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PPL CEO: 'Very good year,' growth projected for domestic utilities through 2020

PPL Corp. had a "very good year" in 2016 and delivered "strong" ongoing earnings, "achieving 11% year-over-year growth," according to company Chairman, President and CEO William Spence.

Speaking on PPL's fourth-quarter 2016 earnings call Feb. 1, Spence said the company delivered on its goal to raise its dividend 4% in 2017, which he said it committed to grow 4% annually through 2020.

PPL continues to advance smarter, cleaner and more reliable energy infrastructure, Spence said. "At the outset of the year, we established our earnings forecast," he said. "In the end, we delivered, achieving the high end of that forecast range."

PPL has projected a 4% to 6% growth in its domestic utilities from 2017 through 2020, Spence said, citing higher gross margins from additional capital investments in its Kentucky subsidiaries, Kentucky Utilities Co. and Louisville Gas and Electric Co. He also noted increased transmission spending at Pennsylvania subsidiary PPL Electric Utilities Corp. PPL has extensive electric distribution holdings in the U.K., and expects earnings from that business to grow 6% to 8%.

A request was filed in November 2016 by KU and LG&E to increase revenue by a combined $210 million and is moving forward as expected with the Kentucky Public Service Commission, Spence said. "The requested increases are driven by additional capital investments to make the grid smarter, more reliable, and more resilient," he added. If approved by the PSC, the changes would be implemented July 1.

At PPL Electric Utilities, the company is focused on improvements to reliability and resilience through transmission and distribution system investments, which made substantial progress in 2016, according to Spence. PPL Electric Utilities, as a result, has "one of the most robust and advanced distribution automation systems in the country," Spence said. "That system, which was bolstered by the addition of more than 700 smart grid devices last year, avoided more than 100,000 customer interruptions throughout the year."

Persistent transmission outages have fallen by close to 75% over the past five years due to transmission modernization and expansion efforts by PPL, Spence said.

Strengthening PPL's physical and cybersecurity is also a focus of investment, CFO and Senior Vice President Vincent Sorgi said on the call, adding that the company is also connecting more renewable energy and expanding solar offerings to its customers.

"In Kentucky, we are investing an additional $525 million over the next four years despite lower environmental spending of $345 million due to updated scope and timing changes for ELGs [effluent limitation guidelines] and CCR [coal combustion residuals] projects," Sorgi said. "This additional capital includes $320 million to install advanced meters and $550 million to improve the reliability of electric and gas infrastructure."

In Pennsylvania, an additional $310 million will be put toward transmission, "driven primarily by increased or accelerated project activity such as line rebuilds, new substations and security," Sorgi said, noting that distribution spending levels in the state continue to be relatively flat.

"We currently project our capital investment to decrease slightly in the outer years as our advanced metering projects are completed in both Pennsylvania and Kentucky and our environmental spend in Kentucky ramps down," he said.

PPL on Feb. 1 raised its quarterly dividend by 4% to 39.5 cents per share after recording year-over-year increases in fourth-quarter and full-year 2016 earnings. The dividend, which equates to $1.58 per share on an annualized basis, will be paid April 3 to shareowners of record March 10.

The company posted fourth-quarter 2016 earnings from ongoing operations of $409 million, or 60 cents per share, beating the S&P Capital IQ consensus estimate for normalized EPS by 8 cents. The result reflects a 39% increase from $294 million, or 43 cents per share, booked in the same quarter of 2015.

PPL's Kentucky and Pennsylvania regulated segments contributed fourth-quarter 2016 EPS from ongoing operations of 12 cents and 11 cents, respectively, compared with 9 cents each for the corresponding quarter of 2015.

The increase in the Kentucky regulated segment, which consists primarily of KU and LG&E, was driven by higher sales volumes due to weather and lower operation and maintenance expense. The increase in the Pennsylvania regulated segment, which consists of PPL Electric Utilities, was attributed to higher base electricity rates for distribution and higher transmission earnings and a benefit received in 2015 from the release of a gross receipts tax reserve.

PPL reaffirmed 2017 earnings guidance of $2.05 per share to $2.25 per share.