PPL Corp (PPL) — Q1 2020 Earnings Call Transcript

Thank you. Good morning, everyone, and thank you for joining the PPL conference call on first quarter 2020 financial results. We provided slides for this presentation, and our earnings release was issued this morning on the Investors Section of our website. Our presentation and earnings release, which we'll 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 statement. We will also refer to earnings from ongoing operations or ongoing earnings, a non-GAAP measure on this call. For reconciliations to the GAAP measure, you should refer to the appendix of this presentation and our earnings release. I'll now turn the call over to Bill Spence, PPL Chairman and CEO.

Thank you, Andy, and good morning, everyone. We're pleased that you've joined us for our first quarter earnings call. With me today are Vince Sorgi, PPL’s President and Chief Operating Officer; and Joe Bergstein, Chief Financial Officer. Moving to slide 3, I'll begin this morning's call with an executive overview, including our response to the COVID-19 pandemic and PPL's strong position in the face of this challenge. Joe will then provide a more detailed review of first quarter earnings and discuss our approach to managing certain financial risks relating to COVID. Then Vince will take a few moments on how we are maintaining our safe and reliable operations and focusing on PPL's long-term strategy. As always, we'll leave ample time to answer your questions. Turning to slide 4, I'm extremely proud of our team's response to the pandemic, which was early and aggressive. This proactive approach helped us adapt quickly to ensure that we continue to provide safe and reliable services during these challenging times. Importantly, we have been able to keep electricity and gas flowing to our over 10 million customers, despite the extensive measures necessary to protect our employees and our communities. First and foremost, we've taken steps to practice social distancing in all of our operations. This has included shifting almost 40% of our workforce to work-from-home. That represents more than 4,500 employees, and it has included creating additional separation for those who must still report to a PPL facility due to the nature of their job. These measures have proven effective as we've had just a handful of positive COVID-19 cases across our company. These encouraging results are in part due to the substantial investments we've made, which enable our staff to complete a lot of the work remotely and without direct interaction with customers. And in those cases where our employees need to enter customer premises we've ensured our employees have the proper equipment to keep them safe. We've experienced shutdowns of nonessential businesses across the regions we serve, which has supported our social distancing effort. In all of our jurisdictions, the support by our local trade union has been fantastic. As we've worked in true partnership to protect our workers and the public. And it's a testament to our employees whose patience, persistence, and professionalism continues to shine through in these unprecedented times. Importantly, we continue to deliver an essential service for our customers when they need us most, especially the health care facilities that are literally on the frontline fighting this pandemic. As we focus on meeting our customers' needs, we also remain well-positioned to manage an extended economic downturn brought on by COVID-19. This is a reflection of the low-risk, adaptable, yet regulated business model that we have strategically built over the past decade. We have a strong liquidity position and took further steps to strengthen our financial position, demonstrating our abilities to access the capital markets, which Joe will discuss more in a few moments. We also have substantial flexibility in our capital plan without major project risk, which enables us to be agile and focused on the immediate needs of our customers, shifting noncritical work without significant implications to our overall capital plan. In short, we are confident in our ability to weather the storm as we confront the challenge of COVID-19. Lastly, I would note that we are committed to supporting customers who may be struggling financially through these difficult times. Our foundations in Pennsylvania and Kentucky along with our U.K. business have pledged $1.6 million combined in donations to coronavirus relief funds and programs that help customers with financial hardship. Our companies have also suspended disconnect and late fees and worked to reconnect customers who had previously been disconnected. In addition, we continue to offer payment assistance programs and other services to help customers manage their energy bills. We know the road won't be easy for many and we will continue to look for opportunities to support our local communities going forward. Now turning to slide 5, today, we announced first quarter reported earnings of $0.72 per share compared with $0.64 per share during the same period a year ago. Adjusting for special items, first quarter earnings from ongoing operations were $0.67 per share compared to $0.70 per share a year ago. The decrease was driven largely by $0.04 of dilution and lower sales volumes, primarily due to the mild weather in the first quarter. These factors were partially offset by returns on our additional capital investment. Turning to the full year, we have not changed our 2020 forecast of $2.40 a share to $2.60 per share. And while we're on track through the first quarter with minimal impact from COVID, we have largely been under a lockdown for the past six weeks. This has resulted in lower commercial and industrial load and higher residential loads in all of our jurisdictions. At this point, it is too early to predict clearly what the pandemic impact will be on full-year results. This will depend on how long the pandemic lasts, the pace and extent of the economic recovery, and the degree companies continue to employ work-from-home protocols, which is what's driving the higher residential loads. Given these uncertainties and how early we are in the process, we are providing sensitivities in today's material which Joe will cover in more detail in his remarks. We felt it was more helpful and transparent to provide sensitivities that allow shareholders and analysts to assess the potential impact as time goes on. As you'll see in our sensitivity analysis, the monthly impact may be manageable, especially if the economies in our jurisdictions recover quickly and we see more favorable weather coupled with other levers that we can pull. So while we're bringing stability to our communities and customers in the face of unprecedented challenges, we also remain confident in our long-term prospects for our shareholders including our 2021 forecast. We see minimal if any impact to our capital and rate-based growth plans and we maintain an attractive dividend and a strong investment-grade credit rating. I'll now turn the call over to Joe for a financial update.

Thank you, Bill, and good morning everyone. I'll begin with a brief overview of first quarter segment results on slide seven. As Bill mentioned, PPL delivered first quarter 2020 earnings from ongoing operations of $0.67 per share versus $0.70 per share in the first quarter of 2019. Walking from our Q1 2019 results on the left, we first make weather adjustments for comparability purposes of the underlying businesses. As felt across much of the U.S. during the first quarter, we experienced a very mild winter, which drove a $0.03 negative variance compared to Q1 2019, and about $0.05 variance to our forecast. Heating degree days were down by about 30% in Pennsylvania and 15% in Kentucky compared to normal weather conditions. We also adjust for the effects of dilution, primarily driven by the November 2019 draw on our equity forward contracts. Turning to the individual segment drivers, which exclude the impacts of these items, we'll begin first with the U.K. Our U.K. Regulated segment earned $0.39 per share, a $0.02 decrease compared to the same period a year ago. The decrease in U.K. earnings was primarily due to lower other income due to lower pension income and higher operation and maintenance expense. These decreases were partially offset by higher adjusted gross margins, primarily driven by higher prices through the April 1, 2019 price increases. I'll note foreign currency was not a significant driver for Q1 based on the shape of our hedge portfolio. We remain substantially hedged for the balance of 2020 at an average hedge rate of $1.55 per pound. We'll see the benefit of higher hedge rates compared to 2019 in the balance of the year. Moving to Pennsylvania. We earned $0.16 per share, which was $0.02 higher than our comparable results for 2019. The increase was primarily driven by higher adjusted gross margins, primarily resulting from returns on additional capital investment and transmission. Turning to our Kentucky regulated segment, we earned $0.16 per share, a $0.03 increase over our results one year ago. The increase was primarily due to higher adjusted gross margins, primarily resulting from higher retail rates effective May 1, 2019. Results at Corporate and Other were $0.01 higher compared to a year ago driven by several factors, none of which were individually significant. Turning to slide eight. As Bill noted, the company is well positioned to manage the challenges of COVID and we did not see material impacts to our financial results through the first quarter. With that said, there are a number of key areas of potential risk that we have been managing and continue to monitor. Our preliminary estimates reflect the monthly impact of approximately $0.03 to $0.04 per share based on April lockdowns. Importantly, we believe a substantial portion of these risks will be mitigated through constructive regulatory mechanisms, primarily U.K. decoupling. Breaking down the overall potential risk, starting with customer sales, we are seeing lower commercial and industrial volumes across the board given that each one of our jurisdictions have been operating under some form of mandatory lockdown. However, that has also driven strong increases in residential volumes that partially offset these declines. I'll touch on load specific sensitivities in each of our jurisdictions on the next slide but it's important to highlight that any impacts due to U.K. volume variances are fully recoverable in two years and are net present value neutral. Domestically, we have various fixed and demand charges in our tariffs that helped to reduce the impact to changes in load and about 40% of our Pennsylvania margins come from transmission under a Federal Energy Regulatory Commission formula rate. Regarding bad debts, our U.K. operations are very well insulated as we do not directly bill the end-use customer in the U.K. Our operations and distribution bills about 150 suppliers with the largest seven suppliers comprising approximately two-thirds of those receivables. As part of each U.K. supplier license agreement, these counterparties are required to post collateral in the form of letters of credit, escrow account deposits, and cash deposits supporting the distribution networks in the event of a supplier default. Turning to the U.S., while we have experienced some delayed payments, we haven't seen a material drop-off in cash received to date. We believe that is in part due to the unemployment and small business provisions in the stimulus packages approved by Congress. I'll also note that our commissions are encouraging customers to continue to pay their utility bills including contacting us directly for payment options. In the event we see the trend of delinquent payments rising to a significant level, we will explore regulatory mechanisms with our commissions to recover late or missed payments related to COVID-19. In regard to our capital plan in the U.S., we do not expect major changes to our plans and expect to complete as much of our planned capital work as possible with minimal notable delays experienced to date. In the U.K., the national shutdown ordered by Prime Minister Johnson has caused us to dial back capital spending to just the essential work focused on ensuring reliability and safety of our network. The regulator has provided guidance, granting the networks flexibility in this area to prioritize our work accordingly. While we could see some modifications in our plan for 2020, we do not expect this to have a significant impact on our overall capital expenditure planned for regulated asset value growth. We have the flexibility to shift some of the projects to the back half of 2020 or into future periods, depending on the duration of the lockdown. As a reminder, under the favorable U.K. regulatory construct for rate making purposes, 80% of our projected total expenditures grow towards increasing the regulated asset value and 20% is recovered as current period revenue. So shifting or deferring capital investment at least to the amount we are talking about does not materially impact our regulated asset value or our annual revenues. I'll cover our detailed liquidity update in a few moments but I'll just reaffirm Bill's comment on our strong position and confidence to manage a prolonged downturn. The recent actions we have taken plus the flexibility we have with our low-risk capital plan gives us further levers to pull to effectively manage the company's cash flow and liquidity through these challenges. Turning to Slide 9. We are providing an update and more detailed view of our load trends by customer class and related sensitivities to better reflect potential risks associated with any prolonged shutdown in our service territory. Of the $0.03 to $0.04 per share of monthly exposure that I mentioned on the prior slide, $0.02 to $0.03 is driven by load. And of that, about $0.02 is recoverable in future periods due to decoupling in the U.K. Based on our observations in April, we estimate the potential impact on commercial and industrial load is a decline of approximately 15% to 25% depending on the jurisdiction. The decline in commercial and industrial load is partially offset by stronger residential demand, where we observed 1% to 3% increases in the U.K. and 5% to 8% increases domestically. Given this load profile, we are projecting about two-thirds of the impact to come from the U.K. In April, this resulted in Kentucky margins being off about $0.01 per share relative to our original business plan. In Pennsylvania, margins were flat to plan and we do not have results for our U.K. operations yet, given the normal lag in receiving that data from suppliers. If our projections are accurate, it would result in about a $0.02 impact for the U.K. for the month. On the right side of the slide, we provide an example of the U.K. decoupling mechanism. This is an essential part of the regulation that provides stability to our cash flows, supporting the low business risk profile from the credit rating agencies. One of the key points is that in addition to recovering the lost revenue from any declines in volume, we also receive inflation on top of those revenues to make us whole. So economically, we're very well protected in the U.K. from the potential impacts of COVID, weather or any volume-related variances despite any current year impact to earnings. Turning to Slide 10. I'd now like to take a moment and describe a number of steps we've taken to improve our liquidity position in the face of the COVID-19 pandemic and the uncertainty in the capital markets. As Bill mentioned, we are very well situated with about $5 billion of total available liquidity as we sit here today. During March and April, we secured term loan facilities of $400 million to 12- and 24-month durations. We also issued $1 billion of senior notes at PPL Capital Funding, providing incremental liquidity and pre-funding the maturity we have in November of this year. We believe these position the company very well from a liquidity perspective for the remainder of 2020. While we have $700 million of additional debt maturities at the operating companies in November, we believe we'll have the ability to access the capital markets to refinance that debt. That concludes my prepared remarks. And I'll turn the call to Vince for a brief operational update.

Thanks, Joe, and good morning, everyone. I'd first like to echo Bill's commentary on how proud we are of our collective team's response to the challenges of COVID-19. There's no doubt that COVID-19 has had a significant impact on the way we're operating the business. But as a company, we acted early and aggressively to foster social distancing and minimize the spread of the coronavirus. As a result, I'm pleased to report that we have not had any significant operational issues related to COVID-19. There's no denying how vital our service is to our customers, particularly in times of adversity and uncertainty. We are committed to being a source of stability at this time, and to continue to power their lives, regardless of the challenges that are thrown our way. Turning to slide 12, I want to take a moment to highlight some of the actions that we've taken to maintain that stability and reliability of service. We've taken extensive measures across PPL to protect our employees and the public in order to deliver gas and electricity safely and reliably for our customers, as they cope with the challenges of COVID-19. But simply safety is our top priority. We are following comprehensive emergency management and pandemic plans as well as the guidance of the CDC and state and local health departments. The work at home and social distancing measures that Bill discussed earlier are core to our strategy. In addition, we've taken a number of other measures including temperature testing, we're using masks and gloves and enhancing our industrial cleaning. With our critical employees, which are primarily the control room operators, we've split the crews into multiple teams where possible, having them work in different locations and with the work-from-home numbers that we have, we're able to enforce social distancing much better at our PPL facility. From a customer perspective, we are very focused on maintaining safety and reliability during these challenging times. And that starts with not cutting service to customers and deferring the charging of late fees, which we and most utilities in the U.S. have agreed to do. In the U.K., while our company does not bill the end customer, we continue to work with a wider energy industry to consider liquidity issues, all focused on helping the end consumer. Despite these changes to how we operate, it has been critically important to ensure our top-tier reliability remains unchanged. We had our first round of spring storms in all three of our jurisdictions. And we were able to restore power in all cases without any issues and without mutual assistance. These restoration efforts highlight the importance of preserving a strong supply chain. And we've increased our inventories for storm-related supply. Despite the lockdowns in our jurisdictions, we've been successful in getting our critical suppliers on the list of companies that are permitted to operate. As a result, we're well positioned with sufficient spares and supplies to operate effectively, even in the COVID environment. We're also scenario planning in the event this will continue for an extended period of time, to ensure we have adequate supplies and to assess the employee working arrangements that we've put in place, both on PPL premises and off. As Joe indicated we've already dialed back our U.K. capital spends to essential-only work. But we are continuing to execute the original capital spends in the U.S. and expect to continue to do so. Having said that, based on the nature of our capital projects, we have the flexibility in the U.S. as well to defer capital spending into future periods if necessary. In addition, our planned rate case calendar is relatively light, with no outstanding base rate cases in the U.S., and our current U.K. price control continues through March of 2023. Turning to slide 13, I covered the key points of our capital plan on the prior slide, but it's important to point out that a lot of our work in the U.K. is done on our customers' premises. So it's critically important for the safety of our employees to take a more conservative approach to work. And we're extremely pleased that the regulator has been a great supporter of these efforts. At this point we expect any delayed asset replacement work and/or deferred asset reinforcement work to be completed in future periods. Of course, we'll continue to assess these needs in the context of our overall capital plan and as we look at the deliverables we committed to both our customers and to the regulator. Looking forward, we do not expect the current environment to materially impact our overall capital plan. And we continue to see future investment opportunities across the PPL portfolio with about $14 billion of capital expenditure projected in the next five years, focused on advancing a cleaner energy future. As discussed on our year-end call, we expect incremental capital expenditure opportunities of up to $500 million beyond the identified projects in our current plan. And longer-term, we continue to see significant opportunities with the electrification initiatives in the U.K. as well as the transition of our coal generation fleet in Kentucky. And finally, moving to slide 14 while we are certainly managing the current crisis at hand and ensuring that our customers and employees are protected during these difficult times I want to further emphasize that we remain focused on the long-term strategy of the company. For PPL, like many utilities, that includes the transition to cleaner energy, and we continue to position our utilities to fight climate change in a manner that balances the needs of our customers and the environment. PPL remains committed to our updated CO2 emission reduction targets announced earlier this year increasing our reduction target to at least 80% from 2010 levels by 2050. We are also showing a glide path that has already resulted in a 56% reduction in CO2 through the end of last year and at least a 70% reduction by 2040. I want to remind investors that these targets are based on current economics and technologies as well as current legislation and regulation. We believe these targets are credible and we are confident in our ability to achieve them. Of course, if there are further advancements in technology or the cost of renewables continues to come down, we could certainly see even greater CO2 reduction than what we are currently targeting. With that, I'll turn the call back to Bill for some closing remarks.

Thanks, Vince. I'd like to take a moment now to reiterate that PPL remains well positioned for the future. Our strong financial profile consisting of a significant liquidity position and low-risk capital plan will enable us to manage through an extended economic downturn. Our commitment to exceptional operational performance and customer satisfaction shines bright as we continue to deliver electricity and natural gas during this period of uncertainty. We remain steadfast in our goals to advance the cleaner energy future and deliver on commitments to shareholders. In closing, I would note that this will be the last earnings call led by me as PPL's Chief Executive Officer. As we announced in February, I will be retiring as CEO on June 1, and will become non-executive Chairman of the Board of Directors. Vince will become President and CEO of PPL at that time. It has truly been an honor to lead the tremendous team of employees we have here at PPL. They are among the very best our industry has to offer. They are talented, creative, caring and hardworking. And above all, they are dedicated to making life better for our customers and our community. As we look to the future, I'm confident that the company will be in good hands led by Vince, guided by an outstanding management team supported by more than 12,000 strong in the U.S. and U.K., and poised to deliver for our shareholders moving forward. Lastly, we talked at length today about the challenge of COVID-19 and PPL's response. And I think it's worth noting that PPL has delivered power safely and reliably for the communities we serve for 100 years, overcoming many difficult challenges in that time. Through World War II, the Great Depression, hurricanes, snowstorms and more generations of PPL employees have answered the call with grit, determination and creativity. I have no doubt we will continue to do the same once again in the face of this new and unprecedented challenge. With that, operator, let's open the call for questions please.

Hey, guys. Thank you for taking my questions. Congrats both to Bill and Vince. One easy question for you, how does what is happening with demand impact your thoughts on rate case timing in the U.S. and also the kind of the trade-off of filing given a little bit lag and a little bit weaker demand versus the counterbalancing issue of – with interest rates this low the impact on authorized returns on equity and just the regulatory politics of asking for rate increases just given what's going on in the world?

Sure. Good question, Michael. And thanks for the comments early on there. Vince, do you want to handle that one? I think you've set up the question well Michael in terms of some of those trade-offs. But Vince you can probably comment.

Sure. And thanks Michael. I appreciate the congrats. So when we think about the U.S. right so Kentucky, given the continued high level of investment that we're deploying not only in 2020 but also 2021, we would expect a need to file a rate case in Kentucky within the next year or so. To your point given just the current backdrop with COVID we are uncertain as to the timing of when we would file that next rate case. Our normal cadence that we've been on in Kentucky was basically every other year; that would have suggested filing something at the end of this year with rates going into effect mid next year. But we are currently assessing that timing given COVID and just the backdrop there. For Pennsylvania, we don't have a rate case in the business plan through our guide period through at least 2021. I don't think COVID in and of itself would drive us to alter the timing of any rate case decisions in Pennsylvania. As Joe talked about in his remarks, when we looked at April's results, Pennsylvania was actually flat. So the residential load offset the commercial and industrial the negative impacts on commercial and industrial. So again, I think given the tariff structure in Pennsylvania, I wouldn't say COVID is going to drive us to alter our current plan there in Pennsylvania.

Got it. In the U.K., can you discuss any changes to the timeline regarding the RIIO-2 process for T&D transmission in gas utilities, since they are ahead of you in the process, and for the DISCO?

Sure. We don't anticipate any significant impact on the RIIO-ED2 schedule at this time. We have maintained regular communication with the regulator, primarily due to COVID-19 operational challenges. In our most recent discussion, they mentioned that the gas and transmission proceedings are proceeding as planned, and they still expect to make a decision in the summer. Concerning electric distribution, there is still a lot of work scheduled for 2021 and 2022, and our electric distribution segment is progressing, albeit virtually instead of face-to-face. We don't expect this to significantly affect the timing. However, if the COVID-19 pandemic were to extend for a much longer period, that might change things. But for now, everything seems to be on track. Vince, do you have anything else to add?

Maybe just a couple of points. So to your point, the regulator has indicated that they will issue the draft determinations for gas distribution and transmission at the end of July. So they are working hard to keep that timing. Also, in that Q2, Q3 timeframe of this year, the regulator was scheduled to get the ED2 sector methodology consultation out with the final methodology decision in Q4 of this year. That would feed our initial business plan submission in Q2 of next year. We are continuing to work towards that business plan submission for the middle of next year, assuming that the regulator will be on schedule with both the sector methodology consultation and then the final decision. I could see those slipping a little bit, but I think they would probably just contract the time. The overall time leading up to Q2 next year for the business plan submission. So, again, we're preparing to make sure that we can make that submission.

And any upside to CapEx and rate base in the U.K. that's more a RIIO-2 not something that would happen on the next couple of years while you're still under RIIO-1?

Yes, that's correct, Michael.

Got it. Thank you, guys. Much appreciated.

Good morning everyone. Hope you all are doing well and Bill, Vince congratulations. It's been a pleasure. And Vince, I look forward to continuing to work with you here. Wish you the best in your new role.

Thanks Julien.

Thanks Julien.

Absolutely. So perhaps, if I could pick it up a little bit where you guys left it off on the last question here. And this might admittedly be a backheaded way to ask about the uplift coming in '22 and '23 out of the U.K. What are you reflecting in your updated expectations for the full year rather than just April in terms of load degradation? And again, I also want to just double check about this. Do you talk about two-thirds of that impact in April being allocated to the U.K.? Out of that full year number, how much of it is coming from the U.K. as well? Just to think about like what that uplift eventually is for '22, '23 if that's my goal here.

Yes, sure. So, fortunately we are going to recover all the volume impacts as we see it from 2020 COVID-19. Volumes will be recoverable plus inflation in '22 and '23 as you noted. So, even if we ultimately would have to alter the 2020 forecast due to lower sales in the U.K., economically we'd be no worse off for our investors. So very fortunate to have that mechanism and it is two-thirds of the impact so it is notable in terms of its impact. Joe do you want to comment specifically on our expectation regarding a full year impact what that could be based on the sensitivities we provided?

Sure. We are not currently projecting the full year impact. We have an estimate for April, but as I've mentioned before, we are still waiting for all the data from our suppliers, which tends to take some time. It will take a bit longer for us to get the actual results. The U.K. government is beginning to discuss reopening businesses and industrial customers, so we might see that impact number change as the year progresses. Regardless, we expect to have the same capability to recover any shortfall later in the year. Assessing the full year impact right now is challenging due to the uncertainty surrounding when the U.K. will start reopening.

Got it. Or maybe let me ask this Joe if I can keep going. How do you think about cost mitigation efforts right? So everything is fluid I understand that the sales side of the things are fluid as well. To the extent to which that we continue to see some amount of degradation insert whatever that ultimately is here how do you think about your cost mitigation efforts in tandem at least as you see today through the course of the year?

Yes. Go ahead Joe. You can follow-on with that one as well.

Sure. So, we certainly have levers that we can pull Julien as we do in typical years to face the challenges that we may see from weather or other headwinds. And obviously we had a weather impact, a negative impact for the first quarter yet we still were confident in our forecast through the first quarter results. So, I think if you think of it in terms of our ability to manage in a weather year I think that's kind of what we were about $0.05 short of our business plan for the first quarter. I think at least we have that level of opportunity as we move through the balance of the year. Ultimately, we'll have to assess the full impact. And again given the recoverability nature of the U.K. with their decoupling mechanism it's really just a timing difference as we see it. So from a cash flow or credit or dividend perspective over the next two years we really don't see an impact. So, we'll have to just continue to assess the situation and the impact as we move through the balance of the year and decide which levers and how we want to flex them. But of course I think we'll have the normal levers that we typically have. And then in addition to that just given the current situation we'll have things like travel, training, open positions across the company, and things like that that we'll take a look at as well.

Excellent. If I could just clarify the last response. This has come up a little bit earlier, but why not just fully elect to decouple here given what seems like an obvious transfer of value from one period to another? Ultimately, that seems to relate to decoupling. Is there any ability to actually reflect that in the ED2 process, or is it just an accounting election?

It's really just driven by the regulatory nature of the U.K. It’s a revenue model, so we don’t benefit from regulatory accounting under U.S. GAAP. This is not an election we chose, and it’s not something that would necessarily change in ED2.

Okay, fair enough. I understand. Thank you all very much and best of luck. Stay safe.

Thanks very much.

Hey, good morning. Hope you all are doing well.

Good morning.

Bill, congratulations on your retirement and Vince congratulations on your new role. Look forward to working with you in your new role.

Thanks very much.

Thank you.

I wanted to touch on the U.K. pension. In the appendix, you outline the current funded status. I understand you have a filing midyear with the regulator. Could you provide some more details about your approach to pension funding and where you stood as of March 31st, specifically your thoughts on pension funding at a high level?

Sure. Joe do you want to take that one?

Our approach to pension funding has not changed regarding the Triennial Review process and future funding requirements from customers in the U.K. We have already initiated that process, starting with the pension trustee, and we are mostly through that phase. We are now transitioning to the review with the U.K. pension regulator, and we are preparing to begin this phase. We plan to complete this review and obtain the regulator's approval later this year, incorporating it into the November tariff for 2021. Our expectations regarding future funding requirements from customers remain consistent. We anticipate a decline of about $0.05 per share when we reach that point, primarily due to the funded status and the reduced collections needed over the next several years.

Got it. Okay, good. That sounds like really nothing has changed there. Great. And then thinking about Kentucky, this is a broader question, but given that solar economics continue to improve, I was curious about whether we are nearing a tipping point where solar would become more attractive compared to your coal plants. I'm also interested in whether we might be at an inflection point or if your views on your generation mix and changes over time remain the same.

I think I'll start, and then Vince can add anything he wants. Overall, solar costs are decreasing. We haven't reached a turning point yet, but it's getting closer. We're seeing a few dynamics in the state. One is that on the commercial and industrial side, we've received many more requests for solar options. Luckily, we've been able to provide these options to both small and large customers, and they are responding positively. The economics appear to be attractive enough that they believe it makes sense to start installing solar at their facilities based on their corporate environmental goals. Regarding the coal fleet, as I mentioned, we are not at the inflection point. However, we anticipate that in the medium term, perhaps in the next couple of years, we'll need to consider how to approach this from both an economic and an operational and generation mix perspective moving forward. So Vince, would you like to add anything?

Yeah. Bill, I think I agree with those comments. In the short-term, we're not quite at the inflection point but we do have a 100-megawatt request for proposal in with the commission currently right now requesting approval. As part of that we provided a number of future scenarios around cost curves for both gas and coal as well as renewables. And over the long-term, the bulk of those scenarios would suggest that that solar contract is beneficial from a cost perspective but it does take a number of years to get there. So, depending on the time horizon, Stephen that you're looking at, it would really dictate whether you view renewables, particularly solar as economic in the state and that's exactly what we're going through with the commission right now.

That’s helpful. I’ll look at that final raise one. Thank you very much.

Sure. You’re welcome.

Hey. Good morning, team, and Bill and Vince, I also want to extend my congratulations to you both. Good luck, Bill, and Vince look forward to working with you.

Thank you very much.

I want to revisit the decoupling in the U.K. to ensure I fully understand. Can you confirm or deny whether we will experience a hit to 2020 EPS if the demand destruction caused by COVID continues? If I'm correct, you'll see a decline in earnings per share but expect to recover it in 2021, right? I'm comparing calendar year 2020 to calendar year 2021. That's correct. And it would actually be recovered in two years since. So it's really in the 2022 and 2023 timeframe because there's a two-year lag.

Got it. Perfect. And then, you've reaffirmed the guidance, so I'm assuming what is sort of built into that is any EPS hit from COVID in the U.K. will be offset by cost savings and other mitigation efforts.

At this point, it's early in the process, making it difficult to predict the specific actions we will take to remain within our current earnings range. The situation in the U.K. is why we didn't adjust our guidance. We expect the reopening in the U.K. to be slower than in the U.S., where we have clearer visibility on the process. Consequently, we have not altered our earnings range. It remains to be seen which strategies we will implement, especially since the U.K. represents two-thirds of the impact, which will be crucial for us and investors to monitor in the coming months.

Understood. Thank you, guys.

Okay. Sure.

Good morning, Steve.

Good morning. Hey, congrats, Bill and Vince. Best of luck to both of you.

Thank you.

So yes, could you clarify the monthly difference of $0.02 to $0.03 per load that you mentioned in April compared to the overall $0.03 to $0.04 from COVID? What accounts for the additional $0.01 to $0.02?

Sure. So Joe, do you want to cover that?

Sure. It's for other items that may be related to COVID, Steve. So we had additional interest expense relative to the original plan from the capital funding issuance that we did earlier that we did in April to shore up liquidity. If there's an extended severe lockdown situation we could see an increase in bad debt. So it's just to cover some other areas that may be outside of what you see just in load.

Okay. Just to clarify regarding the guidance for 2020, you don't have a clear understanding of the impact yet and need to monitor it. You're not confirming that the range seems appropriate based on your assessment of the impact. You simply don't know at this point. Is that accurate?

We still believe that our 2020 forecast can be achieved, which is why we didn't change it today. Reaffirming suggests a high degree of certainty in forecasting outcomes, but that is challenging at this time, especially with the stringent restrictions in the U.K. Unlike in the U.S., where we have a better understanding of state governors' plans in Kentucky and Pennsylvania, we lack that clarity in the U.K. We will have a clearer picture by the time we reach Q2. Fortunately, any impact in the U.K., expected to be our biggest hit regarding 2020 earnings, will be recoverable along with inflation in 2022 and 2023. Therefore, even if we have to adjust our 2020 forecast due to lower sales in the U.K., we will not be in a worse position economically.

Right. And, I guess to summarize everything then, your comments about the dividend stability no matter what reflects any outcome of the pandemic?

That's correct. Yes. At this time, I don't expect any change in our dividend strategy or policy as a result of COVID-19.

Okay. Thinking about credit, I’m not sure if you’ve talked to the agencies, but considering that the U.K. economically protects you well, if your metrics are a bit weaker this year, and you anticipate a boost in two years, do they understand that?

I believe they do and we've had some recent conversations with the rating agencies. And all those have gone well. Joe, I don't know if you want to add anything on the revenue side?

We have been in regular communication with the rating agencies as they evaluate the impact of COVID on the utility sector. We reached out to them before our PPL Capital Funding debt offering in April. They did not raise any specific concerns regarding PPL, and we maintain a stable outlook across our family of companies with both agencies. From a credit metric standpoint, we believe we can manage the short-term pressures on our credit metrics due to COVID. Additionally, the agencies consider a longer-term view of metrics and cash flows, taking into account that much of the expected impact from the U.K. will be recovered over time as they assess ratings and credit metrics. Therefore, we feel confident about this situation.

Great. Thank you very much. Appreciate it.

You’re welcome.

Thank you, Steve.

Thank you, operator, and thanks to everyone for joining us today and all the best as you individually and collectively deal with COVID-19. I wish you and your families safety and health. Thank you.