PPL Corp (PPL) — Q2 2021 Earnings Call Transcript

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 other opportunities to deploy proceeds to maximize shareowner value. The actual amount we apply to share repurchases will depend on various factors, including the determination of other uses for the proceeds. We believe our current plan provides a balance of an efficient use of proceeds while still maintaining financial flexibility. I'll note that we are in the process of re-evaluating our capital plans for incremental investment opportunities for the benefit of our customers. As a result, we have removed our prior capital and rate-based projection from our presentation. We'll provide further updates to our capital and rate-based plans after we complete this review. The UK sale represented an important first step in our strategic repositioning, simplifying our structure with a clear focus on U.S. rate-regulated utilities, and strengthening our balance sheet while providing much greater flexibility to support future growth. We're also making great progress in the acquisition of Narragansett Electric in Rhode Island. To date, we've satisfied our HSR and FCC requirements, and on July 16th, the Massachusetts Department of Public Utilities granted a waiver of jurisdiction over the sale, streamlining the overall path to regulatory approval for the acquisition. We continue to make progress on securing approvals from FERC and the Rhode Island Division of Public Utilities and Carriers, which are the two remaining approvals required for the transaction. Looking ahead, we remain confident in our ability to close the transaction by March of next year, with hopes of closing before year-end. As we pursue the final regulatory approvals, we are working closely with National Grid on transition planning to ensure a seamless transition for Rhode Island customers and Narragansett employees upon closing. We've also announced our planned leadership team for the Rhode Island utility. Dave Bonenberger, who has nearly 4 decades of energy industry experience, including leading both the transmission and distribution businesses at PPL Electric Utilities, will serve as the Rhode Island President upon completion of the transaction. Dave is well-positioned to lead the execution of our operational strategy in Rhode Island, as we seek to drive significant value for Rhode Island customers and to support the state's decarbonization goals. Dave will be joined in Rhode Island by former National Grid employees in creating a strong, experienced, and local leadership team with a deep commitment to delivering energy safely and reliably to Rhode Island customers. Moving to Slide 5. In addition to strong execution towards our strategic repositioning, we also continue to advance our clean energy transition strategy and announced the new net-zero carbon emissions goal this morning. This goal encompasses greenhouse gas emissions from our Kentucky generation, as well as other aspects of our business, as outlined in the footnote on the slide. PPL is fully committed to driving innovation to enable net-zero carbon emissions by 2050 and to ensure a balanced, responsible, and just transition for our employees, communities, and customers as we advance towards our clean energy goals. Our new goal reflects our continuous evaluation of our progress and opportunities through ongoing business and resource planning efforts. Based on our latest reviews, we believe we are on a path to achieve 80% emissions reduction by 2040, a full decade ahead of our prior goal. As a result, in addition to today's announced net-zero emissions goal, we've also accelerated our previous interim goals, now targeting an 80% reduction by 2040 and a 70% reduction by 2035. In addition, we are undertaking an enterprise-wide effort to enhance our clean energy strategy and develop additional programs, metrics, and goals that will guide our path to net-zero emissions. We've hired an industry-leading global consulting firm to assist us in this endeavor. In addition to this strategic initiative, we are completing an updated scenario-based climate assessment, to evaluate the potential impacts to PPL from climate change and potential future requirements. Our last Climate Assessment Report was published in 2017. Our updated assessment, which we intend to publish later this year will analyze multiple scenarios, including a scenario tied to limiting the global temperature increase to no more than 1.5 degrees Celsius. As we conduct our climate assessment, our efforts will be informed by our ongoing integrated resource planning activities in Kentucky. LG&E and KU submit an IRP once every three years to the Kentucky Public Service Commission, and the next IRP will be filed in October of this year. Both the climate assessment and the IRP will serve as key inputs as we further define the pathway to achieving our emissions goal. Wrapping up this slide, we recognize that achieving these emissions reductions while maintaining reliability and affordability will require significant advances in clean energy technology and solutions that can be scaled economically to meet the country's energy needs. This is especially true as we support greater electrification of other sectors. With that in mind, investing in research and development is a key pillar of our clean energy strategy. And we continue to look for opportunities to engage in this area, to drive the innovation and solutions necessary to achieve net-zero. PPL, for example, is an anchor sponsor of the Low-Carbon Resources Initiative being led by EPRI and the Gas Technology Institute, and I chair EPRI's LCRI Board working group. We also recently joined Energy Impact Partners' global investment platform, which brings together leading companies and entrepreneurs worldwide to foster innovation towards a sustainable energy future. Through our participation in the EIP platform, PPL will support up to $50 million in investments aimed at accelerating the shift to a low-carbon future and driving commercial-scale solutions needed to deliver deep economy-wide decarbonization. Apart from LCRI and EIPs investment platform, we also continue to engage in a number of other R&D efforts related to clean energy technologies and enhancing the power grid. These collaborative efforts provide PPL greater visibility into emerging technologies that can be leveraged to advance the clean energy transition, and we will continue to look for opportunities to expand our work and support in this area. Moving to Slide 6. We've outlined our updated path to net-zero carbon emissions on this slide, along with our current expectations on coal fire generation capacity in Kentucky, which is consistent with the generation planning and analysis study included in our recently approved rate case filings. It’s clear that we'll need to advance technology to achieve net-zero emissions by 2050 as we balance the need for affordable, reliable, and sustainable energy for our customers. Based on these current factors and consistent with our most recent rate case filings in Kentucky, we currently expect to achieve a reduction in our coal-fired capacity of 70% by 2035, 90% by 2040, and 95% by 2050 from our baseline in 2010. We anticipate having about 550 megawatts of remaining coal-fired generation in 2050 due to our highly efficient and relatively new Trimble County Unit 2 that started commercial operation in 2011. Therefore, our objective is to continue to explore innovative ways through our R&D efforts to economically drive these reductions further, while supporting our customers and local communities. We have also assessed the implications of advancing these goals even further. Our internal view of what it could take to achieve 100% carbon-free generation by 2035, as proposed by the Biden administration, using current technologies would create significant affordability issues for our customers. Our new commitment to achieve net-zero carbon emissions by 2050 is backed by the actions that we are and will continue to take to support a low carbon energy system that is affordable, reliable, and provides the time needed for technology to advance. Next on Slide 7, I'll cover the details of the Kentucky rate cases. On June 30th, the KPSC approved the settlements that LG&E and KU had reached with parties to their rate reviews with certain modifications. At a high level, the order supports continued investment to modernize our energy infrastructure, strengthen grid resilience, and upgrade LG&E's natural gas system to enhance safety and reliability for those we serve. Effective July 1st, the KPSC authorized a combined $199 million increase in annual revenue for LG&E and KU, within the allowed base ROE of 9.425%, and a 9.35% ROE for the environmental cost recovery and gas line tracker mechanisms. In addition, the KPSC approved a $53 million economic release sur-credit that was proposed by LG&E and KU, to help mitigate the impact of rate adjustments until mid-2022. Importantly, the commission's order authorized the full deployment of advanced metering infrastructure, which will empower customers with detailed energy usage information, enable LG&E and KU to respond more quickly to power outages, and improve operational efficiency. We continue to believe the resulting O&M savings from installing advanced meters will exceed the cost of this investment for the benefit of our customers. The $350 million capital costs of the proposed AMI investment are not included in the new rates that took effect July 1st. Instead, we will record our investment in the AMI projects as SEAWIP and accrue AFUDC during the projects' implementation period. The KPSC also approved a very constructive retired asset recovery rider to provide recovery of and a return on the remaining net book values of retired generation assets as well as associated inventory and decommissioning costs. The rider will provide cost recovery over 10 years upon retirement of such assets as well as a return on those investments at the utilities then the weighted average cost of capital. As we announced in January, Mill Creek Unit 1 is expected to retire in 2024. Mill Creek Unit 2 and E.W. Brown Unit 3 are expected to be retired in 2028 as they reach the end of their economic useful lives. These units represent a combined 1,000 megawatts of coal-fired generating capacity. The Retired Asset Recovery Rider balances the interests of all stakeholders and provides certainty of recovery for the prudent investments made in these coal plants. Under the settlement agreements approved by the KPSC, LG&E and KU have committed that they will not increase the new base rates for at least 4 years, subject to certain exceptions. And before leaving this slide, I would note that in approving the settlement agreements, the Commission adjusted the proposed base ROE downward from 9.55% to 9.425%, and disallowed the recovery of certain legal costs. These modifications reduced the annual revenue requirements proposed in the settlements by approximately $20 million. We have filed a request for a limited rehearing on these matters. And finally, turning to Slide 8. In other highlights across PPL, we continue to achieve recognition for our strong commitment to diversity, equity, and inclusion, innovation, and safety. During the second quarter, PPL was recognized by DiversityInc in 2 distinct areas: first, as one of the top utilities in the nation for workforce diversity, and second, as one of the top 50 companies for ESG, determined by several factors including our programs and practices surrounding talent in the workforce, corporate social responsibility and philanthropy, supplier diversity programs, and overall leadership and governance. PPL has also been named the best place to work for disability inclusion for the fourth consecutive year, earning a perfect score on the 2021 disability equality index. And finally, PPL Electric Utilities received the Southeastern Electric Changes Chairman's Award for its groundbreaking technology that safely and automatically cuts power to downed power lines. These awards reflect a corporate strategy focused on creating value for all stakeholders as grounded in our five strategic priorities. These include achieving industry-leading performance and safety, reliability, customer satisfaction, and operational efficiency, advancing a clean energy transition while maintaining affordability and reliability, maintaining a strong financial foundation and creating long-term value for our shareholders, fostering a diverse and exceptional workplace, and building strong communities in the areas we serve. I'll now turn the call over to Joe for the financial update, Joe.

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 second quarter of 2020. Turning to our Kentucky Regulated segment, results were $0.01 per share higher than our comparable results in Q2 2020. The increase was primarily driven by higher commercial industrial demand revenue as we experience strong recovery in 2021 in these sectors from the significant impacts of COVID-19 and lower interest expense primarily due to the interest cost previously allocated to the Kentucky Regulated segment in 2020 that are now reflected in corporate and other. Partially offsetting these items was higher operation and maintenance expense primarily at our generation plants. Results at Corporate and Other were flat compared with a year ago. Higher interest costs of a penny a share related to the corporate debt previously allocated to the Kentucky segment were offset by several factors that were not individually significant. Turning to Slide 12, I'll cover some notable financing-related updates. First, following the sale of the UK utility business, we successfully completed a series of financing activities in June and July that led to a significant reduction in Holding Company debt. The result was a total reduction of PPL Capital Funding debt by about $3.5 billion, which was in line with our previously discussed targets. Through these actions, we've reduced total Holding Company debt to about 20% of PPL's total outstanding debt, while effectively clearing all near-term maturities at PPL Capital Funding through 2025. We've provided a detailed breakdown of these actions in the appendix of today's presentation. In addition to the activity at PPL Capital Funding, we redeemed at par $250 million at LG&E and KU energy in July, which was part of our original financing plan for the year to simplify the capital structure of the Company by eliminating intermediate holding Company debt. That was the final remaining outstanding debt security at the LKE entity. Therefore, we have deregistered LKE as we no longer expect to issue debt out of this entity. We expect PPL capital funding will be the financing entity at the holding Company level to provide support to all of our operating subsidiaries. The successful execution of liability management leaves PPL well-positioned and on track to achieve our targeted credit metrics post-closing of the Narragansett Electric acquisition. In addition to these notable financing updates, we also reduced outstanding short-term debt as efficient use of available cash until we fully deploy the remaining proceeds from the sale of WPD. That concludes my prepared remarks, and I'll turn the call back over to Vince.

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 shareholders. 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.

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 shareholders. 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 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 acquisition will drive value for our shareholders. It will be earnings accretive, credit accretive, and value accretive for our shareholders. 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 does 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.

Good morning team, and thank you for the update today. Could you elaborate on the opportunities mentioned in the press release regarding organic growth with your current assets? Specifically, where do you see those opportunities in Pennsylvania, Kentucky, and Rhode Island? I'd appreciate more details on that.

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 identifying 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 regarding the buyback, yes.

So 2 to 2.5?

Right.

Okay. Thank you very much.

Sure.

Sure.

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 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.

When it comes to transmission versus distribution versus other assets, we believe that as long as our capital investments benefit our customers and deliver value, it's a prudent use of capital across all business segments. The returns remain strong in all three areas, particularly in transmission and distribution, as well as generation in Kentucky and gas. However, transmission tends to have slightly higher returns on equity than distribution. Nonetheless, we are not facing any challenges in financing capital, so we are not prioritizing transmission over 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.

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. It's not solely going into the Elevate Fund; it's being allocated across multiple funds. Some funds are focusing on future utilities and innovations in areas like smart technologies, while others are concentrating on decarbonization technologies such as electric vehicles and energy storage. This approach spans various funds within the EIP platform. The advantage for us is that EIP has shown positive returns, transforming what would traditionally be seen as a cost center for R&D into a position that can yield neutral or even positive returns. The strategic value lies in gaining broad insights, allowing us to observe emerging technologies in different fields, which aids in identifying potential demonstration projects and future breakthroughs, whether that relates to carbon capture or long-duration energy storage technologies. We're exploring various domains as we aim for net-zero emissions, both for our fleet and across the economy.

Should we consider this as your main focus for technology or emerging technology R&D? You mentioned EPRI and other aspects, and I apologize for being somewhat distracted during that part. Are you seeking additional investments in this area? I'm curious about the level of initiative you are committing and if there are any specific technologies that you find particularly interesting or exciting.

I would say that EIP is involved, but it's not the main focus of our R&D efforts; however, it is part of our overall strategy. You mentioned EPRI and the Low-Carbon Resources Initiative. I've recently taken on the role of Chair for the Board Working Group at EPRI, so we are closely working with their expert team to explore various technologies. This includes carbon capture, new nuclear, hydrogen, ammonia, and other decarbonization technologies. EPRI is examining technological breakthroughs and emerging technologies while also looking at alternatives and identifying demonstration projects to help commercialize these innovations. We're actively involved in these discussions, considering options such as hydrogen for storage or blending with gas LVCs and combined cycle generation. There's still work to be done to fully validate hydrogen's potential, but we see significant ongoing efforts in this area. Carbon capture and sequestration is also crucial since about 80% of global energy is still sourced from fossil fuels. To achieve net-zero emissions, we believe carbon capture will play a vital role, and EPRI is committed to researching this area as well. Additionally, we're exploring various forms of modular nuclear units that might provide smaller, more adaptable solutions. There are many initiatives underway, and our strategy involves staying closely attuned to developments in this field. Looking ahead, we will be retiring coal plants over the next decade. There might be opportunities for demonstration projects at these sites, and we plan to collaborate with the state to explore these possibilities, particularly concerning Trimble County 2, which came online in 2011. Unless regulations change at the federal level, we expect this plant to remain economically viable through 2015, and we're focused on identifying technologies that could help transition it to net-zero. Combined-cycle fleets will also be part of our transitional strategy that I’ve discussed previously.

I think I understood. It's basically a finger on the 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.

Hi. Good morning. Thanks. Vince, I have two questions. First, regarding the potential for a more organic capital plan, you mentioned the multi-year deal in Kentucky. I'm curious about the regulatory mechanisms you have in place to recover and increase capital expenditures if that occurs during this timeframe. Secondly, how long are you prepared to wait to utilize the capital? It can be challenging to raise capital expenditures later in the plan, and with the funds available upfront, if you convert that into a rate-based figure, 2.5 billion equates to a 5 billion rate base, which is substantial. How should we view your willingness to delay putting that money to work?

I think I'll address your second question first. We don't want to set an arbitrary timeline on how we'll use the proceeds. The first step is to carefully identify the opportunities for organic growth and develop plans around them. As for the timing, we need to determine when these plans will be staged, possibly in 2022 or as part of the latter part of our five-year strategy and beyond. We'll first complete that process, assess when we'll need the cash, and evaluate how much aligns with your scenario. Regarding the mechanisms, I want to emphasize that in Pennsylvania, we've successfully increased our rate base and earnings without engaging in rate cases, with the last distribution rate case occurring in January 2016. During this time, we have seen a compound annual growth rate of 6% to 7% in our rate base, and our net income growth has been consistent with that. We've been able to achieve this thanks to various mechanisms in different jurisdictions that minimize regulatory lag, such as in Pennsylvania and the gas line tracker in Kentucky, and we have similar setups in Rhode Island for capital planning. Moreover, deploying capital often leads to operational efficiencies, which enhances the returns on that investment, even while we are not participating in rate cases. We believe it's crucial to continue investing in our networks to ensure we provide efficiency for our customers and generate returns while remaining out of rate cases. Our successful experience in Pennsylvania serves as a model for replication. Just because we're holding back doesn't mean we won't see opportunities for growth in our rate base or earnings.

Great. Thank you.

Sure.

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.