賓州電力 (PPL) 2018 Q2 法說會逐字稿

Good morning, and welcome to the PPL Corporation Second Quarter Earnings Conference Call.

(Operator Instructions) 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.

Thanks, Anita.

Good morning.

Thank you for joining the PPL conference call on the second quarter results as well as 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.

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 U.K.

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 U.K. 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 U.K. 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 U.K. 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 from $2.33 per share from -- 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 remains 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 U.K., our Western Power Distribution businesses achieved the top marks for customer satisfaction and stakeholder engagement for the seventh year run.

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 7 years, which marks the time period that we have owned and operated the current portfolio, our regulated utilities in Pennsylvania, Kentucky and the U.K., we've made significant improvements and 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 6 years from the 2010, 2011 performance period to the 2016, 2017 period, which is one of the reasons WPD's 4 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 U.K. regulatory update.

Last week, Ofgem released its decision on the overall RIIO-2 framework, which has defined some of -- 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 5-year price control period, a reduction from the 8-year period we're currently in for RIIO-1.

While we certainly prefer the stability and benefits to customers afforded by an 8-year period, we have no concerns with the 5-year price control period.

We previously had 5-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 life for RAV depreciation.

Currently, we are transitioning to a 45-year economic asset life for new additions through our RIIO-ED1 business plans.

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 4 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 are not concerned that this would negatively impact our plans as we currently do not have projects that we meet those conditions as even the largest investment projects tend to be well below the GBP 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 [as well] -- 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?

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 U.K. 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 margins at our U.S. segments and higher currency rates in the U.K. 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 U.K. results on Slide 9.

Our U.K. Regulated segment earned $0.36 per share in Q2, 2018, a $0.05 increase compared to a year ago.

The increase in U.K. earnings was primarily due to higher foreign currency exchange rates compared to 2017 as the realized weighted average exchange rate increased to a $1.33 from a $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 to 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 the 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[to] 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?

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 increased our annual guidance driven by the strong first half of 2018.

We also executed on our financing plan and position 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 Instructions) First question today comes from Greg Gordon from Evercore ISI.

It's actually Durgesh on for Greg.

Two questions for me.

First, can you just give us an update on the rate case expectation in Pennsylvania, when would be -- when would you expect to file a general rate case there?

Sure.

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

Yes.

So right now, taking it over the next couple of years, we don't have plans of going after a rate case.

Obviously, (inaudible) continued to take a look at that as we go forward, but right now, next couple of years, we don't have any plans.

Got it.

So to 2020 looks like -- you shouldn't -- you're not looking to file a rate case under the current assumptions you have in your plans?

Correct.

And this is just a follow-up for Vince.

In terms of the hedges, so there's no updates 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 '20 increasing the hedge percentage there?

What are your thoughts?

And then '21, when would we expect that you start logging in '21?

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 3 years.

And given the -- our breakeven for 2020 is a spot rate of about a $1.27 with a forward rate about a $1.31.

So we feel very comfortable with where the book is today, and we'll start to layer those hedges in starting in Q3 and Q4.

'21, we haven't specifically talked about '21, but that will follow our normal hedge program and we'll probably start at the beginning of next year.

The next question comes from Ali Agha with SunTrust.

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 U.K. by the time RIIO-2 rolls in, and so the income from that could be -- won't we 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 '23 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 '23 and beyond as well, even with these kind of changes coming?

Yes.

A very good question.

So under the framework, one of the positive aspects, as we look at it for RIIO-2, it does still 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 can come into play.

So Vince, why don't you cover a couple of those key aspects that we've talked about before?

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 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 U.K. and that's been reaffirmed by the U.K. government with the RIIO-2 initiative.

We also -- we talked about this briefly, but the move from CPI -- sorry, from RPI to CPI will actually help near-term cash flows in earnings, but it will slow the longer-term growth as your -- as a compounding effect of a lower inflation index builds up.

CPIH is generally viewed as about a 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 you -- 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 a $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 ED1.

So our expectation is that we will not need to collect that amount of revenue from customers in 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 [like].

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 5-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 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 U.K. business in RIIO-2 than we are seeing in RIIO-1.

But again, I still think we need to -- we need to get through a lot of these items.

And then on earnings, well, we'll have to see how much of these offsets we can generate on a GAAP earnings basis.

Yes.

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 but 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 U.K. 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 4 or 5 years?

How should we be looking at that from your perspective?

Sure.

I think just a couple of 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 shareowner 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 U.K. 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 for 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 a 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 have to say on that topic.

Fair enough.

Last question.

The rate base CAGR you laid out for us, '18 through '22, 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?

Vince, you want to take that question?

We haven't provided guidance beyond 2020.

Normally I would say, in general we are expecting continued earnings growth beyond 2020.

But at this point, we haven't provided additional guidance beyond 2020.

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

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 you -- 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 -- as you see it today, sort of what the net decrement positive increments might be?

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 a RIIO-1 where TOTAX was $1.4 billion a year, that equates to about $130 million, $140 million a year for every 10% shipped.

And then additional CapEx that we expect to be spending, so it will be earning a return on that.

The other important aspect that we've 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 as a result of that compared to the slow trackers to the tune of about $300 million, $325 million.

Over the whole 8-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.

Got it.

And can you elaborate a little bit on the requalifying for fast-track.

I know we're too -- 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 as it next goes around, how is that process evolving, maybe ask differently?

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 called well-justified plans.

So I think companies that had a positive track record are doing what they said they were going to do.

So they said that they were going to deliver X value to customers and they deliver that.

That's a positive going into your business plans, 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 plans for RIIO-ED1, which I think helped justify that ours was a well justified plan.

It 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 are 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.

Got it.

And the last quick cleanup.

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 time line for the next rate case or are there any other benefits or angles we should be thinking about?

Just following up...

Yes, 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 and into their docket, we would obviously closely follow that to the extent that there were opportunities to do greater things like performance-based ratemaking maybe akin to what we have in the U.K., 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.

The next question comes from Paul Ridzon with KeyBanc.

Can you quantify, what's the EPS step down when the pension is fully funded in the U.K?

Vince, do you want to...

So just for that item, it's $180 million, $200 million.

So that -- what's that, about $0.15 about, EPS.

Okay.

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

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, I think as long as there was a clear and compelling path to drive additional value, we would certainly consider it as we always have.

And in the U.K., has Ofgem had any commentary around back leverage?

Nothing significant to my knowledge.

Phil anything that you're aware of?

No?

Okay.

(Operator Instructions) Next question comes from Paul Patterson with Glenrock Association (sic) Associates.

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 a sort of point in time where you would sort of lose patience with the valuation as it is, and how should we think about that?

Paul, just maybe 2 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 would be in the best interest to shareowners to set an artificial time line 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.

Okay.

That makes sense.

And then would you stick to the stability in the U.K?

Pardon me, but it's sometime hard to, sort of, follow.

And I was just wondering if we should -- if you -- sort of what your time line sort of is in terms of where you see the political situation becoming more stable?

Sure.

Well, Brexit is clearly driving a lot of the political instability and 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 U.K. and the EU in October.

But I do believe, 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 that at that time said we should sell off our Pennsylvania business and now that Pennsylvania business is our highest growth utility option and opportunity.

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.

The next question comes from Mike Lapides with Goldman Sachs.

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 -- in the next couple of years is kind of close to peak levels or do you view this as a new normal type of run rate?

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

Yes.

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 '18, '19 and '20, and then certainly in '21 that transmission that's been starting to decrease over time?

So in other words, you're viewing this as kind of not peakish but high end of the cycle and kind of '21 and beyond is more normal?

Or is '21 kind of more abnormal and longer-term you'd kind of see closer back to where we are today?

I'd say it's probably longer term, it would be lower.

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?

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?

Certainly.

If you think about the state itself for the geography where you might put renewables, what 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 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 low 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 would quickly describe renewables for us.

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

The next question comes from Jonathan Arnold with Deutsche Bank.

Just, sorry to go back to the strategy question, but I was -- I'm a little confused about the message you're giving here.

And are you saying, Bill, that you've reviewed all the obvious options that you -- recently, and you don't think any of them makes 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 not quite clear whether...

No that's a good summary, sorry if I was not clear on that.

But yes, that's a good summary.

So you've sort of undertaken a process that you do every year I think, but...

Yes, we're not ruling anything out, it is an ongoing process.

We do a deeper dive once or twice a year.

But yes, there's -- if there is a clear and compelling path, we would certainly consider it as we always have.

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?

That's correct.

This concludes our question-and-answer session.

I would now like to turn the conference back over to Bill Spence for any closing remarks.

Okay.

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

This conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.