PPL Corp

NYSE:PPL

Earnings Call Transcript 2018-Q2

[Operator]

Good morning, and welcome to the PPL Corporation's Second Quarter Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Andy Ludwig, Director of Investor Relations. Mr. Ludwig, please go ahead.

[Andy Ludwig, PPL Corporation]

Thanks, Anita. Good morning. Thank you for joining the PPL conference call on second quarter results as well of our general business outlook. We're providing slides of this presentation on our website at pplweb.com.

Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from forward-looking statements. A discussion of factors that could cause actual results to differ is contained in the appendix to the presentation and in the company's SEC filings.

We will 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 in the press release, which has been posted on our website and furnished to the SEC.

At this time, I would like to turn the call over to Bill Spence, PPL Chairman, President and CEO.

[William H. Spence, PPL Corporation]

Thank you, Andy, and good morning, everyone. We're pleased that you've joined us for our second quarter earnings call. With me on the call today are Vince Sorgi, PPL's Chief Financial Officer; Greg Dudkin and Paul Thompson, the heads of our U.S. utility businesses; and Phil Swift, Head of our Operations at Western Power Distribution in the UK.

Moving to slide 3, our agenda for this morning begins with highlights of our 2018 second quarter results and a brief review of regulatory developments in the UK. Vince will then review our second quarter 2018 segment earnings results. As always, we'll leave ample time to answer your questions.

Turning to slide 4, today, we announced strong second quarter reported earnings of $0.73 per share, resulting in a total of $1.38 per share through the first half of 2018. Adjusting for special items, primarily related to unrealized gains on our UK earnings hedges, second quarter earnings from our ongoing operations were $0.55 per share, up about 6% from $0.52 per share a year ago. This increase was primarily driven by higher earnings in our UK segment.

On a year-to-date basis through June, ongoing earnings were $1.29 per share, up about 13% from a year ago, driven by higher domestic earnings. Given our strong year-to-date results, we've narrowed our 2018 guidance range to $2.25 to $2.40 per share, raising the midpoint to $2.33 per share from $2.30 per share. In addition to delivering strong financial results, we also took the necessary steps to strengthen our balance sheet to mitigate the impacts of U.S. tax reform.

In May, we completed a $1.7 billion equity forward, which positions the company well by strengthening PPL's future credit metrics. This further supports our solid investment-grade credit ratings, which Moody's reaffirmed with a stable outlook in June. Through these actions, we expect our FFO to debt to increase from the low to mid-12% range post-tax reform to about 13% by the end of 2019 with continued improvement through our planning period. In addition to disciplined financial execution, I would also highlight that each of PPL's utilities remain strong, among the very best in the regions they serve.

In the U.S., both PPL Electric Utilities and Kentucky Utilities received J.D. Power awards for residential customer satisfaction in July, achieving the highest overall marks in their respective categories and regions based on customer surveys. I'm proud of our team's track record in achieving such great customer service excellence. Our focus on meeting and exceeding customer expectations is one that is shared and emphasized every day across all of our operating companies. In fact, overall, PPL's domestic utilities have now won 47 J.D. Power awards.

At the same time, in the UK, our Western Power Distribution businesses achieved the top marks for customer satisfaction and stakeholder engagement for the seventh year running. This excellent operational performance underpins our confidence in our ability to achieve 5% to 6% compound annual earnings per share growth from 2018 through 2020, measured against our original 2018 ongoing earnings midpoint. Looking ahead, PPL remains well-positioned to deliver competitive earnings growth and a secure and growing dividend for our shareowners.

Turning to slide 5, PPL's success and customer satisfaction begins by delivering power reliably for those who count on us each day. In that regard, our utilities continued to strengthen reliability for customers by investing in a smarter, more resilient grid. Over the past seven years, which marks the time period that we have owned and operated the current portfolio of regulated utilities in Pennsylvania, Kentucky and the UK, we've made significant improvements in reliability across each of our service territories.

PPL Electric Utilities recorded its best year ever for reliability in 2017, and the average number of outages per customer was down over 35% since 2011. LG&E and KU also posted their best year in more than a decade in 2017, with the average number of outages per customer down also 35% since 2011. And WPD continues to perform well against its reliability benchmarks. Power interruptions dropped 30% over six years from the 2010-2011 performance period to the 2016-2017 period, which is one of the reasons WPD's four distribution network operations have achieved the top 4 rankings in customer satisfaction since our acquisition of the Midlands' operations in 2011.

The substantial improvement in reliability is one of the driving factors leading to our continued improvement and success at achieving the customer service awards we are accustomed to at PPL. These achievements across our utilities reflect our ongoing commitment to operational excellence and our strategy for growth and success.

Turning to slide 6 for a UK regulatory update, last week, Ofgem released its decision on the overall RIIO-2 framework, which has defined some of the high-level aspects of the next price control, which will begin for us in 2023. The results of Ofgem's consultation were largely in line with our expectations and we continue to believe based on this framework that WPD will have the opportunity to deliver exceptional value for both customers and shareowners alike in RIIO-2.

One of the determinations Ofgem made is that RIIO-2 will be a five-year price control period, a reduction for the eight-year period we're currently in for RIIO-1. While we certainly prefer the stability and benefits to customers afforded by an eight-year period, we have no concerns with a five-year price control period. We previously had five-year price controls and performed well under that framework.

Ofgem also decided to change the inflation index used for calculating RAV and returns from using RPI to CPIH in an effort to more closely match the impact of inflation on actual cost. Importantly, Ofgem has made a commitment to keep investors and customers neither better nor worse off in net present value terms as a result of shifting to CPIH. All else equal, this would mean that the return profile and cash flows for companies in the near-term would increase, while RAV growth and recovery would be lower over the longer term.

Another important point Ofgem confirmed last week was the use of economic asset lives for RAV depreciation. Currently, we are transitioning to a 45-year economic asset life for new additions through our RIIO-ED1 business plan. We expect the 45-year economic asset life will remain the same in the next price control period based on Ofgem's very extensive review of asset life in RIIO-ED1.

Ofgem also noted that while fast-tracking would not be available for the majority of subsectors, the option to utilize that mechanism would remain on the table for electric distribution companies for consideration in RIIO-ED2. As a reminder, WPD's four networks were the only electric distribution companies to be fast-tracked under RIIO-ED1.

Ofgem has also reaffirmed their commitment to enhancing stakeholder engagement in RIIO-2. One of the aspects highlighted in the framework is the requirement of each company to develop customer engagement groups designed to provide the regulator with perspectives of network users.

WPD had already embraced stakeholder engagement as a substantial part of their RIIO-ED1 business planning process, and Ofgem structured some of the RIIO-2 framework using WPD as a model. Therefore, WPD is well ahead of the curve and well-positioned for success in this aspect of the next price control.

Lastly, I wanted to touch on the concept of competition that Ofgem intends to expand beyond transmission for projects that are new, separable and of high value. We're not concerned that this would negatively impact our plans as we currently do not have projects that would meet those conditions as even the largest investment projects tend to be well below the £100 million threshold set by Ofgem.

In summary, we believe Ofgem has made progress in developing another price control that can deliver real value for customers and fair returns for shareowners. And we will remain engaged throughout the other subsector reviews in preparation for the electricity distribution consultation, which is expected to begin in the spring of 2020.

We remain confident that WPD is well-positioned, given our continued superior reliability, customer service and cost efficiency. Ofgem continues to highlight that those companies delivering high-quality customer service at a low cost will be rewarded in the future and we intend to continue to deliver top quartile results into and throughout the next price control.

With that, I'll now turn the call over to Vince for a more detailed financial overview. Vince?

[Vincent Sorgi, PPL Corporation]

Thank you, Bill, and good morning, everyone.

Let's begin on slide 8 with an overview of second quarter segment results. Our second quarter earnings from ongoing operations increased by $0.03 over the prior year. The UK Regulated segment improved by $0.05, while our domestic utilities were flat compared to 2017. Corporate and Other was slightly lower by $0.02, primarily due to the timing impact of recording annual estimated taxes in 2017. We saw a $0.02 improvement for the second quarter compared to the prior year due to domestic weather, primarily in Kentucky.

Looking at the first half of the year, higher adjusted gross margin at our U.S. segments and higher currency rates in the UK are the primary drivers of our strong performance versus the first half of 2017. On a year-to-date basis, weather has contributed about $0.07 of favorable earnings versus the prior year and about $0.05 favorable earnings compared to budget. As Bill mentioned, the solid quarter performance gives us confidence to increase our earnings guidance for 2018.

Let's move to a more detailed review of the segment earnings drivers, starting with the UK results on slide 9. Our UK Regulated segment earned $0.36 per share in Q2 2018, a $0.05 increase compared to a year ago. The increase in UK earnings was primarily due to higher foreign currency exchange rates compared to 2017 as the realized weighted average exchange rate increased to $1.33 from $1.21 per pound, higher adjusted gross margins due to higher volumes and the April 1, 2018 price increase and higher other income due to pensions. These positive drivers were partially offset by higher income taxes and dilution of $0.01 per share.

Moving to slide 10, our Kentucky Regulated segment earned $0.12 per share in the second quarter of 2018, flat versus a year ago. Higher adjusted gross margins from higher base electricity and gas rates effective July 1, 2017, and higher sales volumes due favorable weather were offset by higher O&M expense due to timing and scope of generation maintenance outages and higher depreciation. Note that there is an offsetting $0.04 variance in the second quarter due to the estimated income tax savings for customers from U.S. tax reform reflected in Kentucky's adjusted gross margins and income taxes.

Moving to slide 11, our Pennsylvania Regulated segment earned $0.11 per share in the second quarter of 2018, also flat to prior year. Similar to our Kentucky segment, there are offsetting variances for the quarter in the adjusted gross margin and income tax line items of approximately $0.02 due to tax reform.

Excluding those offsetting variances, our Pennsylvania segment delivered higher adjusted gross margins, new higher transmission margins from additional capital investments and higher distribution margins from increased electricity sales volumes. These positive drivers were primarily offset by higher depreciation from utility plant additions.

That concludes my prepared remarks. I'll turn the call back over to Bill for the question-and-answer period. Bill?

[William H. Spence, PPL Corporation]

Thanks, Vince. In closing, we had another strong quarter as we continued to execute on our strategy for growth and operational excellence. We delivered solid financial results in line with expectations and have increased our annual guidance driven by the strong first half of 2018. We also executed on our financing plan and positioned the company well post-tax reform.

Our excellent customer service and reliability was once again recognized by our customers. Finally, we received some positive data points looking ahead to RIIO-2 and remain optimistic about the opportunities for WPD in the next price control.

I'm confident that PPL's focus on providing best-in-class operational performance, investing responsibly in a sustainable energy future, maintaining a strong financial foundation and developing our people will deliver value to our customers and our shareowners.

With that, operator, let's open up the call for questions, please?

[Operator]

We will now begin the question-and-answer session. The first question today comes from Greg Gordon with Evercore ISI. Please go ahead.

[Durgesh Chopra, Evercore Group LLC]

Good morning, Bill and Vince. It's actually Durgesh on for Greg.

[William H. Spence, PPL Corporation]

Good morning.

[Durgesh Chopra, Evercore Group LLC]

Two questions for me. First, can you just give us an update on the rate case expectation in Pennsylvania, when would you expect to file a general rate case there?

[William H. Spence, PPL Corporation]

Sure. I'll turn that question over to Greg Dudkin, President of our Electric Utilities here in Pennsylvania.

[Gregory N. Dudkin, PPL Corporation]

Yeah. So, right now, taking a look in the next couple of years, we don't have plan to going up for a rate case. While, obviously, we continue to take a look at that as we go forward, but right now, next couple of years, we don't have any plans.

[Durgesh Chopra, Evercore Group LLC]

Got it. So to 2020 looks like you're not looking to file a rate case under the current assumptions you have in the plan.

[Gregory N. Dudkin, PPL Corporation]

Correct.

[Durgesh Chopra, Evercore Group LLC]

Okay. And just a follow-up for Vince, in terms of the hedges, so there's no update from the first quarter, I think if I'm wrong, the percentages and the rates are more or less the same. So, how are you thinking about 2020 increasing the hedge percentage there? What are your thoughts? And then, 2021, when could we expect that you start logging in 2021?

[Vincent Sorgi, PPL Corporation]

Sure, Durgesh. So, you are correct, we've not layered on additional hedges during the quarter for 2020. I think as we talked last quarter where – given how heavy the hedge book was set at that time, we were kind of working our way back into the normal hedging program, which had a declining hedge ratio over the following three years. And given that – our breakeven for 2020 is a spot rate of about $1.27 with a forward rate of about $1.31, so we feel very comfortable with where the book is today and we'll start to layer those hedges in starting Q3 and Q4. 2021, we haven't specifically talked about 2021, but that'll follow our normal hedge program and we'll probably start that at the beginning of next year.

[Durgesh Chopra, Evercore Group LLC]

Awesome. Thank you. Good quarter, guys. Thanks.

[William H. Spence, PPL Corporation]

Thank you very much.

[Vincent Sorgi, PPL Corporation]

Thank you.

[Operator]

The next question comes from Ali Agha with SunTrust. Please go ahead.

[Ali Agha, SunTrust Robinson Humphrey, Inc.]

Thank you. Good morning.

[Vincent Sorgi, PPL Corporation]

Good morning.

[Ali Agha, SunTrust Robinson Humphrey, Inc.]

Morning. Bill or Vince, as you think about the transition to RIIO-2 in 2023, there are a couple of fairly known headwinds that we can look at. Ofgem has been very clear that they are planning to lower the cost of equity when the new pricing regime comes in. You all have also mentioned to us that you expect your pension to be fully funded in the UK by the time RIIO-2 rolls in. And so, the income from that could be – won't be booked at the same rate as well. So, as you think about those sort of, what I would call, known headwinds, are you thinking that 2023 is a transition year, we may see a drop in earnings and then grow from there or are there obvious offsets that would allow you to grow 2023 and beyond as well even with these kind of changes coming?

[William H. Spence, PPL Corporation]

Yeah. Very good question. So, under the framework, one of the positive aspects, as we look at it for RIIO-2, it does do allow us to access some of the avenues for potential growth that we talked to you previously about. And I'll ask Vince to cover a couple of those, but I think those are important and I'm glad you raised that question because I think it's important to keep that in context of how some things may be dropping off, but other things could come into play. So, Vince, why don't you cover a couple of those key aspects that we've talked about before?

[Vincent Sorgi, PPL Corporation]

Sure. So, Ali, I think maybe to start, I would say that we didn't see anything in the RIIO-2 Ofgem decision document that would necessarily impact the levers that we talked to you all about in the past. So, that's good news there coming out of the decision. Those levers included, right, adjusting the Fast Pot, Slow Pot split. Currently, we're at 80/20, 80% going to RAV, 20% going to Fast Pot. We've talked about additional CapEx as a result of the electrification initiatives in the UK and that's been reaffirmed by the UK government with the Road to Zero initiative.

We also – we talked about this briefly, but the move from RPI to CPI will actually help near-term cash flows and earnings, but it will slow the longer-term growth as a compounding effect of a lower inflation index builds up. CPIH is generally viewed as about 100 basis points less than RPI. So, Ofgem has indicated that they still need to work through how they would transition from RPI to CPI. But as we think about how that would look, that should help near-term transition earnings and cash, but again slow long-term growth.

You mentioned pension deficit funding. So, we are collecting about $180 million to $200 million a year in pension deficit funding. We do expect using reasonable assumptions for the pension plans that the plans will be fully funded by the end of RIIO-ED1. So, our expectation is that we will not need to (00:22:42) collect that amount of revenue from customers in RIIO-ED2. That creates a lot of headroom in terms of customer rates to help fund some of these other levers and the additional CapEx that we would look. And then, of course, we have the profiling that is part of any business plan process where we can shape the revenues over the what looks to be a five-year period going into RIIO-2.

So to specifically talk about 2023, I think we probably need some additional clarity on some of the items that Ofgem has not concluded on in the consultation. Some of those may get resolved in transmission and gas distribution consultation, some of them may not get resolved until the RIIO-ED2 consultation, which would be in the 2020 time period.

So it's hard to say right now if we would see 2023 as a transition period for earnings. I would say that the pension deficit funding, while it does generate GAAP earnings, does not generate cash from operations, because the cash we're collecting there goes right into the funds. So on a cash basis, I think we clearly could see actually higher-cash flows from the UK business in RIIO-2 than we're seeing in RIIO-1, but, again, I still think we need to get through a lot of these items. And then on earnings, we'll have to see how much of these offsets we can we can generate on a GAAP earnings basis.

[Ali Agha, SunTrust Robinson Humphrey, Inc.]

Yes. Thank you. Second question, there's been some positive overall news flow for regulatory and otherwise for you guys, mid period review came and went. You've done the equity that you needed to get that overhang out of the way, yet your stock valuation is still at a significant discount. You're not getting the value for the UK assets. You've talked about that before. And you've also, I think, mentioned to us in the past, obviously management board is not very happy with where the valuation is. Could you just give us an update on your latest thinking on that? And is there anything proactively that you can do or should we just hunker down and let the issues play out over the next four, five years? How should we be looking at that from your perspective?

[William H. Spence, PPL Corporation]

Sure. I think just a couple comments around that. First, I would say the management team and the board is very open minded on strategic options or alternatives that will create additional shareholder value. And if there was a clear and compelling path to drive additional value, we would certainly consider it as we've always done. And I think our track record shows that we're not afraid to take bold action if we believe shareowners will benefit in the long-term.

I think the regulatory and political uncertainty in the UK is probably the single drawback or what's holding the stock back. I think in the near-term, what we can control, I think we're doing exceptionally well, which is to continue to drive value per customers and continue to operate all the businesses exceptionally well.

In terms of what could we do, I'm not going to comment on the specifics and so forth. But what I would say is that, in the near term, certainly, the yield is very strong and there's kind of a – you're getting paid to wait if you want to look at it that way. But what I can say is that we're not sitting on our hands and just saying that we're going to stay the course. We're going to continue to assess our strategic options. And if there is something that could create additional shareowner value, we're certainly going to look at that. So, that's probably what I'd have to say on that topic.

[Ali Agha, SunTrust Robinson Humphrey, Inc.]

Fair enough. Last question, the rate base CAGR you laid out for us 2018 through 2022 equates to about a 4%, 5.4% CAGR. Is that in a very, very big picture perspective a good proxy of how EPS growth should also look like over that period?

[William H. Spence, PPL Corporation]

Vince, you want to take that question?

[Vincent Sorgi, PPL Corporation]

I mean we haven't provided guidance beyond 2020, Ali. I would say, in general, we are expecting continued earnings growth beyond 2020. But at this point, we haven't provided official guidance beyond 2020.

[Ali Agha, SunTrust Robinson Humphrey, Inc.]

Fair enough. Thank you.

[William H. Spence, PPL Corporation]

Thank you.

[Operator]

The next question today comes from Julien Dumoulin-Smith with Bank of America Merrill Lynch. Please go ahead.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Hey. Good morning, everyone.

[William H. Spence, PPL Corporation]

Good morning, Julien.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Hey. So, let me just follow up with a little cleanup on some of the questions here from the last one. Can you just elaborate a little bit on what the offsets would be to the pension deficit funding, again, from the earnings perspective? I know, as you describe it, it's clearly a net positive from a cash flow. But just can you elaborate a little bit on those opportunities, as you see it today, sort of what the net decrement positive increments might be?

[Vincent Sorgi, PPL Corporation]

Sure. So, moving from RPI to CPI will help offset that. The Fast Pot, Slow Pot, shift could help that. The sensitivity we provided on that, at least in RIIO-1, where TOTEX was $1.4 billion a year, that equated to about $130 million, $140 million a year for every 10% shift. And then, additional CapEx that we expect to be spending, so we'll be earning a return on that.

I think the other important aspect that we talked about in the past is based on the way we're recovering debt from being fast-tracked, it's using a 10-year historical average as opposed to the slow-track companies using a 20-year average. We were actually horned (29:04) as a result of that compared to the slow trackers to the tune of about $300 million, $325 million over the whole eight-year period. We would expect that to get chewed up as we go into RIIO-2. So, that would also provide both cash and earnings uptick going from 1 to 2.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Got it. And can you elaborate a little bit on the requalifying for fast-track? I mean, I know we're relatively early here, but obviously distribution remains one of the unique segments within the Ofgem structure potentially to allow for fast-tracking. And obviously, you all have historically qualified for it. How do you see that benefit potentially at least thus far? And what are the metrics that we should be tracking from your perspective to see whether or not you might qualify this next go around? How is that process evolving, maybe asked differently?

[William H. Spence, PPL Corporation]

Well, I think that's a work in progress at the moment. We're not clear on exactly how the process would work. But just thinking back to what Ofgem did in RIIO-ED1, what they basically were looking for were what they call well-justified plan. So, I think companies that had a positive track record of doing what they said they were going to do, so if they said that they were going to deliver X value to customers and they delivered that, that's a positive going into your business plan in that case for RIIO-ED1.

As we look ahead to RIIO-ED2, I mentioned in my prepared remarks, the customer engagement piece, which is somewhat new, we had already put that into our plan for RIIO-ED1, which I think help justify that ours was a well-justified plan that had input from a broad group of stakeholders.

So, I think those are the types of things that Ofgem would look to see from a company. And if I look at how we're performing against RIIO-ED1 outputs in our current business plan, we're performing very well and consistent with what Ofgem, I believe, would expect from us. So, I think we'll be well-positioned again to hopefully get the opportunity, should we choose to take it to be fast-tracked.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Got it. And last quick clean-up, there's no benefit from the legislation passed in Pennsylvania of late, given, I suppose, decoupling, et cetera. That's not something you're looking at given the timeline for the next rate case or are there any other benefits or angles we should be thinking about? Just following up.

[William H. Spence, PPL Corporation]

Well, in the short – yeah, in the short term, as Greg Dudkin mentioned, we're not planning to go in for a rate case. Having said that, depending on how the Public Utility Commission takes the legislation and puts it into action into their docket, we would obviously closely follow that. To the extent that there were opportunities to do creative things like performance-based rate making maybe akin to what we have in the UK, we would certainly want to study that hard and see if we wouldn't want to take advantage of that option. I think decoupling is an option and an alternative that we'd want to also carefully consider. But I think until the PUC really finishes their work, hard to know whether and how we would take advantage of any of those options.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Great. Thank you all very much.

[William H. Spence, PPL Corporation]

Okay. Thank you.

[Operator]

The next question comes from Paul Ridzon with KeyBanc. Please go ahead.

[Paul T. Ridzon, KeyBanc Capital Markets, Inc.]

Good morning. Congrats on the solid quarter.

[William H. Spence, PPL Corporation]

Thank you, Paul.

[Paul T. Ridzon, KeyBanc Capital Markets, Inc.]

Can you quantify what's the EPS step down when the pension is fully funded in the UK?

[William H. Spence, PPL Corporation]

Vince, do you want to...

[Vincent Sorgi, PPL Corporation]

So just for that item, it's $180 million, $200 million. So, that – what's that about $0.15 about, EPS.

[Paul T. Ridzon, KeyBanc Capital Markets, Inc.]

Okay. Thank you. And Bill, when you talked about you're exploring strategic options, are you thinking about getting bigger or smaller?

[William H. Spence, PPL Corporation]

Well, I'm not going to comment on any specific ones, but what I can tell you is that we considered a very wide range of strategic alternatives. And that's probably all I should say without getting into a lot of detail. But, again, we're not afraid to consider any options, whether that's getting larger or smaller, l think as long as there was a clear and compelling path to drive additional value, we would certainly consider it as we always have.

[Paul T. Ridzon, KeyBanc Capital Markets, Inc.]

And in the UK, has Ofgem had any commentary around back leverage?

[William H. Spence, PPL Corporation]

Nothing significant to my knowledge. Phil, anything that you're aware of? No. Okay.

[Paul T. Ridzon, KeyBanc Capital Markets, Inc.]

Okay. That's all my question. Thank you very much.

[William H. Spence, PPL Corporation]

Okay. Thank you very much.

[Operator]

The next question comes from Paul Patterson with Glenrock Association (sic) [Glenrock Associates]. Please go ahead.

[Paul Patterson, Glenrock Associates LLC]

Good morning.

[William H. Spence, PPL Corporation]

Good morning.

[Paul Patterson, Glenrock Associates LLC]

Just a few quick follow-ups. On the strategic options and what have you, how should we think about sort of following up sort of on Ali Agha's question, so the timing in terms of when you guys might feel – will there be sort of a point in time where you would sort of lose patience with the valuation as it is, and how should we think about that?

[William H. Spence, PPL Corporation]

Paul, just maybe two points on that. As I mentioned, we're continuously assessing options that could create value for shareowners. That being said, I don't think it'd be in the best interest of shareowners to set an artificial timeline for any decision or action. Clearly, the markets are changing and are fairly dynamic. So I think the best we can do is just continually assess those options and then, it would be up to the board to determine if the time was right or not. But that's how I think we are thinking about it.

[Paul Patterson, Glenrock Associates LLC]

Okay. That makes sense. And then, with respect to the stability in the UK, pardon me, but it's sometimes hard to sort of follow, and I was just wondering if we should – sort of what your timeline sort of is in terms of where you see the political situation becoming more stable?

[William H. Spence, PPL Corporation]

Sure. Well, Brexit is clearly driving a lot of the political instability, which is having and has had a knock-on effect in several ways to the regulator, Ofgem in this case. And we would look to, early next year, there is a summit coming up in October, maybe we'll have some readout from the negotiation between the UK and the EU in October. But I do believe that it's still going to be a pretty rocky road for them to get to a final deal. And so that will create some political noise, I'm sure, around that. But that's one data point.

In terms of being patient, I think if you recall back several years ago when PPL Electric Utilities here in Pennsylvania was coming off of rate caps, and there was a lot of political noise around that, there were certain shareowners at that time said we should sell off our Pennsylvania business and now that Pennsylvania business is our highest-growth utility option and opportunities. So things have a way of turning themselves around over time.

So, I think we want to be prudent, patient, but also continually assessing what options could create additional value. And as I indicated, we're not afraid to take bold strategic action if we think it's in the best interest, long-term, of the shareowners.

[Paul Patterson, Glenrock Associates LLC]

Yeah. I know you guys have demonstrated that over the years. So, okay, thanks so much.

[William H. Spence, PPL Corporation]

You're welcome.

[Operator]

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

[Michael Lapides, Goldman Sachs & Co. LLC]

Hey, guys. Just wanted to check in a little bit actually on the Pennsylvania business. I'm just curious, what do you think the run rate or the sustainability longer term for the amount of transmission CapEx that you're investing in that business is kind of going forward? Do you view this as kind of – the next couple of years as kind of close to peak levels or do you view this as a new normal type of run rate?

[William H. Spence, PPL Corporation]

Greg, did you want to make a comment on that?

[Gregory N. Dudkin, PPL Corporation]

Yeah. So, I think in the deck we have what our current view is as far as transmission investment. And so, basically, what we're putting into the – or what we have in that current plan is somewhat similar levels of investment in 2018, 2019, and 2020 and then, starting in 2021, that transmission investment starting to decrease over time.

[Michael Lapides, Goldman Sachs & Co. LLC]

So, in other words, you're viewing this as kind of not peak-ish, but high end of the cycle and kind of 2021 and beyond is more normal, or is 2021 kind of more abnormal, and longer term, you'd kind of see closer back to where we are today?

[Gregory N. Dudkin, PPL Corporation]

No, I'd say it's probably longer term, it would be lower.

[Michael Lapides, Goldman Sachs & Co. LLC]

Okay. The other question is Kentucky. Kentucky is one of the states in the Union where there's really not a lot of renewable penetration. How are you thinking about the Kentucky business in terms of the potential for sizable amounts, if any, of new wind or solar and the accompanying transmission need that might be necessary along with it?

[William H. Spence, PPL Corporation]

Sure. I'll make a general comment and then I'll ask Paul Thompson to supplement. Generally speaking, we have put together some specific programs for customers that want to avail themselves of solar in particular. And we do have the largest solar – commercial solar operation going so far in the state, but we're continually looking at options. But, Paul, do you want to talk about maybe the longer term how you look at solar and wind?

[Paul W. Thompson, PPL Corporation]

Certainly. If you think about the state itself or the geography where you might put renewables, work we've done in the past would suggest that the wind profile is not as strong and as good as you would have in other areas. And so, if we were to go down that path in the future, it would likely entail transmission to other states. But for now, we just don't see that in the near geography of our service territory.

Solar, on the other hand, has certainly the potential going down the road. We've put in a 10 megawatt facility at the Brown Station to begin to experience. We're having results of that plant very congruent with what we had planned. So that's a very good thing. As Bill mentioned, we've got some other options for customers. All of this in a period of our load growth is not projected to be strong. And therefore, the need for generation will be something that filters in over the course of time, not in any large segments in the near-term. So, we're open to all of that, trying to provide customer adoptions. But that's how I'd quickly describe renewables for us.

[William H. Spence, PPL Corporation]

And I would just say from a competitive solar perspective, the low rates – relatively low rates in Kentucky have not made it very attractive for competitive solar providers to-date.

[Michael Lapides, Goldman Sachs & Co. LLC]

Got it. Thank you, guys. Much appreciated.

[William H. Spence, PPL Corporation]

Thank you.

[Operator]

The next question comes from Jonathan Arnold with Deutsche Bank. Please go ahead.

[Jonathan Philip Arnold, Deutsche Bank Securities, Inc.]

Good morning, guys.

[William H. Spence, PPL Corporation]

Good morning, Jonathan.

[Jonathan Philip Arnold, Deutsche Bank Securities, Inc.]

So just – sorry to go back to the strategy question, but I'm a little confused about the message you're giving here. Are you saying, Bill, that you've reviewed all the obvious options recently and you don't think any of them make sense right now? But in the meantime, if something else comes along that you maybe haven't thought of, you'd be open to considering it? Or are you – I'm just – it's just not quite clear whether...

[William H. Spence, PPL Corporation]

Yeah. No, that's a good summary. Sorry, if I was not clear on that, but, yeah, that's a good summary.

[Jonathan Philip Arnold, Deutsche Bank Securities, Inc.]

So you've sort of undertaken a process that you do every year, I think, but you're not ruling out...

[William H. Spence, PPL Corporation]

Yeah, we're not ruling anything out. It is an ongoing process. We do a deeper dive once or twice a year. But, yeah, there's – if there is a clear and compelling path, we would certainly consider it, as we always have.

[Jonathan Philip Arnold, Deutsche Bank Securities, Inc.]

But we should take that to mean you don't see such a path today, but you're open to looking at whatever else you might not have looked at recently?

[William H. Spence, PPL Corporation]

That's correct.

[Jonathan Philip Arnold, Deutsche Bank Securities, Inc.]

Okay. All right. Thank you for that.

[William H. Spence, PPL Corporation]

Sure.

[Operator]

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

[William H. Spence, PPL Corporation]

Okay. Thank you, everyone, for joining us today and we look forward to having you join us again for the third quarter earnings call.

[Operator]

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.