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Power sales at PPL's Ky. utilities decline amid unfavorable weather

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Essential Energy Insights - January 2021


Power sales at PPL's Ky. utilities decline amid unfavorable weather

PPL Corp. said unfavorable weather at its Kentucky utilities contributed to lower earnings in the first half of 2017 compared to the same period in 2016.

On a non-GAAP basis, the company earned $356 million, or 52 cents per share, for the second quarter. Those results declined from second-quarter 2016 earnings of $380 million, or 56 cents per share, mainly because of lower foreign currency exchange rates, PPL said in its earnings release. The S&P Capital IQ normalized EPS consensus estimate for the 2017 second quarter was 50 cents. In the first six months of 2017, the company earned $781 million, or $1.14 per share, compared to $838 million, or $1.23 per share, in the same period a year ago.

PPL's Pennsylvania utility, PPL Electric Utilities Corp., and its Kentucky utilities sold about 32.2 million MWh in the first half of 2017, down 2.8% from the same period in 2016, mainly because of milder weather at the Kentucky utilities and flattening power demand across both states, according to PPL's Form 8-K.

The company's U.K. business had roughly flat electricity sales, selling about 39 million MWh in the first six months of 2017, PPL said in the Form 8-K. Overall, second-quarter earnings for the U.K. business fell to 31 cents per share, a drop of 5 cents per share from the same quarter of 2016, according to the Form 8-K. Despite lower results in the second quarter, "the earnings for the U.K. regulated segment are expected to come in stronger for the year," PPL Chairman, President and CEO Bill Spence told analysts.

Spence affirmed the company's overall guidance range for 2017 of $2.05 per share to $2.25 per share but revised the guidance for certain segments. Given the weather impacts at the Kentucky utilities in the first half of this year, PPL lowered expected earnings at the Kentucky utilities by 2 cents per share, to 56 cents per share, according to its earnings presentation. PPL also lifted the expected earnings at the U.K. segment by 2 cents per share, to $1.20 per share, because of lower expected operations and maintenance costs and income taxes, Spence said.

Earnings for the remainder of this year at the Kentucky utilities will be supported by electric and gas base rate increases that took effect July 1, executives said. The Kentucky Public Service Commission in June authorized a combined rate increase of about $116 million. That amount breaks down to about a $52 million electric base rate increase at Kentucky Utilities Co. and about $57 million and $6.8 million electric and gas base rate increases, respectively, at Louisville Gas and Electric Co., according to its Form 10-Q. (Case No. 2016-00370, 2016-00371)

In the second quarter, LG&E also completed a 540-mile gas main replacement project to replace iron and bare steel pipes with plastic pipelines, Spence said.

PPL affirmed an annual growth rate of 5% to 6% for the overall company. That rate averages a 4% to 6% growth rate at its domestic utilities and 6% to 8% annual growth rate at its U.K. segment. Part of the strategy to achieve the U.K. target growth rate is to lock in, or hedge, power contracts and mitigate foreign exchange risks.

"Now that we've begun to layer on hedges for 2020, we can achieve the low-end of our 5% to 6% EPS of growth rate even if the pound has paralleled with the dollar," PPL Senior Vice President and CFO Vince Sorgi said on the call.

PPL also spoke about the RIIO-ED1 framework, a performance model that U.K. regulators use to determine the output that distribution utilities have to deliver to consumers and the allowed revenues for utilities. The company does not anticipate any changes during a mid-period review of the RIIO-ED1, executives said on the call. The mid-period review is expected to begin this fall and take effect in April 2019.