3 years from the time of our [Technical Difficulty]. And so that I think in Rhode Island at 9 months, 10 months to get from a tiny file to the time to complete. So depending on when it closes, that can give you kind of when or…

Okay. So, that’s – at least your proposal, that’s a condition of your filing?

Yes. So, that is a commitment that we made on – that is a commitment that has been made.

Okay. And then – so maybe just to sum up on the dividend, so you have this new dividend level based on the existing businesses. You will – when you close NEC, you will reset some payout additional dividend related just to that business as well. And then beyond that, dividends would grow in line with earnings growth. Is that kind of the way to rebuild this up?

That’s exactly correct.

Okay. Last question, can you give any information on what Safari had in terms of earnings or EBITDA and any debt on Safari, if there is any separate debt in 2021?

Yes.

Yes. So, it’s included in our corporate and other segment, Steve, and we don’t break it out from that as part of that, it’s really not material to the overall PPL Corporation earnings, and it’s just not a level of detail that we provide given its materiality.

Is there any debt on it, or is it just part of PPL corporate?

PPL corporate.

Okay. Alright. Thank you.

Thanks, Steve.

The next question comes from Ryan Levine of Citi. Please go ahead.

Good morning.

Good morning Ryan.

I was hoping that you could elaborate on what factors drove where PPL wants to be in terms of dividend payout ratio relative to the range that you highlighted in your slide deck. And any color as to how you are thinking about that for subsequent dividend decision?

Yes, I will let Joe cover the details, but just high level, right. We wanted to make sure, again, this is a broader strategic repositioning, obviously starting with – acquisition of Veeco. The dividend reset was a natural part of that. So, making sure that again, we have one of the strongest balance sheets. We want to make sure that the dividend is sized appropriately for the new businesses going forward and make sure that we are set up to be able to grow that dividend in line with earnings going forward. And we think we have positioned ourselves very well to accomplish all of that with where we set it. But Joe, if there’s any, you probably want to…

Ryan, we have said for a while that we would set the dividend at 60% to 65% of earnings. And with the dividend announcement today, we are in that range on the base business as we move forward and include Narragansett in the forecast and provide the update, we would expect to continue to have dividend in the 60% to 65% payout range.

Thank you. And then you highlighted some of the kind of preview to the Analyst Day of starting with pro forma 2022 EPS and growing it off there. Is it going to be a 5-year growth that you are looking to provide? And any other color you could share around level of detail that we should expect to get updated at the future Analyst Day?

Yes, it will be a comprehensive update, Ryan. We haven’t provided a lot of information since the sale of WPD. We have recognized that. We have repositioned the company significantly and we are going to – we will provide a lot of detail on the new PPL including the growth rate and the duration of the growth rate. So, we will hold all of that for now until we get there, but you should expect a detailed update at that time.

Okay. I appreciate the color. Thank you.

The next question comes from Greg Orrill of UBS. Please go ahead.

Yes. Thank you.

Good morning.

Good morning. Regarding the dividend, assuming Narragansett Electric closes, when would you provide that new level? Would that be in the closing or at the Analyst Day or how would that work?

Yes. So, we would provide an update on that at the Investor Day based on the current schedule, which would support a March closing, as we have been saying. We would then target to have the Investor Day within a few weeks of closing. And so that potentially could put the second quarter dividend in play for the advances.

Okay, thank you.

The next question comes from Anthony Crowdell of Mizuho. Please go ahead.

Hey, good morning Vince.

Good morning.

Thanks for taking my question. Just hopefully two quick ones, just not specific to Narragansett, I know you don’t want to talk about the approval process there, but just it’s my first transaction in Rhode Island. What’s the process if the merger gets declined? Is there a re-filing process where it can – can a company appeal to a higher court?

So there is an appeal process, Anthony. Certainly, we are focused on getting the approval done. It really depends on what would be in the order. So, it’s really hard to predict what our next steps would be, could potentially be DOE filing. And then we also have the option to appeal, but really speculating at this point. We are hopeful that we have met. Again, we think we have met the standard for approval and we are hopeful that, that decision will come out in our favor when it comes out.

Do you know what court the appeal takes place in or is it with the same regulator?

I’m not sure about that, Anthony.

Okay. And then if I could just pivot probably off of Michael’s question earlier on Kentucky, just how should we think about the growth the growth in Kentucky from this level? And just if you could maybe give some clarity on that?

Yes, we are not providing really growth targets for any parts of the business at this point, but we will provide full updates on all of that on the Investor Day. To Joe’s point, we recognize that we have been in this kind of point between selling WPD and closing Eco without providing a lot of financial detail and we commit to doing that on Investor Day, but we are not ready to do that.

Great. Thanks for taking my question, Vince.

Thanks, Anthony.

This concludes our question-and-answer session. I would like to turn the conference back over to Vince Sorgi for any closing remarks.

Thanks. And I just want to thank everybody for joining us this morning. We certainly look forward to introducing the new PPL to investors. We remain very confident as we have talked a little bit today that our strategic repositioning will deliver long-term value for our shareowners. We do see robust capital investment opportunities going forward to deliver clean energy future. That investment will fuel competitive earnings and dividend growth going forward and we believe we can deliver that clean energy future in a way that’s affordable to our customers with no equity needs in the foreseeable future given the strength of our balance sheet. So again, we are – we look forward to seeing you all at the Investor Day and providing all the details that I know you are looking forward for the new PPL. Thanks, everybody.

The conference has now concluded. Thank you for attending today’s presentation and you may now disconnect.